<PAGE>
AS FILED WITH THE SECURITIES EXCHANGE COMMISSION ON FEBRUARY 6, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
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)
---------------
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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Senior Floating Rate
Notes Due 2004........ $100,000,000 100% $100,000,000 $30,303.03
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Guarantee of Senior
Floating Rate Notes
Due 2004.............. $100,000,000 (2) (2) (2)
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Total ................. $100,000,000 100% $100,000,000 $30,303.03
</TABLE>
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(1) In accordance with Rule 457(f)(2), the registration fee is calculated
based on the book value which has been computed as of February 6, 1998, of
the outstanding Senior Floating Rate Notes due 2004 of Schein
Pharmaceutical, Inc.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee
is payable for the Guarantees.
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 6, 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 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
-----------
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 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 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. 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 September 27, 1997, as
adjusted for the Initial Offering (as defined herein), the Company and its
Restricted Subsidiaries (as defined herein) would have had secured indebtedness
of approximately $160.6 million outstanding. The obligations of the Company and
the Guarantors under the Senior Credit Agreement are secured by substantially
all of the assets of the Company and the Guarantors. As of September 27, 1997,
as adjusted for the Initial Offering, the Company would have had approximately
$69.8 million of undrawn availability under the Senior Credit Agreement. The
Indenture will permit the Company and the Restricted Subsidiaries to incur
additional Indebtedness (as defined herein), including Secured Indebtedness (as
defined herein), subject to certain limitations. See "Description of Notes."
All of the Company's existing and future Restricted Subsidiaries will
unconditionally guarantee on a senior unsecured basis the performance and
punctual payment when due, whether at maturity, by acceleration or otherwise,
of all obligations of the Company under the Indenture and the Notes (the
"Subsidiary Guarantees"). Each of the Guarantors has guaranteed the Company's
indebtedness under the Senior Credit Agreement on a senior secured basis. The
Subsidiary Guarantees will rank pari passu in right of payment with all
existing and future unsecured senior indebtedness of the Guarantors and senior
in right of payment to all future subordinated indebtedness of the Guarantors.
The Subsidiary Guarantee of each Guarantor will be effectively subordinated to
the prior payment in full of all secured indebtedness of such Guarantors,
including secured indebtedness under the Senior Credit Agreement. See
"Description of Notes--Guarantees."
(Continued on Next Page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
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.
-----------
The date of this Prospectus is February , 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
144 A 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. 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. 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."
<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 Subsidiary 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.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 31E OF THE EXCHANGE
ACT CONCERNING THE COMPANY'S OPERATIONS, OPERATING PERFORMANCE AND FINANCIAL
CONDITION, WHICH ARE SUBJECT TO INHERENT UNCERTAINTIES AND RISKS, INCLUDING
THOSE IDENTIFIED UNDER "RISK FACTORS." ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THIS PROSPECTUS. WHEN USED IN THIS PROSPECTUS, THE
WORDS "ESTIMATE," "PROJECT," "ANTICIPATE," "EXPECT," "INTEND," "BELIEVE" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
i
<PAGE>
INCORPORATION BY REFERENCE
The Company filed a Registration Statement on Form S-1 with the Commission
on December 3, 1997 (File No. 333-41413) (the "Equity Registration
Statement"), in connection with the Company's proposed initial public offering
(the "Equity Offering") of Common Stock, par value $.01 per share ("Common
Stock"). Certain documents filed as exhibits to the Equity Registration
Statement are hereby incorporated in this Prospectus by reference. The Company
will provide, without charge, to each person to whom a copy of this Prospectus
is delivered, on the request of such person, a copy of any or all of the
documents incorporated herein by reference (other than exhibits hereto, unless
such exhibits are specifically incorporated by reference into such documents).
Written requests for such copies should be directed to Corporate Secretary,
Schein Pharmaceutical, Inc., 100 Campus Drive, Florham Park, New Jersey 07932.
Telephone inquiries may be directed to Corporate Secretary, at (973) 593-5500.
Any statement contained herein or in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document that is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The making of a modifying or superseding statement shall not be deemed an
admission for any purposes that the modified or superseded statement, when
made, constituted a misrepresentation, an untrue statement or a material fact
or an omission to state a material fact that is required to be stated or that
is necessary to make a statement not misleading in light of the circumstances
in which it was made.
No person has been authorized to give any information or make any
representations other than those contained or incorporated by reference in
this Prospectus and the accompanying Letter of Transmittal and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Company or the Exchange Agent (as defined herein).
Neither the delivery of this prospectus or the accompanying letter of
transmittal, or both together, nor any 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. Neither this prospectus nor the
accompanying letter of transmittal, or both together, constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
by anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such offer
or solicitation.
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus, including information
under "Risk Factors". All references to the Company's operations for a
particular fiscal year refer to the 52-53 week period ended on the last
Saturday in December of that year, and all references to the Company's
operations for a particular fiscal quarter refer to the three month period
ended on the last Saturday in that quarter. Unless otherwise indicated, all
references to "Schein Pharmaceutical," "Schein" or the "Company" refer
collectively to Schein Pharmaceutical, Inc. and its predecessors and
subsidiaries.
THE COMPANY
Schein Pharmaceutical is one of the leading generic pharmaceutical companies
in the United States. The Company develops, manufactures and markets one of the
broadest generic product lines in the pharmaceutical industry through the
integration of its product development expertise, diverse, high-volume
production capacity and direct sales and marketing force. The Schein product
line includes both solid dosage and sterile dosage generic products, and the
Company is also developing a line of specialty branded pharmaceuticals. The
Company's primary branded product, INFeD, is the leading injectable iron
product in the United States. The Company has a substantial pipeline of
products under development, including 24 Abbreviated New Drug Applications
("ANDAs") filed with the United States Food and Drug Administration ( "FDA").
The Company supplements its internal product development, manufacturing and
marketing capabilities through strategic collaborations. Schein generated net
revenues of $478.0 million and EBITDA of $61.1 million during the 12 months
ended September 1997.
The Company believes it manufactures and markets the broadest generic product
line of any U.S. pharmaceutical company in terms of number and types of
products. The Company manufactures and markets approximately 160 chemical
entities formulated in approximately 325 different dosages under approximately
200 ANDAs approved by FDA. Schein is currently the sole manufacturing source
for 47 generic pharmaceutical products, of which 45 are sterile dosage
products. The Company's solid dosage products include both immediate-release
and extended-release capsules and tablets; sterile dosage products include
solutions, suspensions, powders and lyophilized (freeze-dried) products
primarily for administration as injections, ophthalmics and otics. The
manufacture of sterile dosage products is significantly more complex than the
manufacture of solid dosage products, which limits competition in this product
area. The Company currently manufactures approximately four billion solid
dosage tablets and capsules and 75 million sterile dosage vials and ampules
annually. Solid dosage generic products and sterile dosage generic products
each accounted for approximately 40% of the Company's net revenues in the 12
months ended September 1997.
Since introducing INFeD in 1992, the Company has been developing a portfolio
of branded products, primarily in select therapeutic markets, such as iron
management for the nephrology, oncology and hematology markets. INFeD is used
in the treatment of certain types of anemia, particularly in dialysis patients,
and accounted for approximately 20% of the Company's net revenues in the nine
months ended September 1997. The Company markets INFeD through a 20-person
dedicated sales and marketing force, as well as through co-marketing
collaborations with Bayer Corporation in the nephrology market and MGI Pharma,
Inc. ("MGI") in the oncology market.
The Company believes its 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
<PAGE>
(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 23 ANDA
approvals during the past three years and its current pipeline of 24 pending
ANDAs and over 60 additional products under development. During the past three
fiscal years, the Company, directly and through its strategic collaborations,
has expended approximately $74.0 million on product pipeline development
activities, which the Company believes is among the highest product development
expenditure levels for any independent generic drug company. The Company
pursues product development through its 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 Elensys Care
Services, Inc. ("Elensys") and 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
3
<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.
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 twenty 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 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 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. In the event of a default
on the Notes, or a bankruptcy, liquidation or
reorganization of the Company, such assets will
be available to satisfy obligations with respect
to the indebtedness secured thereby before any
payment therefrom could be made on the Notes. To
the extent that such collateral is not sufficient
to satisfy the indebtedness secured thereby,
amounts remaining outstanding on such
indebtedness would be entitled to share with the
Notes and their claims with respect to any other
assets of the Company. As of September 27, 1997,
as adjusted for the Initial Offering, the Company
and its Restricted Subsidiaries would have had
secured indebtedness of approximately $160.6
million outstanding. The obligations of the
Company and the Guarantors under the Senior
Credit Agreement are secured by substantially all
of the assets of the Company and the Guarantors.
As of September 27, 1997, as adjusted for the
Offering, the Company would have had
approximately $69.8 million of undrawn
availability under the Senior Credit Agreement.
The Indenture relating to the Notes will permit
the Company and the Restricted Subsidiaries to
incur additional Indebtedness, including Secured
Indebtedness, subject to certain limitations. See
"Description of Notes."
CHANGE OF CONTROL........... Upon a Change of Control, each holder of Notes
may require the Company to repurchase any or all
outstanding Notes owned by such holder at 101% of
the principal amount thereof, plus accrued and
unpaid interest thereon, to the date of
repurchase. See "Description of Notes--Change of
Control."
RESTRICTIVE COVENANTS....... The Indenture under which the 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 initial public offering of
the Company's Common Stock. 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
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER SEPTEMBER
------------------------------------------------ -----------------------
1992 1993 1994 1995(1) 1996 1996 1997
-------- -------- -------- -------- -------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $319,875 $393,926 $385,428 $391,846 $476,295 $352,172 $353,829
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 112,599 176,273 148,048 141,339 155,620 115,451 113,267
Costs and expenses:
Selling, general and
administrative........ 55,763 64,489 71,783 75,274 87,329 63,345 59,956
Research and
development........... 14,234 18,055 19,170 28,324 27,030 23,044 22,854
Amortization of
goodwill and other
intangibles........... -- -- -- 3,399 10,195 7,713 7,722
Special compensation,
restructuring and
relocation(2)......... 7,417 8,426 33,594 -- -- -- --
Acquired in-process
Marsam research and
development(1)........ -- -- -- 30,000 -- -- --
Operating income........ 35,185 85,303 23,501 4,342 31,066 21,349 22,735
Interest expense, net... 2,315 1,467 1,493 10,005 23,285 16,081 20,456
Other expense (income),
net(3)................. 195 9,215 212 (1,245) 1,193 (451) (6,542)
Income (loss) before
taxes on income and
minority interest...... 32,675 74,621 21,796 (4,418) 6,588 5,719 8,821
Net income (loss)....... $ 18,012 $ 45,868 $ 6,631 $(14,900) $ 1,397 $ 2,146 $ 3,726
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(4)............... $ 38,961 $ 83,864 $ 32,035 $ 52,232 $ 53,147 $ 38,960 $ 46,876
Depreciation and
amortization........... 6,105 7,328 8,464 17,395 25,450 18,018 19,749
Capital expenditures,
net.................... 17,416 22,806 16,135 13,986 11,309 8,625 8,992
Ratio of earnings to
fixed charges(5)....... 10.6x 26.9x 8.0x -- 1.3x 1.3x 1.4x
Proforma cash interest
expense(6)............. $ 23,488 $ 17,897
<CAPTION>
DECEMBER AS OF AS ADJUSTED
------------------------------------------------ SEPTEMBER SEPTEMBER
1992 1993 1994 1995(1) 1996 1997 1997(7)
-------- -------- -------- -------- -------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 82,731 $ 87,035 $ 98,610 $ 92,021 $ 99,111 $ 93,480 $ 89,280
Total assets............ 211,744 227,861 269,729 522,410 544,312 520,699 524,899
Short-term debt,
including current
portion of long-term
debt................... 1,185 1,838 3,465 40,078 41,090 32,943 37,143
Long-term debt, less
current portion........ 43,440 25,725 42,462 240,480 245,390 223,470 223,470
Stockholders' equity.... 85,761 130,336 140,164 125,692 129,980 137,084 137,084
</TABLE>
- --------
(1) Includes the results of Marsam from September 1995, the date of purchase.
In connection with the purchase of Marsam, the Company recognized acquired
in-process research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 to
the Consolidated Financial Statements of the Company.
(2) Special compensation, restructuring and relocation expenses includes costs
recognized by the Company in connection with its restructuring and
relocation of its corporate headquarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 2 and
13 to the Consolidated Financial Statements of the Company.
(3) Other expense (income), net, includes equity in earnings (loss) of
unconsolidated international ventures of $(0.4) million and $(3.4) million
in fiscal 1995 and 1996, respectively and $(1.6) million and $(2.7) million
in the nine months ended September 1996 and 1997, respectively, gain on
sales of marketable securities of $9.9 million in the nine months ended
September 1997, a settlement contingency of $8.0 million in fiscal 1993,
and $0.5 million of an extraordinary item in fiscal 1992.
(4) EBITDA is defined as income (loss) before provision for income taxes and
minority interest, interest expense and depreciation and amortization
including the $30 million charge in fiscal 1995 of acquired in-process
Marsam research and development. The Company has included information
concerning EBITDA in this Registration Statement because it believes that
such information may be used by certain investors as one measure of a
company's historical ability to service debt. EBITDA should not be
considered as an alternative to, or more meaningful than, earnings from
operations or other traditional indications of a company's operating
performance.
(5) 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.
(6) Pro forma cash interest expense is defined as historical interest expense,
adjusted for (i) the exclusion of amortization of deferred financing fees
of $2.2 million in fiscal 1996 and $2.3 million in the nine months ended
September 1997, respectively, (ii) interest expense as if the Initial
Offering had occurred on December 31, 1995 and the proceeds were used to
repay the Senior Subordinated Loan or its predecessor debt and (iii)
interest expense associated with drawdowns under the revolving credit
facility under the Senior Credit Agreement which were used to pay the $4.2
million in fees and expenses incurred as a result of the Initial Offering.
(7) As adjusted to give effect to the Initial Offering and the payment of $4.2
million in fees and expenses in connection therewith, using proceeds from
the Company's revolving credit facility under the Senior Credit Agreement.
11
<PAGE>
RISK FACTORS
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 statements which constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Those statements appear in a number of places herein and include statements
regarding the intent, belief or current expectations of the Company, primarily
with respect to the future operating performance of the Company or related
industry developments. Prospective purchasers of the 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 September 27, 1997, as adjusted for
the Initial Offering, the Company would have had total consolidated
indebtedness of $260.6 million. In addition, subject to certain restrictions
set forth in the Senior Credit Agreement and the Indenture, the Company may
incur additional indebtedness in the future for acquisitions, capital
expenditures and other corporate purposes.
The Company's high degree of leverage could have important consequences,
including the following: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired;
(ii) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on the Notes and its other
indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) the financial covenants and other restrictions contained in
the Senior Credit Agreement and the Indenture and other agreements relating to
the Company's indebtedness require the Company to meet certain financial
tests, restrict its ability to borrow additional funds and impose limitations
on the disposition of assets; (iv) obligations in respect of the Senior Credit
Agreement are, and the Notes will be, and other indebtedness of the Company
may be, at variable rates of interest, which expose the Company to the risk of
increased interest rates; (v) all of the indebtedness outstanding under the
Senior Credit Agreement is secured by substantially all the assets of the
Company and matures prior to the maturity of the Notes; (vi) the Company may
be substantially more leveraged than certain of its competitors, which may
place the Company at a competitive disadvantage; and (vii) the Company's
substantial degree of leverage may limit its flexibility to adjust to changing
market conditions and make it more vulnerable to a downturn in general
economic conditions or its business. See "Description of Notes."
The Company's ability to make scheduled payments of the principal of, or
interest on, or to refinance its indebtedness (including the Notes) depends on
its future operating performance, which to a certain extent is subject to
economic, financial, competitive and other factors beyond its control. The
Company believes that, based on its current level of operations and
anticipated growth, its cash flow from operations will be adequate to meet its
anticipated requirements for working capital, capital expenditures, interest
payments and scheduled principal payments over the next several years. There
can be no assurance, however, that the Company's business
12
<PAGE>
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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Ability to Service Debt
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend on its financial and
operating performance, which in turn will be subject to prevailing economic
conditions and to certain financial, business and other factors beyond its
control. If the Company's cash flow and capital resources are insufficient to
fund its debt service obligations, the Company may be forced to reduce or
delay planned expansion and capital expenditures, sell assets, obtain
additional equity capital or restructure its debt. There can be no assurance
that the Company's operating results, cash flow and capital resources will be
sufficient for payment of its indebtedness in the future. In the absence of
such operating results and resources, the Company could face substantial
liquidity problems and might be required to dispose of material assets or
operations to meet its debt service and other obligations, and there can be no
assurance as to the timing of such sales or the proceeds that the Company
could realize therefrom. In addition, because the Notes will bear interest at
floating rates and the Senior Credit Agreement bears interest at floating
rates, an increase in interest rates could adversely affect, among other
things, the Company's ability to meet its debt service obligations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Notes."
Ranking of Notes
The 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.
Further, as of September 27, 1997, as adjusted for the Initial Offering, the
Senior Credit Agreement would have provided the Company with $69.8 million of
undrawn availability, which, if drawn, would effectively rank prior to the
Notes and the Subsidiary Guarantees. Upon an event of default under the Senior
Credit Agreement, the lenders thereunder would be entitled to foreclose on the
assets of the Company and the Guarantors pledged as security for the
indebtedness incurred thereunder. In such event, the assets of the Company and
the Guarantors remaining after payment of such secured indebtedness may be
insufficient to satisfy the obligations of the Company and the Guarantors with
respect to the Notes and the Subsidiary Guarantees. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Notes."
As of September 27, 1997, as adjusted for the Initial Offering, the
aggregate principal amount of secured indebtedness of the Company and the
Guarantors which would have effectively ranked senior to the Notes and the
Subsidiary Guarantees would have been approximately $160.6 million.
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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
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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
Upon a Change of Control, the Company will be required to offer to purchase
all of the outstanding Notes at a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest thereon to the date of repurchase.
The Senior Credit Agreement also provides that certain change of control
events with respect to the Company constitute a default thereunder. Any future
credit agreements or other agreements to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing the Notes, or
if the Company is required to make an asset sale offer pursuant to the terms
of the Notes, the Company could seek the consent of its lenders to purchase
the Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or refinance such
borrowings, the Company will remain prohibited from purchasing the Notes. In
such case, the Company's failure to purchase tendered Notes would constitute
an Event of Default as defined under the Indenture. If, as a result thereof, a
default occurs with respect to any other senior indebtedness, payments to the
holders of the Notes could be limited.
In addition, the Change of Control provisions may not be waived by the Board
of Directors of the Company or the Trustee without the consent of holders of
at least a majority in principal amount of the Notes. As a result, the Change
of Control provisions of the Notes may in certain circumstances discourage or
make more difficult a sale or takeover of the Company and, thus, the removal
of incumbent management. The Equity Offering will not constitute a Change in
Control. See "Description of Notes--Change of Control."
Lack of Public Market; Restrictions on Transferability
Pursuant to the Registration Rights Agreement, the Company and the
Guarantors have agreed to file the Exchange Offer Registration Statement with
the Commission and to use their best efforts to cause such registration
statement to become effective with respect to the New Notes. If issued, the
New Notes generally
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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 "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.
RISK FACTORS RELATED TO THE COMPANY'S OPERATIONS
Dependence Upon New Products and Effect of Product Lifecycles
The Company's results of operations depend, to a significant extent, upon
its ability to develop and commercialize new pharmaceutical products in
response to the competitive dynamics within the pharmaceutical industry.
Generally, following the expiration of patents and any other market
exclusivity periods for branded drugs, the first pharmaceutical manufacturers
successfully to market generic equivalents of such drugs achieve higher
revenues and gross profit from the sale of such generic drugs than do others
from the sale of generic equivalents subsequently approved. As competing
generic products reach the market, the prices, sales volumes and profit
margins of the first generic versions often decline significantly. For these
reasons, the Company's ability to achieve growth in revenues and profitability
depends on its being among the first companies regularly to introduce new
generic products. While the Company believes the pipeline of generic drugs and
branded drugs it currently has under development will allow it to compete
effectively, no assurance can be given that any of the drugs in its pipeline
will be successfully developed or approved by FDA, will be among the first to
the market or will achieve significant revenues and profitability. See "--
Dependence on Successful Patent Litigation," "--Competition," "--Dependence on
Regulatory Approval and Compliance," "--Pending Regulatory Matters,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Dependence on Certain Existing Products
The Company derives and is expected to continue to derive a significant
portion of its revenues and gross profit from a limited number of products.
Net revenues from INFeD in 1996 and the nine months ended September 1997 were
$88.0 million and $72.1 million or 19% and 20%, respectively, of the Company's
total net revenues, with gross profit from INFeD as a percentage of total
gross profit being significantly greater. Any material decline in revenues or
gross profit from these products could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Products."
Dependence on Successful Patent Litigation
A significant portion of the Company's revenues and gross profit has been
derived from generic versions of branded drug products covered by patents the
Company has challenged under the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Waxman-Hatch Act"). In several successful
proceedings, the Company has been advised and represented by an independent
patent attorney, 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
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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 business.
The Company has ANDAs currently pending before FDA and intends to file
additional ANDAs in the future. Delays in the review of these applications or
the inability of the Company to obtain approval of certain of these
applications or to market the product following approval could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "--Dependence Upon New Products and Effect of Product
Lifecycles," "--Pending Regulatory Matters" and "Business--Government
Regulations."
Pending Regulatory Matters
In early 1996, FDA conducted an inspection of the operations of the
Company's subsidiary, Steris Laboratories, Inc. ("Steris"), located in
Phoenix, Arizona. At the conclusion of that inspection, FDA identified various
cGMP manufacturing and reporting deficiencies in Steris' operations. Steris
was advised by FDA that it will not approve any ANDAs for products
manufactured at the Steris facility until FDA confirms that the manufacturing
and reporting deficiencies have been corrected. Ten of the Company's pending
ANDAs have been filed from the Steris facility. Following the 1996 inspection,
Steris implemented numerous measures to correct these deficiencies and place
Steris in compliance with applicable FDA manufacturing and reporting
requirements.
In July 1997, FDA conducted a follow-up inspection of the Steris facility.
At the conclusion of that inspection, FDA identified additional cGMP
deficiencies at the Steris facility. Steris has implemented measures intended
to correct these deficiencies and believes that a full reinspection will be
required before FDA will approve ANDAs for new products manufactured at the
Steris facility. While the Company is currently discussing with FDA the timing
of this reinspection, no assurance can be given as to when it will take place.
Since the July
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1997 inspection, Steris has provided FDA with information concerning the
completion of corrective action measures it has implemented and the status of
measures not yet completed. Recently, FDA requested that Steris provide a time
frame for completion of corrective action measures still in progress. Steris
intends to provide FDA with the information it has requested and to seek a
timely reinspection of its facilities. In early 1998, FDA issued a Warning
Letter relating to the deficiencies observed in the 1997 inspection.
Following the 1996 inspection of Steris, FDA's Office of Regulatory Affairs
staff commenced an investigation of Steris' operations that focused primarily
on drug stability issues, including Steris' alleged failure to notify FDA on
an adequate and timely basis of drug stability problems with respect to
certain products manufactured at the Steris facility. On the basis of this
investigation, the U.S. Department of Justice ("DOJ") notified Steris in a
letter dated July 28, 1997 that the alleged reporting deficiencies constituted
serious breaches of regulatory obligations and indicated that it would be
willing to negotiate a settlement of the alleged violations with Steris. On
February 5, 1998 Steris entered into a plea agreement requiring Steris to pay
a fine of $1.0 million and pleading guilty to misdemeanor violations for
failure to observe application reporting requirements for two drugs during
1994 and 1995. While the Company does not expect any other sanctions to arise
in respect of this matter, any such sanctions could have a material adverse
effect on the Company's business, results of operations and financial
condition.
In 1995, FDA inspected the operations of the Company's subsidiary, Danbury
Pharmacal, Inc. ("Danbury"), which operates facilities in Carmel, New York and
Danbury, Connecticut. As a result of observations made by FDA relating to
Danbury's compliance with cGMP requirements and the integrity of the data
submitted by Danbury in support of certain ANDAs, Danbury voluntarily audited
all data submitted in connection with 26 of its pending and approved ANDAs.
Since the 1995 inspection, FDA has continued to approve ANDAs for products
manufactured by Danbury. From August to October 1997, FDA reinspected
Danbury's facilities. FDA observed certain cGMP deficiencies which the Company
has corrected in a manner satisfactory to FDA. FDA is currently conducting an
additional inspection of those facilities, which involves primarily
evaluations of the ANDA audits and the procedural changes Danbury instituted
to remedy cGMP deficiencies observed during the 1995 FDA inspection. During
the course of the inspection, FDA has noted deficiencies relating to certain
testing records.
In June 1997, FDA conducted an ANDA preapproval and cGMP inspection at the
Company's Marsam subsidiary, located in Cherry Hill, New Jersey. Although the
inspection focused primarily on issues relating to the manufacture of certain
drug products that are the subject of five pending ANDAs, the inspection also
included an examination of Marsam's general compliance with cGMP requirements.
Marsam was informed at the conclusion of the inspection that FDA intended to
withhold approval of the five ANDAs until certain alleged cGMP deficiencies
are corrected. Marsam has provided FDA with information it believes
demonstrates that the alleged deficiencies are not significant and that
corrective measures have been implemented. A follow-up inspection was
conducted to determine whether these corrective actions have been implemented
satisfactorily. Based upon the results of this inspection, FDA has informed
Marsam that its corrective actions are satisfactory and that FDA is prepared
to grant approvals of qualified ANDAs. Seven of the Company's pending ANDAs
have been filed from the Marsam facility.
There can be no assurance that FDA will determine that the Company has
adequately corrected the alleged deficiencies or that approval of any of the
pending or subsequently submitted ANDAs by the Company will be forthcoming. In
addition, there can be no assurance that FDA, following the reinspection of
the Steris, Danbury and Marsam facilities and its review of their respective
responses to the alleged cGMP deficiencies, will not seek to impose additional
regulatory sanctions against the Company and its subsidiaries. See "--
Dependence Upon New Products and Effect of Product Lifecycles" and "Business--
Government Regulations."
Consolidation of Distribution Network; Customer Concentration
The Company's principal customers are wholesale drug distributors and major
drug store chains. These customers comprise a significant part of the
distribution network for pharmaceutical products in the United
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States. This distribution network is continuing to undergo significant
consolidation marked by mergers and acquisitions among wholesale distributors
and the growth of large retail drug store chains. As a result, a small number
of large wholesale distributors control a significant share of the market, and
the number of independent drug stores and small drug store chains has
decreased. The Company expects that consolidation of drug wholesalers and
retailers will increase competitive pricing pressure on generic drug
manufacturers. The Company believes this consolidation has caused and may
continue to cause the Company's customers to reduce purchases of the Company's
products. In August 1997, Cardinal Health Inc. announced its intention to
merge with Bergen Brunswig Corporation. In addition, McKesson Corporation
announced its intention to merge with AmeriSource Corporation in September
1997. The pending mergers among the four largest pharmaceutical wholesalers in
the U.S., if consummated, would result in greater consolidation of the
pharmaceutical wholesaling industry and may intensify competitive pricing and
other competitive pressures on generic pharmaceutical manufacturers.
Specifically for Schein, if the Cardinal Health-Bergen Brunswig merger is
consummated, this combined customer would have accounted for approximately 33%
of the Company's total net revenues for the nine months ended September 1997.
For the nine months ended September 1997, sales to the Company's ten largest
customers represented approximately 70% of the Company's total net revenues.
For 1996 and the nine months ended September 1997, three customers accounted
for 17%, 16% and 11%, respectively, of the Company's total net revenues. The
same three customers accounted for 16%, 15% and 11%, respectively, of the
Company's total net revenues in 1996. The loss of any of these customers could
materially and adversely affect the Company's business, results of operations
and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Industry
Overview."
Dependence on Collaborative Relationships
The Company develops and markets certain products through collaborative
arrangements with other companies through which it gains access to dosage
forms, proprietary drug delivery technology, specialized formulation
capabilities and active pharmaceutical ingredients. The Company relies on its
collaborative partners for any number of functions, including product
formulation, approval and supply. There can be no assurance these products
will be successfully developed or that the Company's partners will perform
their obligations under these collaborative arrangements. Further, there can
be no assurance that the Company will be able to enter into future
collaborative arrangements on favorable terms, or at all. Even if the Company
enters into such collaborative arrangements, there can be no assurance that
any such arrangement will be successful. See "Business--Strategy" and
"Business--Strategic Collaborations."
Supply of Raw Materials
The principal components of the Company's products are active and inactive
pharmaceutical ingredients and certain packaging materials. Many of these
components are available only from a single source and, in many of the
Company's ANDAs, only one supplier of raw materials has been identified, even
in instances when multiple sources exist. Because FDA approval of drugs
requires manufacturers to specify their proposed suppliers of active
ingredients and certain packaging materials in their applications, FDA
approval of any new supplier would be required if active ingredients or such
packaging materials were no longer available from the specified supplier. The
qualification of a new supplier could delay the Company's development and
marketing efforts. Any interruption of supply could have a material adverse
effect on the Company's ability to manufacture its products or to obtain or
maintain regulatory approval of such products. In addition, the Company
obtains a significant portion of its raw materials from foreign suppliers.
Arrangements with international raw material suppliers are subject, among
other things, to FDA regulation, various import duties and other government
clearances. Acts of governments outside the U.S. may affect the price or
availability of raw materials needed for the development or manufacture of
generic drugs. In addition, recent changes in patent laws in jurisdictions
outside the U.S. may make it increasingly difficult to obtain raw materials
for research and development prior to the expiration of the applicable U.S.
patents. There can be no assurance that the Company will establish or, if
established, maintain
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good relationships with its suppliers or that such suppliers will continue to
supply ingredients in conformity with legal or regulatory requirements. See
"Business--Strategy" and "Business--Manufacturing and Distribution."
Risk of Product Liability Claims; No Assurance of Adequate Insurance
The testing, manufacture and sale of pharmaceutical products involve a risk
of product liability claims and the adverse publicity that may accompany such
claims. The Company is a defendant in a number of product liability cases, the
outcome of which the Company believes should not materially and adversely
affect the Company's business, financial condition or results of operations.
Although the Company maintains what it believes to be an adequate amount of
product liability insurance coverage, there can be no assurance that the
Company's existing product liability insurance will cover all current and
future claims or that the Company will be able to maintain existing coverage
or obtain, if it determines to do so, insurance providing additional coverage
at reasonable rates. No assurance can be given that one or more of the claims
arising under any pending or future product liability cases, whether or not
covered by insurance, will not have a material adverse effect on the Company's
business, results of operations or financial condition. See "Business--Product
Liability; Insurance" and "Business--Legal Proceedings."
Control of the Company
Several of the Company's current principal stockholders are parties to the
Restructuring Agreements (as defined herein), one of which governs the voting
of their Common Stock until March 2000 and remains in effect until March 2000,
subject to earlier termination under certain circumstances. Upon such
termination, the stockholders who are parties to these agreements may be able
to control all matters requiring stockholder approval, including the election
of directors. The shares subject to these agreements represent a majority of
the shares of Common Stock to be outstanding immediately following the 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 a number of shares that would enable Bayer Corporation to own
a majority of the outstanding shares of Common Stock. During the Standstill,
under the terms of the Restructuring Agreements, Bayer Corporation has the
right to acquire, including under certain circumstances the right to acquire
from the Company and certain of its principal stockholders, unless Bayer
Corporation has sold shares of Common Stock other than to certain permitted
transferees, (i) shares in connection with its exercise of certain preemptive
rights, (ii) after the Qualified Public Offering Date (as defined below) and
before May 15, 2001, shares necessary to acquire ownership of at least 21%
more of the outstanding Common Stock than any other holder of 10% or more of
the Common Stock (other than an employee benefit plan or a current
stockholder) (the "Investment Spread"), (iii) if, within 30 days after the
Qualified Public Offering Date, Bayer Corporation has the right to acquire
ownership of at least 21% more of the outstanding Common Stock than any other
holder of 10% or more of the Common Stock (other than 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
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(iv) if, on May 15, 2001, the Public Float is less than 133% of the number of
shares that, when added to Bayer Corporation's shares, equals a majority of
the shares then outstanding, shares equal to such amount.
As long as Bayer Corporation owns 10% or more of the outstanding Common
Stock (the "Governance Termination Date"), Bayer Corporation has the right to
nominate a number of members of the Board of Directors of the Company, rounded
down to the nearest whole number, (until Bayer holds more than 50% of the
outstanding Common Stock, then rounded up to the nearest whole number), equal
to the product of (a) the number of members of the Board of Directors and (b)
Bayer Corporation's percentage stockholding of Common Stock of the Company at
the time of nomination. Currently, Bayer Corporation has the right to nominate
one director and designate a second individual to attend Board meetings as an
observer.
Until May 15, 2001, the Company may not undertake certain actions without
the consent of Bayer Corporation, including, among other things, (a) engaging
in any business not principally in a segment of the pharmaceutical or health
care industry (b) amending the Company's charter or by-laws to require more
than majority approval to elect a majority of the Board of Directors, or (c)
engaging in transactions with affiliates on terms more favorable to the
affiliate than could be obtained in arm's length transactions, other than
intercompany transactions and transactions under or identified in 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, certain non-recurring expenses related to the
Company's restructuring and relocation in 1994, the Marsam Acquisition (as
defined herein) in 1995 and weak performance by the generic drug industry in
the second half of 1996 and continuing into the first half of 1997. The
Company believes that it will continue to experience fluctuations in net
revenues, gross profit and net income as a result of, among other things, the
timing of regulatory approvals and market introduction of new products by the
Company and its competitors, and downward pressure on pricing for generic
products available from multiple approved sources. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
21
<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.
22
<PAGE>
CAPITALIZATION
The following table sets forth the total short-term debt and total
capitalization of the Company as of September 1997 (i) on a historical basis
and (ii) as adjusted to give effect to the Initial Offering and the payment of
$4.2 million in fees and expenses in connection therewith using proceeds from
the Company's revolving credit facility under the Senior Credit Agreement.
This table should be read in conjunction with the Consolidated Financial
Statements of the Company and the notes thereto included elsewhere in this
Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 1997
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
SHORT-TERM DEBT:
Revolving credit facility (1)........................... $ 26,000 $ 30,200
Current portion of term loan facility................... 6,842 6,842
Current portion of capitalized lease obligations........ 101 101
-------- --------
Total short-term debt................................. $ 32,943 $ 37,143
======== ========
LONG-TERM DEBT:
Term loan facility...................................... $123,158 $123,158
Senior Subordinated Loan................................ 100,000 --
Senior Floating Rate Notes Due 2004..................... -- 100,000
Capitalized lease obligations........................... 312 312
-------- --------
Total long-term debt.................................. 223,470 223,470
-------- --------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 100,000 authorized shares,
33,611 issued
and outstanding, actual and as adjusted................ 336 336
Additional paid-in capital.............................. 38,543 38,543
Retained earnings....................................... 92,107 92,107
Other................................................... 6,098 6,098
-------- --------
Total stockholders' equity............................ 137,084 137,084
-------- --------
Total capitalization................................ $360,554 $360,554
======== ========
</TABLE>
- --------
(1) After giving effect to the Initial Offering, the Company would have had
approximately $69.8 million of borrowing availability under the Senior
Credit Agreement, subject to satisfaction of certain conditions. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's financial position at December 1995 and 1996, and its results of
operations for the years ended December 1994, 1995 and 1996, has been derived
from the audited consolidated financial statements of the Company included
elsewhere in this Prospectus. The selected consolidated financial information
with respect to the Company's financial position at December 1992, 1993 and
1994, and its results of operations for the years ended December 1992 and
1993, has been derived from the audited consolidated financial statements of
the Company which are not included in this Prospectus. The information for the
interim periods is unaudited; however, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such information have been included. The interim results
of operations may not be indicative of the results for the full year. The
selected consolidated financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED SEPTEMBER
------------------------------------------------ ------------------
1992 1993 1994 1995(1) 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $319,875 $393,926 $385,428 $391,846 $476,295 $352,172 $353,829
Cost of sales........... 207,276 217,653 237,380 250,507 320,675 236,721 240,562
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 112,599 176,273 148,048 141,339 155,620 115,451 113,267
Costs and expenses:
Selling, general and
administrative........ 55,763 64,489 71,783 75,274 87,329 63,345 59,956
Research and
development........... 14,234 18,055 19,170 28,324 27,030 23,044 22,854
Amortization of
goodwill and other
intangibles........... -- -- -- 3,399 10,195 7,713 7,722
Special compensation,
restructuring and
relocation(2)......... 7,417 8,426 33,594 -- -- -- --
Acquired in-process
Marsam research and
development(1)........ -- -- -- 30,000 -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income........ 35,185 85,303 23,501 4,342 31,066 21,349 22,735
Interest expense, net.. 2,315 1,467 1,493 10,005 23,285 16,081 20,456
Other expense (income),
net(3)................ 195 9,215 212 (1,245) 1,193 (451) (6,542)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes on income and
minority interest..... 32,675 74,621 21,796 (4,418) 6,588 5,719 8,821
Provision for income
taxes(4).............. 12,490 29,096 15,165 10,482 5,191 3,573 5,095
Minority interest...... 2,173 (343) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 18,012 $ 45,868 $ 6,631 $(14,900) $ 1,397 $ 2,146 $ 3,726
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(5)............... $ 38,961 $ 83,864 $ 32,035 $ 52,232 $ 53,147 $ 38,960 $ 46,876
Depreciation and
amortization........... 6,105 7,328 8,464 17,395 25,450 18,018 19,749
Capital expenditures,
net.................... 17,416 22,806 16,135 13,986 11,309 8,625 8,992
Ratio of earnings to
fixed charges(6)....... 10.6x 26.9x 8.0x -- 1.3x 1.3x 1.4x
Pro forma cash interest
expense(7)............. $ 23,488 $ 17,897
</TABLE>
<TABLE>
<CAPTION>
DECEMBER AS OF AS ADJUSTED
-------------------------------------------- SEPTEMBER SEPTEMBER
1992 1993 1994 1995(1) 1996 1997 1997(8)
-------- -------- -------- -------- -------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 82,731 $ 87,035 $ 98,610 $ 92,021 $ 99,111 $ 93,480 $ 89,280
Total assets............ 211,744 227,861 269,729 522,410 544,312 520,699 524,899
Short-term debt,
including current
portion of long-term
debt................... 1,185 1,838 3,465 40,078 41,090 32,943 37,143
Long-term debt, less
current portion........ 43,440 25,725 42,462 240,480 245,390 223,470 223,470
Stockholders' equity.... 85,761 130,336 140,164 125,692 129,980 137,084 137,084
</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 3 to
the Consolidated Financial Statements of the Company.
(2) Special compensation, restructuring and relocation expenses includes costs
recognized by the Company in connection with its restructuring and
relocation of its corporate headquarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 2 and
13 to the Consolidated Financial Statements of the Company.
(3) Other expense (income), net, includes equity in earnings (loss) of
unconsolidated international ventures of $(0.4) million and $(3.4) million
in fiscal 1995 and 1996, respectively and $(1.6) million and $(2.7)
million in the nine months ended September 1996 and 1997, respectively,
gain on sales of marketable securities of $9.9 million in 1997, a
settlement contingency of $8.0 million in fiscal 1994, and $0.5 million of
an extraordinary item in fiscal 1992.
(4) Provision for income taxes in fiscal 1993 includes an adjustment to reduce
income taxes by $1.1 million relating to the adoption of Statement of
Financial Accounting Standards No. 109.
(5) EBITDA is defined as income (loss) before provision for income taxes and
minority interest, interest expense and depreciation and amortization
including the $30 million change in fiscal 1995 of acquired in-process
Marsam research and development. The Company has included information
concerning EBITDA in this Registration Statement because it believes that
such information may be used by certain investors as one measure of a
company's historical ability to service debt. EBITDA should not be
considered as an alternative to, or more meaningful than, earnings from
operations or other traditional indications of a company's operating
performance.
(6) The ratio of earnings to fixed charges is computed by dividing (i) income
(loss) before provision for income taxes and minority interest plus fixed
charges by (ii) fixed charges. Fixed charges consist of interest on
indebtedness including amortization of debt issuance costs and the
estimated interest component of rental expense (assumed to be one-third).
In fiscal 1995, fixed charges exceeded income (loss) before provision for
income taxes and minority interest by $4.4 million.
(7) Pro forma cash interest expense is defined as historical interest expense,
adjusted for (i) the exclusion of amortization of deferred financing fees
of $2.2 million in fiscal 1996 and $2.3 million in the nine months ended
September 1997, respectively, (ii) interest expense as if the Initial
Offering had occurred on December 31, 1995 and the proceeds were used to
repay the Senior Subordinated Loan or its predecessor debt and (iii)
interest expense associated with drawdowns under the revolving credit
facility under the Senior Credit Agreement which were used to pay the $4.2
million in fees and expenses incurred as a result of the Initial Offering.
(8) As adjusted to give effect to the Initial Offering and the payment of $4.2
million in fees and expenses in connection therewith, using proceeds from
the Company's revolving credit facility under the Senior Credit Agreement.
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 comprise the
Company's core products and patent review products and settlements resulting
from the Company's patent challenge activities. The Company's primary branded
product, INFeD, is the leading injectable iron product in the United States.
The Company's results of operations depend on the Company's ability to
develop and commercialize new pharmaceutical products. Generally, following
the expiration of patents and any other market exclusivity periods for branded
drugs, the first pharmaceutical manufacturers successfully to market generic
equivalents of such drugs achieve higher revenues and gross profit from the
sale of such generic drugs than do others from the sale of generic equivalents
subsequently approved. As competing generic equivalents reach the market, the
prices, sales volumes and profit margins of the earliest generic versions
often decline significantly. For these reasons, the Company's ability to
achieve growth in revenues and profitability depends on its being among the
first companies to introduce new generic products. During the past five years,
the Company has introduced a significant number of generic products to the
market at patent expiration dates and in a number of cases prior to patent
expiration of the branded product by successful challenges to the patent under
the Waxman-Hatch Act.
The Company's dependence on a limited number of products, the product cycles
of such products, and the timing of receipt of settlement revenues have
resulted in significant fluctuations in the Company's earnings. Continued
growth in the Company's revenues will depend on continued market demand for
its products, as well as the successful introduction and marketing of new
products.
The development, manufacture, marketing and sale of pharmaceutical products
is subject to extensive federal, state and local regulation. The Company, like
other industry participants, must obtain approval from the FDA before
marketing most drugs, and must demonstrate continuing compliance with cGMP in
its production. Over the last several years, FDA has inspected various Company
manufacturing facilities. As a result of these inspections, FDA has required
that the Company modify certain of its manufacturing practices and, at times,
withheld approval of certain applications for new products, pending
satisfactory resolution of issues identified during the inspections. However,
all the Company's manufacturing facilities have continued production, and
there has been no significant impact on overall production. Certain
significant delays in the review or approval of applications for new products
could have a material adverse effect on the Company's future prospects. See
"Risk Factors--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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER SEPTEMBER
-------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Generic business:
Core products.......................... $275.4 $284.8 $322.3 $ 239.7 $ 215.5
------ ------ ------ -------- --------
Patent reviews
Patent review product revenues....... 49.1 35.0 52.5 38.4 41.2
Settlement revenues.................. -- 5.0 13.5 13.5 25.0
------ ------ ------ -------- --------
Total patent review revenues......... 49.1 40.0 66.0 51.9 66.2
------ ------ ------ -------- --------
Total generic revenues............... 324.5 324.8 388.3 291.6 281.7
------ ------ ------ -------- --------
Branded business:
INFeD.................................. 60.9 67.0 88.0 60.6 72.1
------ ------ ------ -------- --------
Total net revenues................... $385.4 $391.8 $476.3 $ 352.2 $ 353.8
====== ====== ====== ======== ========
</TABLE>
In 1992, the Company entered the branded pharmaceutical segment of the
market by introducing INFeD, 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 fiscal 1995 to 20% in the nine months ended September 1997. Gross
profit margins on INFeD exceed gross profit margins on the Company's generic
products generally; accordingly, the gross profit from increased sales of
INFeD have offset the reduction in gross profit from generic products during
the periods presented.
Product revenues and settlements have resulted from the Company's patent
challenge activities. Settlement revenues in fiscal 1995, 1996 and in the nine
months ended September 1997 reflect the receipt of funds from a pharmaceutical
company pursuant to an agreement reached by the Company in 1994. The agreement
provides that certain contingent payments may be made to the Company. The
Company expects a final payment of $30 million in the first quarter of 1998,
half of which will be paid to the Consultant. See Note 11 to the Consolidated
Financial Statements of the Company. In addition to the amounts paid to the
Consultant, the Company incurs other costs related to its patent review
activities as part of its overall product development activities.
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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER SEPTEMBER
----------------------- ------------------
1994 1995 1996 1996 1997
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................... 61.6 63.9 67.3 67.2 68.0
------ ------ ------ -------- --------
Gross profit...................... 38.4 36.1 32.7 32.8 32.0
Costs and expenses:
Selling, general and
administrative................. 18.6 19.2 18.3 18.0 16.9
Research and development........ 5.0 7.2 5.7 6.5 6.4
Amortization of goodwill and
other intangibles.............. -- 0.9 2.1 2.2 2.2
Special compensation,
restructuring and relocation... 8.7 -- -- -- --
Acquired in-process Marsam
research and development....... -- 7.7 -- -- --
------ ------ ------ -------- --------
Operating income.................. 6.1 1.1 6.6 6.1 6.5
Interest expense, net........... 0.4 2.5 4.9 4.6 5.8
Other expense (income), net..... 0.1 (0.3) 0.3 (0.1) (1.8)
------ ------ ------ -------- --------
Income (loss) before provision for
income taxes..................... 5.6 (1.1) 1.4 1.6 2.5
Provision for income taxes...... 3.9 2.7 1.1 1.0 1.4
------ ------ ------ -------- --------
Net income (loss)................. 1.7% (3.8)% 0.3% 0.6% 1.1%
====== ====== ====== ======== ========
</TABLE>
27
<PAGE>
NINE MONTHS ENDED SEPTEMBER 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 1996
Net revenues increased $1.6 million, or 0.5%, from $352.2 million in 1996 to
$353.8 million in 1997. In the branded business, sales increased $11.5
million, partially offset by a $9.9 million decline in the generic business.
The increase in branded product sales reflected largely an increase in units
sold. The decline in generic business resulted from (i) $32.4 million of price
erosion in core products and (ii) $16.7 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 $6.4
million increase in sales of new products, an $18.5 million volume increase in
sales of core products and a $14.3 million increase in total patent review
revenues. The increase in patent review revenues resulted from a $11.5 million
increase in settlement revenues and a $2.8 million increase in sales of patent
review product revenues.
Gross profit decreased $2.2 million, or 1.9%, from $115.5 million in 1996 to
$113.3 million in 1997. The gross margin decreased from 32.8% in 1996 to 32.0%
in 1997. The decline in gross profit was largely the result of price erosion
in core products, partially offset by increased gross margins from INFeD, new
products and an increase in settlement revenues.
Selling, general and administrative expenses decreased $3.3 million, or
5.2%, from $63.3 million in 1996 to $60.0 million in 1997. Selling, general
and administrative expenses as a percent of net revenues decreased from 18.0%
in 1996 to 16.9% 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.
Research and development expenses decreased $0.2 million, or 0.8%, from
$23.0 million in 1996 to $22.8 million in 1997. However, expenses in the third
quarter of 1997 increased compared to earlier 1997 quarters largely reflecting
costs associated with a development project nearing launch stage.
Amortization of goodwill and other intangibles was unchanged compared to the
comparable period in 1996.
As a result of the factors discussed above, operating income increased $1.4
million, or 6.5%, from $21.3 million in 1996 to $22.7 million in 1997.
Interest expense, net, increased $4.4 million, or 27.2%, from $16.1 million
in 1996 to $20.5 million in 1997 principally due to higher amortization of
deferred financing expenses of $2.5 million and increased interest costs of
$1.5 million resulting from refinancing of senior debt with higher costing
subordinated debt in December 1996.
Other expense (income), net, increased by $6.0 million from $0.5 million in
1996 to $6.5 million in 1997. Gains on the sale of marketable securities of
$9.9 million, primarily in the third quarter of 1997, offset increased equity
losses from the Company's investment in international joint ventures of $1.2
million and other expenses.
The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses. The effective tax rate
decreased from 62.5% in 1996 to 57.8% in 1997, primarily as a result of higher
income offsetting fixed non-deductible expenses.
1996 COMPARED TO 1995
Net revenues increased $84.5 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 business sales increased $63.5 million. The increase in
the branded product sales reflected largely 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
28
<PAGE>
revenues increased $26.0 million, primarily due to a $17.5 million increase in
patent review product revenues and an increase in settlement revenues of $8.5
million.
Gross profit increased $14.3 million, or 10.1%, from $141.3 million in 1995
to $156.6 million in 1996. The gross margin decreased from 36.1% in 1995 to
32.7% in 1996. The increase in gross profit was largely attributable to
increased revenues of INFeD, increases in patent review revenues and
settlement revenues and the full year of Marsam results, these increases are
partially offset by a price erosion in the core products.
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 of $2.6 million 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 $26.7
million from $4.3 million in 1995 to $31.1 million in 1996.
Interest expense, net, increased $13.3 million from $10.0 million in 1995 to
$23.3 million in 1996. The increase was due primarily to the increase in
average debt associated with the financing for the Marsam Acquisition and
higher interest rates.
Other expense (income), net, increased $2.4 million from income of $1.2
million in 1995 to an expense of $1.2 million in 1996. Equity losses from the
Company's investment in international joint ventures accounted for $3.1
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.
1995 COMPARED TO 1994
Net revenues increased $6.4 million, or 1.6%, from $385.4 million in 1994 to
$391.8 million in 1995. Branded business sales increased $6.1 million and
generic business sales increased $0.3 million. The increase in the branded
product sales reflected largely an increase in units sold. The increase in the
generic business is attributable to $14.0 million from the impact of the
Marsam Acquisition, $4.8 million of new product sales offset by a decrease in
other core products of $9.3 million and a decrease of $9.1 million of patent
review revenues. Patent review revenues decreased principally due to a decline
in patent review product revenues of $14.1 million, offset by settlement
revenues of $5.0 million.
The Company's gross profit decreased $6.7 million, or 4.5%, from $148.0
million in 1994 to $141.3 million in 1995. The gross profit margin decreased
from 38.4% in 1994 to 36.1% in 1995. The decrease was primarily a result of
lower selling prices of patent review products and decreased gross margins on
core products revenues due to competitive pricing pressures. This was
partially offset by a $4.0 million increase representing the impact of the
Marsam Acquisition, an increase in gross margins in the Company's branded
business and decreased manufacturing and regulatory costs.
29
<PAGE>
Selling, general and administrative expenses increased $3.5 million, or
4.9%, from $71.8 million in 1994 to $75.3 million in 1995. Selling, general
and administrative expenses increased as a percentage of net revenues from
18.6% in 1994 to 19.2% in 1995. The increase in selling, general and
administrative expenses was due primarily to an increase in sales volume, an
increase in promotional activities in support of the Company's branded
business, new product launches and the Marsam Acquisition.
Research and development expenses increased $9.1 million, or 47.8%, from
$19.2 million in 1994 to $28.3 million in 1995. Of the $9.1 million increase,
$2.1 million represented spending in connection with a worldwide technology
licensing and development agreement which the Company entered into during
September 1994, and the remaining increase in research and development
expenses was attributable to various new in-house development projects.
Amortization of goodwill and other intangibles of $3.4 million and acquired
in-process Marsam research and development charges of $30.0 million in 1995
resulted from the Company's Marsam Acquisition in September 1995. See Note 3
to the Consolidated Financial Statements of the Company.
The corporate reorganization and relocation were completed during 1994,
resulting in a $33.6 million charge. There were no restructuring or relocation
expenses incurred during 1995.
As a result of the factors discussed above, operating income decreased $19.2
million from $23.5 million in 1994 to $4.3 million in 1995.
Interest expense, net increased $8.5 million from $1.5 million in 1994 to
$10.0 million in 1995. The increase was due primarily to the increase in
average debt associated with the debt financing for the Marsam Acquisition
funded in September 1995.
Other expense (income), changed by $1.5 from an expense of $0.2 million in
1994 to income of $1.3 million in 1995.
The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses. The 1995 effective income
tax rate of 237.3% increased from the 1994 effective income tax rate of 69.6%,
primarily due to the impact of certain non-recurring and non-deductible
expenses, which were largely comprised of the acquired in-process Marsam
research and development charge of $30.0 million. The 1994 effective income
tax rate also reflects the impact of non-deductible expenses, primarily
special compensation charges in connection with the corporate reorganization
completed during 1994.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its business operations primarily
through a revolving credit facility and used long-term bank financing to fund
acquisitions. The Company intends to finance future acquisitions through
either the issuance of new common shares and or the incurrence of new debt.
The incurrence of new debt is subject to certain limitations under the Senior
Credit Agreement and the Notes.
Net cash provided by operating activities was $27.1 million and $10.8
million in the nine months ended September 1997 and in the year ended December
1996, respectively. The net cash provided by operating activities during 1997
was primarily attributable to net income, as adjusted for non-cash charges, of
$15.9 million and decreases in inventories and accounts receivable aggregating
$11.4 million. The net cash provided by operating activities during 1996 was
primarily attributable to net income, as adjusted for non-cash charges, of
$27.9 million and an increase in accounts payable and accrued expenses of
$11.9 million, offset by an increase in inventories and accounts receivable of
$31.0 million.
Net cash provided by investing activities for the nine months ended
September 1997 and used in investing activities for the year ended December
1996 was $1.2 million and $20.0 million, respectively. Cash provided by
investing activities in 1997 resulted from the proceeds of sales of marketable
securities of $11.6 million, offset
30
<PAGE>
primarily by capital expenditures, net of $9.0 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 of $17.4 million.
Net cash used in financing activities for the nine months ended September
1997 of $30.1 million resulted from the net repayment of debt. Net cash
provided by financing activities for the year ended December 1996 of $3.6
million was primarily due to net proceeds of debt.
In September 1995, the Company entered into a secured revolving credit and
term loan agreement (as amended, the "Senior Credit Agreement") with a group
of banks to provide funds for the Marsam Acquisition, the repayment of certain
debt, working capital and general corporate purposes. The Senior Credit
Agreement, 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 $30.0
million, $41.0 million and $26.0 million as of December 30, 1995, December 28,
1996 and September 27, 1997, respectively. Quarterly principal payments on the
term loan commence in September 1998 and end in the year 2001.
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.
Outstanding borrowings under the senior subordinated loan agreement bear
interest, payable quarterly, at a rate equal to LIBOR plus 4% or the bank's
floating base rate plus 3%, through January 31, 1998. Thereafter, the
principal amount of the loan will be increased to reflect related fees due and
will mature in five years. Interest will be due semi-annually and the interest
rate will be fixed at a new rate. 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 $130.0 million at September 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 7.14%, 8.10% and $7.80% at December 30, 1995, December 28, 1996 and
September 27, 1997, respectively. A commitment fee ranging from 0.25% to 0.50%
per annum of the unused daily amount of the total commitment is payable
quarterly. The original obligation under the senior subordinated loan will be
effectively replaced by the Notes offered hereby. See "Description of Certain
Indebtedness."
The Company has signed a non-binding letter dated October 7, 1997 with
Cheminor Drugs Limited and its subsidiaries ("Cheminor") and Dr. Reddy's
Laboratories Limited and its subsidiaries ("Reddy") outlining the parties'
intent to enter into a strategic alliance agreement. Cheminor will make
available to the Company its present and future dosage form generic products
on an exclusive basis in the United States and in certain countries, and the
Company will make available to Cheminor and Reddy its present and future
products on an exclusive basis for sale in India and certain other countries.
Cheminor and Reddy will make available to the Company bulk active
pharmaceutical ingredients. As part of the contemplated arrangement, the
Company would purchase 2.0 million publicly traded shares of Cheminor Drugs
Limited (12.79% of the presently outstanding shares of Clemson Drugs Limited)
for $10.0 million, and under certain circumstances have the right and the
obligation to purchase an additional 1.0 million shares for $5.0 million.
Cheminor would have the right to make fair market value purchases of the
Company's Common Stock, once the shares are publicly traded; the purchase
price could be payable from profits otherwise due Cheminor from the alliance.
Each party would also be entitled to representation on the other company's
board of directors consistent with its equity interest. See "Certain
Transactions."
31
<PAGE>
The Company has filed a registration statement covering the Equity Offering.
Consummation of each of this Exchange Offer and the Equity Offering is not
contingent upon consummation of the other. There can be no assurance that the
filing will become effective or that any shares will be sold. If the Common
Stock Offering occurs, the Company intends to use a portion of the net
proceeds from the Equity Offering to repurchase or redeem a portion of the
Notes offered hereby.
In December 1997, the Company issued $100.0 million of Senior Floating Rate
Notes Due 2004 (the "Notes"), the proceeds of which were used to repay the
Senior Subordinated Loan. Interest on the Notes is payable quarterly at a rate
per annum equal to LIBOR plus 3%. The Notes will mature in December 2004,
unless previously redeemed. The Notes will be redeemable, in whole or in part,
at the option of the Company, at any time at the specified redemption prices.
Upon the occurrence of a change in control, each holder of Notes may require
the Company to repurchase such holder's Notes, in whole or in part, at a
repurchase price of 101% of the principal amount, plus accrued and unpaid
interest. The Equity Offering will not constitute a "change of control" under
the Notes. The Notes, which are unsecured obligations of the Company, rank
pari passu with or senior to all existing and future indebtedness of the
Company, and will rank senior in right of payment to all existing and future
indebtedness of the Company that is, by its terms, expressly subordinated to
the Notes.
The Company believes that cash generated from its operations, its existing
credit facilities and the availability of $74.0 million under such facilities
as of September 1997 are sufficient to finance its current level of operations
and currently contemplated capital expenditures and strategic investments. In
the event the Company makes any significant acquisitions, it may be required
to raise additional funds, through the issuance of additional debt or equity
securities. There can be no assurance that such funds, if required, would be
available or, if available, would be on terms acceptable to the Company.
32
<PAGE>
QUARTERLY INFORMATION
As a result of a variety of factors, including the introduction of new
products by the Company, the timing of receipt of patent settlement revenues
and changes in the degree of competition for the Company's products, the
Company's quarterly results of operations have fluctuated significantly and
are expected to fluctuate significantly in the future.
The following tables present unaudited quarterly financial data for the
years 1995 and 1996, and for the nine months ended September 1997. The Company
believes all necessary adjustments have been included in the amounts stated
below to present fairly the selected quarterly information when read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 1995 YEAR ENDED DECEMBER 1996 SEPTEMBER 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------------------------- -------------------------------------- ---------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Net product
sales.......... $83,978 $98,880 $ 96,344 $107,644 $109,949 $120,398 $108,325 $124,123 $106,839 $114,441 $107,549
Settlement
revenues....... 5,000 -- -- -- 13,500 -- -- -- 25,000 -- --
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total net
revenues....... 88,978 98,880 96,344 107,644 123,449 120,398 108,325 124,123 131,839 114,441 107,549
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit..... 34,454 39,141 33,303 34,441 42,420 37,620 35,411 40,169 44,722 36,568 31,977
Cost and
expenses:
Selling, general
and
administrative.. 18,720 18,804 18,461 19,289 20,636 21,480 21,229 23,984 19,942 19,129 20,885
Research and
development.... 7,579 7,996 7,331 5,418 7,242 8,119 7,683 3,986 6,744 7,434 8,676
Amortization of
goodwill and
other
intangibles.... -- -- 1,128 2,271 2,548 2,550 2,615 2,482 2,550 2,598 2,574
Acquired in-
process Marsam
research &
development.... -- -- 30,000 -- -- -- -- -- -- -- --
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss).......... 8,155 12,341 (23,617) 7,463 11,994 5,471 3,884 9,717 15,486 7,407 (158)
Interest
expense, net... 743 954 2,790 5,518 5,321 5,379 5,382 7,203 6,884 6,850 6,722
Other expenses
(income), net.. 13 101 (50) (1,309) (603) (646) 797 1,645 1,094 (1,077) (6,559)
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
before provision
for income
taxes........... 7,399 11,286 (26,357) 3,254 7,276 738 (2,295) 869 7,508 1,634 (321)
Provision for
income taxes... 2,996 4,571 1,693 1,222 3,343 733 (503) 1,618 3,625 1,315 155
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss).......... $ 4,403 $ 6,715 $(28,050) $ 2,032 $ 3,993 $ 5 $ (1,792) $ (749) $ 3,883 $ 319 $ (476)
======= ======= ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
INFLATION
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
Disclosures about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, establishes standards for the way that public enterprises report
information about operating segments in annual financial
33
<PAGE>
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in asserting performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Results of operations and financial position
will be unaffected by implementation of these new standards. The Company has
not determined whether either of these two standards will have a material
impact on its financial statement disclosure.
RISK MANAGEMENT
The Company is potentially subject to a concentration of credit risk with
respect to its trade receivables, the majority of which are due from
wholesalers, drug store chains and distributors. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains sufficient allowances and insurance to cover potential
or anticipated losses for uncollectible accounts.
The Company from time to time hedges a portion of its floating rate interest
exposure using various financial instruments. At September 1997, the Company
had no interest rate hedges in place.
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.
34
<PAGE>
BUSINESS
GENERAL
Schein Pharmaceutical is one of the leading generic pharmaceutical companies
in the United States. The Company develops, manufactures and markets one of
the broadest generic product lines in the pharmaceutical industry through the
integration of its product development expertise, diverse, high-volume
production capacity and direct sales and marketing forces. The Schein product
line includes both solid dosage and sterile dosage generic products, and the
Company is also developing a line of specialty branded pharmaceuticals. The
Company's primary branded product, INFeD, is the leading injectable iron
product in the United States. The Company has a substantial pipeline of
products under development, including 24 ANDAs filed with FDA. The Company
supplements its internal product development, manufacturing and marketing
capabilities through strategic collaborations. Schein generated net revenues
of $478.0 million and EBITDA of $61.1 million during the 12 months ended
September 1997.
The Company believes it manufactures and markets the broadest product line
of any U.S. pharmaceutical company in terms of number and types of products.
The Company manufactures and markets approximately 160 chemical entities
formulated in approximately 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 the nine
months ended September 1997.
Since introducing INFeD in 1992, the Company has been developing a portfolio
of branded products, primarily in select therapeutic markets, such as iron
management for the nephrology, oncology and hematology markets. INFeD is used
in the treatment of certain types of anemia, particularly in dialysis
patients, and accounted for approximately 20% of the Company's net revenues in
the nine months ended September 1997. The Company markets INFeD through a 20-
person dedicated sales and marketing force, as well as through co-marketing
collaborations with Bayer Corporation in the nephrology market and MGI in the
oncology market.
The Company believes its 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 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 23 ANDA
approvals during the past three years and its current pipeline of 24 pending
ANDAs and over 60 additional products under development. During the past three
fiscal years, the Company, directly and through its strategic collaborations,
has expended approximately $74.0 million on product pipeline development
activities, which the Company believes is among
35
<PAGE>
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 from external sources. During 1994, Schein entered into
a strategic alliance with Bayer Corporation, through which Bayer Corporation
became a 28.3% stockholder of Schein, and Bayer Corporation currently
participates with Schein in several collaborations. In 1995, the Company
acquired Marsam, expanding the Company's ability to develop and manufacture
sterile penicillins and oral and sterile cephalosporins. In addition, the
Company has entered into strategic collaborations involving product
development arrangements with companies such as Ethical and Elan; raw material
supply arrangements with companies such as Johnson Matthey and Abbott; and
sales and marketing arrangements with Bayer and other companies such as
Elensys and MGI.
INDUSTRY OVERVIEW
In the U.S., pharmaceutical products are marketed as either branded or
generic. Branded products are marketed under brand names and through programs
designed to attract physician and consumer loyalty. Branded drugs generally
are covered by patents at the time of their market introduction, thereby
resulting in periods of market exclusivity for the patent holders. Following
the expiration of these patents, marketing of branded drugs often continues,
particularly in cases where there is significant physician or consumer
loyalty.
Generic pharmaceuticals (also known as "multi-source" or "off-patent"
pharmaceuticals) are the chemical and therapeutic equivalents of branded
drugs. Under the Waxman-Hatch Act, generic drugs generally may be sold in the
United States following (i) FDA approval of an ANDA that includes evidence
that the generic drug is bioequivalent to its branded counterpart and (ii) the
expiration, invalidation or circumvention of any patents on the corresponding
branded drug and the expiration of any other market exclusivity periods
applicable to the branded drug.
Since the adoption of the Waxman-Hatch Act, generic pharmaceuticals have
become an increasingly important segment of the U.S. pharmaceutical market,
particularly when measured in terms of the increasing rate at which doctors'
prescriptions have allowed generic drugs to be substituted for branded drugs.
In 1996, prescriptions dispensed in the United States for generic drugs
reached 40% of the total drug prescriptions dispensed. In terms of dollar
sales, however, generic drugs have accounted for a much lower percentage of
the total U.S. pharmaceutical market. In the 12 months ended September 1997,
sales of generic drugs accounted for approximately $7.4 billion out of a total
U.S. prescription pharmaceutical market of approximately $80.9 billion.
The lower percentage of total dollar sales attributable to generic
pharmaceuticals compared to the growth in the number of generic pharmaceutical
prescriptions dispensed reflects the pricing dynamics for generic
pharmaceuticals. As the number of commercially available generic competitors
of a branded drug increases, their selling prices and gross margins decline
substantially. Generic drugs are generally sold at a 20% to 80% discount from
their branded counterparts. Intense price competition in the generic drug
industry requires companies to introduce new generic drug products regularly
in order to maintain and increase revenues.
Growth of the generic drug industry has been driven primarily by the dollar
volume of branded drugs that have lost patent protection and the rising rate
at which generic drugs have been substituted for branded drugs. Industry
sources estimate that, during the next five years, branded drugs with 1996
U.S. sales of more than $13.0 billion will lose patent protection. The rising
rate of generic substitution has resulted in large part from increasing
pressure within the U.S. health care industry to contain costs. Due to the
lower cost of generic drugs compared to their branded counterparts, third
party payors, such as insurance companies, company health plans, health
maintenance organizations, managed care organizations, pharmacy benefit
managers, group purchasing
36
<PAGE>
organizations, government-based programs and others, have adopted policies
that encourage or mandate generic substitution. In addition, physicians,
pharmacists and consumers are becoming increasingly comfortable with the
quality and therapeutic equivalence of generic drugs.
A significant portion of pharmaceuticals are distributed in the United
States through wholesale drug distributors and major retail drug store chains.
During the past several years, there has been a consolidation of these
distribution channels, resulting in a smaller number of wholesale distributors
and the emergence of fewer, larger regional and nationwide retail drug store
chains. In addition to pressuring generic drug manufacturers to lower their
prices and/or provide volume discounts, these customers have also been seeking
to reduce the number of sources from which they purchase pharmaceutical
products.
Participants in the generic drug market include independent generic drug
manufacturers such as the Company, generic drug subsidiaries of large branded
pharmaceutical companies and joint ventures and collaborations between branded
pharmaceutical companies and generic drug manufacturers. The participation of
branded pharmaceutical companies in the U.S. generic industry accelerated
during the first half of the 1990s as pricing pressure and generic
substitution grew. The extent to which the branded pharmaceutical companies
will continue to participate in the generic drug industry segment cannot be
predicted by the Company.
The Company believes it is well positioned to capitalize on these industry
trends by leveraging its product development, manufacturing and marketing
capabilities to expand its market penetration.
STRATEGY
The Company's objective is to become the leading generic pharmaceutical
company in the approximately $7.4 billion generic prescription pharmaceutical
industry in the United States. An important focus of the Company includes the
development, manufacture and marketing of complex generic products and branded
products for select therapeutic categories. The Company's strategy for
achieving this objective comprises the following five elements:
Leverage Diverse Pharmaceutical Formulation and Manufacturing Capabilities
to Extend the Breadth of Its Generic Product Line. The Company believes it
manufactures and markets the broadest product line of any U.S. pharmaceutical
company. This product line includes both solid dosage and sterile dosage
products comprising approximately 160 chemical entities in approximately 325
dosage forms and strengths under approximately 200 approved ANDAs. Solid
dosage forms include both immediate-release and extended-release capsules and
tablets; sterile dosage forms include solutions, suspensions, powders and
lyophilized (freeze-dried) products primarily for administration as
injections, ophthalmics and otics. The Company believes its diverse high-
volume manufacturing capabilities enable it to participate in segments of the
generic drug industry where competition is limited. As the U.S. generic drug
market consolidates and major drug buyers increasingly purchase from fewer
suppliers, the Company believes its high volume and diverse drug formulation
and manufacturing capabilities will constitute an important competitive
advantage.
Focus Product Development on Complex and Other Generic Drugs that Require
Specialized Development or Manufacturing Technology and Encounter Limited
Competition. The Company targets generic drugs for which it believes it can
achieve relatively high margins by being the first or among the first generic
manufacturers to launch the product. The Company is currently the sole generic
source for 47 products, and the Company is developing several "complex
generic" drugs that are difficult to duplicate due to formulation and/or
manufacturing complexities and other generic drugs for which raw materials are
in limited supply. In addition, the Company closely analyzes pharmaceutical
patents and initiates patent challenges where appropriate opportunities exist.
Products currently being considered for development include several that could
lead to patent challenges. The Company has generated significant revenues and
profits from generic products that have been the subject of successful patent
challenges initiated by the Company.
Develop and Market Branded Drugs for Select Therapeutic
Categories. Leveraging its broad pharmaceutical formulation, development and
manufacturing capabilities, the Company targets branded drug
37
<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>
NINE MONTHS
YEAR ENDED DECEMBER ENDED
---------------------------- SEPTEMBER
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Generic business:
Manufactured sterile dosage......... 16% 18% 25% 30% 38% 37%
Manufactured solid dosage........... 58 55 40 35 28 30
Purchased products.................. 18 16 19 18 15 13
--- --- --- --- --- ---
Total generic..................... 92 89 84 83 81 80
Branded business:
INFeD............................... 8 11 16 17 19 20
--- --- --- --- --- ---
Total............................. 100% 100% 100% 100% 100% 100%
=== === === === === ===
</TABLE>
38
<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.
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 37% of the
Company's total net revenues in the nine months ended September 1997. This
portfolio includes vecuronium bromide, an anesthetic product that is currently
the Company's largest selling generic product, sales of which comprised
approximately 8.7% 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 sterile dosage products accounted for more than 6% of
net revenues in the nine months ended September 1997. Included in the sterile
dosage product portfolio are 45 products for which the Company is currently
the sole generic source, one of which is vecuronium bromide.
The Company's manufactured solid dosage product portfolio is comprised of
approximately 50 products and accounted for approximately 30% of the Company's
total net revenues in the nine months ended September 1997. None of the
Company's solid dosage products accounted for more than 6% of net revenues in
the nine months ended September 1997. The Company's solid dosage portfolio
includes two products for which the Company is currently the sole generic
source.
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, unless
either party terminates the agreement on 24-months' prior notice.
Pursuant to a product development, license and supply agreement dated August
16, 1994, as amended, between Elan and the Company, the Company has the right
to market, sell and distribute ketoprofen ER in the U.S. under Elan's ANDA.
Pursuant to the agreement, the Company has paid approximately $2.5 million in
development and license fees. Currently, the term of the agreement is 18 years
or, if longer, for the life of Elan's patents.
The Company supplements its manufactured product line with purchased
products. The margins received by the Company on these products, however, are
generally lower than the margins received by the Company on products that it
manufactures. In addition, the Company believes its customers are increasingly
seeking to purchase products directly from manufacturers. The percentage of
the Company's total net revenues of generic products manufactured by others
has declined from approximately 18% in 1995 to 13% in the nine months ended
September 1997.
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
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20% of the Company's net revenues. INFeD is most commonly used in the U.S. to
treat iron deficiency anemia in patients with end-stage renal disease who are
receiving therapy with recombinant human erythropoietin (EPO). In addition to
the dialysis market, the high incidence of iron deficiency anemia related to
other medical conditions presents further opportunities for the Company to
leverage its existing INFeD sales and marketing capabilities.
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 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
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unsatisfactory or impossible. INFeD's product label includes the following
warning: "Warning: The parenteral use of complexes of iron and carbohydrates
has resulted in anaphylactic-type reactions. Deaths associated with such
administration have been reported. Therefore, INFeD (iron dextran injection,
USP 50 mg/mL) should be used only in those patients in whom the indications
have been clearly established and laboratory investigations confirm an iron-
deficient state not amenable to oral iron therapy."
Currently, iron dextran is the only injectable iron formulation in the U.S.
market. The Company introduced its injectable iron product, INFeD, in May
1992. INFeD currently has approximately 85% of the injectable iron market, and
iron dextran products are marketed by one other company in the U.S. Net sales
of INFeD in 1996 and the nine months ended September 1997 were $88.0 million
and $72.1 million, respectively and accounted for 19% and 20%, respectively,
of the Company's net revenues. Growth in sales of INFeD has been driven by the
expanding use of EPO and the growing recognition of patient outcomes and
quality of life issues associated with iron deficiency anemia in dialysis
patients. For patients being treated with EPO, injectable iron therapy has
become adjunctive therapy rather than supportive therapy, as studies have
shown that anemic patients may become resistant to EPO and that injectable
iron can help to maintain EPO responsiveness and optimize its effectiveness.
The Company believes that the dialysis market should continue to expand with
the expected increase in the ESRD population, as well as the expanding use of
hemodialysis in the treatment of ESRD patients.
Pursuant to a supply agreement dated May 1, 1992, as amended on December 2,
1993 and June 9, 1995, between Abbott and the Company, Abbott supplies iron
dextran bulk solution to the Company on an exclusive basis. The agreement
terminates on December 31, 1999. Abbott retains the right to manufacture,
sell, ship, market or distribute the finished iron dextran drug product,
provided the product is not manufactured with bulk solution or technology
relating to bulk solution obtained from Abbott or a licensee or sublicensee of
Abbott.
Ferrlecit. Ferrlecit (sodium ferric gluconate complex in sucrose injection)
is intended to be the Company's next generation injectable iron product.
Ferrlecit is administered parenterally to treat hemodialysis patients with
iron deficiency anemia.
Ferrlecit was developed by the Nattermann Company, of Cologne (now Rhone-
Poulenc Rorer GmbH) and is widely used in Europe. Makoff R&D Laboratories,
Inc. ("R&DL"), a specialty renal pharmaceutical company, acquired the rights
to Ferrlecit from Rhone-Poulenc Rorer GmbH under a distribution agreement
dated June 24, 1993 and a trademark agreement dated August 26, 1993. In 1996,
pursuant to an exclusive trademark and distribution agreement with R&DL, the
Company acquired from R&DL the exclusive right to market and distribute
Ferrlecit in the U.S. and several other countries for a period of ten years
after market authorization has been granted by FDA. R&DL filed its NDA in
December 1997. See "--Government Regulations--NDA Process."
Other Products
Nifedipine OD. In the U.K., the Company is currently marketing a branded
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 approximately $74.0
million investment in product development over the past three fiscal years,
the Company has 24 ANDAs pending with FDA and over 60 products under
development internally and with third parties. The Company believes that this
increased level of investment in development activities should accelerate its
ANDA filings and launches in the next several years. The Company's product
development activities are conducted by 150 research and development
professionals and supported by others with expertise in manufacturing,
technology, legal, regulatory and intellectual property issues.
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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, 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.
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
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<PAGE>
companies such as Ethical and Elan; collaborative arrangements for direct
access to raw materials with, among others, Johnson Matthey and Abbott; and
sales and marketing arrangements with companies such as Bayer Corporation,
Elensys and MGI. The Company has recently entered into a non-binding letter of
intent regarding Cheminor and Reddy. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The Company has signed a non-binding letter dated October 7, 1997 with
Cheminor and Reddy outlining the parties' intent to enter into a strategic
alliance agreement. As part of the contemplated arrangement, Cheminor could
purchase shares of the Company's Common Stock, once the shares are publicly
traded, at fair market value; the purchase price could be payable from the
profits otherwise due Cheminor from the alliance. Cheminor would have certain
rights to acquire additional shares from time to time, at fair market value,
to maintain its percentage interest in the Company. In addition, Cheminor
would have representation on the Company's Board of Directors consistent with
its equity investment through the purchase of the Company's shares once they
are publicly traded. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" 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 11 to the Consolidated Financial Statements of the
Company.
MANUFACTURING FACILITIES
The Company's aggregate manufacturing capacity is among the largest of any
generic pharmaceutical company in the United States. The diversity and
capacity of these facilities are important elements of the 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
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<PAGE>
manufactures a variety of product forms and types, including immediate-release
and extended-release solid dosage products and sterile anti-infectives,
injectables, penicillins, cephalosporins, ophthalmics and otics. The Company
currently produces approximately four billion tablets and capsules and 75
million vials and ampules annually and has the capacity to increase production
to six billion tablets and capsules and 100 million vials and ampules
annually. This range of manufacturing capabilities allows the Company to
participate in segments of the generic industry where competition is limited.
Further, the Company's high-volume production enables it to obtain favorable
access to raw materials, which typically represent a substantial portion of
the cost of producing drug products. See "Risk Factors--Dependence on
Regulatory Approval and Compliance."
The Company is one of only two U.S. generic manufacturers with dedicated
sterile filling facilities for cephalosporin and penicillin antibiotics, which
target the high volume institutional injectable market. In addition, the
Company's ophthalmic and otic drug manufacturing facilities target higher
margin specialty markets.
In accordance with FDA requirements for manufacturers of finished
pharmaceutical products, the Company has developed strict quality control
procedures to ensure the quality and safety of its products. The Company
employs sanitary handling procedures, customized systems for monitoring and
regulating environmental conditions and back-up systems for many of the
critical steps in the production processes. The Company performs sample
testing of raw materials and packaging supplies used in manufacturing its
products and conducts on-site audits of raw material suppliers. In its
manufacturing process, the Company maintains strict quality control procedures
and believes it is in material compliance with FDA's cGMP standards. The
Company has approximately 380 employees dedicated to quality control and
quality assurance. Because developing and obtaining approval of new generic
products requires a large investment and several years of lead time, the
Company believes that companies like itself that have modern, versatile
manufacturing facilities will have a competitive advantage in responding to
market opportunities. See "Risk Factors--Dependence on Regulatory Approval and
Compliance," "Risk Factors--Pending Regulatory Matters" and "--Government
Regulations."
The Company does not manufacture the active pharmaceutical ingredients used
in the preparation of its products. Instead, the Company purchases these
active pharmaceutical ingredients from international and domestic sources. FDA
requires pharmaceutical manufacturers to identify in their drug applications
the supplier(s) of all the raw materials for its products. If raw materials
for a particular product become unavailable from an approved supplier
specified in a drug application, any delay in the required FDA approval of a
substitute supplier could interrupt manufacture of the product, which could
materially and adversely affect the Company's profit margins and market share
for the product. To the extent practicable, the Company attempts to identify
more than one supplier in each drug application. However, in the case of
certain products (including certain products that contribute (or may
contribute) significantly to its sales and net income), the Company has
submitted drug applications that identify only one supplier. The Company has a
program of identifying alternative suppliers where practicable and, in many
cases, filing supplemental applications with FDA for approval.
The Company obtains a significant portion of its raw materials from
international suppliers. Arrangements with international raw material
suppliers are subject, among other things, to FDA, customs and other
government clearances, various duties and regulation by the country of origin.
The Company has a number of collaborative arrangements for exclusive access to
some difficult to source products.
SALES AND MARKETING
The Company believes that it has one of the largest direct sales and
marketing forces in the generic drug industry, with approximately 90 field
representatives, 20 telemarketing representatives and 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
44
<PAGE>
stores; wholesale distributors; managed care providers, including group
purchasing organizations, HMOs and mail order companies; alternative site
customers, such as long term care companies, home infusion companies and
surgery centers; and medical/surgical suppliers.
Most pharmaceuticals today are sold through national and regional
wholesalers, who command approximately 80% of the U.S. drug distribution
market. While pharmaceutical products are typically distributed via these
wholesalers, pharmaceutical companies often directly enter into contracts with
the retail chains, managed care and institutional customers covering the
actual acquisition price. Under these arrangements, wholesalers often serve as
depots for substantially all of a customer's product needs, allowing it to
maintain minimal inventories and receive overnight deliveries of several
manufacturers' products from a single source. Currently, approximately 64% of
the Company's net revenues are sold through wholesalers, with approximately
82% of these net revenues subject to direct contracts between the Company and
its customers. In general, it is the Company's strategy to seek to enter into
purchase contracts with retail, managed care and institutional customers.
Sales to Bergen Brunswig Corporation, Cardinal Health, Inc. and McKesson Drug
Company accounted for 17%, 16% and 11%, respectively, of the Company's total
net revenues for the nine months ended September 1997.
In August 1997, Cardinal Health Inc. announced its intention to merge with
Bergen Brunswig Corporation. In addition, McKesson Corporation announced its
intention to merge with AmeriSource Corporation in September 1997. The pending
mergers among the four largest pharmaceutical wholesalers in the U.S., if
consummated, would result in greater consolidation of the pharmaceutical
wholesaling industry and may intensify competitive pricing and other
competitive pressures on generic pharmaceutical manufacturers. Specifically
for Schein, if the Cardinal Health--Bergen Brunswig merger is consummated,
this combined customer would have accounted for approximately 33% of the
Company's total net revenues for the nine months ended September 1997.
The vast majority of the Company's products are sold under the "Schein
Pharmaceutical," "Marsam Pharmaceuticals" and "Steris Laboratories" labels. In
addition, the Company sells a limited number of products to distributors under
private labels.
The Company directs its sales and marketing activities through programs
specific to its generic product and branded product businesses.
GENERIC PRODUCTS
The Company 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.
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.
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<PAGE>
. The Company offers a patient compliance program through which consumers
receive prescription refill reminders from their pharmacies.
. The Company has designed the Generic Acceptance and Intervention Network
("G.A.I.N."), 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, 16 of Bayer's specialty sales representatives in the United
States and Puerto Rico, on a full-time equivalent basis 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
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.
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<PAGE>
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 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
47
<PAGE>
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.
48
<PAGE>
PENDING REGULATORY MATTERS
In early 1996, FDA conducted an inspection of the operations of the
Company's subsidiary, Steris, located in Phoenix, Arizona. At the conclusion
of that inspection, FDA identified various cGMP manufacturing and reporting
deficiencies in Steris' operations. Steris was advised by FDA that it will not
approve any ANDAs for products manufactured at the Steris facility until FDA
confirms that the manufacturing and reporting deficiencies have been
corrected. Ten of the Company's pending ANDAs have been filed from the Steris
facility. Following the 1996 inspection, Steris implemented numerous measures
to correct these deficiencies and place Steris in compliance with applicable
FDA manufacturing and reporting requirements.
In July 1997, FDA conducted a follow-up inspection of the Steris facility.
At the conclusion of that inspection, FDA identified additional cGMP
deficiencies at the Steris facility. Steris has implemented measures intended
to correct these deficiencies and believes that a full reinspection will be
required before FDA will approve ANDAs for new products manufactured at the
Steris facility. While the Company is currently discussing with FDA the timing
of this reinspection, no assurance can be given as to when it will take place.
Since the July 1997 inspection, Steris has provided FDA with information
concerning the completion of corrective action measures it has implemented and
the status of measures not yet completed. Recently, FDA requested that Steris
provide a time frame for completion of corrective action measures still in
progress. Steris intends to provide FDA with the information it has requested
and to seek a timely reinspection of its facilities. In early 1998, FDA issued
a Warning Letter relating to the deficiencies observed in the 1997 inspection.
Following the 1996 inspection of Steris, FDA's Office of Regulatory Affairs
staff commenced an investigation of Steris' operations that focused primarily
on drug stability issues, including Steris' alleged failure to notify FDA on
an adequate and timely basis of drug stability problems with respect to
certain products manufactured at the Steris facility. On the basis of this
investigation, the DOJ notified Steris in a letter dated July 28, 1997 that
the alleged reporting deficiencies constituted serious breaches of regulatory
obligations and indicated that it would be willing to negotiate a settlement
of the alleged violations with Steris. On February 5, 1998, Steris entered
into a plea agreement, requiring Steris to pay a fine of $1.0 million and
pleading quilty to misdemeanor violations for failure to observe application
reporting requirements for two drugs during 1994 and 1995. While the Company
does not expect any other sanctions to arise in respect of this matter, any
such sanctions could have a material adverse effect on the Company's business,
results of operations and financial condition.
In 1995, FDA inspected the operations of the Company's subsidiary, Danbury,
which operates facilities in Carmel, New York and Danbury, Connecticut. As a
result of observations made by FDA relating to Danbury's compliance with cGMP
requirements and the integrity of the data submitted by Danbury in support of
certain ANDAs, Danbury voluntarily audited all data submitted in connection
with 26 of its pending or approved ANDAs. Since the 1995 inspection, FDA has
continued to approve ANDAs for products manufactured by Danbury. From August
to October 1997, FDA reinspected Danbury's facilities. FDA observed certain
cGMP deficiencies which the Company has corrected in a manner satisfactory to
FDA. FDA is currently conducting an additional inspection of those facilities,
which involves primarily evaluations of the ANDA audits and the procedural
changes Danbury instituted to remedy cGMP deficiencies observed during the
1995 FDA inspection. During the course of the inspection, FDA has noted
deficiencies relating to certain testing records.
In June 1997, FDA conducted an ANDA preapproval and cGMP inspection at the
Company's Marsam subsidiary, located in Cherry Hill, New Jersey. Although the
inspection focused primarily on issues relating to the manufacture of certain
drug products that are the subject of five pending ANDAs, the inspection also
included an examination of Marsam's general compliance with cGMP requirements.
Marsam was informed at the conclusion of the inspection that FDA intended to
withhold approval of the five ANDAs until certain alleged cGMP deficiencies
are corrected. Marsam has provided FDA with information it believes
demonstrates that the alleged deficiencies are not significant and that
corrective measures have been implemented. A follow-up inspection was
conducted to determine whether these corrective actions have been implemented
satisfactorily. Based upon the results of this inspection, FDA has informed
Marsam that its corrective actions are satisfactory
49
<PAGE>
and that FDA is prepared to grant approvals of qualified ANDAs. Seven of the
Company's pending ANDAs have been filed from the Marsam facility.
OTHER REGULATION
The Prescription Drug Marketing Act (the "PDMA"), which amends various
sections of the FDCA, imposes requirements and limitations upon drug sampling
and prohibits states from licensing distributors of prescription drugs unless
the state licensing program meets certain federal guidelines that include,
among other things, state licensing of wholesale distributors of prescription
drugs under federal guidelines that include minimum standards for storage,
handling and record keeping. In addition, the PDMA sets forth civil and
criminal penalties for violations of these and other provisions. Various
sections of the PDMA are still being implemented by FDA and the states.
Nevertheless, failure by the Company's distributors to comply with the
requirements of the PDMA could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Risk Factors--
Dependence on Regulatory Approval and Compliance" and "Risk Factors--Pending
Regulatory Matters."
Manufacturers of marketed drugs must comply with cGMP regulations and other
applicable laws and regulations required by FDA, the Drug Enforcement Agency,
the Environmental Protection Agency and other regulatory agencies. Failure to
do so could lead to sanctions, which may include an injunction suspending
manufacturing, the seizure of drug products and the refusal to approve
additional marketing applications. Manufacturers of controlled substances are
also subject to the licensing, quota and regulatory requirements of the
Controlled Substances Act. Failure to comply with the Controlled Substances
Act and the regulations promulgated thereunder could subject the Company to
loss or suspension of those licenses and to civil or criminal penalties. The
Company seeks to ensure that any third party with whom it contracts for
product manufacturing or packaging will comply with cGMPs with which the
Company must also comply. FDA conducts periodic inspections to ensure
compliance with these rules. However, there can be no assurance that any such
third parties will be found to be in compliance with cGMP standards. Any such
non-compliance could result in a temporary or permanent interruption in the
development and testing of the Company's planned products or in the marketing
of approved products, as well as increased costs. Such non-compliance could
have a material adverse effect on the Company's business, results of
operations and financial condition.
Products marketed outside the United States, which are manufactured in the
United States, are subject to certain FDA regulations as well as regulation by
the country in which the products are to be sold. The Company is required to
obtain approval for and maintain compliance with applicable regulations
relating to the marketing of its products outside the United States. There can
be no assurance that any such approval may be obtained or such compliance
maintained.
PRODUCT LIABILITY; INSURANCE
The testing, manufacturing and distribution of the Company's products
involve a risk of product liability claims. Pursuant to the Company's various
insurance policies, the Company is self-insured up to the first $500,000 of
claims for each occurrence and $2,500,000 in the aggregate per policy year.
Although no assurance can be given, the Company believes that its product
liability insurance is adequate. Product liability insurance, however, could
cease to be available or could cease to be available on acceptable terms,
either as a function of the market for product liability insurance for
pharmaceutical companies or the Company's own claims experience. See "Risk
Factors--Risk of Product Liability Claims; No Assurance of Adequate
Insurance."
EMPLOYEES
At December 1997, the Company had approximately 1,850 employees, of which
800 were engaged in manufacturing, 380 were engaged in quality control and
quality assurance, 250 were engaged in administration, 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
50
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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.
51
<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................. 50 Executive Vice President, Chief Financial
Officer and Director
Javier Cayado................... 52 Senior Vice President, Technical Operations
Paul Feuerman................... 38 Senior Vice President, General Counsel, and
Director
Paul Kleutghen.................. 45 Senior Vice President, Strategic
Development
David R. Ebsworth*.............. 43 Director
Richard L. Goldberg*............ 62 Director
</TABLE>
- --------
* Members of the Compensation Committee.
Martin Sperber has been Chairman, Chief Executive Officer, President and
Director of the Company since 1989. From 1985 until 1989, Mr. Sperber was
President and Chief Operating Officer of the Company. Mr. Sperber has been
employed in various positions in the Schein organization for over 40 years.
Mr. Sperber is a member of the Board of the Generic Pharmaceutical Industry
Association, a member of the Board of the American Foundation for
Pharmaceutical Education, a member of the American Pharmaceutical Association
and a member of the Council of Overseers of the Long Island University Arnold
and Marie Schwartz College of Pharmacy. Mr. Sperber received his B.S. degree
in Pharmacy from Columbia University.
Dariush Ashrafi has been Executive Vice President and Chief Financial
Officer since October 1995, and Director since September 1997 and from May
1995 until September 1995 was Senior Vice President and CFO. From 1990 to
1995, Mr. Ashrafi was Senior Vice President, Chief Financial Officer and
director of The Warnaco Group, Inc., an apparel company. Prior to joining
Warnaco, he spent 18 years with Ernst & Young and became a partner in 1983.
Mr. Ashrafi received his B.S. degrees in Aeronautical and Astronautical
Engineering and in Management Science from the Massachusetts Institute of
Technology and his M.S. in Finance from the Massachusetts Institute of
Technology Sloan School.
Javier Cayado has been Senior Vice President of Technical Operations of the
Company since February 1998. From 1993 to 1998, Mr. Cayado was Vice President
and General Manager of Danbury Pharmacal, a wholly owned subsidiary of the
Company. Prior to joining Schein in 1993, Mr. Cayado had a 14-year career with
Pfizer Pharmaceutical culminating with his assignment as General Manager of
Pfizer's bulk chemical and pharmaceutical products plants in Puerto Rico. He
received his B.S. in Chemical Engineering from the University of Connecticut.
Paul Feuerman has been General Counsel since 1991. He has been a Vice
President of the Company since January 1992, Senior Vice President since
February 1997, and a Director since September 1997. Mr. Feuerman previously
was associated with the law firm of Proskauer Rose LLP. He received his B.A.
from Trinity College and his J.D. from Columbia Law School.
Paul Kleutghen has been Senior Vice President of Strategic Development of
the Company since February 1998. From 1993 to 1998, he was Vice President of
Business Development. Between 1989 and 1993, he was Vice President of
Materials and Operations. Prior to joining Schein, Mr. Kleutghen was with
Pfizer Pharmaceutical culminating with his assignment as Director of
Production Planning for the U.S. pharmaceutical division. Mr. Kleutghen earned
an undergraduate degree in Engineering and Computer Science from the
University of Leuven in Belgium and an MBA in Finance from the University of
Chicago.
52
<PAGE>
David R. Ebsworth became a Director of the Company in September 1994 as part
of Bayer Corporation's investment in the Company. He is currently Executive
Vice President, Bayer Corporation and President, Pharmaceutical Division North
America. Between 1983 and 1993, Dr. Ebsworth held various management and sales
marketing positions with the Bayer companies in Germany and Canada. Dr.
Ebsworth received his B.S. and Doctor of Philosophy degrees from the
University of Surrey (England).
Richard L. Goldberg has been a director of the Company since September 1994.
He is currently a Senior Partner at Proskauer Rose LLP and has been a member
of that law firm since 1990. Prior to 1990, he was a Senior Partner at Botein
Hays & Sklar. Mr. Goldberg is also a member of the Board of Directors of
Comtech Telecommunications Corp. (NASDAQ). He is a graduate of Brooklyn
College and received his J.D. from Columbia Law School.
BOARD OF DIRECTORS
The Board of Directors has five directors, three of whom--Martin Sperber,
Dariush Ashrafi and Paul Feuerman--are also officers of the Company and two of
whom--David R. Ebsworth and Richard L. Goldberg--are not officers of the
Company.
The Company's certificate of incorporation that will be 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'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" and "Risk Factors--Control of the Company."
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
53
<PAGE>
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 (a) $ 9,436 -- -- $10,880 (3)
Chairman of the Board of 1996 700,000 -- 9,929 -- -- 10,305 (3)
Directors, Chief
Executive Officer and
President
Marvin Samson............ 1997 400,000 (a) 2,659 215,250 -- 24,754 (4)
Former Executive Vice 1996 400,000 70,000 -- 24,600 -- 37,786 (4)
President
Dariush Ashrafi.......... 1997 341,000 (a) 10,300 67,650 $ 75,000 22,709 (5)
Executive Vice 1996 341,000 59,700 143,725 24,600 75,000 24,321 (5)
President, Chief
Financial Officer and
Director
Javier Cayado............ 1997 220,000 (a) 398 12,300 100,000 29,343 (6)
Senior Vice President 1996 219,842 40,500 969 12,300 125,000 16,910 (6)
Technical Operations
Paul Feuerman............ 1997 225,000 (a) 8,596 18,450 100,000 17,625 (7)
Senior Vice President, 1996 185,000 32,400 7,738 24,600 100,000 13,799 (7)
General Counsel and
Director
Paul Kleutghen........... 1997 211,000 (a) 9,362 10,455 100,000 36,531 (8)
Senior Vice President 1996 211,000 38,800 24,415 24,600 100,000 47,115 (8)
Strategic Development
</TABLE>
- --------
(a) Determination of the 1997 bonus amounts are pending finalization of 1997
operating results.
(1) The compensation described in this table does not include medical, dental
or other benefits available generally to all salaried employees of the
Company, as well as certain perquisites and other personal benefits, the
value of which does not exceed the lesser of $50,000 or 10% of the named
executive officer's total salary and bonus reported in this table. Non-
employee directors may receive annual grants of options to purchase shares
of the Company's Common Stock or meeting fees pursuant to the Non-Employee
Director Plan. To date, no meeting fees have been paid to non-employee
directors. See "--Stock Options."
(2) LTIP payouts, reflect Long Term Incentive Plan ("LTIP") payments pursuant
to various deferred compensation agreements.
54
<PAGE>
(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) Marvin Samson served as the Company's Executive Vice President until
January 7, 1998. In 1997 All Other Compensation includes $15,333 for the
value of the Life Insurance Plan, $8,000 for the Company Retirement Plan
discretionary contribution, $1,200 for the Company Retirement Plan
matching contribution and $221 for the cost of term life insurance
coverage provided by the Company. In 1996 All Other Compensation includes
$16,660 for the Supplemental Retirement Plan contribution, $12,467 for the
value of the Life Insurance Plan, $7,500 for the Company Retirement Plan
discretionary contribution, $909 for the cost of term life insurance
coverage provided by the Company and $250 for the Company Retirement Plan
matching contribution.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) Michael Casey served as the Company's Executive Vice President until
September 5, 1997. In 1997 Mr. Casey received $242,308 in Salary, options
covering 104,550 shares of Common Stock, $75,000 in LTIP payouts and
$1,984 in All Other Compensation. All Other Compensation includes $1,200
for the Company Retirement Plan matching contribution and $784 for the
cost of term life insurance provided by the Company. After Mr. Casey left
the Company he received additional payments totaling $60,577. In 1996 Mr.
Casey received $326,442 in Salary, $61,300 in Bonus, $102,309 in Other
Annual Compensation, options covering 24,600 shares of Common Stock,
$75,000 in LTIP payouts and $9,477 in All Other Compensation. All Other
Compensation includes $7,260 for the Company Retirement Plan discretionary
contribution, $1,125 in for the Company Retirement Plan matching
contribution and $1,092 for the cost of term life insurance coverage
provided by the Company.
(10) James McGee served as the Company's Executive Vice President and Chief
Operating Officer until December 31, 1996. In 1997 after Mr. McGee left
the Company he received additional payments totaling $1,527,461. In 1996
Mr. McGee received $431,000 in Salary, $75,400 in Bonus $98,825 in Other
Annual Compensation, options covering 24,600 shares of Common Stock,
$2,000,000 in LTIP payments and $180,833 in All Other Compensation. All
Other Compensation includes $104,540 for a forgiven equity loss loan,
$44,670 for the value of the Life Insurance Plan, $21,550 for the
Supplemental Retirement Plan contribution, $7,500 for the Company
Retirement Plan discretionary contribution, $1,448 for the cost of term
life insurance coverage provided by the Company, and $1,125 for the
Company Retirement Plan matching contribution.
55
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------- ---------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED 1997 SHARE DATE 5% 10%
---- ------------------ --------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Martin Sperber.......... -- -- -- -- -- --
Dariush Ashrafi......... 67,650 6.5% $12.20 2007 [ ] [ ]
Paul Feuerman........... 18,450 1.8 12.20 2007 [ ] [ ]
Jay Cayado.............. 12,300 1.2 12.20 2007 [ ] [ ]
Paul Kleutghen.......... 10,455 1.0 12.20 2007 [ ] [ ]
Marvin Samson........... 215,250 20.7 12.20 2007 [ ] [ ]
Michael Casey........... 104,550 10.1 12.20 2007 [ ] [ ]
</TABLE>
FISCAL YEAR--END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END
SHARES ACQUIRED ------------------------- -------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin Sperber.......... -- -- 589,785 -- [ ] [ ]
Dariush Ashrafi......... -- -- 42,558 135,792 [ ] [ ]
Paul Feuerman........... -- -- 29,766 40,344 [ ] [ ]
Jay Cayado.............. -- -- 28,659 26,691 [ ] [ ]
Paul Kleutghen.......... -- -- 35,670 33,825 [ ] [ ]
Marvin Samson........... -- -- 8,118 231,732 [ ] [ ]
Michael Casey........... -- -- 42,681 -- [ ] [ ]
James McGee............. -- -- 562,971 -- [ ] [ ]
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Martin Sperber dated
September 30, 1994 pursuant to which Mr. Sperber serves as Chairman of the
Board, Chief Executive Officer and President of the Company. Under this
agreement, the term of Mr. Sperber's employment commenced on January 1, 1994
and terminates on January 1, 1999, unless earlier terminated by the death of
Mr. Sperber, by action of the Board of Directors with or without cause, due to
the disability of Mr. Sperber or by Mr. Sperber upon 30 days written notice or
a material breach by the Company of his employment or stock option agreement
that is not cured within 30 days. If Mr. Sperber is terminated without cause,
in addition to all accrued but unpaid compensation to the date of termination,
he is entitled to receive as severance compensation his base salary from the
date of termination through January 1, 1999 and an amount equal to the product
of (i) a fraction, the numerator of which is the amount of earned incentive
compensation for the last full year before termination and the denominator of
which is 365 and (ii) the number of days from termination until January 1,
1999. If Mr. Sperber voluntarily terminates his employment prior to January 1,
1999 (other than for an uncured breach by the Company), he is only entitled to
such severance pay as is determined by the Compensation Committee. Mr. Sperber
currently receives base annual compensation of $700,000. Mr. Sperber may also
receive incentive compensation in an amount to be determined by the
Compensation Committee. If Mr. Sperber's employment is terminated prior to
January 1, 1999, such incentive compensation shall be based on objective
criteria established by the Compensation Committee or $250,000 plus the
product of (x) the fraction derived by dividing (i) the sum of the actual cash
incentive compensation earned by each of the three most senior executives of
the Company other
56
<PAGE>
than Mr. Sperber in the year Mr. Sperber's employment is terminated less the
sum of the minimum cash incentive compensation contemplated for such
executives for such year, by (ii) the sum of the maximum cash incentive
compensation contemplated for such executives for such year less the sum of
the minimum cash incentive compensation contemplated for such executives for
such year and (y) $250,000. Mr. Sperber is prohibited from competing with the
Company during the term of the agreement and until the second anniversary of
the date the Company makes its final base salary payment to Mr. Sperber
pursuant to the agreement.
Following termination of Mr. Sperber's employment other than for cause, Mr.
Sperber will be entitled during his lifetime and for the life of his spouse to
continue to participate in, or receive benefits that, on an after-tax basis,
are the same as those under all medical and dental benefit plans, policies and
programs in effect at the termination of his employment. In addition, unless
Mr. Sperber's employment is terminated for cause, Mr. Sperber will be entitled
to a pension, beginning after the termination of his employment and continuing
until the later of the death of Mr. Sperber or his spouse, in an amount equal
to 45% of the average total cash compensation for the highest three of the
last five years prior to termination, reduced generally by the sum of the
amount Mr. Sperber would be entitled to receive under all of the Company's
qualified retirement plans within the meaning of Section 401(a) of the
Internal Revenue Code and under Social Security if he commenced receiving such
benefit payments at age 65. See "--Stock Options."
The Company entered an Option Agreement with Mr. Sperber dated September 30,
1994 under which Mr. Sperber was granted, as a key employee pursuant to the
Company's 1993 Stock Option Plan, a non-qualified option to purchase from the
Company up to 589,785 shares of Common Stock at a price of $16.20 per share.
The option expires on the earlier of September 30, 2004 or upon Termination of
Employment (as defined in the 1993 Stock Option Plan). In the event of Mr.
Sperber's death, disability, retirement or termination without cause, the
option remains exercisable for one year (but may be extended by the Company at
its discretion). Upon termination of Mr. Sperber's employment for cause (or
discovery of justification for termination for cause after termination for
another reason), all outstanding options are immediately cancelled. In the
event Mr. Sperber's employment is terminated for any other reason, all
outstanding options will remain exercisable for three months from the date of
termination (but may be extended at the discretion of the Company).
The Company entered into an employment agreement with Dariush Ashrafi dated
May 1, 1995, pursuant to which Mr. Ashrafi serves as Executive Vice President
and Chief Financial Officer of the Company. Under this agreement, the term of
Mr. Ashrafi's employment began on May 1, 1995 and terminates 60 days after
either Mr. Ashrafi or the Company gives written notice that he or it does not
wish to continue the employment, unless earlier terminated for cause or upon
the death or disability of Mr. Ashrafi. Mr. Ashrafi currently receives annual
base compensation of $341,000. In 1997, the Company's Board of Directors
determined to award a $[ ] 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. Mr. Feuerman currently
receives annual base compensation of $225,000. In 1997, the Company's Board of
Directors determined to award a $[ ] 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 each
followed
57
<PAGE>
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. Mr. Cayado currently receives
annual base compensation of $220,000. In 1997, the Company's Board of
Directors determined to award a $ 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. Mr. Kleutghen
currently receives annual base compensation of $211,000. In 1997, the
Company's Board of Directors determined to award a $ 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 is entitled to receive as severance a lump sum payment, some portion
of his annual base salary as and when bonuses are paid to certain senior
executives in respect of fiscal 1997 and continuing health and dental
insurance coverage. Until December 31, 1998, Mr. McGee will serve as a
consultant to the Company and is entitled to receive base consulting fees
equal to his annual base salary of $400,000, plus an additional consulting fee
equal to some portion of his annual base salary to be paid as and when bonuses
are paid to senior executive officers of the Company in respect of fiscal
1998.
Pursuant to an agreement dated July 28, 1995, Marvin Samson was appointed an
Executive Vice President and Director of the Company, as well as President,
Chief Executive Officer and Chief Operating Officer of Marsam. Mr. Samson
ceased to be an employee and director of the Company on January 7, 1998. Mr.
Samson's agreement provides, under varying circumstances, for annual payments
ranging between $200,000 and $400,000, and certain insurance and automobile
benefits, over a period of no more than three years from cessation of his
employment.
58
<PAGE>
Mr. Samson also is entitled to receive pension payments ranging from
$200,000 to $400,000 for a period of no more than ten years from cessation of
his employment. The Company has also agreed to provide certain benefits to Mr.
Samson in the form of payments on a split dollar life insurance contract
insuring the lives of Mr. Samson and his wife.
STOCK OPTIONS
The Company's 1997 Stock Option Plan (the "1997 Plan") provides for the
granting of options to purchase not more than an aggregate of 3,370,200 shares
of Common Stock, subject to adjustment under certain circumstances. In
addition, the Company's 1993 Stock Option Plan (the "1993 Plan") provided for
the granting of options to purchase not more than an aggregate of 3,370,200
shares of Common Stock, subject to adjustment under certain circumstances. In
addition, the Company's 1995 Non-Employee Director Stock Option Plan (the
"Non-Employee Director Plan" and, together with the 1997 Plan and the 1993
Plan, the "Stock Option Plan") provides for the granting of options to
purchase not more than an aggregate of 123,000 shares of Common Stock, subject
to adjustment under certain circumstances. Although options granted under the
1993 Plan to purchase 3,109,194 shares are still outstanding, no further
grants will be made pursuant to the 1993 Plan. Some or all of the options
granted under the 1997 Plan may be "incentive stock options" within the
meaning of section 422 of the Internal Revenue Code of 1986 (the "Code"). The
Company has granted options to purchase 529,146 shares under the 1997 Plan at
the then fair market value and plans to grant additional options to
purchase shares of Common Stock under the 1997 Plan prior to or at the
completion of the Equity Offering at an exercise price equal to the public
offering price.
The Compensation Committee administers the 1997 Plan. The Compensation
Committee has full power and authority to interpret the 1997 Plan, set the
terms and conditions of individual options and supervise the administration of
the 1997 Plan.
The Compensation Committee determines, subject to the provisions of the 1997
Plan, to whom options are granted, the number of shares of Common Stock
subject to an option, whether stock options will be incentive or non-
qualified, the exercise price of the options (which, in the case of non-
qualified options, may be less than the fair market value of the shares on the
date of grant) and the period during which options may be exercised. All
employees of the Company are eligible to participate in the 1997 Plan. No
options may be granted under the 1997 Plan after March 3, 2007.
The Compensation Committee may amend the 1997 Plan from time to time.
However, the Compensation Committee may not, without stockholder approval,
amend the 1997 Plan to increase the number of shares of Common Stock under the
1997 Plan (except for changes in capitalization as specified in the 1997
Plan).
The Non-Employee Director Plan provides for automatic annual grants of
options to purchase shares of the Company's Common Stock to non-employee
directors of the Company in amounts calculated using a formula provided in the
plan. The Company has granted options to purchase 26,445 shares of Common
Stock under the Non-Employee Director Plan and plans to grant 11,070
additional options to purchase shares of Common Stock under the Non-Employee
Director Plan to certain directors prior to or at the completion of the 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).
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
59
<PAGE>
on the first day of the first pay period after completing six consecutive
calendar months during which they complete at least 500 hours of service.
Effective July 1, 1996, the Company Retirement Plan became the successor to
the Marsam Pharmaceuticals Retirement Plan.
Participants generally may make basic contributions to the Company
Retirement Plan, by salary deduction, of up to 14% of their compensation from
the Company, subject to applicable federal tax limitations ($10,000 for the
1998 plan year, subject to cost of living adjustments); the amount of a
participant's basic contribution is generally excluded from gross income for
federal or state income tax purposes. In 1998 the Company will make a
mandatory matching contribution to the Company Retirement Plan of $0.50 for
each dollar contributed to the Company Retirement Plan as a basic
contribution, up to the first 6% of a participant's contribution; the Company
also may make additional matching contributions and may make other non-
matching contributions to the Company Retirement Plan at the discretion of the
Board of Directors. In 1998, the Company will make a discretionary, non-
matching contribution under the Company Retirement Plan for 1997 equal to 5%
of compensation (as defined in the Company Retirement Plan).
Participants in the Company Retirement Plan will be permitted to invest up
to 5% of their account balance in Common Stock at the Equity Offering price.
Participants will be allowed to sell their shares of Common Stock at any time,
however, they will not be permitted to purchase additional shares of Common
Stock at this time.
Participants in the Company Retirement Plan have a 100% vested and
nonforfeitable interest in the value of their basic contribution and the
Company's matching contribution, and they acquire a 100% vested and
nonforfeitable interest in the Company's non-matching amounts at retirement,
death, disability or termination pursuant to an employee reduction plan. If
their employment terminates prior to the normal retirement date for any other
reason, participants acquire a 10% vested and nonforfeitable interest in the
Company's non-matching contribution amounts for each of the first four years
of service; and a 20% vested and nonforfeitable interest in the Company's non-
matching contribution amounts for each of the fifth, sixth and seventh years
of service; accordingly, after seven years of service, participants have a
100% vested and nonforfeitable interest in the value of the Company's non-
matching contribution amounts.
Participants are entitled to receive the amounts in their Company Retirement
Plan accounts in a single lump-sum payment on death, disability, retirement or
termination of employment. At the election of the participant, the
participant's Company Retirement Plan account is eligible for payment in
installments of either 5 or 10 years. In certain circumstances, participants
may receive loans and hardship withdrawals from their accounts in the Company
Retirement Plan.
Supplemental Retirement Plan. The Company maintains a Supplemental
Retirement Plan (the "Supplemental Retirement Plan"). Under the Supplemental
Retirement Plan, the Company pays non-qualified deferred compensation to
certain of its employees consisting of benefits based on annual compensation
in excess of limitations imposed by the Code on contributions under the
Company Retirement Plan. The Supplemental Retirement Plan is an unfunded
"pension benefit plan" subject to the Employee Retirement Income Security Act
of 1974, as amended.
Split Dollar Life Insurance Plan. The Company maintains a Split Dollar Life
Insurance Plan (the "Life Insurance Plan"). Under the Life Insurance Plan,
each participating officer owns a life insurance policy. Each policy is
designed to provide at age 65 an annuity equal to a specified percentage of
the participant's projected average annual salary for the final three years of
employment (less Social Security benefits and certain benefits under the
Company Retirement Plan and Supplemental Retirement Plan). A cash surrender
value, which is owned by the individual and designed to fund the annuity,
accumulates under each participant's policy. The Company and the employee will
share the cost of premiums. The premiums advanced by the Company will be
repaid out of the cash value of the policies or the proceeds of the death
benefits.
1993 Book Equity Appreciation Rights Program. The Company maintains a Book
Equity Appreciation Rights Program (the "Program") to allow certain employees
to benefit from an increase in the Company's book
60
<PAGE>
value (calculated according to a formula defined in the Program). All
participants are fully vested in their book equity appreciation rights
("BEARs"). The Company does not intend to make any additional grants of BEARs.
1998 Employee Stock Purchase Plan. The Company adopted an Employee Stock
Purchase Plan on January 23, 1998, which provides employees an opportunity to
purchase stock of the Company through payroll deductions upon completion of
the Equity Offering. Employees may elect to withhold from 1% to 20% of their
compensation and purchase Common Stock directly from the Company. Each
employee's annual purchase is limited to Common Stock with a fair market value
of $25,000 per year, which Common Stock will be purchased at 85% of the fair
market value of the Stock. The maximum number of shares of the Company's
Common Stock available for purchase under the plan is 500,000 shares.
61
<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 1994 to 1997 in exchange for promotional
support, the Company shared with Bayer the net profits of INFeD in excess of
specified threshold amounts. In early 1998, this agreement was amended and
extended to December 1998. This amended agreement provides that in exchange
for promotional support, the Company pays Bayer Corporation a fixed dollar
amount plus a fixed percentage of sales above a threshold amount. The Company
incurred selling expenses under these agreements of approximately $3.0 million
in 1996. There were no selling expenses under the first agreement for 1995.
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 and 1996, the Company invested approximately $3.5 million and
$2.0 million, respectively, to acquire up to a 50% interest in each of several
international pharmaceutical businesses. These businesses are jointly owned
with subsidiaries of Bayer AG, the parent of Bayer Corporation, a minority
investor in the Company. The Company recorded losses of approximately $0.3
million and $3.4 million in 1995 and 1996, 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 and $2.9
million in 1995 and 1996, respectively, to identify, evaluate, and establish
these and other potential international business ventures. Each of Bayer and
Schein currently is evaluating the extent of its continued participation in
certain of these ventures.
In 1997, the Company, together with the Pharmaceutical, Consumer Healthcare,
Afga Film and Diagnostics divisions of Bayer Corporation, has created a
collaboration called Bayer Healthcare Partners. Bayer Healthcare Partners is a
marketing tool through which the various participants combine their sales
efforts to offer a package of goods and services designed to be more
attractive to a customer, most likely a managed healthcare provider. The
participants share in the costs and profits associated with sales of the
covered products to the customer. In the last six months of 1997, the Company
incurred expenses of approximately $100,000.
In the conduct of its business, the Company sells pharmaceutical products to
Henry Schein, Inc. for distribution to its customers. Net sales to Henry
Schein, Inc. were $6.4 million, $5.3 million and $8.6 million in 1994, 1995
and 1996, respectively. 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.
62
<PAGE>
In connection with Mr. Ashrafi's relocation, the Company loaned Mr. Ashrafi
$150,000 at an interest rate of 6.875% per annum evidenced by a promissory note
dated May 31, 1996. As of September 1997, an aggregate principal amount of
$150,000 was outstanding on that loan.
Richard L. Goldberg, who is a Director of the Company, is a member of
Proskauer Rose LLP, which has been retained by the Company to provide legal
services. See "Legal Matters."
63
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of December 27, 1997, 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)........................................ 24,019,809 70.9%
Marvin H. Schein (5) (6).................................. 11,072,460 32.7%
135 Duryea Road
Melville, NY 11747
Bayer Corporation......................................... 9,537,666 28.2%
100 Bayer Road
Pittsburgh, PA 15205
Pamela Schein (6)......................................... 8,369,166 24.7%
Pamela Joseph (6) (7)..................................... 3,262,944 9.6%
Directors and Executive Officers as
Group (7 persons) (4) (5)................................ 24,161,136 71.4%
</TABLE>
- --------
(1) Unless otherwise indicated, the address for each person is c/o Schein
Pharmaceutical, Inc., 100 Campus Drive, Florham Park, New Jersey 07932.
(2) The persons and entities named in the table have sole voting and
investment powers with respect to all of the Common Stock shown as
beneficially owned by them, except as noted below.
(3) The 33,857,329 shares of Common Stock deemed outstanding includes:
(a) 33,611,472 shares of Common Stock outstanding or reserved for issuance
on December 27, 1997; and
(b) 2,245,857 shares of Common Stock issuable pursuant to the exercise of
options held by the respective person or group or reserved for issuance
to management, which may be exercised within 60 days after the date of
this Prospectus, as set forth below.
(4) Includes:
(a) 725,454 shares for which Mr. Sperber is either the direct beneficial
owner or holds in trusts for his family members' benefit; and
(b) 589,785 shares issuable pursuant to the exercise of stock options held
by Mr. Sperber are currently exercisable; and
(c) 22,704,570 shares 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) 11,072,460 shares for which Mr. Schein is either the direct beneficial
owner or holds in trust for his family members' benefit and or charities
for which Mr. Schein is trustee.
(6) All shares are held by Mr. Sperber as voting trustee under the Voting
Trust Agreement. See "--Restructuring Agreements."
(7) Includes 213,651 shares held in trust, of which Ms. Joseph is a principal
beneficiary.
64
<PAGE>
Restructuring Agreements
At the time of Bayer Corporation's acquisition of its 28.3% interest in the
Company, the Company, Bayer Corporation, Mr. Sperber, and certain other
principal stockholders entered into certain agreements (the "Restructuring
Agreements") relating to the governance of the Company and certain other
matters.
Agreements Relating to Control of the Company. The Restructuring Agreements
provide that, until the earlier of March 1, 2000 and the effective date of a
merger, consolidation or combination that results in the Voting Trustee
(currently Mr. Sperber) (the "Voting Trustee") neither holding the position of
chairman of the board, president, chief executive officer or chief operating
officer of the resulting entity nor having the right to designate a majority
of the members of the board of the resulting entity (such earlier date, the
"Voting Trust Termination Date"), the Voting Trustee will have the right to
vote, or direct the vote of, all the shares of Common Stock owned by Marvin
Schein, Pamela Schein and Pamela Joseph and certain trusts established by them
or for their issue (collectively, the "Family Stockholders") (i.e., % of
the outstanding shares of Common Stock immediately after the completion of the
Equity Offering, assuming the Underwriters' over-allotment option is not
exercised). As a result of the foregoing, the Voting Trustee as a practical
matter will be able to control substantially all matters requiring stockholder
approval, including the election of directors, until March 1, 2000 (without
giving effect to any future public issuance of Common Stock by the Company or
sales of Common Stock by Continuing Stockholders). The Restructuring
Agreements provide that Mr. Sperber may designate certain individuals to
succeed him as Voting Trustee under the Restructuring Agreements.
The Restructuring Agreements provide that, until the Governance Termination
Date, Bayer Corporation shall be entitled to nominate a number of members of
the Board of Directors of the Company, rounded down to the nearest whole
number (until Bayer holds more than 50% of the outstanding Common Stock, then
rounded up to the nearest whole number), equal to the product of (a) the
number of members of the Board of Directors and (b) its percentage
stockholdings of Common Stock of the Company at the time of nomination. The
Voting Trustee is entitled, until the Voting Trust Termination Date, to
nominate the balance of the members of the Board of Directors. Until May 15,
2001, the Voting Trustee and the other Continuing Stockholders (as defined
herein) (to the extent their shares of Common Stock are not voted by the
Voting Trustee) must vote for the election of Bayer Corporation's nominee(s).
Until the Voting Trust Termination Date, Bayer Corporation and the Continuing
Stockholders (to the extent their shares of Common Stock are not voted by the
Voting Trustee) must vote for the election of the Voting Trustee's nominees.
Until the earlier of May 15, 2001 and a sale of shares by Bayer Corporation
other than to a Permitted Assignee (as defined herein), the Company may not,
without Bayer Corporation's consent, among other things, (a) own, manage or
operate any business not principally engaged in a segment of the
pharmaceutical or health care industry or any business ancillary thereto, (b)
amend or restate the Company's charter or by-laws to require more than
majority approval to elect a majority of the Board of Directors, or (c) engage
in transactions with any affiliate on terms more favorable to the affiliate
than could be obtained in an arm's-length transactions, other than
intercompany transactions and transactions under or identified in 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 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, 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 and the Continuing Stockholders may
not transfer any of their shares until May 15, 1999. However, Bayer
Corporation may transfer its shares in connection with certain registration
rights granted to Bayer Corporation under the Restructuring Agreements or to a
Permitted Assignee. The Continuing Stockholders may transfer their shares as
provided in the preceding paragraph. A "Permitted Assignee" is (a) a successor
to all or substantially all the business and assets of Bayer or a majority-
owned subsidiary of Bayer Corporation who agrees to be bound by the
Restructuring Agreements, (b) 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
September 27, 1997, the Company had pre-paid $120 million of the term loan
portion of the Senior Credit Agreement and had permanently reduced the
lenders' commitments with respect thereto and had outstandings under the
revolving credit facility of approximately $26.0 million.
The Company's borrowing can be based, at the option of the Company, on a
spread above LIBOR or an alternate base rate ("ABR"). The interest rate spread
applicable to term loan and revolving credit borrowings fluctuates based on
leverage. The spread, in the case of LIBOR loans, can range from 0.75% to
2.50% and, in the case of ABR loans, from 0% to 1.50%. The ABR is based on a
per annum rate which is the greater of (i) the prime rate of the Credit Agent
(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 $13.7 million, $34.2
million, $41.0 million, and $41.1 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 initial public offering of the
Company's Common Stock 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 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 20 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 the Notes that wishes to exchange such 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) will not be able to tender
its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Old 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. The Company will provide a copy of the Registration Rights
Agreement to prospective purchasers of Notes identified to the Company by the
Initial Purchaser upon request.
The foregoing description of the Registration Rights Agreement is a summary
only, does not purport to be complete and is qualified in its entirety by
reference to all provisions of the Registration Rights Agreement.
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.
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.
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 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 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
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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 paragraph 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 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
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<PAGE>
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 and accept all properly tendered
Old Notes which have not been withdrawn.
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 Ground Level
(registered or certified mail
recommended)
Attention: Reorganization Section
Facsimile Transmission:
(212) 571-3080
Confirm by Telephone:
(212) 815-6333
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 telegraph, 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.
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 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 the 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 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 Securities Act in connection with any resale of the New
Notes and cannot rely on those no-action letters. 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 certain provisions of the Indenture and
the Notes does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Indenture
(including the definitions of certain terms therein and those terms made a
part thereof by the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act")) and the Notes. Capitalized terms used herein and not
otherwise defined have the meanings set forth in "--Certain Definitions."
Under certain circumstances, the Company will be able to designate current
or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
will not be subject to the restrictive covenants set forth in the Indenture.
As of the date of the Indenture, all of the Company's Subsidiaries other than
Schein Pharmaceutical (Netherlands) B.V., Schein Pharmaceutical (Bermuda) Ltd.
and Schein Farmaceutica de Peru will be Restricted Subsidiaries.
TERMS OF THE NOTES
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 8.9375%.
"Interest Rate Determination Date" means, with respect to each quarterly
period, the second London Banking Day prior to the first day of such quarterly
period.
"LIBOR Fraction" means the actual number of days in the quarterly period
divided by 360; provided, however, that the number of days in each quarterly
period shall be calculated by including the first day of such quarterly period
and excluding the last.
"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 unconditionally guarantee on a senior
unsecured basis the performance and punctual payment when due, whether at
maturity, by acceleration or otherwise, of all obligations of the Company
under the Indenture and the Notes. Each of the Guarantors has guaranteed the
Company's indebtedness under the Senior Credit Agreement on a senior secured
basis. The Subsidiary Guarantee of each Guarantor will be effectively
subordinated to the prior payment in full of all secured indebtedness of such
Guarantors, including secured indebtedness under the Senior Credit Agreement.
Each Subsidiary Guarantee will be limited to an amount not to exceed the
maximum amount that can, after giving effect to all other contingent and fixed
liabilities of the applicable Guarantor, be guaranteed by such Guarantor,
without rendering such Subsidiary Guarantee voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. Each Guarantor will agree to pay,
in addition to the amount stated above, any and all costs and expenses
(including reasonable counsel fees and expenses) incurred by the Trustee or
any holder of a Note in enforcing any rights under the Subsidiary Guarantee
with respect to such Guarantor.
Each Subsidiary Guarantee is a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all the Notes, (b) be binding
upon the relevant Guarantor and (c) enure to the benefit of and be enforceable
by the Trustee, the holders of Notes and their successors, transferees and
assigns.
RANKING
The indebtedness evidenced by the Notes will be senior unsecured obligations
of the Company, will rank pari passu in right of payment with all existing and
future senior indebtedness of the Company and will rank senior in right of
payment to all existing and future indebtedness of the Company that is, by its
terms, expressly subordinated to the Notes. The Notes will also be effectively
subordinated to all existing and future indebtedness of any Subsidiary of the
Company that is not a Guarantor of the Notes.
Holders of secured indebtedness of the Company, including the lenders under
the Senior Credit Agreement, will have claims with respect to the assets
constituting collateral for such indebtedness that are prior to the claims of
holders of the Notes. In the event of a default on the Notes, or a bankruptcy,
liquidation or reorganization of the Company, such assets will be available to
satisfy obligations with respect to the indebtedness secured thereby before
any payment therefrom could be made on the Notes. To the extent that the value
of such collateral is not sufficient to satisfy the indebtedness secured
thereby, amounts remaining outstanding on such indebtedness would be entitled
to share with the Notes and their claims with respect to any other assets of
the Company. As of September 27, 1997, as adjusted for the Offering, the
Company and its Restricted Subsidiaries would have had secured indebtedness of
approximately $160.6 million outstanding. The obligations of the Company and
the Guarantors under the Senior Credit Agreement are secured by substantially
all of the assets of the Company and the Guarantors. As of September 27, 1997,
as adjusted for the Initial Offering, the Company would have had approximately
$69.8 million of undrawn availability under the Senior Credit Agreement. The
Indenture will permit the Company and its Restricted Subsidiaries to incur
additional Indebtedness, including Secured Indebtedness, subject to certain
limitations.
CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each holder of Notes
shall have the right to require that the Company purchase such holder's Notes
in whole or in part in any integral multiple of $1,000, for a cash
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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 prohibits the purchase of the Notes by the Company prior to full
repayment of Indebtedness thereunder and, upon a Change of Control, all
amounts outstanding under the Senior Credit Agreement may become due and
payable. There can be no assurance that, in the event of a Change of Control,
the Company will be able to obtain the necessary consents from the lenders
under the Senior Credit Agreement to consummate a Change of Control Offer. The
failure of the Company to make or consummate the Change of Control Offer or
pay the Change of Control Purchase Price when due would result in an Event of
Default.
The existence of a right of the holder of Notes to require the Company to
purchase such holder's Notes upon a Change of Control may deter a third party
from acquiring the Company in a transaction which constitutes a Change of
Control.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
in effect on the Issue Date with respect to Indebtedness outstanding on the
Issue Date and refinancing thereof and customary default provisions) that
would materially impair the ability of the Company to make a Change of Control
Offer to purchase the Notes or, if such Change of Control Offer is made, to
pay for the Notes tendered for purchase.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any of its Restricted Subsidiaries to, incur any Indebtedness; provided,
however, that the Company may incur Indebtedness (including through the
issuance of Disqualified Capital Stock) if on the date of such incurrence the
Consolidated Coverage Ratio would be greater than (i) 2.50:1, if such
Indebtedness is incurred prior to the expiration of 24 months after the Issue
Date, and (ii) 3.00:1 if such Indebtedness is incurred on or subsequent to the
expiration of 24 months after the Issue Date.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may incur Indebtedness to the extent set forth below:
(i) the incurrence by the Company of Indebtedness under the Senior
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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 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:
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(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 of the Company was originally
incurred or issued for cash, plus the aggregate Net Cash Proceeds received
by the Company at the time of such conversion or exchange;
(v) to the extent not included in Consolidated Net Income, the net
reduction (received by the Company or any Restricted Subsidiary in cash) in
Investments (other than Permitted Investments) made by the Company and the
Restricted Subsidiaries since the Issue Date, not to exceed, in the case of
any Investments in any Person, the amount of Investments (other than
Permitted Investments) made by the Company and the Restricted Subsidiaries
in such Person since the Issue Date.
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(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 and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (C) of paragraph
(a).
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, incur, assume or suffer to
exist any Lien of any kind upon any of its property or assets (including any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary), whether
owned on the Issue Date or acquired after the Issue Date, or any income or
profits therefrom, except if the Notes (or the Guarantee of the Notes, in the
case of Liens on properties or assets of any Guarantor) and all other amounts
due under the Indenture are directly secured equally and ratably with (or
prior to in the case of Liens with respect to
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Subordinated Indebtedness) the obligation or liability secured by such Lien,
excluding, however, from the operation of the foregoing any of the following:
(a) any Lien existing as of the Issue Date;
(b) any Lien arising by reason of (i) any judgment, decree or order of
any court, so long as such Lien is in existence less than 30 days after the
entry thereof or adequately bonded or the payment of such judgment, decree
or order is covered (subject to a customary deductible) by insurance
maintained with responsible insurance companies; (ii) taxes, assessments or
other governmental charges that are not yet delinquent or are being
contested in good faith; (iii) security for payment of workers'
compensation or other insurance; (iv) good faith deposits in connection
with tenders, leases or contracts (other than contracts for the payment of
borrowed money); (v) zoning restrictions, easements, licenses,
reservations, provisions, covenants, conditions, waivers, restrictions on
the use of property or minor irregularities of title (and with respect to
leasehold interests, mortgages, obligations, liens and other encumbrances
incurred, created, assumed or permitted to exist and arising by, through or
under a landlord or owner of the leased property, with or without consent
of the lessee), none of which materially impairs the use of any property or
assets material to the operation of the business of the Company or any
Restricted Subsidiary or the value of such property or assets for the
purpose of such business; (vi) deposits to secure public or statutory
obligations, or in lieu of surety or appeal bonds with respect to matters
not yet finally determined and being contested in good faith by
negotiations or by appropriate proceedings that suspend the collection
thereof; or (vii) operation of law in favor of mechanics, materialmen,
laborers, employees or suppliers, incurred in the ordinary course of
business for sums that are not yet delinquent or are being contested in
good faith by negotiations or by appropriate proceedings that suspend the
collection thereof;
(c) any Lien now or hereafter existing on property or assets of the
Company or any Guarantor securing Indebtedness of such Person incurred
pursuant to the Senior Credit Agreement;
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or a Restricted Subsidiary; provided that any
such Lien extends only to the assets that were subject to such Lien
securing such Acquired Indebtedness prior to the related acquisition;
(e) leases or subleases granted by the Company or any of its Subsidiaries
to any other Person in the ordinary course of business;
(f) Liens in the nature of trustees' Liens granted pursuant to any
indenture governing any indebtedness permitted by the "Limitation on
Indebtedness" covenant in each case in favor of the trustee under such
indenture and securing only obligations to pay any compensation to such
trustee, to reimburse its expenses and to indemnify it under the terms
thereof;
(g) Liens to secure Indebtedness (including Capitalized Lease
Obligations) permitted by clause (vii) of paragraph (b) of the "Limitation
on Indebtedness" covenant covering only the assets acquired with such
Indebtedness; and
(h) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (g) so
long as the amount of property or assets subject to such Lien is not
increased thereby.
Limitations on Lines of Business. The Company shall not, and shall not
permit its Restricted Subsidiaries to, engage in any business other than those
engaged in on the date of the Indenture and any other segment of the
pharmaceutical or health-care industry or ancillary thereto.
Commission Reports. Notwithstanding that the Company may not be subject to
the reporting requirements of Sections 13 or 15(d) of the Exchange Act, so
long as any Notes are outstanding, the Company will furnish to the Trustee and
the holders of Notes (i) within 45 days after the end of each of the first
three fiscal quarters of
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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) 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
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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 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
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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.
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
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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 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
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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 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.
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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 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
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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.
"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
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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.
"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,
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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
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
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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 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
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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 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
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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.
"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
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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 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
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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 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.
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"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 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
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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.
"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.
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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 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
103
<PAGE>
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).
104
<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.
105
<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.
106
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants......................... F-2
Consolidated Balance Sheets as of December 30, 1995, December 28, 1996 and
September 27, 1997 (unaudited)............................................ F-3
Consolidated Statements of Operations for each of the years ended December
31, 1994, December 30, 1995 and December 28, 1996, and the nine-month
periods ended September 28, 1996 and September 27, 1997 (unaudited)....... F-4
Consolidated Statements of Stockholders' Equity for each of the years ended
December 31, 1994, December 30, 1995 and December 28, 1996, and the nine-
month period ended September 27, 1997 (unaudited)......................... F-5
Consolidated Statements of Cash Flows for each of the years ended December
31, 1994, December 30, 1995 and December 28, 1996, and the nine-month
periods ended September 28, 1996 and September 27, 1997 (unaudited)....... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
[This is the form of report we will be in a position to furnish upon
completion of the stock split discussed in Note 1.]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Schein Pharmaceutical, Inc.
We have audited the accompanying consolidated balance sheets of Schein
Pharmaceutical, Inc. and subsidiaries as of December 30, 1995 and December 28,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
28, 1996. These consolidated financial statements are the responsibility of
the management of Schein Pharmaceutical, Inc. and subsidiaries. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Schein Pharmaceutical, Inc. and subsidiaries as of December 30, 1995 and
December 28, 1996, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 28, 1996
in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
February 7, 1997,
except for Note 1
which is as of , 1998
F-2
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............ $ 7,837 $ 2,139 $ 388
Accounts receivable, less allowance
for possible losses of $3,835,
$2,434 and $2,849................... 57,212 72,261 67,574
Inventories.......................... 115,960 131,265 124,011
Prepaid expenses and other current
assets.............................. 7,598 4,070 3,792
Deferred income taxes................ 9,656 9,354 8,843
-------- -------- --------
Total Current Assets............... 198,263 219,089 204,608
Property, Plant and Equipment, net..... 108,566 107,740 107,348
Product Rights, Licenses and Regulatory
Approvals, net........................ 94,566 92,685 88,102
Goodwill, net.......................... 106,786 102,695 99,448
Other Assets........................... 14,229 22,103 21,193
-------- -------- --------
$522,410 $544,312 $520,699
======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable..................... $ 31,225 $ 31,492 $ 30,196
Accrued expenses..................... 34,939 40,755 42,758
Income taxes......................... -- 6,641 5,231
Revolving credit and current
maturities of long-term debt........ 40,078 41,090 32,943
-------- -------- --------
Total Current Liabilities.......... 106,242 119,978 111,128
Long-Term Debt, less current
maturities............................ 240,480 245,390 223,470
Deferred Income Taxes.................. 41,321 40,166 39,979
Other Liabilities...................... 8,675 8,798 9,038
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.01 par value; 100,000
authorized shares; issued and
outstanding 33,670 shares at
December 30, 1995 and 33,611 shares
at December 28, 1996 and September
27, 1997............................ 337 336 336
Additional paid-in capital........... 39,498 38,543 38,543
Retained earnings.................... 86,984 88,381 92,107
Other................................ (1,127) 2,720 6,098
-------- -------- --------
Total Stockholders' Equity......... 125,692 129,980 137,084
-------- -------- --------
$522,410 $544,312 $520,699
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Revenues............ $385,428 $391,846 $476,295 $352,172 $353,829
Cost of Sales........... 237,380 250,507 320,675 236,721 240,562
-------- -------- -------- -------- --------
Gross profit.......... 148,048 141,339 155,620 115,451 113,267
Costs and Expenses:
Selling, general and
administrative....... 71,783 75,274 87,329 63,345 59,956
Research and
development.......... 19,170 28,324 27,030 23,044 22,854
Amortization of
goodwill and other
intangibles.......... -- 3,399 10,195 7,713 7,722
Special compensation,
restructuring and
relocation........... 33,594 -- -- -- --
Acquired in-process
Marsam research and
development.......... -- 30,000 -- -- --
-------- -------- -------- -------- --------
Operating Income........ 23,501 4,342 31,066 21,349 22,735
Interest expense,
net.................. 1,493 10,005 23,285 16,081 20,456
Other expenses
(income), net........ 212 (1,245) 1,193 (451) (6,542)
-------- -------- -------- -------- --------
Income (Loss) Before
Provision for Income
Taxes.................. 21,796 (4,418) 6,588 5,719 8,821
Provision for Income
Taxes.................. 15,165 10,482 5,191 3,573 5,095
-------- -------- -------- -------- --------
Net Income (Loss)....... $ 6,631 $(14,900) $ 1,397 $ 2,146 $ 3,726
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 28, 1996 AND NINE MONTHS ENDED SEPTEMBER 27, 1997
IN THOUSANDS
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- -------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS OTHER
------- ------- ------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 25,
1993................... 207 $ 207 32,816 $328 $13,360 $127,129 $(10,688)
Net income............ -- -- -- -- -- 6,631 --
Recognition of stock
compensation......... -- -- -- -- 12,965 (3,079) 8,703
Stock issued in
exchange for minority
interest............. -- -- 854 9 13,173 (1,818) --
Restructuring
charges.............. -- -- -- -- -- (1,508) --
Redemption of
preferred stock...... (207) (207) -- -- -- (25,471) --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 430
------- ------- ------ ---- ------- -------- --------
Balance, December 31,
1994................... -- -- 33,670 337 39,498 101,884 (1,555)
Net loss.............. -- -- -- -- -- (14,900) --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 389
Unrealized gains from
marketable
securities........... -- -- -- -- -- -- 39
------- ------- ------ ---- ------- -------- --------
Balance, December 30,
1995................... -- -- 33,670 337 39,498 86,984 (1,127)
Net income............ -- -- -- -- -- 1,397 --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 389
Unrealized gains from
marketable
securities........... -- -- -- -- -- -- 4,293
Repurchase and
retirement of
shares............... -- -- (59) (1) (955) -- --
Foreign currency
translation
adjustments.......... -- -- -- -- -- -- (835)
------- ------- ------ ---- ------- -------- --------
Balance, December 28,
1996................... -- -- 33,611 336 38,543 88,381 2,720
(Period subsequent to
December 28, 1996 to
September 27, 1997 is
unaudited)...........
Net income............ -- -- -- -- -- 3,726 --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 292
Unrealized gains from
marketable
securities........... -- -- -- -- -- -- 3,059
Foreign currency
translation
adjustments.......... -- -- -- -- -- -- 27
------- ------- ------ ---- ------- -------- --------
Balance, September 27,
1997 (Unaudited)....... -- $ -- 33,611 $336 $38,543 $ 92,107 $ 6,098
======= ======= ====== ==== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Operating activities:
Net income (loss)...... $ 6,631 $ (14,900) $ 1,397 $ 2,146 $ 3,726
Depreciation and
amortization.......... 8,464 17,395 25,450 18,018 19,749
Provision for deferred
income taxes.......... (6,321) 3,084 (3,342) (985) (1,237)
Acquired in-process
Marsam research
and development....... -- 30,000 -- -- --
Special compensation... 29,039 -- -- -- --
Gain on sale of
marketable
securities............ -- -- -- -- (9,883)
Other.................. 759 694 4,360 2,192 3,530
Changes in assets and
liabilities:
Accounts receivable.... (13,224) (579) (15,743) (9,779) 4,167
Inventories............ (13,187) 69 (15,305) (30,714) 7,254
Prepaid expenses and
other assets.......... (2,056) (3,744) 2,048 572 278
Accounts payable,
income taxes, accrued
expenses and other
liabilities........... 16,064 (12,393) 11,891 9,821 (513)
-------- --------- --------- --------- ---------
Net cash provided by
(used in) operating
activities............. 26,169 19,626 10,756 (8,729) 27,071
-------- --------- --------- --------- ---------
Cash flows from
investing activities:
Capital expenditures,
net................... (16,135) (13,986) (11,309) (8,625) (8,992)
Product rights and
licenses.............. (4,190) (3,035) (4,089) (1,460) --
Acquisition of Marsam,
net of cash acquired.. -- (229,746) -- -- --
Investment in
international joint
ventures.............. -- (3,520) (2,036) (503) (150)
Proceeds from sale of
marketable
securities............ -- -- -- -- 11,575
Other, net............. (358) (1,156) (2,582) (434) (1,188)
-------- --------- --------- --------- ---------
Net cash provided by
(used in) investing
activities............. (20,683) (251,443) (20,016) (11,022) 1,245
-------- --------- --------- --------- ---------
Cash flows from
financing activities:
Principal payments on,
or repayments of,
debt.................. (67,237) (167,119) (261,078) (102,057) (143,067)
Proceeds from issuance
of debt............... 85,601 401,750 267,000 114,000 113,000
Sale (purchase) of
other non-current
assets, net........... 1,836 (5,700) (2,360) -- --
Restructuring charges.. (1,508) -- -- -- --
Redemption of preferred
stock................. (20,678) -- -- -- --
-------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities............. (1,986) 228,931 3,562 11,943 (30,067)
-------- --------- --------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents............ 3,500 (2,886) (5,698) (7,808) (1,751)
Cash and cash
equivalents, beginning
of year................ 7,223 10,723 7,837 7,837 2,139
-------- --------- --------- --------- ---------
Cash and cash
equivalents, end of
year................... $ 10,723 $ 7,837 $ 2,139 $ 29 $ 388
======== ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 1--SUMMARY OF ACCOUNTING POLICIES
The Company and Principles of Consolidation
Schein Pharmaceutical, Inc. and its subsidiaries (the "Company") are engaged
in developing, manufacturing, marketing and distributing generic
pharmaceutical products and a line of specialty branded pharmaceuticals. The
Company sells to drug store chains, independent retail pharmacies, managed
care organizations, hospitals and other institutions, both through drug
wholesalers and directly, primarily in the U.S.
The Company's Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission permitting the Company
to sell shares of its common stock in a proposed initial public offering. In
connection with the proposed offering, the Company, on , 1998, effected
a 123-for-one stock split, and increased its authorized common stock to
100,000,000 shares. All applicable share and per share amounts in the
accompanying consolidated financial statements have been retroactively
adjusted to reflect the stock split.
In 1995, Schein Holdings, Inc. ("SHI"), the former parent holding
corporation of the Company, was merged into the Company. The Company was the
only asset held then by SHI, and, as such, the accompanying financial
statements reflect the operations of the Company for the periods reported.
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. Investments in
unconsolidated affiliated companies are accounted for on the equity method.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
Fiscal Year
The Company reports its operations on a 52-53 week basis ending on the last
Saturday of December. Of the years presented in these statements, 1994
includes 53 weeks.
Interim Financial Information
The financial statements as of September 27, 1997 and for the nine months
ended September 28, 1996 and September 27, 1997 are unaudited but reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of financial
position and results of operations. Operating results for the nine months
ended September 27, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 27, 1997.
Cash Equivalents
The Company considers all highly liquid debt instruments and other short-
term investments with an initial maturity date of three months or less from
purchase date to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out method.
Property, Plant, Equipment, Depreciation and Amortization
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed primarily under the straight-line method over
estimated useful lives. Amortization of capital leases is computed using the
straight-line method over the lease term.
F-7
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Long-Lived Assets
The Company adopted in 1995 Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of. In accordance with SFAS No. 121, the carrying
values of long-lived assets are periodically reviewed by the Company and
impairments would be recognized if the expected future operating non-
discounted cash flows derived from an asset were less than its carrying value.
Deferred Loan Fees
Costs incurred in connection with entering into or amending debt agreements
are capitalized to Other Assets and amortized to interest expense using the
effective interest method over the lives of the related debt.
Goodwill and Product Rights, Licenses and Regulatory Approvals
Goodwill is being amortized over 25 years on a straight-line basis. Product
rights, licenses and regulatory approvals are amortized on a straight-line
basis over the expected profitable and useful lives of the underlying products
and manufacturing facilities, generally for periods ranging from 10 to 20
years.
Investments in Marketable Securities
The Company's available-for-sale marketable securities are carried at fair
market value and are included in Other Assets in the accompanying balance
sheets. Unrealized gains are recorded directly to stockholders' equity, net of
applicable income taxes. The Company uses the specific identification method
of determining cost in calculating related gains and losses. The Company does
not own held-to-maturity or trading securities.
Estimated Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate fair value because of the current nature of these instruments. The
carrying amounts reported for revolving credit and long-term debt approximate
fair value because the interest rates on these instruments are subject to
changes with market interest rates.
Revenue Recognition
Revenues are recognized when products are shipped. Provisions for estimated
sales allowances, returns and losses are accrued at the time revenues are
recognized.
Research and Development Expenditures
Expenditures for research and development are expensed as incurred.
Taxes on Income
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under this standard, deferred taxes on income are
provided for those items for which the reporting period and methods for income
tax purposes differ from those used for financial statement purposes using the
asset and liability method. Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
F-8
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
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 asserting performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Results of operations and financial position
will be unaffected by implementation of these new standards.The Company,
however, has not determined whether either of these two standards will have a
material impact on its financial statement disclosure.
F-9
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 2--RESTRUCTURING
As discussed in Note 1, SHI, the former parent corporation of the Company,
was merged into the Company in 1995. Prior to September 1994, in addition to
its ownership of the Company, SHI was engaged in the manufacture, distribution
and sale of dental, medical and veterinary products ("Henry Schein"). In 1992,
SHI initiated a series of transactions as part of a corporate reorganization
plan (the "Restructuring") to split off Henry Schein to certain SHI
stockholders and realign the ownership interests of SHI. In September 1994,
the series of transactions culminated when the capital stock of Henry Schein
was distributed to individuals (and certain trusts established by them) who
were holders (or beneficiaries of trusts and estates which were holders) of
SHI's common stock prior to September 30, 1994 ("Historical SHI
Stockholders").
The transactions related to the Restructuring were initiated in December
1992 when SHI contributed the net assets of Henry Schein to a newly formed
company which was owned by SHI. Schein Pharmaceutical, Inc. and Henry Schein
both issued common stock to their respective chief executive officers
("CEOs"), which were forfeitable if certain conditions were not satisfied, and
paid cash bonuses to reimburse them for the personal income tax effects of the
stock issuance and reimbursements. SHI subsequently issued shares of its
common stock in exchange for the Schein Pharmaceutical, Inc. stock issuance
and these shares were reflected in the 1992 financial statements.
The Restructuring continued in 1993, when Historical SHI Stockholders and
Company management agreed to a transaction whereby an investor would purchase
a portion of SHI's outstanding shares from Historical SHI Stockholders and
seek future strategic alliances (the "Minority Investor Transaction").
Following governmental regulatory review and Surrogate Court approval, the
closing occurred on September 30, 1994. The Restructuring transactions
recorded in 1994 are as follows:
(i) SHI distributed the shares of Henry Schein to the Historical SHI
Stockholders.
(ii) SHI issued 854,235 shares of its common stock in exchange for the
minority interest-redeemable stock in Schein Pharmaceutical, Inc.'s
subsidiaries. The $13.2 million fair value of the shares issued exceeded
the minority interest previously recorded by $7.3 million. Of this amount,
$5.5 million was classified as special compensation expense in 1994 (for
Schein Pharmaceutical, Inc. employees) and $1.8 million was recorded as a
distribution by the Company to Henry Schein (for the CEO of Henry Schein).
(iii) As a result of the Minority Investor Transaction described above,
the shares of common stock issued to the CEOs of the Company and Henry
Schein became free of the forfeiture provisions. Accordingly, the shares
were revalued using the September 30, 1994 fair value. The amounts relating
to (1) the Company's CEO totaled $18.6 million and was recorded as special
compensation expense, and (2) Henry Schein's CEO totaled $5.7 million, and
the excess of that amount over the 1992 fair value totaled $3.1 million,
which was recorded as a capital distribution.
(iv) SHI retained the services of investment banking and financial
advisory firms. Of the fees paid to these firms, $1.5 million was charged
to retained earnings, as such amount related to the Minority Investor
Transaction.
(v) SHI redeemed its outstanding preferred stock for $25.7 million,
paying $20.7 million in cash and canceling a $5.0 million loan to a
preferred stockholder.
(vi) SHI established a supplemental retirement program for its CEO and
recognized as current expense the Company's obligation under the plan,
estimated at $5.0 million. This liability is included in Other Liabilities
in the accompanying balance sheets.
Professional fees incurred by the Company of $4.2 million in 1994 in
connection with the Restructuring were recorded as restructuring expense.
F-10
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 3--ACQUISITIONS AND INVESTMENTS IN INTERNATIONAL AFFILIATES
The Company acquired all the outstanding capital stock of Marsam
Pharmaceuticals Inc. ("Marsam") in September 1995 for $245.0 million in cash.
Marsam develops, manufactures and markets generic injectable prescription
drugs. The acquisition was accounted for as a purchase. The purchase price of
$245.0 million exceeded the book value of the net assets acquired by $193.0
million. Of the excess purchase price, $92.0 million was allocated to increase
the net assets acquired to fair value, principally related to regulatory
facility and product approvals 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.
The following summarized, unaudited pro forma results of operations for 1994
and 1995 assume the acquisition occurred as of the beginning of 1994. In
preparing the pro forma data, adjustments have been made for the amortization
of goodwill and other intangibles acquired, the interest expense related to
borrowing agreements to finance the purchase price and, in 1994 only, the
write-off of acquired in-process Marsam research and development projects.
Since the valuation of Marsam's net assets and in-process research and
development projects may have differed at January 1, 1994 from amounts
recorded at September 1, 1995, the information presented is not necessarily
indicative of results of operations that would have occurred had the
acquisition been consummated at the beginning of the respective periods, or of
future results of the combined companies.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Net revenues....................................... $420,441 $417,041
Net income (loss).................................. (39,763) 5,781
</TABLE>
During 1995 and 1996, the Company invested approximately $3.5 million and
$2.0, 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 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 the nine months ended September 28, 1996 and September 27, 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 4--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Finished products.................................. $ 47,874 $ 59,632
Work-in-process.................................... 20,671 27,332
Raw materials and supplies......................... 47,415 44,301
-------- --------
$115,960 $131,265
======== ========
</TABLE>
F-11
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land.......................................... $ 4,725 $ 4,725
Buildings and improvements.................... 60,770 63,019
Plant and office equipment.................... 85,126 97,825
Construction-in-progress...................... 6,949 3,310
-------- --------
157,570 168,879
Less: Accumulated depreciation and amortiza-
tion......................................... 49,004 61,139
-------- --------
$108,566 $107,740
======== ========
</TABLE>
Depreciation and amortization expense for property, plant and equipment
amounted to $8.3 million, $10.5 million and $12.1 million in 1994, 1995 and
1996, respectively.
NOTE 6--INTANGIBLE ASSETS
Product Rights, Licenses and Regulatory Approvals, net, consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Product rights and licenses.................... $ 8,522 $ 12,611
Regulatory approvals, products................. 78,000 78,000
Regulatory approvals, facilities............... 10,000 10,000
-------- --------
96,522 100,611
Less: Accumulated amortization................. 1,956 7,926
-------- --------
$ 94,566 $ 92,685
======== ========
</TABLE>
Accumulated amortization of goodwill was $1.4 million and $5.8 million at
December 30, 1995 and December 28, 1996, respectively.
NOTE 7--MARKETABLE SECURITIES
Included in Other Assets in the accompanying balance sheets are marketable
equity securities consisting of:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost........................................... $3,317 $ 5,660
Gross unrealized gains......................... 60 6,686
------ -------
Fair value..................................... $3,377 $12,346
====== =======
</TABLE>
Included in Stockholders' Equity--Other as of December 30, 1995 and December
28, 1996 are the gross unrealized gain of the above marketable securities, net
of the related tax effect, of $0.1 million and $4.2 million, respectively.
F-12
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 8--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in Accounts Payable are outstanding checks of approximately $5.4
million and $6.2 million as of December 30, 1995 and December 28, 1996,
respectively.
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and related expenses.................. $15,398 $18,300
Profit-sharing expenses........................ 1,673 8,637
Other.......................................... 17,868 13,818
------- -------
$34,939 $40,755
======= =======
</TABLE>
NOTES 9--TAXES ON INCOME
Provisions for Federal, state and Puerto Rico income taxes consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................. $15,786 $ 5,736 $7,404
State and Puerto Rico................ 5,700 1,662 1,129
------- ------- ------
21,486 7,398 8,533
------- ------- ------
Deferred:
Federal.............................. (3,497) 2,131 (2,215)
State and Puerto Rico................ (2,824) 953 (1,127)
------- ------- ------
(6,321) 3,084 (3,342)
------- ------- ------
$15,165 $10,482 $5,191
======= ======= ======
</TABLE>
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
reduced the US tax in 1996 by $0.5 million.
F-13
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Deferred income tax assets and liabilities are classified as current and
non-current as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred Income Taxes, Current:
Deferred tax assets........................... $ 9,764 $ 9,354
Deferred tax liabilities...................... (108) --
-------- --------
9,656 9,354
-------- --------
Deferred Income Taxes, Non-Current:
Deferred tax assets........................... 6,905 8,268
Deferred tax liabilities...................... (48,226) (48,434)
-------- --------
(41,321) (40,166)
-------- --------
$(31,665) $(30,812)
======== ========
</TABLE>
Differences between the Federal statutory rate and the Company's effective
tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory rate....................... $ 7,629 $(1,546) $2,309
State and Puerto Rico taxes.......... 1,869 1,722 241
Special compensation charges......... 5,553 -- --
Amortization of goodwill............. -- 505 1,515
Effect of partially tax-exempt
operations in Puerto Rico........... -- -- (519)
Equity in net loss of unconsolidated
affiliates.......................... -- -- 1,202
Write-off of acquired in-process
Marsam research and development..... -- 10,500 --
Other, net........................... 114 (699) 443
------- ------- ------
$15,165 $10,482 $5,191
======= ======= ======
</TABLE>
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Gross Deferred Tax Assets:
Inventory valuation.............................. $ 4,358 $ 5,220
Accounts receivable allowances................... 3,139 2,694
Net operating loss carryforwards, state and
Puerto Rico..................................... 1,700 1,880
Deferred compensation expense.................... 4,238 4,806
Other............................................ 3,126 3,022
-------- --------
16,561 17,622
-------- --------
Gross Deferred Tax Liabilities:
Write-up of acquired Marsam assets to fair
value........................................... (35,361) (32,692)
Depreciation and amortization.................... (12,744) (12,461)
Unrealized gains from marketable securities...... -- (2,489)
Other............................................ (121) (792)
-------- --------
(48,226) (48,434)
-------- --------
$(31,665) $(30,812)
======== ========
</TABLE>
F-14
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 10--BORROWINGS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit and term loan
agreement......................... $280,000 $186,000 $156,000
Senior subordinated loan........... -- 100,000 100,000
Capitalized lease obligations and
other............................. 558 480 413
-------- -------- --------
280,558 286,480 256,413
Less: Current maturities........... 40,078 41,090 32,943
-------- -------- --------
$240,480 $245,390 $223,470
======== ======== ========
</TABLE>
In September 1995, the Company entered into a secured revolving credit and
term loan agreement (as amended, the "credit agreement") with a group of banks
to provide funds for the acquisition of Marsam, the repayment of certain of
its debt, working capital and general corporate purposes. The credit agreement
provided a term loan facility of $250.0 million and a revolving credit
facility of $100.0 million available through December 2001. Amounts borrowed
under the revolving credit facility are expected to be repaid during the next
year and, accordingly, are classified as current in the accompanying balance
sheets. The borrowings outstanding under the revolving credit facility were
$30.0 million, $41.0 million and $26.0 million as of December 30, 1995,
December 28, 1996 and September 27, 1997, respectively. Quarterly principal
payments on the term loan commence in September 1998 and end in the year 2001.
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.
Outstanding borrowings under the senior subordinated loan agreement bear
interest, payable quarterly, at a rate equal to LIBOR plus 4% or the bank's
floating base rate plus 3%, through January 31, 1998. Thereafter, the
principal amount of the loan will be increased to reflect related fees due and
will mature in five years. Interest will be due semi-annually and the interest
rate will be fixed at a new rate. 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 $130.0 million at September 1997. See Note 19--Subsequent Events.
Borrowings under the credit agreement bear interest, which is payable at
least quarterly, at a rate equal to the bank's floating base rate plus a
premium ranging from zero to 1.50%, or at a rate equal to LIBOR plus a premium
ranging from 0.75% to 2.50%, depending on the type of borrowing and the
Company's performance against certain criteria. The effective borrowing rate
was 7.14%, 8.10% and $7.80% at December 30, 1995, December 28, 1996 and
September 27, 1997, respectively. A commitment fee ranging from 0.25% to 0.50%
per annum of the unused daily amount of the total commitment is payable
quarterly.
Borrowings under the credit agreement are secured by a mortgage on all real
property, liens on inventory and receivables and a pledge of subsidiaries'
stock. The debt is guaranteed by the Company's domestic subsidiaries.
The credit agreement contains limitations and restrictions concerning
investments, acquisitions, capital expenditures, debt, liens, transactions
with stockholders, dividend payments and borrowings. In addition, the
agreement requires the Company to maintain minimum net worth levels and
certain ratios (as defined therein) of leverage to EBITDA, working capital and
fixed charge coverage. Amounts available for dividends as permitted by the
credit agreement as of September 27, 1997 were not material.
F-15
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
In connection with entering into the credit agreement, the Company incurred
costs of $5.9 million in 1995. During 1996, the Company incurred costs of $2.3
million in connection with entering into the senior subordinated loan and
amending the credit agreement. The Company capitalized these costs, which are
included in Other Assets in the accompanying balance sheets. The amounts
amortized in 1995 and 1996 were $0.7 million and $2.6 million, respectively.
At December 28, 1996, aggregate required principal payments for the
succeeding four years, the remaining term under existing long-term debt
agreements, excluding the revolving credit facility, are $15.3 million in
1998, $38.2 million in 1999, $45.7 million in 2000 and $45.8 million in 2001.
NOTE 11--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 would normally have expired) or one half of the
proceeds of any settlement. Under the Consulting Agreement, the Consultant,
together with the Company, has identified certain patents on branded
pharmaceutical products susceptible to a challenge and the Consultant acted as
counsel to the Company in those instances where it decided to proceed with a
patent challenge.
In 1994, the Company settled two such patent challenges. One of the
settlements involved a license grant to the Company to begin manufacturing and
marketing the product in 1996. The second settlement allows for cash payments
and/or license rights to the Company. In connection with the second
settlement, the Company received revenues of $5.0 million and $12.5 million in
1995 and 1996, respectively, and, such amounts are included in Net revenues in
the accompanying statements of operations.
Profit-sharing expenses pursuant to the Consulting Agreement and included in
Cost of sales were $2.5 million in fiscal 1995 and $14.9 million in fiscal
1996.
Operating Leases
The Company leases facilities and equipment under operating leases expiring
through 2007. Some of the leases have renewal options and most contain
provisions for passing through certain incremental costs. At December 28,
1996, future net minimum annual rental payments under noncancelable leases are
as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 5,484
1998................................................................ 4,778
1999................................................................ 4,223
2000................................................................ 3,602
2001................................................................ 3,129
2002-2007........................................................... 14,145
-------
Total minimum lease payments........................................ $35,361
=======
</TABLE>
F-16
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Total rental expense for the years ended 1994, 1995 and 1996 was
approximately $3.7 million, $4.7 million and $5.4 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 $4.2 million, $4.9
million and $3.5 million for the years ended 1994, 1995 and 1996,
respectively.
The Company has entered into deferred compensation agreements with certain
officers of the Company. As of December 1996, future obligations under these
agreements were approximately $6.6 million, assuming the officers remain with
the Company over the remaining vesting period of one to three years. These
agreements provide for accelerated vesting if there is a change in control of
the Company under certain other conditions. The Company expensed $2.7 million,
$2.0 million and $4.8 million in the fiscal years ended 1994, 1995 and 1996,
respectively, in connection with these agreements.
The Company established an unfunded supplemental retirement program for its
CEO during 1994. The estimated obligation of $5.0 million is included in Other
Liabilities in the accompanying balance sheets.
The Company maintains a Book Equity Appreciation Rights Program (the
"Program") to allow certain employees to benefit from an increase in the
Company's book value as calculated according to a formula defined in the
Program. All participants are fully vested in their book equity appreciation
rights ("BEARs") and the Company does not intend to make any additional grants
of BEARs. Amounts charged to results of operations were not material in any
period presented.
Product Technology Licensing and Development
On September 1, 1994, the Company entered into a worldwide technology
licensing and development agreement with a U.K.-based pharmaceutical
development company for the development of a portfolio of oral controlled
release and/or transdermal products. Under the terms of the agreement, the
Company is obligated to pay product licensing fees and development costs
totaling $32.0 million, dependent on achievement of interim milestones. In
1994, the Company incurred obligations totaling $5.5 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. The
remaining commitment under the agreement as of December 28, 1996 was $21.1
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.
F-17
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
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 12--STOCKHOLDERS' EQUITY AND STOCK OPTIONS
Common Stock
The Company has Class A Common Shares ("Class A") and Class B Common Shares
("Class B"). Each of the two classes of stock are identical except that Class
B shares are currently non-voting. Upon the earlier occurrence of an initial
public offering or May 15, 1999, each authorized share of Class B will be
automatically reclassified as and converted into one new Class A share.
Upon the closing of the Company's planned initial public offering, the Class
A and Class B will convert on a one-for-one basis to new shares of the
Company's common stock.
At December 30, 1995 and December 28, 1996, the Company had 22,597,806 and
22,539,012 Class A issued and outstanding, respectively. The Company had
11,072,460 Class B issued and outstanding for all periods presented.
During 1996, the Company agreed to repurchase 58,794 Class A for
approximately $1.0 million from a former executive of the Company. These
shares were retired in 1996.
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 effective March 3, 1997, a 1997 Stock Option Plan the Company
may grant non-qualified and incentive stock options to certain officers,
employees and directors. The options expire ten years from the grant date. The
options may be exercised subject to continued service (three to five years)
and certain other conditions. Accelerated vesting occurs following a change in
control of the Company and under certain other conditions. The Company may
grant an aggregate of 6,863,400 shares under the plans. However, 261,006
shares under the 1993 Stock Option Plan will not be granted.
The Company estimates the fair value of each stock option at the grant date
by using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1995 and 1996: no dividend yield,
expected volatility of 0.01%, risk free interest rates of 5% to 7%, expected
lives of 10 years and
F-18
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
a discount for marketability of 25%. If compensation cost for the Company's
stock option plan had been determined in accordance with SFAS No. 123, net
income (loss) would have been reduced in 1995 and 1996 by approximately $1.0
million and $2.3 million, respectively.
The following table summarizes information about stock options outstanding
at December 28, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE PRICE
----------- ------------ -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Exercise Prices
$8.13........ 228,657 6.9 $ 8.13 215,127 $ 8.13
$16.26....... 2,725,188 7.8 16.26 1,661,361 16.26
--------- --- ------ --------- ------
2,953,845 7.8 $15.63 1,876,488 $15.33
========= === ====== ========= ======
</TABLE>
Transactions under the stock option plans and individual non-qualified
options not under the plans are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Shares under option at December 29, 1993......... 1,517,820 $14.95
Granted (at $16.26 per share).................. 626,562 16.26
Exercised...................................... -- --
Canceled (at $16.26 per share)................. (132,594) 16.26
--------- ------
Shares under option at December 31, 1994......... 2,011,788 15.27
Granted (at $16.26 per share).................. 442,923 16.26
Exercised...................................... -- --
Canceled (at $16.26 per share)................. (9,471) 16.26
--------- ------
Shares under option at December 30, 1995......... 2,445,240 15.45
Granted (at $16.26 per share).................. 601,101 16.26
Exercised...................................... -- --
Canceled (at $8.13 to $16.26 per share)........ (92,496) 14.90
--------- ------
Shares under option at December 28, 1996......... 2,953,845 15.63
========= ======
Options exercisable at December
1994........................................... 1,100,973 $15.90
1995........................................... 1,325,940 $15.66
1996........................................... 1,876,488 $15.33
Weighted average fair value of options granted
during:
1995........................................... $ 7.44
1996........................................... $ 7.29
</TABLE>
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.
F-19
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 13--SPECIAL COMPENSATION, RESTRUCTURING AND RELOCATION
Special compensation, restructuring and relocation expense in fiscal 1994
consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Special compensation--see Note 2............................. $23,582
Excess of fair value of shares exchanged or amounts paid on
exchange of minority interest............................... 5,457
Professional fees for Restructuring.......................... 4,215
Relocation of corporate headquarters......................... 340
-------
$33,594
=======
</TABLE>
NOTE 14--INTEREST EXPENSE, NET
Interest expense, net, consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest expense...................... $1,875 $10,150 $23,715
Interest income....................... (382) (145) (430)
------ ------- -------
$1,493 $10,005 $23,285
====== ======= =======
</TABLE>
NOTE 15--OTHER EXPENSES (INCOME), NET
Other expenses (income), net, consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Equity (earnings) loss
of unconsolidated
international
ventures............... $-- $ 388 $ 3,439 $1,567 $ 2,719
Gain on sales of
marketable securities.. -- -- -- -- (9,883)
Other, net.............. 212 (1,633) (2,246) (2,018) 622
---- ------- ------- ------ -------
$212 $(1,245) $ 1,193 $ (451) $(6,542)
==== ======= ======= ====== =======
</TABLE>
NOTE 16--RELATED PARTY TRANSACTIONS
In the conduct of its business, the Company sells pharmaceutical products to
Henry Schein for distribution to its customers. Net sales to Henry Schein were
$6.4 million, $5.3 million and $8.6 million in fiscal 1994, 1995 and 1996,
respectively. Included in accounts receivable at both December 30, 1995 and
December 28, 1996 are amounts due from Henry Schein for the sale of products
of approximately $0.9 million.
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
F-20
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
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. There were no selling expenses under this agreement for
1994 and 1995. Included in Accrued expenses in the accompanying balance sheet
as of December 28, 1996 are approximately $1.3 million selling expenses under
the agreement.
NOTE 17--SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid taxes of approximately $22.8 million, $8.9 million and $5.8
million for the years ended 1994, 1995 and 1996, respectively. The Company
paid interest of approximately $1.5 million, $8.0 million and $23.2 million
for the years ended 1994, 1995 and 1996, respectively.
In connection with the Restructuring (see Note 2), there were certain non-
cash transactions. In 1994, non-cash transactions were 1) the issuance of SHI
common stock in exchange for all minority interests in Schein Pharmaceutical's
subsidiaries, the formula value of which approximated $6.2 million, 2) a $1.8
million distribution to Henry Schein for the excess of the fair value of the
common stock issued in exchange for the minority interest in Schein
Pharmaceutical's subsidiaries over amounts previously recorded, 3) a
distribution of $3.1 million to Henry Schein in recognition of the adjusted
fair value of the Company's stock distributed in 1992, and 4) a $5.0 million
cancellation of a preferred stock stockholder loan in connection with the
redemption of preferred stock.
In 1994, the Company accrued a $3 million product licensing commitment which
was paid in early 1995. The amount was capitalized under Product Rights,
Licenses and Regulatory Approvals in the accompanying balance sheets.
As discussed in Note 3, the Company acquired all the capital stock of Marsam
for $245.0 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 12, the Company accrued approximately $1.0 million as
of December 28, 1996 in connection with the repurchase of 58,794 common
shares.
NOTE 18--MAJOR PRODUCT AND CUSTOMERS
One product generated 16%, 17% and 19% of net revenues for 1994, 1995 and
1996 respectively.
Four customers generated 13%, 12%, 12% and 10%, respectively, of 1994 net
revenues. Three customers contributed 13%, 11% and 10%, respectively, of 1995
net revenues. Three customers contributed 16%, 15% and 11%, respectively, of
1996 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 19--SUBSEQUENT EVENT
In December 1997, the Company issued $100.0 million of Senior Floating Rate
Notes Due 2004 (the "Notes"), the proceeds of which were used to repay the
senior subordinated loan (Note 10). Interest on the Notes
F-21
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 27, 1997 AND FOR THE NINE-MONTHS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
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 may be
redeemable, in whole or in part, at the option of the Company, at any time at
the specified redemption prices. Upon the occurrence of a change in control,
each holder of Notes may require the Company to repurchase such holder's
Notes, in whole or in part, at a repurchase price of 101% of the principal
amount, plus accrued and unpaid interest. The equity offering discussed below
will not constitute a change in control. The Notes, which are unsecured
obligations of the Company, rank pari passu with or senior to all existing and
future indebtedness of the Company, and will rank senior in right of payment
to all existing and future indebtedness of the Company that is, by its terms,
expressly subordinated to the Notes. The Notes are guaranteed by the Company's
wholly-owned domestic subsidiaries. The Notes also contain certain
registration requirements.
The Company has filed a registration statement covering an initial public
offering under which it anticipates generating net proceeds of approximately
$45 million upon the sale of its common stock. If the equity offering is
consummated, the net proceeds will be used whole or in part to pay down the
Company's debt.
In connection with the initial public offering, the Company's Board of
Directors authorized the issuance of up to 5,000,000 shares of Preferred
Stock, par value $.01 per share.
The Company plans to acquire, in early 1998, 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 have the right and
the obligation to purchase an additional 1.0 million shares for $5.0 million.
F-22
<PAGE>
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- -------------------------------------------------------------------------------
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>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... i
Forward-Looking Statements................................................ i
Incorporation By Reference................................................ ii
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.................................................................. 35
Management................................................................ 52
Certain Transactions...................................................... 62
Principal Stockholders.................................................... 64
Description of Certain Indebtedness....................................... 69
The Exchange Offer........................................................ 70
Description of Notes...................................................... 79
Certain U.S. Federal Income Tax Considerations............................ 105
Plan of Distribution...................................................... 105
Legal Matters............................................................. 106
Experts................................................................... 106
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
[LOGO] SCHEIN
PHARMACEUTICAL
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) 571-3080
CONFIRMATION BY TELEPHONE:
(212) 815-6333
BY OVERNIGHT COURIER OR HAND DELIVERY
101 BARCLAY STREET
NEW YORK, NEW YORK 10286
CORPORATE TRUST SERVICES WINDOW
GROUND LEVEL
ATTENTION: REORGANIZATION SECTION
BY MAIL
101 BARCLAY STREET, 7E
NEW YORK, NEW YORK 10286
ATTENTION: REORGANIZATION SECTION
---------------
PROSPECTUS
---------------
FEBRUARY , 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>
<C> <S>
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 Form of Restated Certificate of Incorporation of the Company to be
adopted. (1)
3.4 Form of Amended and Restated By-Laws of the Company to be adopted. (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.
4.2 First, Second, Third and Fourth Amendments to the Credit Agreement.
4.3 Senior Subordinated Loan Agreement dated as of December 20, 1996 among
the Company, the Lenders (as defined therein) and Societe Generale as
Administrative Agent.
4.4 Indenture dated as of December 24, 1997 among the Company, the
Guarantors (as defined therein) and The Bank of New York.
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.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.2* Agreement, dated June 10, 1994, between Steris Laboratories, Inc., Akzo
Pharma International B.V., and Organon Inc.
10.3 [Intentionally omitted.]
10.4* Sublicense, Co-marketing and Supply Agreement, dated September 30,
1996, between the Company and Makoff R&D Laboratories, Inc., including
Operating Agreement, dated September 30, 1996.
10.5* Agreement, dated August 16, 1994, between the Company and Elan Pharma
Ltd. (currently Elan Corporation plc).
10.6* Custom Manufacturing Agreement, dated July 1, 1995, between the Company
and Johnson Matthey, Inc.
10.7 Letter of Intent, dated October 7, 1997, by and among the Company,
Cheminor Drugs Limited and Dr. Reddy's Laboratories Limited. (1)
10.8 Lease Agreement, dated March 30, 1992, between the Company and Harold
Lepler.
10.9 Lease Agreement, dated February 16, 1992, between the Company and
Ronald G. Roth.
10.10 Memorandum of Lease for Danbury, dated December 1, 1995 between Danbury
Pharmacal, Inc. and Albert J. Salame.
10.11 Agreement of Lease for Florham Park Corporate Office, dated April 16,
1993, between the Company and Sammis Morristown Associates, including
First Amendment and Second Amendment thereto.
10.12 Cherry Hill Lease Agreement, dated November 12, 1996, between the
Company and Cherry Hill Industrial Sites, Inc.
10.13 Schein Holdings, Inc. 1993 Stock Option Plan (formerly the Schein
Pharmaceutical, Inc. 1993 Stock Option Plan) dated as of November 5,
1993. (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, 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
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. (1)
10.34 License and Development Agreement, dated January 15, 1993, between the
Company and Ethical Holdings PLC, including Amendment, dated November
4, 1994. (1)
10.35 License and Development Agreement, dated January 16, 1993, between the
Company and Ethical Holdings Limited. (1)
10.36 Letter Agreement, dated June 23, 1995, between the Company and Ethical
Holdings, Inc., including Revised Schedule 5, effective July 21, 1995.
(1)
10.37 [Intentionally omitted.]
10.38 Multiproduct Technology Transfer, Development and License Agreement,
dated August 30, 1994, between the Company and Ethical Holdings PLC.
(1)
10.39 License and Development Agreement, dated March 31, 1994, between the
Company and Ethical Holdings PLC. (1)
10.40 Employment Agreement, dated November 29, 1993, between the Company and
Paul Kleutghen.
10.41 Employment Agreement, dated November 22, 1993 between the Company and
Javier Cayado.
10.42 Deferred Compensation Agreement, dated August 8, 1996, between the
Company and Paul Kleutghen.
10.43 Deferred Compensation Agreement, dated November 22, 1993, between the
Company and Jay Cayado.
10.44* Co-Promotion Agreement, dated August 1, 1994, between the Company and
Bayer Corporation (formerly Miles Inc.), including Amendment Number 1,
dated January 1, 1997, and Amendment Number 2, dated January 1, 1997.
10.45 Schein Pharmaceutical, Inc. 1998 Stock Purchase Plan.
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.
27.1* Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
- --------
* To be filed by amendment.
(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).
II-4
<PAGE>
(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.
(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
II-5
<PAGE>
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 6TH DAY OF FEBRUARY, 1998.
Schein Pharmaceutical, Inc.
/s/ Martin Sperber
By:
-----------------------------------
MARTIN SPERBER CHAIRMAN OF THE
BOARD, CHIEF EXECUTIVE OFFICER AND
PRESIDENT
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below hereby constitutes and appoints Martin Sperber,
Dariush Ashrafi and Paul Feuerman, or any of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in any and all capacities (until revoked in writing),
any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-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 February 6,
- ------------------------------------- Board, Chief 1998
MARTIN SPERBER Executive Officer
and President
(principal
executive officer)
/s/ Dariush Ashrafi Chief Financial February 6,
- ------------------------------------- Officer, Executive 1998
DARIUSH ASHRAFI Vice President and
Director (principal
financial and
accounting officer)
/s/ Paul Feuerman Senior Vice February 6,
- ------------------------------------- President, General 1998
PAUL FEUERMAN Counsel and
Director
Director February 6,
- ------------------------------------- 1998
DAVID R. EBSWORTH
/s/ Richard L. Goldberg Director February 6,
- ------------------------------------- 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 6th day of February, 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 February 6,
- ------------------------------------- Board and President 1998
MARTIN SPERBER (principal
executive officer)
/s/ Dariush Ashrafi Chief Financial February 6,
- ------------------------------------- Officer and 1998
DARIUSH ASHRAFI Director (principal
financial and
accounting officer)
/s/ Paul Feuerman Secretary and February 6,
- ------------------------------------- Director 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 6th day of February, 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 February 6,
- ------------------------------------- Board, Chief 1998
MARTIN SPERBER Executive Officer
and President
(principal
executive officer)
/s/ Dariush Ashrafi Chief Financial February 6,
- ------------------------------------- Officer and 1998
DARIUSH ASHRAFI Director (principal
financial and
accounting officer)
/s/ Paul Feuerman Secretary and February 6,
- ------------------------------------- Director 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 6th day of February, 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 February 6,
- ------------------------------------- Board and President 1998
MARTIN SPERBER (principal
executive officer)
/s/ Dariush Ashrafi Chief Financial February 6,
- ------------------------------------- Officer and 1998
DARIUSH ASHRAFI Director (principal
financial and
accounting officer)
/s/ Paul Feuerman Secretary and February 6,
- ------------------------------------- Director 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 6th day of February, 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 February 6,
- ------------------------------------- and Chief Executive 1998
MARTIN SPERBER Officer (principal
executive officer)
/s/ Dariush Ashrafi Chief Financial Officer
and
Director (principal financial
and accounting
officer)
February 6,
- ------------------------------------- 1998
DARIUSH ASHRAFI
/s/ Paul Feuerman Secretary and February 6,
- ------------------------------------- Director 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 6th day of February, 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 February 6,
- ------------------------------------- Board, Chief 1998
MARTIN SPERBER Executive Officer
and Treasurer
(principal
executive officer)
/s/ Dariush Ashrafi Chief Financial February 6,
- ------------------------------------- Officer and 1998
DARIUSH ASHRAFI Director (principal
financial and
accounting officer)
/s/ Paul Feuerman Assistant Secretary February 6,
- ------------------------------------- and Director 1998
PAUL FEUERMAN
Director February 6,
- ------------------------------------- 1998
ALLEN MISHER
Director February 6,
- ------------------------------------- 1998
AGNES VARIS
Director February 6,
- ------------------------------------- 1998
DAVID R. EBSWORTH
/s/ Whitney Stearns Director February 6,
- ------------------------------------- 1998
WHITNEY STEARNS
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 6th day of February, 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 February 6,
- ------------------------------------- Board and Chief 1998
MARTIN SPERBER Executive Officer
(principal
executive officer)
/s/ Dariush Ashrafi Chief Financial February 6,
- ------------------------------------- Officer and 1998
DARIUSH ASHRAFI Director (principal
financial and
accounting officer)
/s/ Paul Feuerman Secretary and February 6,
- ------------------------------------- Director 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 6th day of February, 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 February 6,
- ------------------------------------- Board and Chief 1998
MARTIN SPERBER Executive Officer
(principal
executive officer)
/s/ Dariush Ashrafi Chief Financial February 6,
- ------------------------------------- Officer and 1998
DARIUSH ASHRAFI Director (principal
financial and
accounting officer)
/s/ Paul Feuerman Secretary and February 6,
- ------------------------------------- Director 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 February 7, 1997, except for Note 1 which is as of ,
1998, which is contained in the Prospectus constituting part of this
Registration Statement included the audit of the schedule listed under Item
16(b) for each of the three years in the period ended December 28, 1996. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based upon our audits.
In our opinion, such schedule presents fairly, in all material respects, the
information set forth therein.
BDO Seidman, LLP
New York, New York
February 7, 1997
II-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 31,
1994.................. $3,102 $1,500 $ (761) $ 6 $3,847
====== ====== ======= ==== ======
Year Ended December 30,
1995.................. $3,847 $ -- $ (506) $494(2) $3,835
====== ====== ======= ==== ======
Year Ended December 28,
1996.................. $3,835 $ 366 $(1,801) $ 34 $2,434
====== ====== ======= ==== ======
</TABLE>
- --------
(1) Accounts written off--net of recoveries
(2) Relates to the acquisition of Marsam
II-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 Form of Restated Certificate of Incorporation of the Company to
be adopted. (1)
3.4 Form of Amended and Restated By-Laws of the Company to be
adopted. (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.
4.2 First, Second, Third and Fourth Amendments to the Credit
Agreement.
4.3 Senior Subordinated Loan Agreement dated as of December 20,
1996 among the Company, the Lenders (as defined therein) and
Societe Generale as Administrative Agent.
4.4 Indenture dated as of December 24, 1997 among the Company, the
Guarantors (as defined therein) and The Bank of New York.
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.
</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.
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.
10.5* Agreement, dated August 16, 1994, between the Company and Elan
Pharma Ltd. (currently Elan Corporation plc).
10.6* Custom Manufacturing Agreement, dated July 1, 1995, between the
Company and Johnson Matthey, Inc.
10.7 Letter of Intent, dated October 7, 1997, by and among the
Company, Cheminor Drugs Limited and Dr. Reddy's Laboratories
Limited. (1)
10.8 Lease Agreement, dated March 30, 1992, between the Company and
Harold Lepler.
10.9 Lease Agreement, dated February 16, 1992, between the Company
and Ronald G. Roth.
10.10 Memorandum of Lease for Danbury, dated December 1, 1995 between
Danbury Pharmacal, Inc. and Albert J. Salame.
10.11 Agreement of Lease for Florham Park Corporate Office, dated
April 16, 1993, between the Company and Sammis Morristown
Associates, including First Amendment and Second Amendment
thereto.
10.12 Cherry Hill Lease Agreement, dated November 12, 1996, between
the Company and Cherry Hill Industrial Sites, Inc.
10.13 Schein Holdings, Inc. 1993 Stock Option Plan (formerly the
Schein Pharmaceutical, Inc. 1993 Stock Option Plan) dated as of
November 5, 1993. (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, 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.
</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. (1)
10.34 License and Development Agreement, dated January 15, 1993,
between the Company and Ethical Holdings PLC, including
Amendment, dated November 4, 1994. (1)
10.35 License and Development Agreement, dated January 16, 1993,
between the Company and Ethical Holdings Limited. (1)
10.36 Letter Agreement, dated June 23, 1995, between the Company and
Ethical Holdings, Inc., including Revised Schedule 5, effective
July 21, 1995. (1)
10.37 [Intentionally omitted.]
10.38 Multiproduct Technology Transfer, Development and License
Agreement, dated August 30, 1994, between the Company and
Ethical Holdings PLC. (1)
10.39 License and Development Agreement, dated March 31, 1994,
between the Company and Ethical Holdings PLC. (1)
10.40 Employment Agreement, dated November 29, 1993, between the
Company and Paul Kleutghen.
10.41 Employment Agreement, dated November 22, 1993 between the
Company and Javier Cayado.
10.42 Deferred Compensation Agreement, dated August 8, 1996, between
the Company and Paul Kleutghen.
10.43 Deferred Compensation Agreement, dated November 22, 1993,
between the Company and Jay Cayado.
10.44* Co-Promotion Agreement, dated August 1, 1994, between the
Company and Bayer Corporation (formerly Miles Inc.), including
Amendment Number 1, dated January 1, 1997, and Amendment
Number 2, dated January 1, 1997.
10.45 Schein Pharmaceutical, Inc. 1998 Stock Purchase Plan.
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.
27.1* Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
- --------
* To be filed by amendment.
(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).
<PAGE>
EXHIBIT 3.5
State of Delaware PAGE 1
Office of the Secretary
-----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THAT "SCHEIN PHARMACEUTICAL INTERNATIONAL, INC." IS DULY INCORPORATED
UNDER THE LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL
CORPORATE EXISTENCE NOT HAVING BEEN CANCELLED OR DISSOLVED SO FAR AS THE RECORDS
OF THIS OFFICE SHOW AND IS DULY AUTHORIZED TO TRANSACT BUSINESS.
THE FOLLOWING DOCUMENTS HAVE BEEN FILED:
CERTIFICATE OF INCORPORATION, FILED THE TWELFTH DAY OF DECEMBER, A.D. 1994,
AT 11:15 O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESIAD CERTIFICATES ARE THE
ONLY CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO
DATE.
AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED TO
DATE.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8809270
DATE: 12-12-97
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SCHEIN PHARMACEUTICAL SERVICE COMPANY
The undersigned incorporator, in order to form a corporation under the
General Corporation Law of Delaware, certifies as follows:
FIRST: The name of the corporation is
Schein Pharmaceutical Service Company
SECOND: The registered office of the corporation is to be located at 32
Lookerman Square, Suite L-100, in the City of Dover, County of Kent, State of
Delaware. The name of its registered agent at that address is The Prentice-Hall
Corporation Systems, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The corporation shall have the authority to issue one thousand
(1,000) shares of common stock, with one cent ($0.01) par value.
FIFTH: The name and mailing address of the incorporator are as
follows:
Kenna M. Hudson
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, NY 10036
SIXTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of (S)291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
corporation under the provisions of (S)279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
<PAGE>
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
SEVENTH: To the fullest extent that elimination or limitation of the
liability of directors is permitted by law, as the same is now or may hereafter
be in effect, no director of the corporation shall be liable to the corporation
or its stockholders for monetary damages for breach of his or her fiduciary duty
as a director.
EIGHTH: The corporation shall, to the fullest extent permitted by law,
as the same is now or may hereafter be in effect, indemnify each person
(including heirs, executors, administrators and other personal representatives
of such person) against expenses including attorneys' fees, judgments, fines and
amounts paid in settlement, actually and reasonably incurred by such person in
connection with any threatened, pending or completed suit, action or proceeding
(whether civil, criminal, administrative or investigative in nature or
otherwise) in which such person may be involved by reason of the fact that he or
she is or was a director or officer of the corporation or is or was serving any
other incorporated or unincorporated enterprise in such capacity at the request
of the corporation.
NINTH: Unless, and except to the extent that, the by-laws of the
corporation shall so require, the election of directors of the corporation need
not be by written ballot.
TENTH: The corporation hereby confers the power to adopt, amend or
repeal bylaws of the corporation upon the directors.
IN WITNESS WHEREOF, I have hereunto set my hand this 12th day of
December, 1994.
/s/ Kenna M. Hudson
-------------------
Kenna M. Hudson
Sole Incorporator
<PAGE>
EXHIBIT 3.6
BY-LAWS
OF
SCHEIN PHARMACEUTICAL INTERNATIONAL, INC.
------
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE.--The registered office shall be
established and maintained at the office of The Prentice-Hall Corporation
System, Inc., in the City of Dover, in the County of Kent, in the State of
Delaware, and said corporation shall be the registered agent of this corporation
in charge thereof.
SECTION 2. OTHER OFFICES.--The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS.--Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the
notice of the meeting.
SECTION 2. OTHER MEETINGS.--Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.
SECTION 3. VOTING.--Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and these By-Laws shall be
entitled to one vote, in
<PAGE>
person or by proxy, for each share of stock entitled to vote held by such
stockholder, but no proxy shall be voted after three years from its date unless
such proxy provides for a longer period. Upon the demand of any stockholder, the
vote for directors and the vote upon any question before the meeting, shall be
by ballot. All elections for directors shall be decided by plurality vote; all
other questions shall be decided by majority vote except as otherwise provided
by the Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM.--Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed; but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 5. SPECIAL MEETINGS.--Special meetings of the stockholders for
any purpose or purposes may be called by the President or Secretary, or by
resolution of the directors or by vote of the stockholders holding twenty-five
(25) percent or more of the outstanding stock of the corporation.
SECTION 6. NOTICE OF MEETINGS.--Written notice, stating the place, date
and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting. No business
2
<PAGE>
other than that stated in the notice shall be transacted at any meeting without
the unanimous consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING.--Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
than unanimous written consent shall be given to those stockholders who have
not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM.--The number of directors constituting the
Board of Directors shall be not more than nine nor less than one, as fixed from
time to time by action of the stockholders or the Board of Directors. The
directors shall be elected at the annual meeting of the stockholders and each
director shall be elected to serve until his or her successor shall be elected
and shall qualify. Directors need not be stockholders.
SECTION 2. RESIGNATIONS.--Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES.--If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen provided, however, that if there are no directors
then in office due to such a vacancy, the stockholders may elect a successor
who shall hold office for the unexpired term and until his successor shall be
elected and qualified.
SECTION 4. REMOVAL.--Except as hereinafter provided, any director or
directors may be removed either for or
3
<PAGE>
without cause at any time by the affirmative vote of the holders of a majority
of all the shares of stock outstanding and entitled to vote, at a special
meeting of the stockholders called for the purpose and the vacancies thus
created may be filled, at the meeting held for the purpose of removal, by the
affirmative vote of a majority in interest of the stockholders entitled to vote.
Unless the Certificate of Incorporation otherwise provides, stockholders
may effect removal of a director who is a member of a classified Board of
Directors only for cause. If the Certificate of Incorporation provides for
cumulative voting and if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire board of directors, or, if there be classes of directors, at an
election of the class of directors of which he is a part.
If the holders of any class or series are entitled to elect one or more
directors by the provisions of the Certificate of Incorporation, these
provisions shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
SECTION 5. INCREASE OF NUMBER.--The number of directors may be
increased by the affirmative vote of a majority of the directors, though less
than a quorum, or, by the affirmative vote of a majority in interest of the
stockholders, at the annual meeting or at a special meeting called for that
purpose, and by like vote the additional directors may be chosen at such meeting
to hold office until the next annual election and until their successors are
elected and qualify.
SECTION 6. POWERS.--The Board of Directors shall exercise all powers of
the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES.--The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
4
<PAGE>
Directors to act at the meeting in the place of any such absent or disqualified
member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and, unless the resolution, these By-Laws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 8. MEETINGS.--The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the board may be called by the President or by the
Secretary on the written request of any two directors on at least two days'
notice to each director and shall be held at such place or places as may be
determined by the directors, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or these
By-Laws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 9. QUORUM.--A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no
5
<PAGE>
further notice thereof need be given other than by announcement at the meeting
which shall be so adjourned.
SECTION 10. COMPENSATION. -- Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. -- Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if a written consent thereto
is signed by all members of the board, or of such committee as the case may be,
and such written consent id filed with the minutes of proceedings of the board
or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. -- The officers of the corporation shall be a
President, a Treasurer and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, one
or more Vice-Presidents, and such Assistant Secretaries and Assistant
Treasurers as they may deem proper. Non of the officers of the corporation
need be directors. The officers shall be elected at the first meeting of the
Board of Directors after each annual meeting. More than two offices may be held
by the same person. Any officer may be removed, with or without cause, by the
Board of Directors. Any vacancy may be filled by the Board of Directors.
SECTION 2. OTHER OFFICERS AND AGENTS. -- The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. -- The Chairman of the Board of Directors, if
one be elected shall preside at all meetings of the Board of Directors and he
shall have and perform such other duties as from time to time may be assigned to
him by the Board of Directors.
SECTION 4. PRESIDENT. -- The President shall preside at all
meetings of the stockholders if present thereat, and in the absence or
non-election of the Chairman of the Board
6
<PAGE>
of Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the corporation subject to
the authorization and control of the Board of Directors. Except as the Board of
Directors shall authorize the execution thereof in some other manner, he shall
execute bonds, mortgages and other contracts on behalf of the corporation, and
shall cause the seal to be affixed to any instrument requiring it and when so
affixed the seal shall be attested by the signature of the Secretary or the
Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE-PRESIDENT.--Each Vice-President shall have such powers
and shall perform such duties as shall be assigned to him by the directors.
SECTION 6. TREASURERS.--The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers for
such disbursements. He shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 7. SECRETARY.--The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the President, or by the directors, or stockholders, upon whose requisition
the meeting is called as provided in these By-Laws. He shall record all the
proceedings of the meetings of the corporation and of the directors in a book to
be kept for that purpose, and shall perform such other duties as may be assigned
to him by the directors or the President. He shall have custody of the seal of
the corporation and shall affix the same to all instruments requiring it, when
authorized by the directors or the President, and attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.--Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall
7
<PAGE>
perform such duties as shall be assigned to them, respectively, by the
directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK.--Certificates of stock, signed by the
Chairman or Vice Chairman of the Board of Directors, if they be elected,
President or Vice-President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. Any or all the
signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES.--A new certificate of stock may be issued
in the place of any certificate theretofore issued by the corporation, alleged
to have been lost or destroyed, and the directors may, in their discretion,
require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES.--The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such transfer
the old certificates shall be surrendered to the corporation by the delivery
thereof to the person in charge of the stock and transfer books and ledgers, or
to such other person as the directors may designate, by whom they shall be
cancelled, and new certificates shall thereupon be issued. A record shall be
made of each transfer and whenever a transfer shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer.
SECTION 4. STOCKHOLDERS RECORD DATE.--In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of
8
<PAGE>
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjournment
meeting.
SECTION 5. DIVIDENDS.-- Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL.-- The corporate seal shall be circular in form and
shall contain the name of the corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR.-- The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS.-- All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE.-- Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be
sufficient if given by depositing the same in the United States mail, postage
prepaid, addressed to the person entitled thereto at his address as it appears
on the records of the corporation, and such notice shall be deemed to have been
given on the date of such mailing. Stockholders not entitled to vote shall not
be entitled to receive notice of any meetings except as otherwise provided by
Statute.
Whenever any notice whatsoever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the corporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time states therein, shall be deemed equivalent thereto.
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<PAGE>
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal or By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-Law of By-Laws
to be made, be contained in the notice of such special meeting.
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<PAGE>
EXHIBIT 3.7
State of Delaware PAGE 1
Office of the Secretary
-----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THAT "SCHEIN PHARMACEUTICAL PA, INC." IS DULY INCORPORATED UNDER THE
LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL CORPORATE
EXISTENCE NOT HAVING BEEN CANCELLED OR DISSOLVED SO FAR AS THE RECORDS OF THIS
OFFICE SHOW AND IS DULY AUTHORIZED TO TRANSACT BUSINESS.
THE FOLLOWING DOCUMENTS HAVE BEEN FILED:
CERTIFICATE OF INCORPORATION, FILED THE TWENTY-EIGHTH DAY OF DECEMBER,
A.D. 1993, AT 2:30 O'CLOCK P.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESIAD CERTIFICATES ARE THE
ONLY CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO
DATE.
AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED TO
DATE.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8810038
DATE: 12-12-97
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "SCHEIN PHARMACEUTICAL PA, INC.", FILED IN THIS OFFICE ON THE
TWENTY-EIGHTH DAY OF DECEMBER, A.D. 1993, AT 2:30 O'CLOCK P.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8810038
DATE: 12-31-97
<PAGE>
- ------------------------------
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:30 PM 12/28/1993
753362047 - 2365667
CERTIFICATE OF INCORPORATION
OF
SCHEIN PHARMACEUTICAL PA, INC.
The undersigned incorporator, in order to form a corporation under the
General Corporation Law of Delaware, certifies as follows:
FIRST: The name of the corporation is
Schein Pharmaceutical PA, Inc.
SECOND: The registered office of the corporation is to be located at
32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent, State
of Delaware. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The corporation shall have the authority to issue one thousand
(1,000) shares of common stock, with one cent ($0.01) par value.
FIFTH: The name and mailing address of the incorporator are as
follows:
Kenna M. Hudson
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, NY 10036
SIXTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of (S)291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
corporation under the provisions of (S)279 of Title 8 of the Delaware Code order
a meeting of the creditors or class of creditors, and/or of the
<PAGE>
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
SEVENTH: To the fullest extent that elimination or limitation of the
liability of directors is permitted by law, as the same is now or may hereafter
be in effect, no director of the corporation shall be liable to the corporation
or its stockholders for monetary damages for breach of his or her fiduciary duty
as a director.
EIGHTH: The corporation shall, to the fullest extent permitted by law,
as the same is now or may hereafter be in effect, indemnify each person
(including the heirs, executors, administrators and other personal
representatives of such person) against expenses including attorneys' fees,
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by such person in connection with any threatened, pending or completed
suit, action or proceeding (whether civil, criminal, administrative or
investigative in nature or otherwise) in which such person may be involved by
reason of the fact that he or she is or was a director or officer of the
corporation or is or was serving any other incorporated or unincorporated
enterprise in such capacity at the request of the corporation.
NINTH: Unless, and except to the extent that, the by-laws of the
corporation shall so require, the election of directors of the corporation need
not be by written ballot.
TENTH: The corporation hereby confers the power to adopt, amend or
repeal bylaws of the corporation upon the directors.
IN WITNESS WHEREOF, I have hereunto set my hand this 27 day of December,
1993.
/s/ Kenna M. Hudson
-------------------------------
Kenna M. Hudson
Sole Incorporator
<PAGE>
EXHIBIT 3.8
Exhibit A
---------
BY-LAWS
OF
SCHEIN PHARMACEUTICAL PA, INC.
----------
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE.--The registered office shall be
established and maintained at the office of The Prentice-Hall Corporation
System, Inc., in the City of Dover, in the County of Kent, in the State of
Delaware, and said corporation shall be the registered agent of this corporation
in charge thereof.
SECTION 2. OTHER OFFICES.--The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS.--Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. OTHER MEETINGS.--Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.
SECTION 3. VOTING.--Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and these By-Laws shall be
entitled to one vote, in
<PAGE>
person or by proxy, for each share of stock entitled to vote held by such
stockholder, but no proxy shall be voted after three years from its date unless
such proxy provides for a longer period. Upon the demand of any stockholder, the
vote for directors and the vote upon any question before the meeting, shall be
by ballot. All elections for directors shall be decided by plurality vote; all
other questions shall be decided by majority vote except as otherwise provided
by the Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM.--Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed; but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 5. SPECIAL MEETINGS.--Special meetings of the stockholders
for any purpose or purposes maybe called by the President or Secretary, or by
resolution of the directors or by vote of the stockholders holding twenty-five
(25) percent or more of the outstanding stock of the corporation.
SECTION 6. NOTICE OF MEETINGS.--Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting. No business
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<PAGE>
other than that stated in the notice shall be transacted at any meeting without
the unanimous consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING.--Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM.--The number of directors constituting the
Board of Directors shall be not more than nine nor less than one, as fixed from
time to time by action of the stockholders or the Board of Directors. The
directors shall be elected at the annual meeting of the stockholders and each
director shall be elected to serve until his or her successor shall be elected
and shall qualify. Directors need not be stockholders.
SECTION 2. RESIGNATIONS.--Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES.--If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen provided, however, that if there are no directors
then in office due to such a vacancy, the stockholders may elect a successor who
shall hold office for the unexpired term and until his successor shall be
elected and qualified.
SECTION 4. REMOVAL.--Except as hereinafter provided, any
director or directors may be removed either for or
3
<PAGE>
without cause at any time by the affirmative vote of the holders of a majority
of all the shares of stock outstanding and entitled to vote, at a special
meeting of the stockholders called for the purpose and the vacancies thus
created may be filled, at the meeting held for the purpose of removal, by the
affirmative vote of a majority in interest of the stockholders entitled to vote.
Unless the Certificate of Incorporation otherwise provides,
stockholders may effect removal of a director who is a member of a classified
Board of Directors only for cause. If the Certificate of Incorporation provides
for cumulative voting and if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire board of directors, or, if there be classes of directors, at an
election of the class of directors of which he is a part.
If the holders of any class or series are entitled to elect one or
more directors by the provisions of the Certificate of Incorporation, these
provisions shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
SECTION 5. INCREASE OF NUMBER.--The number of directors may be
increased by the affirmative vote of a majority of the directors, though less
than a quorum, or, by the affirmative vote of a majority in interest of the
stockholders, at the annual meeting or at a special meeting called for that
purpose, and by like vote the additional directors may be chosen at such meeting
to hold office until the next annual election and until their successors are
elected and qualify.
SECTION 6. POWERS.--The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES.--The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
4
<PAGE>
Directors to act at the meeting in the place of any such absent or disqualified
member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and, unless the resolution, these By-Laws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 8. MEETINGS.--The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the board may be called by the President or by the
Secretary on the written request of any two directors on at least two days'
notice to each director and shall be held at such place or places as may be
determined by the directors, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
SECTION 9. QUORUM.--A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no
5
<PAGE>
further notice thereof need be given other than by announcement at the meeting
which shall be so adjourned.
SECTION 10. COMPENSATION.--Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING.--Any action required or permitted
to be taken at any meting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is signed
by all members of the board, or of such committee as the case may be, and such
written consent is filed with the minutes of proceedings of the board or
committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS.--The officers of the corporation shall be a
President, a Treasurer and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, one or
more Vice-Presidents, and such Assistant Secretaries and Assistant Treasurers
as they may deem proper. None of the officers of the corporation need be
directors. The officers shall be elected at the first meeting of the Board of
Directors after each annual meeting. More than two offices may be held by the
same person. Any officer may be removed, with or without cause, by the Board of
Directors. Any vacancy may be filled by the Board of Directors.
SECTION 2. OTHER OFFICERS AND AGENTS.--The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN.--The Chairman of the Board of Directors, if one
be elected shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT.--The President shall preside at all meetings of
the stockholders if present thereat, and in the absence or non-election of the
Chairman of the Board
6
<PAGE>
of Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the corporation subject to
the authorization and control of the Board of Directors. Except as the Board of
Directors shall authorize the execution thereof in some other manner, he shall
execute bonds, mortgages and other contracts on behalf of the corporation, and
shall cause the seal to be affixed to any instrument requiring it and when so
affixed the seal shall be attested by the signature of the Secretary or the
Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE-PRESIDENT.--Each Vice-President shall have such powers
and shall perform such duties as shall be assigned to him by the directors.
SECTION 6. TREASURERS.--The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers for
such disbursements. He shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 7. SECRETARY.--The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these By-Laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President, or by the directors, or stockholders, upon
whose requisition the meeting is called as provided in these By-Laws. He shall
record all the proceedings of the meetings of the corporation and of the
directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the directors or the President. He shall
have custody of the seal of the corporation and shall affix the same to all
instruments requiring it, when authorized by the directors or the President, and
attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.--Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall
7
<PAGE>
perform such duties as shall be assigned to them, respectively, by the
directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK.--Certificates of stock, signed by
the Chairman or Vice Chairman of the Board of Directors, if they be elected,
President or Vice-President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. Any or all the
signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES.--A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES.--The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such transfer
the old certificates shall be surrendered to the corporation by the delivery
thereof to the person in charge of the stock and transfer books and ledgers, or
to such other person as the directors may designate, by whom they shall be
cancelled, and new certificates shall thereupon be issued. A record shall be
made of each transfer and whenever a transfer shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer.
SECTION 4. STOCKHOLDERS RECORD DATE.--In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of
8
<PAGE>
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 5. DIVIDENDS.--Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL.--The corporate seal shall be circular in form and
shall contain the name of the corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR.--The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS.--All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE.--Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his address as it appears on the
records of the corporation, and such notice shall be deemed to have been given
on the day of such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by
Statute.
Whenever any notice whatsoever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the corporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
9
<PAGE>
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at
any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed alteration or repeal or By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-Law or By-Laws
to be made, be contained in the notice of such special meeting.
10
<PAGE>
EXHIBIT 3.9
State of Delaware PAGE 1
Office of the Secretary
-----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THAT "SCHEIN PHARMACEUTICAL SERVICE COMPANY, INC." IS DULY INCORPORATED
UNDER THE LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL
CORPORATE EXISTENCE NOT HAVING BEEN CANCELLED OR DISSOLVED SO FAR AS THE RECORD
OF THIS OFFICE SHOW AND IS DULY AUTHORIZED TO TRANSACT BUSINESS.
THE FOLLOWING DOCUMENTS HAVE BEEN FILED:
CERTIFICATE OF INCORPORATION, FILED THE TWENTY-FOURTH DAY OF OCTOBER,
A.D. 1994, AT 9 O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESIAD CERTIFICATES ARE THE
ONLY CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO
DATE.
AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED TO
DATE.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8809303
DATE: 12-12-97
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "SCHEIN PHARMACEUTICAL SERVICE COMPANY", FILED IN THIS OFFICE
ON THE TWENTY-FOURTH DAY OF OCTOBER, A.D. 1994, AT 9 O'CLOCK A.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8810052
DATE: 12-13-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 10/24/1994
944202078 - 2445912
CERTIFICATE OF INCORPORATION
OF
SCHEIN PHARMACEUTICAL SERVICE COMPANY
The undersigned incorporator, in order to form a corporation under the
General Corporation Law of Delaware, certifies as follows:
FIRST: The name of the corporation is
Schein Pharmaceutical Service Company
SECOND: The registered office of the corporation is to be located at 32
Loockerman Square, Suite L-100, in the City of Dover, County of Kent, State of
Delaware. The name of its registered agent at that address is the Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The corporation shall have the authority to issue one hundred
(100) shares of common stock, with one cent ($0.01) par value.
FIFTH: The name and mailing address of the incorporator are as
follows:
Thomas Bubeck
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, NY 10036
SIXTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of (S)291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed fro this
corporation under the provisions of (s) 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
<PAGE>
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
SEVENTH: To the fullest extent that elimination or limitation of the
liability of directors is permitted by law, as the same is now or may hereafter
be in effect, no director of the corporation shall be liable to the corporation
or its stockholders for monetary damages for breach of his or her fiduciary duty
as a director.
EIGHTH: The corporation shall, to the fullest extent permitted by law,
as the same is now or may hereafter be in effect, indemnify each person
(including heirs, executors, administrators and other personal representatives
of such person) against expenses including attorneys' fees, judgments, fines and
amounts paid in settlement, actually and reasonably incurred by such person in
connection with any threatened, pending or completed suit, action or proceeding
(whether civil, criminal, administrative or investigative in nature or
otherwise) in which such person may be involved by reason of the fact that he or
she is or was a director or officer of the corporation or is or was serving any
other incorporated or unincorporated enterprise in such capacity at the request
of the corporation.
NINTH: Unless, and except to the extent that, the by-laws of the
corporation shall so require, the election of directors of the corporation need
not be by written ballot.
TENTH: The corporation hereby confers the power to adopt, amend or
repeal bylaws of the corporation upon the directors.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of
October, 1994.
/s/ Thomas Bubeck
-----------------
Thomas Bubeck
Sole Incorporator
<PAGE>
EXHIBIT 3.10
Exhibit A
---------
BY-LAWS
OF
SCHEIN PHARMACEUTICAL SERVICE COMPANY
----------
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE.--The registered office shall be
established and maintained at the office of The Prentice-Hall Corporation
System, Inc., in the City of Dover, in the County of Kent, in the State of
Delaware, and said corporation shall be the registered agent of this corporation
in charge thereof.
SECTION 2. OTHER OFFICES.--The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS.--Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. OTHER MEETINGS.--Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.
<PAGE>
SECTION 3. VOTING.--Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and these By-Laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholder, but no proxy shall be voted after three years
from its date unless such proxy provides for a longer period. Upon the demand of
any stockholder, the vote for directors and the vote upon any question before
the meeting, shall be by ballot. All elections for directors shall be decided by
plurality vote; all other questions shall be decided by majority vote except as
otherwise provided by the Certificate of Incorporation or the laws of the State
of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM.--Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed; but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 5. SPECIAL MEETINGS.--Special meetings of the stockholders
for any purpose or purposes maybe called by the President or Secretary, or by
resolution of the directors or by vote of the stockholders holding twenty-five
(25) percent or more of the outstanding stock of the corporation.
SECTION 6. NOTICE OF MEETINGS.--Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given
2
<PAGE>
to each stockholder entitled to vote thereat at his address as it appears on the
records of the corporation, not less than ten nor more than sixty days before
the date of the meeting. No business other than that stated in the notice shall
be transacted at any meeting without the unanimous consent of all the
stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING.--Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM.--The number of directors constituting the
Board of Directors shall be not more than nine nor less than one, as fixed from
time to time by action of the stockholders or the Board of Directors. The
directors shall be elected at the annual meeting of the stockholders and each
director shall be elected to serve until his or her successor shall be elected
and shall qualify. Directors need not be stockholders.
SECTION 2. RESIGNATIONS.--Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES.--If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen provided, however, that if there are no directors
then in office due to such a vacancy, the stockholders may elect a successor who
shall hold office for the unexpired term and until his successor shall be
elected and qualified.
3
<PAGE>
SECTION 4. REMOVAL.--Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote, at a special meeting of the stockholders
called for the purpose and the vacancies thus created may be filled, at the
meeting held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
Unless the Certificate of Incorporation a otherwise provides,
stockholders may effect removal of a director who is a member of a classified
Board of Directors only for cause. If the Certificate of Incorporation provides
for cumulative voting and if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire board of directors, or, if there be classes of directors, at an
election of the class of directors of which he is a part.
If the holders of any class or series are entitled to elect one or
more directors by the provisions of the Certificate of Incorporation, these
provisions shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
SECTION 5. INCREASE OF NUMBER.--The number of directors may be
increased by the affirmative vote of a majority of the directors, though less
than a quorum, or, by the affirmative vote of a majority in interest of the
stockholders, at the annual meeting or at a special meeting called for that
purpose, and by like vote the additional directors may be chosen at such meeting
to hold office until the next annual election and until their successors are
elected and qualify.
SECTION 6. POWERS.--The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES.--The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
4
<PAGE>
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and, unless the resolution, these By-Laws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 8. MEETINGS.--The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the board may be called by the President or by the
Secretary on the written request of any two directors on at least two days'
notice to each director and shall be held at such place or places as may be
determined by the directors, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 9. QUORUM.--A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
5
<PAGE>
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
so adjourned.
SECTION 10. COMPENSATION.--Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING.--Any action required or permitted
to be taken at any meting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is signed
by all members of the board, or of such committee as the case may be, and such
written consent is filed with the minutes of proceedings of the board or
committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS.--The officers of the corporation shall be a
Chairman, a Chief Executive Officer, a President, a Vice President and a
Secretary, all of whom shall be elected by the Board of Directors and who shall
hold office until their successors are elected and qualified. In addition, the
Board of Directors may elect additional Vice-Presidents, a Treasurer and such
Assistant Secretaries and Assistant Treasurers as they may deem proper. None of
the officers of the corporation need be directors. The officers shall be elected
at the first meeting of the Board of Directors after each annual meeting. More
than two offices may be held by the same person. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy may be filled by
the Board of Directors.
SECTION 2. OTHER OFFICERS AND AGENTS.--The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN.--The Chairman of the Board of Directors, if one
be elected shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT.--The President shall preside at all meetings of
the stockholders if present thereat,
6
<PAGE>
and in the absence or non-election of the Chairman of the Board of Directors,
at all meetings of the Board of Directors, and shall have general supervision,
direction and control of the business of the corporation subject to the
authorization and control of the Board of Directors. Except as the Board of
Directors shall authorize the execution thereof in some other manner, he shall
execute bonds, mortgages and other contracts on behalf of the corporation, and
shall cause the seal to be affixed to any instrument requiring it and when so
affixed the seal shall be attested by the signature of the Secretary or the
Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE-PRESIDENT.--Each Vice-President shall have such
powers and shall perform such duties as shall be assigned to him by the
directors.
SECTION 6. TREASURERS.--The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers for
such disbursements. He shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 7. SECRETARY.--The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these By-Laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President, or by the directors, or stockholders, upon
whose requisition the meeting is called as provided in these By-Laws. He shall
record all the proceedings of the meetings of the corporation and of the
directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the directors or the President. He shall
have custody of the seal of the corporation and shall affix the same to all
instruments requiring it, when authorized by the directors or the President, and
attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.--Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall
7
<PAGE>
perform such duties as shall be assigned to them, respectively, by the
directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK.--Certificates of stock, signed by
the Chairman or Vice Chairman of the Board of Directors, if they be elected,
President or Vice-President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. Any or all the
signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES.--A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES.--The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such transfer
the old certificates shall be surrendered to the corporation by the delivery
thereof to the person in charge of the stock and transfer books and ledgers, or
to such other person as the directors may designate, by whom they shall be
cancelled, and new certificates shall thereupon be issued. A record shall be
made of each transfer and whenever a transfer shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer.
SECTION 4. STOCKHOLDERS RECORD DATE.--In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of
8
<PAGE>
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 5. DIVIDENDS.--Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL.--The corporate seal shall be circular in form and
shall contain the name of the corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR.--The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS.--All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE.--Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his address as it appears on the
records of the corporation, and such notice shall be deemed to have been given
on the day of such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by
Statute.
Whenever any notice whatsoever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the corporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
9
<PAGE>
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at
any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed alteration or repeal or By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-Law or By-Laws
to be made, be contained in the notice of such special meeting.
10
<PAGE>
EXHIBIT 3.11
State of Delaware
Office of the Secretary of State PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CHANGE OF REGISTERED AGENT OF "STERIS LABORATORIES, INC.", FILED IN THIS OFFICE
ON THE EIGHTEENTH DAY OF NOVEMBER A.D. 1996, AT 9 O'CLOCK A.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8814574
DATE: 12-16-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/18/1996
960342608 - 2107414
- --------------------------------------------------------------------------------
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED
OFFICE AND REGISTERED AGENT
OF
STERIS LABORATORIES, INC.
The Board of Directors of:
Steris Laboratories, Inc. a Corporation of the State of Delaware, on
this 18th day of November, A.D. 1996, do hereby resolve and order that the
location of the Registered Office of this Corporation within this State be, and
the same hereby is:
1013 Centre Road, in the City of Wilmington, in the County
of New Castle, Delaware, 19805.
The name of the Registered Agent therein and in charge thereof upon whom
process against the Corporation may be served, is:
CORPORATION SERVICE COMPANY.
a Corporation of the State of Delaware, does hereby certify that the foregoing
is a true copy of a resolution adopted by the Board of Directors at a meeting
held as herein stated.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by WHITNEY K. STEARNS, this 18th day of November A.D. 1996.
/s/ Whitney K. Stearns
-------------------------------
Authorized Officer
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "STERIS LABORATORIES, INC." FILED IN THIS OFFICE ON THE FIFTEENTH DAY OF
FEBRUARY, A.D. 1994, AT 9 O'CLOCK A.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8814575
DATE: 12-16-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 02/15/1994
944020369 - 2107414
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
STERIS LABORATORIES, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter referred to as the
"corporation") is Steris Laboratories, Inc. The name under which the corporation
was formed was C-Acquisition Co., Inc.
2. The Certificate of Incorporation of the corporation is hereby
amended by striking out in its entirety Article FOURTH and substituting in lieu
thereof the following new Article FOURTH to read as follows:
"FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is Seven Hundred Eighty-One
Thousand (781,000) shares consisting of:
(a) One Thousand (1,000) shares of preferred stock of the par
value of $.01 par share, (hereinafter referred to as "Preferred Stock");
(b) Seven Hundred Eighty Thousand (780,000) shares of common stock
of the par value of $.01 per share consisting of One Hundred Eighty
Thousand (180,000) shares of Voting Common Stock (hereinafter referred
to as "Voting Common Stock") and Six Hundred Thousand (600,000) shares
of Non-Voting Common Stock (hereinafter referred to as "Non-Voting
Common Stock"). (The Voting Common Stock and Non-Voting Common Stock are
sometimes hereinafter referred to as "Common Stock").
<PAGE>
3. The Amendment of the Certificate of Incorporation herein certified
has been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware.
Signed and attested to on February 14, 1994.
/s/ Martin Sperber
-------------------------------
Martin Sperber, President
Attest:
/s/ Paul Feuerman
- ---------------------------------
Paul Feuerman, Secretary
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "STERIS LABORATORIES, INC.", FILED IN THIS OFFICE ON THE THIRD DAY OF
JUNE, A.D. 1987, AT 9 O'CLOCK A.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
8814577
DATE:
12-16-97
<PAGE>
CERTIFICATE OF AMENDMENT
OF
[STAMP
CERTIFICATE OF INCORPORATION APPEARS
HERE]
OF
STERIS LABORATORIES, INC.
It is certified that:
1. The name of the corporation (hereinafter referred to as the
"corporation") is Steris Laboratories, Inc. The name under which the
corporation was formed was C-Acquisition Co., Inc.
2. The Certificate of Incorporation of the corporation is hereby amended:
(A) By striking out the first paragraph of Article FOURTH thereof and
substituting in lieu thereof the following new Article FOURTH to read as
follows:
"FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is Two Hundred One Thousand
(201,000) shares, consisting of:
(a) One Thousand (1,000) shares of preferred stock of the par value
of $.01 per share, (hereinafter referred to as "Preferred Stock");
(b) Two Hundred Thousand (200,000) shares of common stock of the
par value of $.01 per share consisting of One Hundred Eighty Thousand
(180,000) shares of Voting Common Stock (hereinafter referred to as
"Voting Common Stock") and Twenty Thousand (20,000) shares of Non-Voting
Common Stock (hereinafter referred to as "Non-Voting Common Stock").
(The Voting Common Stock and Non-Voting Common Stock are sometimes
hereinafter collectively referred to as "Common Stock")."
<PAGE>
(B) By striking out subparagraph 3 of Paragraph B of Article FOURTH
thereof and substituting in lieu thereof the following new subparagraph to read
as follows:
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be adopted by the
Board of Directors pursuant to Paragraph A of this Article FOURTH, each
holder of Voting Common Stock shall have one vote in respect of each
share of Voting Common Stock held by him on all matters voted upon by
the stockholders, and no holder of Non-Voting Common Stock shall be
entitled to any voting rights or to receive notice of, or participate
in, any meeting of stockholders. In all other respects, the rights,
preferences and limitations of shares of Non-Voting Common Stock shall
be identical with those of shares of Voting Common Stock."
3. In connection with the foregoing amendment, Eighty (80) shares of common
stock, par value $.01 per share, all of which are presently issued and
outstanding are hereby changed into One Hundred Eighty Thousand (180,000) issued
and outstanding shares of Voting Common Stock, par value $.01 per share, the
terms of the change being at the rate of 2,250 shares of Voting Common Stock for
each share of common stock.
4. The amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provision of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
-2-
<PAGE>
Signed and attested on May 29, 1987
/s/ Martin Sperber
----------------------------
Executive Vice President
Martin Sperber
Attest:
/s/ Stanley M. Bergman
- -----------------------
Secretary
Stanley M. Bergman
-3-
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "STERIS LABORATORIES, INC.", FILED IN THIS OFFICE ON THE THIRD
DAY OF JUNE, A.D. 1987, AT 9:01 O'CLOCK A.M.
[SEAL OF STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
8814576
DATE:
12-16-97
<PAGE>
CERTIFICATE OF DESIGNATIONS
RELATING TO THE
SERIES A 10% NON-CUMULATIVE PREFERRED STOCK,
$.01 PAR VALUE,
OF
STERIS LABORATORIES, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
The undersigned, Executive Vice President of STERIS LABORATORIES, INC.,
a Delaware corporation (the "Corporation"), certifies that the following
resolution was duly adopted by unanimous written consent of the Board of
Directors of the Corporation pursuant to authority conferred upon it by the
Certificate of Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"):
RESOLVED, that a series of the class of Preferred Stock $.01 par
value, of the Corporation be created, and that the designations,
powers, preferences and relative, participating, optional and other
special rights thereof, and the qualifications, limitations or
restrictions thereof, in addition to those set forth in the Certificate
of Incorporation, and the number of shares of stock of such series, are
as follows:
1. Designation and Number. The designation of the series of
----------------------
Preferred Stock provided for herein shall be "Series A 10% Non-
Cumulative Preferred Stock" (the "Series A Preferred Stock") and the
number of shares constituting such series shall be 100.
2. Dividends. The holders of Series A Preferred Stock shall be
---------
entitled to receive, so long as the Series A Preferred Stock is
outstanding, cash dividends equal to an aggregate of $2,500 per share
per annum and no more, if, as and when declared by the Board of
Directors, payable at such time or times as determined by the Board of
Directors, out of funds at the time
<PAGE>
legally available for the payment of dividends. Dividends on the Series
A Preferred Stock shall be non-cumulative. No dividends (other than
dividends payable in Preferred Stock of the Corporation ranking junior
to the Series A Preferred Stock as to dividends and upon liquidation or
in Common Stock) shall be declared, paid or set apart for payment on
any other series of Preferred Stock ranking junior to the Series A
Preferred Stock as to dividends or on Common Stock of the Corporation
in any fiscal year of the Corporation unless and until dividends or on
the Series A Preferred Stock in the amount of $2500 per share in such
fiscal year shall have been paid or declared and a sum sufficient for
the payment thereof set apart. If in any fiscal year a dividend is
declared, paid or set apart on or in respect of the Series A Preferred
Stock in an amount less than the aggregate annual amount per share the
holders of the Series A Preferred Stock are entitled to receive, any
dividend declared, paid or set apart on or in respect of any series of
Preferred Stock of the Corporation ranking on a parity with the Series
A Preferred Stock as to dividends shall be declared, paid or set apart
ratably with the dividend declared, paid or set apart on or in respect
of the Series A Preferred Stock, in accordance with the aggregate
annual amounts per share payable on any such series, and on the Series
A Preferred Stock.
3. Liquidation, Dissolution or Winding Up. In the event of any
---------------------------------------
liquidation, dissolution or winding up of the Corporation (whether
voluntary or involuntary, and whether or not the Corporation shall have
surplus or earnings available for dividends) before any payment or
distribution of the assets of the Corporation (whether capital or
surplus) shall be made to or set apart for the holders of any other
series of Preferred Stock ranking junior to, or on a parity with, the
Series A Preferred Stock upon liquidation, or of Common Stock, the
holders of Series A Preferred Stock shall be entitled to receive
payment of an amount equal to $25,000 per share and no more. If the
assets of the Corporation, or the proceeds thereof, available for
distribution to the holders of the Series A Preferred Stock and the
holders of any other series of Preferred Stock on a parity with the
Series A Preferred Stock upon liquidation shall be insufficient to pay
in full all amounts to which the holders of Series A Preferred Stock
and the holders of any such other series of
-2-
<PAGE>
Preferred Stock are entitled, then such assets or the proceeds thereof
shall be distributed among the holders of the Series A Preferred Stock
and the holders of such other series of Preferred Stock ratably in
accordance with the respective amounts which would be payable on such
shares if all amounts payable were paid in full. For the purposes of
this paragraph 3, the voluntary sale, lease, exchange or transfer (for
cash, securities or other consideration) of all or substantially all of
the Corporation's assets, or the consolidation or merger of the
Corporation with or into any other corporation shall not be deemed to
be a liquidation, dissolution or winding up of the Corporation.
4. Redemption. The Corporation may, at its option, at any time or
----------
from time to time, redeem the whole or any part of the Series A
Preferred Stock at a redemption price equal to $25,000 per share. In
the event the Corporation shall determine to redeem less than all of
the shares of the Series A Preferred Stock then outstanding, the Board
of Directors shall determine the shares of Series A Preferred Stock so
to be redeemed by lot or pro rata or by any other means which the Board
of Directors deems equitable. Notice of any proposed redemption of any
Series A Preferred Stock shall be given by the Corporation at least
five (5) days prior to the date fixed for such redemption to the
holders of record of the Series A Preferred Stock to be redeemed, at
their respective addresses appearing on the books of the Corporation.
If on the redemption date specified in such notice, the funds necessary
for such redemption shall have been set aside by the Corporation,
separate and apart from its other funds, in trust for the pro rata
benefit of the holders of the shares so called for redemption, then,
notwithstanding that any certificates for shares of Series A Preferred
Stock so called for redemption shall not have been surrendered for
cancellation, the shares represented thereby shall no longer be deemed
outstanding, all dividends rights relating thereto shall cease and all
rights of the holders thereof as stockholders of the Corporation
(except the right to receive payment of the redemption price) shall
cease.
5. Voting. So long as any of the Series A Preferred Stock is
------
outstanding:
-3-
<PAGE>
(a) the Corporation will not, without the affirmative vote or
consent of the holders of at least 66 2/3% of the Series A Preferred
Stock and any other series of Preferred Stock on a parity with the
Series A Preferred Stock as to dividends and upon liquidation (voting
and/or consenting as one series) at the time outstanding, given in
person or by proxy, either in writing or by resolution adopted at an
annual meeting or a special meeting called for the purpose, (i) create
any other series of Preferred Stock ranking prior to, or on a parity
with, the Series A Preferred Stock, either as to dividends or upon
liquidation, or (ii) amend, alter or repeal any of the provisions
hereof so as adversely to affect the preferences, rights or powers of
the Series A Preferred Stock; provided that, nothing in this paragraph
5 shall give the holders of Series A Preferred Stock the right to vote
or to be consulted in respect of an increase or decrease of the number
of shares of stock constituting the Series A Preferred Stock.
(b) the holders of Series A Preferred Stock shall have the
right to vote on all matters voted upon at any meeting of shareholders
as follows: the holders of the Series A Preferred Stock shall be
entitled as a class to cast 66-2/3 percent of the total votes of all
of the voting stock of the Corporation. Each share of Series A
Preferred Stock shall be entitled to cast that proportion of the 66-2/3
percent of the total votes of the voting stock of the Corporation which
said one share bears to the total number of shares of Preferred Stock
then outstanding.
(c) the holders of Voting Common Stock shall be entitled as a
class to cast 33-1/3 percent of the total votes of all of the voting
stock of the Corporation. Each share of Voting Common Stock shall be
entitled to cast that proportion of the said 33-1/3 percent of the
total votes of the voting stock of the Corporation which said one share
bears to the total number of shares of Voting Common Stock then
outstanding.
-4-
<PAGE>
IN WITNESS WHEREOF, STEMS LABORATORIES, INC. has caused this
Certificate of Designations relating to the Series A Preferred Stock to be duly
executed by one of its Executive Vice Presidents and attested to by its
Secretary and has caused its corporate seal to be affixed hereto, this 29 day of
May, 1987.
STEMIS LABORATORIES, INC.
By: /s/ Martin Sperber
------------------------------
Martin Sperber, Executive
Vice President
(Corporate Seal)
ATTEST:
/s/ Stanley M. Bergman
- ---------------------------------
Stanley M. Bergman, Secretary
-5-
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "C-ACQUISITION CO., INC.", CHANGING ITS NAME FROM "C-ACQUISITION CO., INC."
TO "STERIS LABORATORIES, INC.", FILED IN THIS OFFICE ON THE NINETEENTH DAY OF
DECEMBER, A.D. 1986, AT 9 O'CLOCK A.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8814578
DATE: 12-16-97
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
C-ACQUISITION CO., INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is C-Acquisition Co., Inc.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Article First thereof and by substituting in lieu of
said Article the following new Article:
"FIRST: The name of the corporation (hereinafter
called the "Corporation") is Steris Laboratories, Inc."
3. The amendment of the certificate of incorporation herein certified
has been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware.
Signed and attested on December 10, 1986.
/s/ [ILLEGIBLE SIGNATURE APPEARS HERE]
--------------------------------------
Executive Vice President
Attest:
/s/ [ILLEGIBLE SIGNATURE APPEARS HERE]
- --------------------------------------
Secretary
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "C-ACQUISITION CO., INC.", FILED IN THIS OFFICE ON THE
FOURTEENTH DAY OF NOVEMBER, A.D. 1986, AT 10 O'CLOCK A.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
8814580
DATE:
12-16-97
<PAGE>
CERTIFICATE OF INCORPORATION
OF
C-ACQUISITION CO., INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"),
certifies that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is C-Acquisition Co., Inc.
SECOND: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is c/o Corporation
Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle; and
the name of the registered agent of the Corporation in the State of Delaware at
such address is The Corporation Trust Company.
THIRD: The nature of the business and purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
<PAGE>
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is 1000. The par value of such
shares if $.0l. All such shares are of one class and are shares of Common Stock.
FIFTH: The name of the incorporate is Michael J. Stringfellow and his
mailing address is 200 Park Avenue, New York, New York 10166.
SIXTH: The following provisions are inserted for the regulation and
conduct of the affairs of the Corporation, and it is expressly provided that
they are intended to be in furtherance and not in limitation or exclusion of the
powers elsewhere conferred d herein or conferred in the By-Laws or conferred by
law:
1. The original By-Laws of the Corporation shall be adopted by the
incorporator named in Article FIFTH. Thereafter, in furtherance and not in
limitation of the powers conferred under the General Corporation Law of the
State of Delaware, the Board of Directors of the Corporation is expressly
authorized to make, alter or repeal By-Laws not inconsistent with law or with
its Certificate of Incorporation.
2. Election of directors need not be by written ballot, unless the
By-Laws of the Corporation shall so provide.
Signed at New York, New York on November 10, 1986.
/s/ Michael J. Stringfellow
----------------------------------
Michael J. Stringfellow
Incorporator
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
BE IT REMEMBERED that personally appeared before me, the undersigned, a
Notary Public authorized to take acknowledgment of deeds by the laws of the
place where the foregoing Certificate of Incorporation was signed, Michael J.
Stringfellow, the incorporator who signed the foregoing Certificate of
Incorporation, known to me personally to be such, and I having made known to him
the contents of said Certificate of Incorporation, he acknowledged the same to
be his act and deed and that the facts therein stated are truly set forth.
GIVEN under my hand on November 10, 1986.
[ILLEGIBLE SIGNATURE]
---------------------------
Notary Public
-3-
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "C-ACQUISITION CO., INC.", FILED IN THIS OFFICE ON THE
SIXTEENTH DAY OF DECEMBER, A.D. 1986, AT 9 O'CLOCK A.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8814579
DATE: 12-16-97
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
C-ACQUISITION CO., INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is C-Acquisition Co., Inc.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Article Fourth thereof and by substituting in lieu of
said Article the following new Article:
"FOURTH: The total number of shares of all classes of stock which
the corporation shall have authority to issue is Two Thousand (2,000)
shares, consisting of:
(a) One Thousand (1,000) shares of Preferred Stock of the
par value of $.01 per share (hereafter referred to as "Preferred
Stock");
(b) One Thousand (1,000) shares of Common Stock of the
par value of $.01 per share (hereafter referred to as "Common Stock").
A. Preferred Stock:
Shares of Preferred Stock may be issued from time to time in one
or more series, as may from time to time be determined by the Board of
Directors, each of said series to
<PAGE>
be distinctly designated. All shares of any one series of Preferred Stock shall
be alike in every particular, except that there nay be different dates from
which dividends, if any, thereon shall be cumulative, if made cumulative. The
voting powers and the preferences and relative, participating, optional and
other special rights of each such series, and the qualifications, limitations
or restrictions thereof, if any, may differ from those of any and all other
series at any time outstanding. The Board of Directors of the corporation is
hereby expressly granted authority to fix by resolution or resolutions adopted
prior to the issuance of any shares of a particular series of Preferred Stock,
the voting powers and the designations, preferences and relative, optional and
other special rights, and the qualifications, limitations and restrictions of
such series, including, but without limiting the generality of the foregoing,
the following:
(a) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors) or
decreased
<PAGE>
(but not below the number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
(b) The rate and times at which, and the terms and conditions on which,
dividends, if any, on Preferred Stock of such series shall be paid, the extent
of the preference or relation, if any, or such dividends to the dividends
payable on any other class or classes, or series of the same or other classes of
stock and whether such dividends shall be cumulative or non-cumulative;
(c) The right, if any, of the holders of Preferred Stock of such series
to convert the same into, or exchange the same for, shares of any other class
or classes or of any series of the same or any other class or classes of stock
of the corporation and the terms and conditions of such conversion or exchange;
(d) Whether or not Preferred Stock of such series shall be subject to
redemption, and the redemption price or prices and the time or times at which,
and the terms and conditions on which, Preferred Stock of such series may be
redeemed;
<PAGE>
(e) The rights, if any, of the holders of Preferred Stock of such
series upon the voluntary liquidation, merger, consolidation, distribution or
sale of assets, dissolution or winding-up, of the corporation;
(f) The terms of the sinking fund or redemption or purchase account,
if any, to be provided for the Preferred Stock of such series; and
(g) The voting powers, if any of the holders of such series of
Preferred Stock which may, without limiting the generality of the foregoing,
include the right, voting as a series by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class, to elect one or
more directors of the corporation if there shall have been a default in the
payment of dividends on any one or more of Preferred Stock or under such other
circumstances and on such conditions as the Board of Directors may determine.
B. Common Stock:
1. After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of Paragraph A of this
Article Fourth), if any, shall have been met and after the
<PAGE>
corporation shall have complied with all the requirements, if any, with respect
to the setting aside of sums as sinking funds or redemption or purchase accounts
(fixed in accordance with the provisions of Paragraph A of this Article Fourth),
and subject further to any other conditions which may be fixed in accordance
with the provisions of Paragraph A of this Article Fourth, then and not
otherwise the holders of Common Stock shall be entitled to receive such
dividends as may be declared from time to time by the Board of Directors.
2. After distribution in full of the preferential amount, if any (fixed
in accordance with the provisions of Paragraph A of this Article Fourth) to be
distributed to the holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or
winding-up, of the corporation, the holders of the Common Stock shall be
entitled to receive all the remaining assets of the corporation, tangible and
intangible, of whatever kind available for distribution to stockholders ratably
in proportion to the number of shares of Common Stock held by them respectively.
<PAGE>
3. Except as may otherwise be required by law or by the provisions of
such resolution or resolutions as may be adopted by the Board of Directors
pursuant to Paragraph A of this Article Fourth, each holder of Common Stock
shall have one vote in respect of each share of Common Stock held by him on all
matters voted upon by the stockholders.
c. Other Provisions:
1. No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason of any increase
of the authorized capital stock of the corporation of any class or series, or
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock of the corporation of any class or series, or
carrying any right to purchase stock of any class or series, but any such
unissued stock, additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or carrying any
right to
<PAGE>
purchase stock, may be issued and disposed of pursuant to resolution of the
Board of Directors to such persons, firms, corporations or associations, whether
such holders or others, and upon such terms as may be deemed advisable by the
Board of Directors in the exercise of its sole discretion.
2. The relative powers, preferences and rights of each series of
Preferred Stock in relation to the powers, preferences and rights of each other
series of Preferred Stock shall, in each case, be as fixed from time to time by
the Board of Directors in the resolution or resolutions adopted pursuant to
authority granted in Paragraph A of this Article Fourth and the consent, by
class or series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be required for
the issuance by the Board of Directors of any other series of Preferred Stock
whether or not the powers, preferences and rights of such other series shall be
fixed by the Board of Directors as senior to, or on a parity with, the powers,
preferences and rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in the resolution or
resolutions as to
<PAGE>
any series of Preferred Stock adopted pursuant to Paragraph A of this Article
Fourth that the consent of the holders of a majority (or such greater proportion
as shall be therein fixed) of the outstanding shares of such series voting
thereon shall be required for the issuance of any or all other series of
Preferred Stock.
3. Subject to the provisions of subparagraph 2 of this Paragraph C,
shares of any series of Preferred Stock may be issued from time to time as the
Board of Directors of the corporation shall determine and on such terms and for
such consideration as shall be fixed by the Board of Directors.
4. Shares of Common Stock may be issued from time to time as the Board
of Directors of the corporation shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors".
<PAGE>
3. The Amendment of the certificate of incorporation herein certified
has been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware.
Signed and attested to on December 15, 1994.
[ILLEGIBLE SIGNATURE]
-------------------------------
Vice President
Attest:
[ILLEGIBLE SIGNATURE]
- ---------------------------------
Secretary
<PAGE>
EXHIBIT 3.12
BY-LAWS
OF
C-ACQUISITION CO., INC.
A Delaware Corporation
ARTICLE I
Offices
-------
The corporation shall maintain a registered office in the State of
Delaware as required by law. The Corporation may also have offices at other
places, within and without the State of Delaware.
ARTICLE II
Stockholders
------------
Section 1. Annual meetings of stockholders shall be held each year, on
such dates and at such times and such places, within or without the State of
Delaware, as may be fixed from time to time by the Board of Directors.
Section 2. Except as otherwise required by statute or the Certificate
of Incorporation, special meetings of stockholders may be called by the Board of
Directors or the Chairman of the Board. Special meetings of stockholders shall
be held on such dates and at such times and such places, within or without the
State of Delaware, as shall be stated in the notices of such meetings. Notice of
any special meeting shall state the purpose or purposes for which the meeting is
to be held and no
<PAGE>
other business shall be transacted except as stated in such notice.
Section 3. Written notice of all meetings of the stockholders shall be
mailed to or delivered to each stockholder entitled to vote thereat at least
ten, but not more than fifty, days prior to the meeting. Notice of any meeting
shall state in general terms the purposes for which the meeting is to be held
and no other business shall be transacted except as stated in such notice.
Section 4. The holders of a majority of the issued and outstanding
shares of the capital stock of the corporation entitled to vote thereat, present
in person or represented by proxy, shall constitute a quorum for the transaction
of business at all meetings of stockholders.
Section 5. Except as otherwise required by statute, the Certificate of
Incorporation or these By-Laws, all matters coming before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
shares of capital stock of the Corporation present in person or represented by
proxy at such meeting and voting thereon, a quorum being present.
Section 6. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken for or in connection with any corporate
action, the meeting and vote of
- 2 -
<PAGE>
stockholders may be dispensed with if all of the stockholders who would have
been entitled to vote upon the action if such meeting were held shall consent in
writing to such corporate action being taken, or if less than all of said
stockholders, but not less than those having at least the minimum voting power
required to take corporate action under the provisions of the General
Corporation Law, shall consent in writing to such corporate action, provided
that prompt notice be given to all stockholders of the taking of such action
without a meeting and by less than unanimous written consent.
Section 7. The Board of Directors, or, if the Board shall not have
made the appointment, the chairman presiding at any meeting of stockholders,
shall have power to appoint two or more persons to act as inspectors, to
receive, canvass and report the votes cast by the stockholders at such meeting.
Section 8. The Chairman of the Board, or in his absence, the
President, shall preside at all meetings of stockholders; and in their absence,
the Board of Directors may appoint a person to act as chairman of the meeting.
Section 9. The Secretary or an Assistant Secretary shall act as
secretary at all meetings of stockholders; and in their absence, the chairman of
the meeting shall appoint a person to act as secretary of the meeting.
- 3 -
<PAGE>
ARTICLE III
Board of Directors
------------------
Section 1. The business and affairs of the Corporation shall be
managed and controlled by the Board of Directors. The Board of directors shall
consist of one or more directors, as may be fixed and from time to time
increased or decreased by action of the Board of Directors or by the
stockholders, but no decrease shall shorten the term of any incumbent director.
Section 2. Any vacancies in the Board of Directors resulting from
death, resignation, increase in the number of directors, or from any other
reason whatsoever, may be filled by a vote of a majority of the directors then
in office, although less than a quorum, or by vote of the stockholders. A
director elected by the directors or stockholders to fill a vacancy shall hold
office for the unexpired term of his predecessor.
Section 3. Regular meetings of the Board of Directors, other than the
annual meeting, shall be held at such times and places and on such notice, if
any, as the Board of Directors may from time to time determine.
Section 4. Special meetings of the Board of Directors may be called by
the Chairman of the Board or the President and shall be called by the President
upon a request in writing by any two directors. Notice shall be given of the
time and place of each special meeting by mailing the same at least three days
- 4 -
<PAGE>
before the meeting or by telephoning, telegraphing or delivering personally the
same at least one day before the meeting to each director. Except as otherwise
specified in the notice thereof, or as required by statute, the Certificate of
Incorporation or these By-Laws, any and all business may be transacted at any
special meeting.
Section 5. At meetings of the Board of Directors, the Chairman of the
Board or, in his absence, the President, shall preside. A majority of the whole
Board of Directors shall constitute a quorum for the transaction of business,
but less than a quorum may adjourn any meeting from time to time until a quorum
shall be present, whereupon the meeting may be held, as adjourned, without
further notice. Except as otherwise required by statute, the Certificate of
Incorporation or these By-Laws, all matters coming before any meeting of the
Board of Directors shall be decided by the vote of a majority of the directors
present at the meeting, a quorum being present.
Section 6. Any action required or permitted to be taken at any meeting
of the Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board of committee, as the case may be, consent
thereto in writing.
Section 7. Members of the Board of Directors, or any committee
designated by such Board, may participate in a meeting
- 5 -
<PAGE>
of such Board or committee, as the case may be, by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
ARTICLE IV
Committees
----------
Section 1. Except as otherwise provided by statute, the Board of
Directors may designate from among its own members such committees as the Board
may determine, to have such powers and duties as shall from time to time be
prescribed by the Board.
Section 2. A majority of the whole committee shall constitute a quorum
for the transaction of business of any committee and may fix its rules of
procedure. All action by any committee shall be reported to the Board of
Directors. The Board of Directors may discharge any committee or any member
thereof either with or without cause at any time.
ARTICLE V
Officers
--------
Section 1. The Board of Directors shall elect the following executive
officers: a Chairman of the Board of Directors, a President, a Secretary and a
Treasurer, and such other officers as it may from time to time determine.
- 6 -
<PAGE>
Section 2. The term of office of all officers shall be for one year
and until their respective successors are elected and qualify. The Board of
Directors may remove any officer either with or without cause. Vacancies in any
office may be filled at any regular or special meeting of the Board.
Section 3. The officers of the Corporation shall, unless otherwise
ordered by the Board of Directors, each have such powers and duties as generally
pertain to their respective offices, as well a such powers and duties as from
time to time may be conferred by the Board of directors. The Chairman of the
Board shall be the chief executive officer of the Corporation.
Section 4. Unless otherwise ordered by the Board of Directors, the
Chairman of the Board, the President or any Vice President shall have full power
and authority on behalf of the Corporation to attend and to vote at any meeting
of stockholders of any corporation in which this Corporation may hold stock, and
may exercise on behalf of this Corporation any and all of the rights and powers
incident to the ownership of such stock at any such meeting, and shall have
power and authority to execute and deliver proxies, waivers and consents on
behalf of the Corporation in connection with the exercise by the Corporation of
the rights and powers incident to the ownership of such stock. The Board of
Directors, from time to time, may confer like power upon any other person or
persons.
- 7 -
<PAGE>
ARTICLE VI
Capital Stock
-------------
Section 1. Certificates for stock of the Corporation shall be in such
form as the Board of Directors may from time to time prescribe and shall be
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary. If certificates are signed
by a transfer agent acting on behalf of the Corporation, and a registrar, the
signatures of the officers of the Corporation may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is delivered, it may be
issued and delivered by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue and delivery.
Section 2. The Board of Directors shall have power to appoint one or
more transfer agents and/or registrars for the transfer and/or registration of
certificates of stock of any class or series and may require that stock
certificates shall be countersigned and/or registered by one or more of such
transfer agents and/or registrars.
Section 3. Shares of capital stock of the Corporation shall be
transferable on the books of the Corporation only by the holder of record
thereof in person or by his duly authorized
- 8 -
<PAGE>
attorney, upon surrender and cancellation of certificates for a like number of
shares, with an assignment or power of transfer endorsed thereon or delivered
therewith, duly executed, and with such proof of the authenticity of the
signature and of authority to transfer, and of payment of transfer taxes, as the
Corporation or its agents may require.
Section 4. In case any certificate for the capital stock of the
Corporation shall be lost, stolen or destroyed, the Corporation may require such
proof of the fact and such indemnity to be given to it and/or to its transfer
agent and/or registrar, if any, as shall be deemed necessary or advisable by it.
Section 5. The Corporation shall be entitled to treat the holder of
record of any share of shares of stock as the holder thereof in fact, and shall
not be bound to recognize any equitable or other claim to or interest in such
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise expressly provided by law.
Section 6. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the
- 9 -
<PAGE>
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action.
ARTICLE VII
Indemnification
---------------
Section 1. The Corporation shall indemnify to the full extent
permitted by law any person who is or was made, or threatened to be made, a
party to an action, suit or proceeding (whether civil, criminal, administrative
or investigative) by reason of the fact that he, his testator or intestate is or
was a director, officer or employee of the Corporation or serves or served any
other corporation or enterprise at the request of the corporation.
ARTICLE VIII
Miscellaneous
-------------
Section 1. The seal of the Corporation shall be circular in form and
shall contain the name of the Corporation and the year and state of
incorporation.
Section 2. The Board of Directors shall have power to fix, and from
time to time change, the fiscal year of the Corporation.
- 10 -
<PAGE>
Section 3. Any notice required to be given under the provisions of
these By-Laws or otherwise may be waived by the stockholder, director, member of
any committee or officer to whom such notice is required to be given before or
after the meeting or other action of which notice was required to be given.
ARTICLE IX
Amendment
---------
The Board of Directors shall have power to make, alter and repeal By-
Laws of the Corporation by a vote of a majority of the whole Board at any
regular of special meeting of the Board, subject to the power of the
stockholders to alter or repeal the By-Law made or altered by the Board of
Directors. The By-Laws may be altered or repealed by the stockholders by the
vote of the holders of a majority of the outstanding shares entitled to vote
thereon at any meeting, provided that notice of the proposed alteration or
repeal shall have been given in the notice of such meeting of stockholders.
- 11 -
<PAGE>
EXHIBIT 3.13
State of Delaware
Office of the Secretary of State PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THAT "MARSAM PHARMACEUTICALS INC." IS DULY INCORPORATED UNDER THE
LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL CORPORATE
EXISTENCE NOT HAVING BEEN CANCELLED OR DISSOLVED SO FAR AS THE RECORDS OF THIS
OFFICE SHOW AND DULY AUTHORIZED TO TRANSACT BUSINESS.
THE FOLLOWING DOCUMENTS HAS BEEN FILED:
CERTIFICATE OF INCORPORATION, FILED THE FIFTH DAY OF NOVEMBER, A.D.
1986, AT 9 O'CLOCK A.M.
RESTATED CERTIFICATE, FILED THE SIXTH DAY OF FEBRUARY, A.D. 1987, AT 10
O'CLOCK A.M.
CERTIFICATE OF MERGER, FILED THE TENTH DAY OF FEBRUARY, A.D. 1987, AT 10
O'CLOCK A.M.
CERTIFICATE OF AMENDMENT, FILED THE THIRTY-FIRST DAY OF JULY, A.D. 1990,
AT 3:30 O'CLOCK P.M.
CERTIFICATE OF AMENDMENT, FILED THE TWENTY-THIRD DAY OF DECEMBER, A.D. 1994,
AT 9 O'CLOCK A.M.
CERTIFICATE OF OWNERSHIP, CHANGING ITS NAME FROM "MARSAM PHARMACEUTICALS,
INC." T0 "MARSAM" PHARMACEUTICALS INC.", FILED THE ELEVENTH DAY OF SEPTEMBER,
A.D. 1995, AT 4:30 O'CLOCK P.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8809415
DATE: 12-12-97
<PAGE>
State of Delaware PAGE 2
Office of the Secretary of State
--------------------------------
CERTIFICATE OF CHANGE OF REGISTERED AGENT, FILED THE EIGHTEENTH DAY OF
NOVEMBER, A.D. 1996, AT 9 O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE
ONLY CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID
TO DATE.
AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED
TO DATE.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8809415
DATE: 12-12-97
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF CHANGE OF
REGISTERED AGENT OF "MARSAM PHARMACEUTICALS INC.", FILED IN THIS OFFICE ON THE
EIGHTEENTH DAY OF NOVEMBER, A.D. 1996, AT 9 O'CLOCK A.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8810144
DATE: 12-13-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/18/1996
960342619 - 2106490
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED
OFFICE AND REGISTERED AGENT
OF
Marsam Pharmaceuticals Inc.
---------------------------
The Board of Directors of:
Marsam Pharmaceuticals Inc.
a Corporation of the State of Delaware, on this 18th day of November, A.D. 1996
do hereby resolve and order that the location of the Registered Office of this
Corporation within this State be, and the same hereby is:
1013 Centre Road, in the City of Wilmington, in the County of New Castle
Delaware, 19805.
The name of the Registered Agent therein and in charge thereof upon whom
process against the Corporation may be served, is:
CORPORATION SERVICE COMPANY.
a Corporation of the State of Delaware, does hereby certify that the foregoing
is a true copy of a resolution adopted by the Board of Directors at a meeting
held as herein stated.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by WHITNEY K. STEARNS, this 18th day of November, A.D. 1996.
/s/ Whitney K. Stearns
--------------------------
Authorized Officer
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP,
WHICH MERGES:
"SM ACQUIRING CO., INC.", A DELAWARE CORPORATION,
WITH AND INTO "MARSAM PHARMACEUTICALS INC.", A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS
OFFICE ON THE ELEVENTH DAY OF SEPTEMBER, A.D. 1995, AT 4:30 O'CLOCK P.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8810145
DATE: 12-13-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 09/11/1995
950205976 - 2106490
CERTIFICATE OF OWNERSHIP AND MERGER
OF
SM ACQUIRING CO., INC.
(a Delaware corporation)
WITH AND INTO
MARSAM PHARMACEUTICALS, INC.
(a Delaware corporation)
In connection with the merger of SM Acquiring Co., Inc., a Delaware
corporation (the "Company"), with and into Marsam Pharmaceuticals, Inc., a
Delaware corporation ("Marsam"), the undersigned do hereby certify as follows:
1. The Company is a business corporation of the State of Delaware.
2. The Company is the owner of at least 90% of the outstanding shares
of each class of the stock of Marsam, which is a business corporation of the
State of Delaware.
3. The Company hereby merges itself with and into Marsam.
4. The following is a true and complete copy of resolutions adopted by
the Board of Directors of the Company by unanimous written consent dated as of
July 27, 1995 in connection with the merger effected hereby:
RESOLVED, that the merger agreement (the "Merger Agreement") among
the Company, Marsam Pharmaceuticals, Inc. ("Marsam") and Schein
<PAGE>
Pharmaceutical, Inc. ("SPINC"), and the merger of the Company with and into
Marsam (the "Merger"), are hereby approved.
RESOLVED, that the terms and conditions of the proposed merger are
as follows:
(a) Upon the terms of the Merger Agreement and subject to the
provisions of the Delaware General Corporation Law ("DGCL"), the Merger
shall be effected as soon as practicable following the satisfaction or
waiver, if permissible, of the conditions set forth in section 7 of the
Merger Agreement. Marsam shall be the surviving corporation in the
Merger (the "Surviving Corporation") under the name "Marsam
Pharmaceuticals Inc." and shall continue its existence under the law of
Delaware. At the time the Merger becomes effective in accordance with
applicable law (the "Effective Time"), the separate corporate existence
of the Company shall cease.
(b) Subject to the provisions of the Merger Agreement, the parties
shall cause the Merger to be consummated by filing with the secretary of
state of the State of Delaware a duly executed and verified certificate
of ownership and merger, and shall take all other action required by law
to effect the Merger.
(c) The certificate of incorporation of the Surviving Corporation
shall be the certificate of incorporation annexed hereto as exhibit A,
which certificate of incorporation shall, among other things, change the
name of the surviving corporation from Marsam Pharmaceuticals, Inc. to
Marsam Pharmaceuticals Inc. The by-laws of the Surviving Corporation
shall be the by-laws of Company as in effect on the date of the Merger
Agreement.
(d) The persons listed on schedule 2.5 to the Merger Agreement and
the officers of Marsam immediately prior to the Effective Time shall be
the directors and officers, respectively, of the Surviving Corporation,
until their respective successors are duly elected and qualified.
2
<PAGE>
(e) Each share of common stock, par value $.01 per share, of Marsam
(a "Share") issued and outstanding immediately prior to the Effective
Time (other than each Share owned by SPINC, the Company or any
subsidiary of SPINC of the Comapny or held in the treasury of Marsam,
all of which shall be cancelled, and other than Dissenting Shares (as
defined in section 3.1 of the Merger Agreement)) shall, by virtue of the
Merger and without any action on the part of SPINC, the Company, Marsam
or the holder, be converted into the right to receive in cash an amount
per Share (subject to any applicable withholding tax) equal to the
highest price per share payable in the Offer (as defined in the Merger
Agreement), without interest (the "Merger Consideration"), upon the
surrender of the certificate representing the share in accordance with
section 3.2 of the Merger Agreement).
(f) Each share of common stock, par value $.01, of the Company
issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of SPINC, the
Company or Marsam, be converted into and become one share of common
stock of the Surviving Corporation.
RESOLVED, that the officers of the Company hereby are, and each of
them with the full authority to act without the others hereby is,
authorized, in the name and on behalf of the Company, to execute and
deliver any and all contracts, deeds, and writings of any nature and to do
any other act or thing that may be necessary or desirable to carry out the
foregoing.
5. The merger effected hereby has been approved by the sole stockholder
of the Company in accordance with the laws of the State of Delaware.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on
behalf of the Company, this September 8, 1995.
SM ACQUIRING CO., INC.
By: /s/ Martin Sperber
----------------------------
Martin Sperber, President
Attest:
/s/ Paul M. Feuerman
- ------------------------------
Paul M. Feuerman, Secretary
4
<PAGE>
EXHIBIT A
RESTATED
CERTIFICATE OF INCORPORATION
OF
MARSAM PHARMACEUTICALS, INC.
FIRST: The name of the corporation is Marsam Pharmaceuticals Inc.
SECOND: The registered office of the corporation is to be located at 32
Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19904. The name of
its registered agent at that address is The Prentice-Hall Corporation System,
Inc.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The corporation shall have the authority to issue 2,000 shares
of common stock, par value $0.01 per share.
FIFTH: A director of this corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for the breach of
any fiduciary duty as a director, except in the case of (a) any breach of the
director's duty of loyalty of the corporation or its stockholders, (b) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (c) under section 174 of the General Corporation Law of the
State of Delaware or (d) for any transaction from which the director derives an
improper personal benefit. Any repeal or modification of this Article Sixth by
the stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification with respect to acts or omissions occurring prior to such repeal
or modification.
SIXTH: Unless, and except to the extent that, the by-laws of the
corporation shall so require, the election of directors of the corporation need
not be by written ballot.
SEVENTH: The corporation hereby confers the power to adopt, amend or
repeal bylaws of the corporation upon the directors.
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "MARSAM PHARMACEUTICALS, INC.", FILED IN THIS OFFICE ON THE TWENTY-THIRD DAY
OF DECEMBER, A.D. 1994, AT 9 O'CLOCK A.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8810146
DATE: 12-13-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/23/1994
944255052 - 2106490
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
MARSAM PHARMACEUTICALS, INC.
MARSAM PHARMACEUTICALS, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a regular meeting of the Board of Directors of Marsam
Pharmaceuticals, Inc. resolutions were duly adopted setting forth a proposed
amendment of the Restated Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and proposing that said amendment be
considered at the next annual meeting of the stockholders of said corporation.
The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Restated Certificate of Incorporation of this
corporation, as heretofore amended, be further amended by changing the
first two paragraphs of Article "Fourth" so that, as amended the first
three paragraphs of said Article shall be and read as follows:
"The total number of shares of all classes of stock which the
corporation shall have authority to issue is thirty-one million
(31,000,000) shares, consisting of:
(a) thirty million (30,000,000) shares of Common Stock, par
value one cent ($.01) per share (hereinafter referred to as "Common
Stock"); and
(b) one million (1,000,000) shares of Preferred Stock, par
value one cent ($.01) per share (hereinafter referred to as
"Preferred Stock")."
SECOND: That thereafter, pursuant to resolutions of its Board of
Directors, the annual meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as requested by statute were voted in favor of the amendment.
<PAGE>
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Marsam Pharmaceuticals Inc. has caused this
Certificate to be signed by Marvin Samson, its President, and Judith U. Arnoff,
its Secretary the 2nd day of December, 1994.
By: /s/ Marvin Samson
--------------------------
Marvin Samson, President
Attest: /s/ Judith U. Arnoff
-----------------------------
Judith U. Arnoff, Secretary
-2-
<PAGE>
State of Delaware,
OFFICE OF THE SECRETARY OF STATE PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "MARSAM PHARMACEUTICALS, INC.", FILED IN THIS OFFICE ON THE THIRTY-FIRST DAY
OF JULY, A.D. 1990, AT 3:30 O'CLOCK P.M.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8810147
DATE: 12-13-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:30 PM 07/31/1990
902125346 - 2106490
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
MARSAM PHARMACEUTICALS INC.
MARSAM PHARMACEUTICALS INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That by Unanimous Consent in Writing of the Board of Directors
of Marsam Pharmaceuticals Inc. resolutions were duly adopted setting forth a
proposed amendment of the Restated Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and proposing that said
amendment be considered at the next annual meeting of the stockholders of said
corporation. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Restated Certificate of Incorporation of this
corporation be amended by changing the first three paragraphs of Article
"Fourth" so that, as amended the first two paragraphs of said Article
shall be and read as follows:
"The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty-one million
(21,000,000) shares, consisting of:
(a) twenty million (20,000,000) shares of Common Stock, par
value one cent ($.0l) per share (hereinafter referred to as
"Common Stock"); and
(b) one million (1,000,000) shares of Preferred Stock, par
value one cent ($.0l) per share (hereinafter referred to as
"Preferred Stock")."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the annual meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, Marsam Pharmaceuticals Inc. has caused this
Certificate to be signed by Marvin Samson, its President, and Judith U. Arnoff,
its Secretary, this 13th day of July, 1990.
By: /s/ Marvin Samson
----------------------------------
Marvin Samson, President
Attest: /s/ Judith U. Arnoff
------------------------------
Judith U. Arnoff, Secretary
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<PAGE>
State of Delaware
OFFICE OF THE SECRETARY OF STATE PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "MARSAM PHARMACEUTICALS, INC.", FILED IN THIS OFFICE ON THE
FIFTH DAY OF NOVEMBER, A.D. 1986, AT 9 O'CLOCK A.M.
[SEAL OF STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] ----------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8810150
DATE: 12-13-97
<PAGE>
CERTIFICATE OF INCORPORATION
OF [STAMP
APPEARS
MARSAM PHARMACEUTICALS, INC. HERE]
FIRST: The name of the Corporation is Marsam Pharmaceuticals, Inc.
SECOND: The address of the registered office of the Corporation in
Delaware is 229 South State Street, City of Dover, County of Kent, and the name
of the registered agent of the Corporation at such address is United States
Corporation Company.
THIRD: The purpose of the Corporation is to engage any lawful act or
activity for which Corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is eleven million (11,000,000) shares,
consisting of
(a) ten million (10,000,000) shares of Preferred Stock, par
value one cent ($.01) per share (hereinafter referred to as
"Preferred Stock");
(b) one million (1,000,000) shares of Common Stock, par value
one cent ($.0l) per share (hereinafter referred to as "Common
Stock").
A. PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or more
series, as may from time to time be determined by the Board of Directors, each
of said series to be distinctly designated. All shares of any one series of
Preferred Stock shall be alike in every particular, except that there may be
different dates from which dividends, if any, thereon shall be cumulative, if
made cumulative. The voting powers and the preferences and relative,
participating, optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and
<PAGE>
all other series at any time outstanding; and, subject to the provisions of
subparagraph 1 of Paragraph C of this Article Fourth, the Board of Directors of
the Corporation is hereby expressly granted authority to fix by resolution or
resolutions adopted prior to the issuance of any shares of a particular series
of Preferred Stock, the voting powers and the designations, preferences and
relative, optional and other special rights, and the qualifications, limitations
and restrictions of such series, including, but without limiting the generality
of the foregoing, the following:
(a) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by like action of the Board of Directors;
(b) The rate and times at which, and the terms and conditions on
which, dividends, if any, on Preferred Stock of such series shall be paid,
the extent of the preference or relation, if any, of such dividends to the
dividends payable on any other class or classes, or series of the same or
other classes of stock and whether such dividends shall be cumulative or non-
cumulative;
(c) The right, if any, of the holders of Preferred Stock of such
series to convert the same into, or exchange the same for, shares of any
other class or classes or of any series of the same or any other class or
classes of stock of the Corporation and the terms and conditions of such
coversion or exchange;
(d) Whether or not Preferred Stock of such series shall be subject
to redemption, and the redemption price or prices and the time or times at
which, and the terms and conditions on which, Preferred Stock of such series
may be redeemed;
(e) The rights, if any, of the holders of Preferred Stock of such
series upon the voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or wind-up, of the Corporation;
(f) The terms of the sinking fund or redemption or purchase account,
if any, to be provided for the Preferred Stock of such series: and
(g) The voting powers, if any, of the holders of such series of
Preferred Stock which may, without limiting
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<PAGE>
the generality of the foregoing, include the right, voting as a series by
itself or together with other series of Preferred Stock or all series of
Preferred Stock as a class, to elect one or more directors of the Corporation
if there shall have been a default in the payment of dividends on any one or
more series of Preferred Stock or under such other circumstances and on such
conditions as the Board of Directors may determine; provided, however, that
each holder of Preferred Stock shall have no more than one vote in respect of
each share of Preferred Stock held by him on any matter voted upon by the
stockholders.
B. COMMON STOCK:
1. After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of Paragraph A of this
Article Fourth), if any, shall have been met and after the Corporation shall
have complied with all the requirements, if any, with respect to the setting
aside of sums as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of Paragraph A of this Article Fourth), and
subject further to any other conditions which may be fixed in accordance with
the provisions of Paragraph A of this Article Fourth, then and not otherwise the
holders of Common Stock shall be entitled to receive such dividends as may be
declared from time to time by the Board of Directors.
2. After distribution in full of the preferential amount, if any, (fixed
in accordance with the provisions of Paragraph A of this Article Fourth) to be
distributed to the holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or winding-
up, of the Corporation, the holders of the Common Stock shall be entitled to
receive all the remaining assets of the Corporation, tangible and intangible, of
whatever kind available for distribution to stockholders ratably in proportion
to the number of shares of Common Stock held by them respectively.
3. Except as may otherwise be required by law or by the provisions of
such resolution or resolutions as may be adopted by the Board of Directors
pursuant to Paragraph A of this Article Fourth, each holder of Common Stock
shall have one vote in respect of each share of Common Stock held by him on all
matters voted upon by the stockholders.
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<PAGE>
C. OTHER PROVISIONS:
1. No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason of any increase
of the authorized capital stock of the Corporation of any class or series, or
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock of the Corporation of any class or series, or
carrying any right to purchase stock of any class or series, but any such
unissued stock, additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant to resolution of
the Board of Directors to such persons, firms, corporations or associations,
whether such holders or others, and upon such terms as may be deemed advisable
by the Board of Directors in the exercise of its sole discretion.
2. The relative powers, preferences and rights of each series of
Preferred Stock in relation to the powers, preferences and rights of each other
series of Preferred Stock shall, in each case, be as fixed from time to time by
the Board of Directors in the resolution or resolutions adopted pursuant to
authority granted in Paragraph A of this Article Fourth and the consent, by
class or series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from tine to time outstanding shall not be required for
the issuance by the Board of Directors of any other series of Preferred Stock
whether or not the powers, preferences and rights of such other series shall be
fixed by the Board of Directors as senior to, or on a purity with, the powers,
preferences and rights of such outstanding series, or any of them; provided
however, that the Board of Directors may provide in the resolution or
resolutions as to any series of Preferred Stock adopted pursuant to Paragraph A
of this Article Fourth that the consent of the holders of a majority (or such
greater proportion as shall be therein fixed) of the outstanding shares of such
series voting thereon shall be required for the issuance of any or all other
series of Preferred Stock.
3. Subject to the provisions of subparagraph 2 of this Paragraph C,
shares of any series of Preferred Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such terms and for
such considera-
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<PAGE>
tion as shall be fixed by the Board of Directors.
4. Shares of Common Stock may be issued from time to time as the Board
of Directors of the Corporation shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
5. The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased from time
to time by the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote thereon.
FIFTH: The name and mailing address of the incorporator are as follows:
Name Mailing Address
---- ---------------
E. Michael Silecchia Kramer, Levin, Nessen,
Kamin & Erankel
919 Third Avenue
New York, New York 10022
SIXTH: Except as required in the by-laws, no election of directors need
be by written ballot.
SEVENTH: The Board of Directors shall have the power to make, alter or
repeal by-laws subject to the power of the stockholders to alter or repeal the
by-laws made or altered by the Board of Directors.
Signed at New York, New York
on November 4, 1986. /s/ E. Michael Silecchia
------------------------------
E. Michael Silecchia
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<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"MARSAM PHARMACEUTICALS, INC.", FILED IN THIS OFFICE ON THE SIXTH DAY OF
FEBRUARY, A.D. 1987, AT 10 O'CLOCK A.M.
[SEAL OF STATE OF DELAWARE APPEARS HERE]
[SEAL OF SECRETARY'S /s/ Edward J. Freel
OFFICE APPEARS HERE] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8810149
DATE: 12-13-97
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
MARSAM PHARMACEUTICALS, INC.
Marsam Pharmaceuticals, Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Marsam Pharmaceuticals. Inc.
2. The original Certificate of Incorporation was filed with the
Secretary of State on November 5, 1986.
3. This Restated Certificate of Incorporation restates and integrates
the Certificate of Incorporation of the Corporation, as heretofore
amended, to read in its entirety as follows:
FIRST: The name of the Corporation is Marsam Pharmaceuticals, Inc.
SECOND: The address of the registered office of the Corporation in
Delaware is 229 South State Street, City of Dover, County of Kent, and the name
of the registered agent of the Corporation at such address is United States
Corporation Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is eleven million (11,000,000) shares,
consisting of:
(a) ten million (10,000,000) shares of Common Stock, par value
one cent ($.0l) per share (hereinafter referred to as "Common
Stock"); and
(b) one million (1,000,000) shares of Preferred Stock, par
value one cent ($.01) per share (hereinafter referred to as
"Preferred Stock").
A. PREFERRED STOCK: Shares of Preferred Stock may be issued
from time to time in one or more series, as may from time to time be determined
by the Board of Directors, each of said series to be distinctly designated. All
shares of
<PAGE>
any one series of Preferred Stock shall be alike in every particular, except
that there may be different dates from which dividends, if any, thereon shall be
cumulative, if made cumulative. The voting powers and the preferences and
relative, participating, optional and other special rights of each such series,
and the qualifications, limitations or restrictions thereof, if any, may differ
from those of any and all other series at any time outstanding; and, subject to
the provisions of subparagraph 1 of Paragraph C of this Article FOURTH, the
Board of Directors of the Corporation is hereby expressly granted authority to
fix by resolution or resolutions adopted prior to the issuance of any shares of
a particular series of Preferred Stock, the voting powers and the designations,
preferences and relative, optional and other special rights, and the
qualifications, limitations and restrictions of such series, including, but
without limiting the generality of the foregoing, the following:
(a) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by like action of the Board of Directors;
(b) The rate and times at which, and the terms and conditions on
which, dividends, if any, on Preferred Stock of such series shall be paid,
the extent of the preference or relation, if any, of such dividends to the
dividends payable on any other class or classes, or series of the same or
other classes of stock and whether such dividends shall be cumulative or non-
cumulative;
(c) The right, if any, of the holders of Preferred Stock of such
series to convert the same into, or exchange the same for, shares of any
other class or classes or of any series of the same or any other class or
classes of stock of the Corporation and the terms and conditions of such
conversion or exchange;
(d) Whether or not Preferred Stock of such series shall be subject
to redemption, and the redemption price or prices and the time or times at
which, and the terms and conditions on which, Preferred Stock of such series
may be redeemed;
(e) The rights, if any, of the holders of Preferred Stock of such
series upon the voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding-up of the Corporation;
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<PAGE>
(f) The terms of the sinking fund or redemption or PURCHASE account,
if ANY, to be provided for the Preferred Stock of such series; and
(g) The voting powers, if any, of the holders of such series of
Preferred Stock which may, without limiting the generality of the foregoing,
include the right, voting as a series by itself or together with other series
of Preferred Stock or all series of Preferred Stock as a class, to elect one
or more directors of the Corporation if there shall have been a default in
the payment of dividends on any one or more series of Preferred Stock or
under such other circumstances and on such conditions as the Board of
Directors may determine.
B. COMMON STOCK:
1. After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the provisions of
Paragraph A of this Article FOURTH), if any, shall have been met and after the
Corporation shall have complied with all the requirements, if any, with respect
to the setting aside of sums as sinking funds or redemption or purchase accounts
(fixed in accordance with the provisions of Paragraph A of this Article FOURTH),
and subject further to any other conditions which may be fixed in accordance
with the provisions of Paragraph A of this Article FOURTH, then and not
otherwise the holders of Common Stock shall be entitled to receive such
dividends as may be declared from time to time by the Board of Directors.
2. After distribution in full of the preferential amount,
if any (fixed in accordance with the provisions of Paragraph A of this Article
FOURTH), to be distributed to the holders of Preferred Stock in the event of
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, the holders of the Common Stock, subject to the rights, if any, of
the holders of Preferred Stock to participate therein (fixed in accordance with
Paragraph A of this Article FOURTH), shall be entitled to receive all the
remaining assets of the Corporation, tangible and intangible, of whatever kind
available for distribution to stockholders ratably in proportion to the number
of shares of Common Stock held by them, respectively.
3. Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be adopted by the Board of
Directors pursuant to Paragraph A of this Article FOURTH, each holder of Common
Stock shall have one vote in respect of each share of Common Stock held by him
on all matters voted upon by the stockholders.
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<PAGE>
C. OTHER PROVISIONS:
1. No holder of any of the shares of any class or series of
stock or of options, warrants or other rights to purchase shares of any class or
series of stock or of other securities of the Corporation shall have any
preemptive right to purchase or subscribe for any unissued stock of any class or
series or any additional shares of any class or series to be issued by reason of
any increase of the authorized capital stock of the Corporation of any class or
series, or bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of the Corporation of any class or
series, or carrying any right to purchase stock of any class or series, but any
such unissued stock, additional authorized issue of shares of any class or
series of stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of pursuant to
a resolution of the Board of Directors to such persons, firms, corporations or
associations, whether such holders or others, and upon such terms as may be
deemed advisable by the Board of Directors in the exercise of its sole
discretion.
2. The relative powers, preferences and rights of each
series of Preferred Stock in relation to the powers. preferences and rights of
each other series of Preferred Stock shall, in each case be as fixed from time
to time by the Board of Directors in the resolution or resolutions adopted
pursuant to authority granted in Paragraph A of this Article FOURTH and the
consent, by class or series vote or otherwise, of the holders of such of the
series of Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other series of
Preferred Stock whether or not the powers, preferences and rights of such other
series shell be fixed by the Board of Directors as senior to, or on a parity
with, the powers, preferences and rights of such outstanding series, or any of
them; provided, however, that the Board of Directors may provide in the
resolution or resolutions as to any series of Preferred Stock adopted pursuant
to Paragraph A of this Article FOURTH that the consent of the holders of a
majority (or such greater proportion as shall be therein fixed) of the
outstanding shares of such series voting thereon shall be required for the
issuance of any or all other series of Preferred Stock.
3. Subject to the provisions of subparagraph 2 of this
Paragraph C, shares of any series of Preferred Stock may be issued from time to
time as the Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of Directors.
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<PAGE>
4. Shares of Common Stock may be issued from time to time
as the Board of Directors of the Corporation shall determine and on such terms
and for such consideration as shall be fixed by the Board of Directors.
5. The authorized amount of shares of Common Stock and of
Preferred Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a majority of the
stock of the Corporation entitled to vote thereon.
FIFTH: A. The business and affairs of the Corporation shall be managed
by the Board of Directors, and the directors need not be elected by ballot
unless required by the by-laws of the Corporation.
B. The Board of Directors is expressly authorized to adopt,
amend or repeal the By-Laws of the Corporation.
C. The number of directors of the Corporation (exclusive of
directors to be elected by the holders of any one or more class or series of
Preferred Stock of the Corporation, which may at some time be outstanding,
voting separately as a class or classes) shall not be less than three nor more
than fifteen, shall be initially fixed at four and may thereafter be changed
from time to time by action of not less than a majority of the members of the
Board then in office.
D. The Board of Directors shall be divided, with respect to the
time for which they severally hold office, into three classes, as nearly equal
in number as reasonably possible, with the term of office of the first class to
expire at the next annual meeting of stockholders thereafter, the term of the
office of the second class to expire at the second annual meeting of
stockholders thereafter, and the term of office of the third class to expire at
the third annual meeting of stockholders thereafter, with each director to hold
office until his or her successor shall have been duly elected and qualified. At
each annual meeting of stockholders commencing with the first annual meeting
after the division of directors into classes, directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until his or her successor shall
have been duly elected and qualified.
E. Any vacancies on the Board of Directors and newly created
directorships resulting from any increase in the authorized number of directors
shall be filled exclusively by
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<PAGE>
a majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Any directors so chosen shall hold office until the
next election of the class for which such directors shall have been chosen and
until their successors shall be elected and qualified. No decrease in the number
of directors shall shorten the term of any incumbent director.
F. Notwithstanding the foregoing, and except as otherwise
required by law, whenever the holders of any one or more classes or series of
Preferred Stock shall have the right, voting separately as a class, to elect one
or more directors of the Corporation, the terms of the directors elected by such
holders shall expire at the next succeeding meeting of stockholders.
G. Notwithstanding any other provision of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation), any director or the entire
Board of Directors of the Corporation may be removed only with cause and only by
an affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class). Notwithstanding the
foregoing, and except as otherwise required by law, whenever the holders of any
one or more classes or series of Preferred Stock shall have the right, voting
separately as a class, to elect one or more directors of the Corporation, the
provisions of this Paragraph G of Article FIFTH shall not apply with respect to
the director or directors elected by such holders of Preferred Stock.
SIXTH: A. A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (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 Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is amended
after this Restated Certificate of Incorporation becomes effective to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
B. Any repeal or modification of the foregoing Paragraph A of
this Article SIXTH by the stockholders of the Corporation shall not adversely
affect any right or protec-
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<PAGE>
tion of a director of the Corporation existing at the time of such repeal or
modification.
SEVENTH: A. Special meetings of the stockholders may be called only by
the Board of Directors and the power of the stockholders to call a special
meeting for any and all purposes whatsoever is specifically denied.
B. No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
EIGHTH: A. In addition to any affirmative vote required by law, by this
Certificate of Incorporation or by any Preferred Stock designation, and
notwithstanding any other provision of the Certificate of Incorporation or the
By-Laws of the Corporation (and notwithstanding the fact that some lesser
percentage may be specified by law, the Certificate of Incorporation or the By-
Laws of the Corporation), the affirmative vote of at least 70% of the total
voting power of all the outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required for the adoption or authorization
of a business combination (as defined herein) with any other entity (as defined
herein), provided, however, that the provisions of this Article EIGHTH shall not
apply to and only such vote as shall otherwise be required by law, this
Certificate of Incorporation or the By-Laws of the Corporation, shall be
required for, any such business combination recommended to the stockholders by
two-thirds of the whole Board of Directors of the Corporation, provided that and
so long as a majority of the members of the Board of Directors acting upon such
matter shall be continuing directors (as defined herein).
B. As used in this Certificate of Incorporation, (a) the term
"continuing director" shall mean a member of the initial Board of Directors of
the Corporation, or a member of the Board of Directors of the Corporation who
was elected by the public stockholders prior to the time that such other entity
(as defined herein) acquired shares of stock of the Corporation entitling such
other entity to exercise in excess of ten percent (10%) of the total voting
power of all classes of stock of the Corporation entitled to vote in the
election of directors, or a member of the Board of Directors of the Corporation
who was elected or nominated for election by a majority of continuing directors;
(b) the term "other entity" shall include any individual, corporation,
partnership, person or entity and any other entity with which it or its
"affiliate" or "associate" (as
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<PAGE>
defined below) has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of stock
of the Corporation, or which is its "affiliate" or "associate" as those terms
are defined in Rule 12b-2 (or any successor rule) of the General Rules and
Regulations under the Securities Exchange Act of 1934, together with the
successors and assigns of such persons in any transaction or series of
transactions not involving a public offering of the Corporation's stock within
the meaning of the Securities Act of 1933; and (c) the term "business
combination" shall include (i) any merger or consolidation of the Corporation
with or into any other entity, other than a merger or consolidation that does
not require the vote of the stockholders of the Corporation; (ii) any sale,
lease, transfer or exchange (in one transaction or a series of transactions) of
all or substantially all of the property and assets of the Corporation to any
other entity; (iii) any merger or consolidation of any other entity with or into
the Corporation or any subsidiary of this Corporation; or (iv) any agreement or
contract with any other entity providing for any of the transactions described
in this subparagraph (c).
NINTH: In addition to any affirmative vote required by law, by this
Certificate of Incorporation or by any Preferred Stock designation, and
notwithstanding any other provision of this Certificate of Incorporation or the
By-Laws of the Corporation (and notwithstanding the fact that some lesser
percentage may be specified by law, this Certificate of Incorporation or the by-
laws of the Corporation), the affirmative vote of the holders of at least 70% of
the total voting power of all the outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend, alter, change or repeal
any one or more of the provisions contained in Articles FIFTH, SIXTH, EIGHTH,
and NINTH of this Certificate of Incorporation, subject to the provisions of any
class or series of Preferred Stock which may at the time be outstanding.
TENTH: The Board of Directors of the Corporation, when evaluating any
offer of a person, other than the Corporation itself, to (a) make a tender or
exchange offer for any equity security of the Corporation, (b) merge or
consolidate the Corporation with another person, or (c) purchase or otherwise
acquire all or substantially all of the properties and assets of the Corporation
shall, in connection with the exercise of its business judgment in determining
what are the best interests of the Corporation and its stockholders, give due
consideration to all relevant factors, including without limitation (i) the
consideration being offered in relation to the current market price, also in
relation to the current value of the Corporation in a freely negotiated
transaction and in relation to the Board of
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<PAGE>
Directors' current estimate of the future value of the Corporation as an
independent entity, (ii) the social and economic effects on the employees,
customers, suppliers and other constituents of the Corporation and its
subsidiaries and on the communities in which the Corporation and its
subsidiaries operate or are located, and (iii) the desirability of maintaining
independence from any other entity.
ELEVENTH: A. Each person who was or is made a party or is threatened to
be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director, officer or employee of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity while serving as a director, officer, employee or (if serving for
another corporation at the request of the Corporation) agent or in any other
capacity while serving as a director, officer, employee or (if serving for
another corporation at the request of the Corporation) agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended, (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment) against all expense, liability and loss (including attorneys'
fees, judgment, fines, ERISA excise taxes or penalties and amounts to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or (if serving for another corporation at
the request of the Corporation) agent and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that except as
-------- -------
provided in Paragraph B hereof with respect to proceedings seeking to enforce
rights to indemnification, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article ELEVENTH shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
--------
however, that, if the Delaware General Corporation Law requires, the payment of
- -------
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a direc-
-9-
<PAGE>
tor or officer, including, without limitation, service to an employee benefit
plan) in advance of the final disposition of a proceeding shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article ELEVENTH or otherwise.
B. If a claim under Paragraph A of this Article ELEVENTH is
not paid in full by the Corporation within ninety days after a written claim has
been received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or stockholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
C. The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Article ELEVENTH shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
D. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
-10-
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, having
been recommended and approved by the Board of Directors and adopted by all of
the stockholders of the Corporation in accordance with the provision of Sections
242 and 245 of the Delaware General Corporation Law, has been executed on this
10th day of December, 1986.
MARSAM PHARMACEUTICALS, INC.
By: [ILLEGIBLE SIGNATURE APPEARS HERE]
----------------------------------
President and Chief
Executive Officer
ATTEST:
[ILLEGIBLE SIGNATURE APPEARS HERE]
- ----------------------------------
Secretary
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF MERGER,
WHICH MERGES:
"MARSAM PHARMACEUTICALS, INC.", A NEW JERSEY CORPORATION,
WITH AND INTO "MARSAM PHARMACEUTICALS, INC." UNDER THE NAME OF "MARSAM
PHARMACEUTICALS, INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS
OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE TENTH
DAY OF FEBRUARY, A.D. 1987, AT 10 O'CLOCK A.M.
/s/ Edward J. Freel
[SEAL] -------------------------------------
Edward J. Freel, Secretary of
State
2106490 8100M AUTHENTICATION: 8810148
971427376 DATE: 12-13-97
<PAGE>
CERTIFICATE OF MERGER
OF
MARSAM PHARMACEUTICALS INC.
(A NEW JERSEY CORPORATION)
WITH AND INTO
MARSAM PHARMACEUTICALS, INC.
(A DELAWARE CORPORATION)
----------------
PURSUANT TO SECTION 252(C) OF THE DELAWARE
GENERAL CORPORATION LAW
----------------
Marsam Pharmaceuticals, Inc., a corporation formed under the laws of the
State of Delaware ("MPI-Del"), desiring to merge Marsam Pharmaceuticals Inc.,
a corporation formed under the laws of the State of New Jersey ("MPI-NJ"),
with and into itself, pursuant to the provisions of Section 252(c) of the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY as
follows:
FIRST: The name and state of incorporation of each of the constituent
corporations are:
Marsam Pharmaceuticals, Inc. Delaware
Marsam Pharmaceuticals Inc.
New Jersey
<PAGE>
SECOND: An Agreement and Plan of Merger, dated as of December 18, 1986 (the
"Plan"), has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with Section 252(c) of the
Delaware General Corporation Law.
THIRD: The name of the surviving corporation is Marsam Pharmaceuticals, Inc.
FOURTH: The certificate of incorporation of MPI-Del shall be the certificate
of incorporation of the surviving corporation.
FIFTH: An executed copy of the Plan is on file at the principal place of
business of Marsam Pharmaceuticals Inc., Building 31, Olney Avenue, Cherry
Hill, New Jersey.
SIXTH: A copy of the Plan will be furnished by the surviving corporation, on
request and without cost, to any stockholder of any constituent corporation.
SEVENTH: The authorized capital stock of MPI-NJ is twenty-five thousand
(25,000) shares of Common Stock, with no par value per share.
2
<PAGE>
IN THE WITNESS WHEREOF, Marsam Pharmaceuticals, Inc. has caused this
certificate to be executed by its duly authorized officers this 18th day of
December, 1986.
Marsam Pharmaceuticals, Inc. (a
Delaware corporation)
/s/ Marvin S. Samson
By___________________________________
Marvin S. Samson, President
ATTEST:
/s/ Judith U. Arnoff
By___________________________________
Judith U. Arnoff, Secretary
3
<PAGE>
EXHIBIT 3.14
BY-LAWS
OF
MARSAM PHARMACEUTICALS INC.
(A DELAWARE CORPORATION)
ARTICLE I
Stockholders
Section 1. Place of Meetings. Meetings of stockholders shall be held at such
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of stockholders shall be held on
such date during the month of May of each year and at such time as shall be
designated from time to time by the Board of Directors. At each annual meeting
the stockholders shall elect a Board of Directors by plurality vote and
transact such other business as may be properly brought before the meeting.
Section 3. Special Meetings. Except as otherwise required by law, special
meetings of the stockholders may be called only by the Board of Directors.
Section 4. Notice of Meetings. Written notice of each meeting of the
stockholders stating the place, date and hour of the meeting shall be given by
or at the direction of the Board of
1
<PAGE>
Directors to each stockholder entitled to vote at the meeting at least ten, but
not more than sixty, days prior to the meeting. Notice of any special meeting
shall state in general terms the purpose or purposes for which the meeting is
called and no other business shall be transacted thereat except as stated in
such notice.
Section 5. Quorum; Adjournments of Meetings. The holders of a majority of the
issued and outstanding shares of the capital stock of the corporation entitled
to vote at a meeting, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at such meeting; but, if
there be less than a quorum, the holders of a majority of the stock so present
or represented may adjourn the meeting to another time or place, from time to
time, until a quorum shall be present, whereupon the meeting may be held, as
adjourned, without further notice, except as required by law, and any business
may be transacted thereat which might have been transacted at the meeting as
originally called.
Section 6. Voting. At any meeting of the stockholders every registered owner
of shares entitled to vote may vote in person or by proxy and, except as
otherwise provided by statute, in the Certificate of Incorporation or these By-
Laws, shall have one vote for each such share standing in his name on the books
of the Corporation. Except as otherwise required by statute, the
2
<PAGE>
Certificate of Incorporation or these By-Laws, all matters, other than the
election of directors, brought before any meeting of the stockholders shall be
decided by a vote of a majority in interest of the stockholders of the
Corporation present in person or by proxy at such meeting and voting thereon,
a quorum being present.
Section 7. Inspectors of Election. The Board of Directors, or, if the Board
shall not have made the appointment, the chairman presiding at any meeting of
stockholders, shall have power to appoint one or more persons to act as
inspectors of election at the meeting or any adjournment thereof, but no
candidate for the office of director shall be appointed as an inspector at any
meeting for the election of directors.
Section 8. Chairman of Meetings. The Chairman of the Board or, in his
absence, the President shall preside at all meetings of the stockholders. In
the absence of both the Chairman of the Board and the President, a majority of
the members of the Board of Directors present in person at such meeting may
appoint any other officer or director to act as Chairman of the meeting.
Section 9. Secretary of Meetings. The Secretary of the Corporation shall act
as secretary of all meetings of the stockholders. In the absence of the
Secretary, the chairman of the meeting shall appoint any other person to act
as secretary of the meeting.
3
<PAGE>
ARTICLE II
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Certificate
of Incorporation or these By-Laws, the affairs, business and property of the
Corporation shall be managed and controlled by the Board of Directors. The
Board may exercise all such authority and powers of the Corporation and do all
such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the
stockholders.
Section 2. Number of Directors. The number of directors of the Corporation
(exclusive of directors to be elected by the holders of any one or more
classes or series of Preferred Stock of the Corporation or any other class or
series of stock of the Corporation which may at some time be outstanding,
voting separately or as a class or classes) shall not be less than three nor
more than fifteen, and may be changed from time to time by action of not less
than a majority of the members of the Board then in office. Whenever the words
"whole Board", "entire Board" or "total number of directors" are used in these
By-Laws, such words shall mean the number of directors fixed by the Board and
then in effect in accordance with the provisions of the Certificate of
Incorporation or these By-Laws.
4
<PAGE>
Section 3. First Meeting. The first meeting of each newly elected Board of
Directors, of which no notice shall be necessary, shall be held immediately
following the annual meeting of stockholders or any adjournment thereof at the
place the annual meeting of stockholders was held at which such directors were
elected, or at such other place as a majority of the members of the newly
elected Board who are then present shall determine, for the election or
appointment of officers for the ensuing year and the transaction of such other
business as may be brought before such meeting.
Section 4. Regular Meetings. Regular meetings of the Board of Directors,
other than the first meeting, may be held without notice at such times and
places as the Board of Directors may from time to time determine.
Section 5. Special Meetings. Special Meetings of the Board of Directors may
be called by order of the Chairman of the Board, the President or any two
directors. Notice of the time and place of each special meeting shall be given
by or at the direction of the person or persons calling the meeting by mailing
the same at least three days before the meeting or by telephoning, telegraphing
or delivering personally the same at least twenty-four hours before the meeting
to each director. Except as otherwise specified in the notice thereof, or as
required by statute, the Certificate of Incorporation or these By-Laws, any and
all business may be transacted at any special meeting.
5
<PAGE>
Section 6. Attendance by Communications Equipment. Unless otherwise
restricted by the Certificate of Incorporation, members of the Board of
Directors or of any committee designated by the Board may participate in a
meeting of the Board or any such committee by means of a conference telephone
or similar communications equipment whereby all persons participating in the
meeting can hear each other. Participation in any meeting by such means shall
constitute presence in person at such meeting. Any meeting at which one or
more of the members of the Board of Directors or of a committee designated by
the Board of Directors shall participate by means of conference telephone or
similar communications equipment shall be deemed to have been held at the
place designated for such meeting, provided that at least one member is at
such place while participating in the meeting.
Section 7. Organization. Every meeting of the Board of Directors shall be
presided over by the Chairman of the Board, or, in his absence, the President.
In the absence of the Chairman of the Board and the President, a presiding
officer shall be chosen by a majority of the directors present. The Secretary
of the corporation shall act as secretary of the meeting, but, in his absence,
the presiding officer may appoint any person to act as secretary of the
meeting.
Section 8. Quorum; Vote. A majority of the directors then in office shall
constitute a quorum for the transaction of
6
<PAGE>
business, but less than a quorum may adjourn any meeting to another time or
place from time to time until a quorum shall be present, whereupon the meeting
may be held, as adjourned, without further notice. Except as otherwise
required by statute, the Certificate of Incorporation or these By-Laws, all
matters coming before any meeting of the Board of Directors shall be decided
by the vote of a majority of the directors present at the meeting, a quorum
being present.
Section 9. Compensation. A director or member of a committee may serve the
Corporation in any other capacity and receive compensation therefor. Each
director or member of a committee, other than directors who are officers or
employees of the Corporation, may receive for his services as director or
member of a committee, compensation (whether in the form of attendance fees,
fixed remuneration, or otherwise) in such amount as may be fixed from time to
time by the Board of Directors, in addition to reimbursement of traveling or
like expenses.
ARTICLE III
COMMITTEES
Section 1. Executive Committee. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate from among its members an
Executive Committee to consist of three or more members and may designate one
of such members as chairman. The Board may also designate one or more of
7
<PAGE>
its members as alternates to serve as a member or members of the Executive
Committee in the absence of a regular member or members. Except as provided in
Section 4 of this Article III, the Executive Committee shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and the Executive
Committee may authorize the seal of the Corporation to be affixed to all
papers which may require it.
Section 2. Other Committees. The Board of Directors, acting by a majority of
the whole Board, may also appoint from among its own members or otherwise such
other committees as the Board may determine, to have such powers and duties as
shall from time to time be prescribed by the Board and which, in the
discretion of the Board, may be designated as committee of the Board.
Section 3. Quorum and Discharge. A majority of the entire committee shall
constitute a quorum for the transaction of business of any committee and may
fix its rules of procedure. The Board of Directors may discharge any committee
either with or without cause at any time.
Section 4. Powers of Committees. No committee designated or appointed by the
Board of Directors shall have the power or authority of the Board in reference
to (a) amending the Certificate of Incorporation, (b) adopting an agreement of
merger or consolidation, (c) recommending to the stockholders the sale,
8
<PAGE>
lease or exchange of all or substantially all of the Corporation's property
and assets, (d) recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, (e) amending the By-Laws of the
Corporation, (f) declaring dividends, (g) designating committees, (h) filling
vacancies among committee members or (i) removing officers. The Executive
Committee shall have the power and authority of the Board to authorize the
issuance of shares of capital stock of the Corporation of any class or any
series of any class. The Stock Option Committee appointed to administer the
Stock Option Plan of the Corporation shall have the power and authority of the
Board to authorize the issuance of shares of capital stock issuable upon the
exercise of options granted under the Stock Option Plan of the Corporation as
the same may from time to time exist.
Section 5. Committee Meetings. Regular meetings of any committee designated
or appointed by the Board of Directors shall be held at such times and places
and on such notice, if any, as the committee may from time to time determine.
Special meetings of any committee designated or appointed by the Board may be
called by order of the Chairman of the Board, Vice Chairman of the Board,
President of the Corporation, Chairman of the committee or any two members of
any such committee. Notice shall be given of the time and place of each
special meeting by mailing the same at least two days before the meeting or by
telephoning, telegraphing or delivering personally the same at least twenty-
9
<PAGE>
four hours before the meeting to each committee member. Except as otherwise
specified in notice thereof or as required by law, the Certificate of
Incorporation or these By-Laws, any and all business may be transacted at any
regular or special meeting of a committee. The Secretary of the Corporation
shall keep the minutes of the meetings of all committees designated or
appointed by the Board of Directors and shall be the custodian of all
Corporation records.
ARTICLE IV
Officers
Section 1. Number and Designation. The Board of Directors shall elect the
officers of the Corporation, which shall include a President, a Secretary and
a Treasurer and such other or additional officers (including, without
limitation, a Chairman of the Board, one or more Vice-Chairman of the Board,
Vice-Presidents, Assistant Vice-Presidents, Assistant Secretaries and
Assistant Treasurers) as the Board of Directors may designate. Any two offices
may be held by one person, but in any case where the By-Laws or resolutions of
the Board of Directors provide for the signature of the incumbents of two or
more officers of the Corporation upon the certificates of stock, notes, checks
or other instruments or documents issued by the Corporation, no one person
shall sign in more than one capacity.
10
<PAGE>
Section 2. Term of Office; Removal and Vacancy. Each officer shall hold his
office until his successor is elected and qualified or until his earlier
resignation or removal. Any officer or agent shall be subject to removal with
or without cause at any time by the Board of Directors. Vacancies in any
office, whether occurring by death, resignation, removal or otherwise, may be
filled by the Board of Directors.
Section 3. Powers and Duties. Each of the officers of the Corporation shall,
unless otherwise ordered by the Board of Directors, have such powers and
duties as generally pertain to his respective office as well as such powers
and duties as from time to time may be conferred upon him by the Board of
Directors. Unless otherwise ordered by the Board of Directors after the
adoption of these By-Laws, the Chairman of the Board, or, when the office of
Chairman of the Board is vacant, the President, shall be the chief executive
officer of the Corporation.
Section 4. Power to Vote Stock. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board and the President each shall have full
poser and authority on behalf of the Corporation to attend and to vote at any
meeting of stockholders of any corporation in which this Corporation may hold
stock, and may exercise on behalf of this Corporation any and all of the
rights and powers incident to the ownership of such stock at any such meeting
and shall have power and authority to execute
11
<PAGE>
and deliver proxies, waivers and consent son behalf of the Corporation in
connection with the exercise by the Corporation of the rights and powers
incident to the ownership of such stock. The Board of Directors, from time to
time, may confer like powers upon any other person or persons.
ARTICLE V
Capital Stock
Section 1. Certificates of Stock. Certificates for stock of the Corporation
shall be in such form as the Board of Directors may from time to time prescribe
and shall be signed by the Chairman of the Board or a Vice Chairman of the
Board or the president or a Vice-President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary.
Section 2. Transfer of Stock. Shares of capital stock of the Corporation
shall be transferable on the books of the Corporation only by the holder of
record thereof, in person or by a duly authorized attorney, upon surrender and
cancellation of certificates for a like number of shares, with an assignment or
power of transfer endorsed thereon or delivered therewith, duly executed, and
with such proof of the authenticity of the signature and of authority to
transfer, and of payment of transfer taxes, as the Corporation or its agents
may require.
12
<PAGE>
Section 3. Ownership of Stock. The Corporation shall be entitled to treat the
holder of record of any share or shares of stock as the owner thereof in fact
and shall not be bound to recognize any equitable or other claim to or interest
in such shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by law.
ARTICLE VI
Miscellaneous
Section 1. Corporate Seal. The seal of the Corporation shall be circular in
form and shall contain the name of the Corporation and the year and State of
incorporation.
Section 2. Fiscal Year. The Board of Directors shall have power to fix, and
form time to time to change, the fiscal year of the Corporation.
Section 3. Waiver of Notice. Any notice required to be given under the
provisions of these By-Laws or otherwise may be waived by the stockholder,
director, member of any committee or officer to whom such notice is required to
be given, before or after the meeting or other action of which notice was
required to be given.
13
<PAGE>
ARTICLE VII
Amendment
The Board of Directors shall have the power to adopt, alter or repeal the
By-Laws of the Corporation subject to the power of the stockholders to amend
or repeal the By-Laws made or altered by the Board of Directors.
ARTICLE VIII
Indemnification
The Corporation may indemnify any director, officer, employee or agent of
the corporation to the fullest extent permitted by law.
14
<PAGE>
EXHIBIT 3.15
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THAT "DANBURY PHARMACAL, INC." IS DULY INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL CORPORATE
EXISTENCE NOT HAVING BEEN CANCELLED OR DISSOLVED SO FAR AS THE RECORDS OF THIS
OFFICE SHOW AND IS DULY AUTHORIZED TO TRANSACT BUSINESS.
THE FOLLOWING DOCUMENTS HAVE BEEN FILED:
CERTIFICATE OF INCORPORATION, FILED THE TENTH DAY OF JULY, A.D. 1969, AT 9
O'CLOCK A.M.
CERTIFICATE OF AMENDMENT, CHANGING ITS NAME FROM "R. H. MAXWELL & CO., INC."
TO "DANBURY PHARMACAL, INC.", FILED THE NINTH DAY OF JUNE, A.D. 1970, AT 9
O'CLOCK A.M.
CERTIFICATE OF AMENDMENT, FILED THE SIXTEENTH DAY OF MAY, A.D. 1973, AT 9
O'CLOCK A.M.
CERTIFICATE OF AMENDMENT, FILED THE TWENTY-SIXTH DAY OF DECEMBER, A.D. 1973,
AT 9 O'CLOCK A.M.
CERTIFICATE OF AMENDMENT, FILED THE TWENTY-FIFTH DAY OF APRIL, A.D. 1995, AT
1:45 O'CLOCK P.M.
CERTIFICATE OF CORRECTION, FILED THE THIRTY-FIRST DAY OF MARCH, A.D. 1997,
AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
0720218 8310 [SEAL]
971427380 AUTHENTICATION: 8809423
DATE: 12-12-97
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
----------------
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE ONLY
CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO
DATE.
AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED TO
DATE.
/s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
0720218 8310 [SEAL]
AUTHENTICATION: 8809423
971427380
DATE: 12-12-97
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "R. H. MAXWELL & CO., INC.", FILED IN THIS OFFICE ON THE
TENTH DAY OF JULY, A.D. 1969, AT 9 O'CLOCK A.M.
[SEAL]
-------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8810136
DATE: 12-13-97
0720218 8100
971427381
1
<PAGE>
CERTIFICATE OF INCORPORATION
OF
R. H. MAXWELL & CO., INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the "corporation") is
R. H. MAXWELL & CO., INC.
SECOND: The address, including the street, number, city, and country, of the
registered office of the corporation in the State of Delaware is 299 South
State Street, City of Dover, County of Kent; and the name of the registered
agent of the corporation in the State of Delaware at such address in The
Prentice-Hall Corporation System, Inc.
THIRD: The corporation shall have the power to engage in, and it shall be the
purpose of the corporation and the nature of its business to engage in, any
lawful acts and activities for which corporations may be organized under the
General Corporation Law of Delaware, and to exercise and enjoy all the powers,
rights and privileges granted to or conferred upon corporations under the
General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the corporation shall have
authority to issue is 1,000,000. The par value of each of such shares is $.10.
All such shares are of one class and are shares of Common Stock.
1
<PAGE>
FIFTH: The name of the incorporator is Sylvia Schachner and her mailing
address is 200 Park Avenue, New York, N.Y. 10017.
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor of stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH: No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in which
2
<PAGE>
one or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participated in the
meeting of the Board of Directors or a committee thereof which authorizes the
contract or transaction, or solely because his or their votes are counted for
such purpose, if:
(1) The material facts as to his interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board or Committee in good faith authorizes the contract
or transaction by a vote sufficient for such purpose without counting the
vote of the interested director or directors; or
(2) The material facts as to his interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good
faith by the vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof, or the stockholders.
Interested directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
NINTH: (a) The corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys'
4
<PAGE>
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he 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 reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he 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 reasonable cause to believe that his
conduct was unlawful.
(b) The corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjusted to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only
to the extent that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b), or in
defense of any claim, issue or matter therein, he shall be
5
<PAGE>
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) (unless ordered by a
court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to such action, suit
or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum is disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the Board of Directors in
the manner provided in subsection (d) upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount unless
it shall ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this section.
(f) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
(g) The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation should have the power to
indemnify him against such liability under the provisions of this section.
5
<PAGE>
TENTH: The original by-laws of the corporation shall be adopted by the
incorporator named herein. Thereafter, by-laws may be made, and shall be
subject to alteration and repeal, by the stockholders of the corporation, at
any annual or special meeting, and by the board of directors at any regular or
special meeting; provided, however, that by-laws made or altered by the board
of directors may be altered or repealed by the stockholders at any annual or
special meeting.
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the corporation by
this certificate of incorporation are granted subject to the provisions of
this Article ELEVENTH.
Signed at New York, New York, on July 9, 1969.
/s/ Sylvia Schachner
-------------------------------------
Incorporator
6
<PAGE>
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
BE IT REMEMBERED that personally appeared before me, the undersigned, a
Notary Public authorized to take acknowledgment of deeds by the laws of the
place where the foregoing certificate of incorporation was signed, SYLVIA
SCHACHNER, the incorporator who signed the foregoing certificate of
incorporation, known to me personally to be such, and I having made known to
her the contents of said certificate of incorporation, she acknowledged the
same to be her act and deed, and that the facts therein stated are truly set
forth.
GIVEN under my hand on July 9, 1969.
[illegible]
_____________________________________
Notary Public
[SEAL]
7
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "R. H. MAXWELL & CO., INC.", CHANGING ITS NAME FROM "R. H.
MAXWELL & CO., INC." TO "DANBURY PHARMACAL, INC.", FILED IN THIS OFFICE ON THE
NINTH DAY OF JUNE, A.D. 1970, AT 9 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
0720218 8100 8810137
DATE:
971427381 12-13-97
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
R. H. MAXWELL & CO., INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is R.
H. Maxwell & Co., Inc.
2. The certificate of incorporation of the Corporation is hereby amended by
striking out Article FIRST thereof and by substituting in lieu of said article
of the following new article:
"FIRST: The name of the corporation (hereinafter called the
"Corporation') is DANBURY PHARMACAL, INC."
3. The amendment of the certificate of incorporation herein certified has
been duly adopted in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
Flushing, New York June 4th
Executed at
------------------------------ on------------------------ , 1970
/s/ Thomas M. Shanahan /s/ Henry Schein
- ------------------------------------ ------------------------------------
Thomas M. Shanahan Henry Schein, President
[SEAL]
/s/ Ira Sacks
- ------------------------------------
Ira Sacks, Secretary
1
<PAGE>
STATE OF NEW YORK
ss.:
COUNTY OF QUEENS
BE IT REMEMBERED that, on June 4, 1970, before me, a notary public duly
authorized by law to take acknowledgement of deeds, personally came Henry
Schein, President of R.H. Maxwell & Co., Inc., who duly signed the foregoing
instrument before me and acknowledged that such signing is his act and deed,
that such instrument as executed is the act and deed of said corporation, and
that the facts stated therein are true.
GIVEN under my hand on June 4, 1970.
[SEAL] /s/ Thomas M. Shanahan
-------------------------------------
Notary Public
2
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "DANBURY PHARMACAL, INC.", FILED IN THIS OFFICE ON THE SIXTEENTH
DAY OF MAY, A.D. 1973, AT 9 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
0720218 8100 8810138
DATE:
971427381 12-13-97
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DANBURY PHARMACAL, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Danbury Pharmacal, Inc.
2. The Certificate of Incorporation of the Corporation is hereby amended by
striking out Article FOURTH thereof and by substituting in lieu of said
Article the following new Article FOURTH to read as follows:
"FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,000,000 shares, which shall
be divided into two classes consisting of 500,000 shares of Preferred
Stock, par value $.10 per share (hereinafter referred to as "Preferred
Stock") and 500,000 shares of Common Stock, par value $.10 per share
(hereinafter referred to as "Common Stock").
1
<PAGE>
A. PREFERRED STOCK.
(1) 150,000 shares of Preferred Stock are hereby constituted as a series of
Preferred Stock designated as "Preferred Stock, Series A" (hereinafter
referred to as "Series A Stock") with the powers, preferences and rights
hereinafter set forth.
(a) The holders of the Series A Stock shall be entitled to receive, with
respect to each fiscal year of the Corporation during which any of the Series
A Stock is outstanding, cash dividends out of the net profits realized by the
Corporation during such fiscal year, and not to exceed an annual rate of $.02
per share, payable on the first day of July in the succeeding fiscal year, if,
as and when declared by the Board of Directors, out of funds at the time
legally available for the payment of dividends. Dividends on the Series A
Stock, to the extent equal to the net profits realized by the Corporation as
aforesaid, shall be cumulative and shall accrue from and after the date of
issuance thereof. No dividends shall be declared, paid or set apart for
payment on any other series of Preferred Stock or on Common Stock unless and
until all dividends
2
<PAGE>
on the Series A Stock that have accrued for all past dividend periods and the
annual dividend on the Series A Stock for the current dividend period to the
extent accrued shall have been paid or declared and a sum sufficient for the
payment thereof set apart.
(b) In the event of any liquidation, dissolution or winding up of the
Corporation, before any payment or distribution of the assets of the
Corporation (whether capital or surplus) shall be made to or set apart for the
holders of any other series of Preferred Stock or of Common Stock, the holders
of Series A Stock shall be entitled to receive payment of an amount equal to
$.40 per share plus an amount equal to all unpaid cumulative dividends accrued
thereon, pursuant to subparagraph (1)(a) hereof to the date of final
distribution to such holders, and no more. If the assets of the Corporation,
or the proceeds thereof available for distribution to its shareholders shall
be insufficient to pay in full all amounts to which the holders of Series A
Stock are entitled, then such assets or the proceeds thereof shall be
distributed among such holders ratably in accordance with the respective
amounts which would be payable on such shares if all amounts payable were paid
in full. For the purposes of this sub-paragraph (1)(b), the voluntary sale,
lease, exchange or transfer of all or substantially all of the Corporation's
assets, or the consolidation or merger of the Corporation with or into any
other
3
<PAGE>
corporation shall not be deemed to be a liquidation, dissolution or winding up
of the Corporation.
(c) The Corporation may, at its option, at any time or from time to time,
redeem the whole or any part of the Series A Stock at a redemption price equal
to $.40 per share, plus an amount equal to all unpaid cumulative dividends
accrued thereon, pursuant to subparagraph (1)(a) hereof, to the date of
redemption. In the event the Corporation shall determine to redeem less than
all of the shares of the Series A Stock then outstanding, the Board of
Directors shall determine the shares of Series A Stock so to be redeemed by
lot or pro rata or by any other means which the Board of Directors deems
equitable. Notice of any proposed redemption of any Series A Stock shall be
given by the Corporation by mailing a copy of such notice at least thirty (30)
days prior to the date fixed for such redemption to the holders of record of
the Series A Stock to be redeemed, at their respective addresses appearing on
the books of the Corporation. If on the redemption date specified in such
notice, the funds necessary for such redemption shall have been set aside by
the Corporation, separate and apart from its other funds, in trust for the pro
rata benefit of the holders of the shares so called for redemption, then,
notwithstanding that any certificates for shares of Series A Stock so called
for redemption shall not have been surrendered for cancellation, the shares
represented there-
4
<PAGE>
by shall no longer be deemed outstanding, all dividends thereon shall cease to
accrue and all rights of the holders thereof as stockholders of the Corporation
(except the right to receive payment of the redemption price and accrued and
unpaid cumulative dividends to the date of redemption) shall cease and
determine.
(d) So long as any of the Series A Stock is outstanding the Corporation will
not, without the affirmative vote or consent of the holders of at least 66 2/3%
of the Series A Stock at the time outstanding, given in person or by proxy,
either in writing or by resolution adopted at an annual meeting or a special
meeting called for the purpose, (i) create any other class or series of stock
ranking prior to, or on a parity with, the Series A Stock, either as to
dividends or upon liquidation, or increase the authorized number of shares of
any such other class or series of stock or of the Series A Stock, or (ii)
amend, alter or repeal any of the provisions hereof so as adversely to affect
the preferences, rights or powers of the Series A Stock.
(e) Except as specifically provided in this subparagraph (1) or as otherwise
required by law, no holder of the Series A Stock shall be entitled to any
voting rights
5
<PAGE>
or to receive notice of, or participate in, any meeting of stockholders.
(2) Subject to the provisions of subparagraph (1) above, the designations,
powers, preferences and rights in respect of shares of Preferred Stock other
than shares of Series A Stock shall be as follows:
Shares of Preferred Stock may be issued from time to time in one or more
series, as may from time to time de determined by the Board of Directors, each
of said series to be distinctly designated. All shares of any one series of
Preferred Stock shall be alike in every particular, except that there may be
different dates from which dividends, if any, thereon shall be cumulative, if
made cumulative. The voting powers and the preferences and relative,
participating, optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding; and the Board of
Directors of the Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any shares of a
particular series of Preferred Stock, the voting powers and the designations,
preferences and relative, optional and other special rights, and the
qualifications, limitations and restrictions of such series, including, but
without limiting
6
<PAGE>
the generality of the foregoing, the following:
(a) The distinctive designation of, and the number of shares of Preferred
Stock which shall constitute such series, which number may be increased
(except where otherwise provided by the Board of Directors) or decreased
(but not below the number of shares thereof then outstanding) from time to
time by like action of the Board of Directors;
(b) The rate and times at which, and the terms and conditions on which,
dividends, if any, on Preferred Stock of such series shall be paid, the
extent of the preference or relation, if any, of such dividends to the
dividends payable on any other class or classes, or series of the same or
other classes of stock and whether such dividends shall be cumulative or
non-cumulative;
(c) The right, if any, of the holders of Preferred Stock of such series
to convert the same into, or exchange the same for, shares of any other
class or classes or of any series of the same or any other class or classes
of stock of the Corporation and the terms and conditions of such conversion
or exchange;
7
<PAGE>
(d) Whether or not Preferred Stock of such series shall be subject to
redemption, and the redemption price or prices and the time or times at
which, and the terms and conditions on which, Preferred Stock of such
series may be redeemed;
(e) The rights, if any, of the holders of Preferred Stock of such series
upon the voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding-up, of the
Corporation;
(f) The terms of the sinking fund or redemption or purchase account, if
any, to be provided for the Preferred Stock of such series; and
(g) The voting powers, if any, of the holders of such series of Preferred
Stock which may, without limiting the generality of the foregoing, include
the right, voting as a series by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class, to elect one
or more directors of the Corporation if there shall have been a default in
the payment of dividends on any one or more series of Preferred Stock or
under such other circumstances and on such conditions as the Board of
Directors may determine; provided,
8
<PAGE>
however, that each holder of Preferred Stock shall have no more than one
vote in respect of each share of Preferred Stock held by him on any matter
voted upon by the stockholders.
B. COMMON STOCK:
(1) After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of Paragraph A of this
Article Fourth), if any, shall have been met and after the Corporation shall
have complied with all the requirements, if any, with respect to the setting
aside of sums as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of Paragraph A of this Article Fourth), and
subject further to any other conditions which may be fixed in accordance with
the provisions of Paragraph A of this Article Fourth, then and not otherwise
the holders of Common Stock shall be entitled to receive such dividends as may
be declared from time to time by the Board of Directors.
(2) After distribution in full of the preferential amount, if any (fixed in
accordance with the provisions of Paragraph A of this Article Fourth), to be
distributed to the holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution
<PAGE>
or winding-up, of the Corporation, the holders of the Common Stock shall be
entitled to receive all the remaining assets of the Corporation, tangible and
intangible, of whatever kind available for distribution to stockholders ratably
in proportion to the number of shares of Common Stock held by them
respectively.
(3) Except as may otherwise be required by law or by the provisions of such
resolution or resolutions as may be adopted by the Board of Directors pursuant
to Paragraph A of this Article Fourth, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held by him on al matters
voted upon by the stockholders.
C. OTHER PROVISIONS:
(1) Subject to the provisions of subparagraph 1 of Paragraph A of this
Article Fourth, the relative powers, preferences and rights of each series of
Preferred Stock in relation to the powers, preferences and rights of each other
series of Preferred Stock shall, in each case, be as fixed from time to time by
the Board of Directors in the resolution or resolutions adopted pursuant to
authority granted in Paragraph A of this Article Fourth and the consent, by
class or series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be required
<PAGE>
for the issuance by the Board of Directors of any other series of Preferred
Stock whether or not the powers, preferences and rights of such other series
shall be fixed by the Board of Directors as senior to, or on a parity with,
the powers, preferences and rights of such outstanding series, or any of them;
provided, however, that the Board of Directors may provide in the resolution
or resolutions as to any series of Preferred Stock adopted pursuant to
Paragraph A of this Article Fourth that the consent of the holders of a
majority (or such greater proportion as shall be therein fixed) of the
outstanding shares of such series voting thereon shall be required for the
issuance of any or all other series of Preferred Stock.
(2) Subject to the provisions of subparagraph 1 of this Paragraph C, shares
of any series of Preferred Stock may be issued form time to time as the Board
of Directors of the Corporation shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
(3) Shares of Common Stock may be issued from time to time as the Board of
Directors of the Corporation shall determined and on such terms and for such
consideration as shall be fixed by the Board of Directors.
(4) The authorized amount of shares of Common Stock and of Preferred Stock
may, without a class or series vote, be increased or decreased from time to
time by the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote thereon."
11
<PAGE>
3. In connection with the foregoing amendment, 125,000 shares of Common
Stock, par value $.10 per share, all of which are presently issued and
outstanding, are hereby changed into 134,375 shares of Preferred Stock, Series
A, par value $.10 per share.
4. The amendment of the Certificate of Incorporation herein certified has
been duly adopted by the written consent of the holders of all the outstanding
stock of the Corporation in accordance with the provisions of Sections 228 and
242 of the General Corporation Law of the State of Delaware.
5. The capital of the Corporation will not be reduced under or by reason of
any amendment herein certified.
Signed and attested to on May 7, 1973.
DANBURY PHARMACAL, INC.
/s/ Ira Sacks
By __________________________________
Ira Sacks, President
Attest:
/s/ Helen Slade
- -------------------------------------
Helen Slade, Secretary
13
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "DANBURY PHARMACAL, INC.", FILED IN THIS OFFICE ON THE TWENTY-
SIXTH DAY DAY OF DECEMBER, A.D. 1973, AT 9 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
0720218 8100 AUTHENTICATION: 8810139
971427381 DATE: 12-13-97
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DANBURY PHARMACAL, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Danbury Pharmacal, Inc.
2. The Certificate of Incorporation of the Corporation hereby amended:
(a) By striking out the first paragraph of Article FOURTH thereof and
substituting in lieu thereof the following new paragraph to read as follows:
"FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,000,000 shares, which shall
be divided into three classes consisting of 500,000 shares of Preferred
Stock, par value $.10 per share (hereinafter referred to as "Preferred
Stock"), 5,000 shares of Voting Common Stock, par value $.10 per share
(hereinafter referred to as "Voting Common Stock") and 495,000 shares of
Non-Voting Common Stock, par value $.10 per share (here-
1
<PAGE>
inafter referred to as "Non-Voting Common Stock"). (The Voting Common Stock
and Non-Voting Common Stock are sometimes hereinafter collectively referred
to as "Common Stock.")
(b) By striking out subparagraph 3 of Paragraph B of Article FOURTH thereof
and substituting in lieu thereof the following new subparagraph to be read as
follows:
"(3) Except as may otherwise be required by law or by the provisions of
such resolutions or resolutions as may be adopted by the Board of Directors
pursuant to Paragraph A of this Article Fourth, each holder of Voting
Common Stock shall have one vote in respect of each share of Voting Common
Stock held by him on all matters voted upon by the stockholders, and no
holder of Non-Voting Common Stock shall be entitled to any voting rights or
to receive notice of, or participate in, any meeting of stockholders. In
all other respects, the rights, preferences and limitations of shares of
Non-Voting Common Stock shall be identical with those of shares of Voting
Common Stock."
3. In connection with the foregoing amendment, 3,750 shares of Common Stock,
par value $.10 per share, all of which are presently issued and outstganding,
consisting of 1,250 shares
<PAGE>
represented by certificate number 4 and 2,500 shares represented by
certificate number 5, are hereby changed into 3,750 shares of Voting Common
Stock, par value $.10 per share, and 373,250 shares of Common Stock, par value
$.10 per share, all of which are presently issued and outstanding, consisting
of all of the shares represented by certificates number 1, 2, 6 and 7, 123,500
shares represented by certificate number 4 and 246,750 shares represented by
certificate number 5, are hereby changed into 373,250 shares of Non-Voting
Common Stock, par value $.10 per share.
4. The amendment of the Certificate of Incorporation herein certified has
been duly adopted by the written consent of the holders of all the outstanding
stock of the Corporation in accordance with the provisions of Sections 228 and
242 of the General Corporation Law of the State of Delaware.
5. The capital of the Corporation will not be reduced under or by reason of
any amendment herein certified.
Signed and attested to on November 30, 1973.
DANBURY PHARMACAL, INC.
/s/ Ira Sacks
By __________________________________
Ira Sacks, President
Attest:
/s/ Helen Slade
- -------------------------------------
Helen Slade, Secretary
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "DANBURY PHARMACAL, INC.", FILED IN THIS OFFICE ON THE TWENTY-
FIFTH DAY OF APRIL, A.D. 1995, AT 1:45 O'CLOCK P.M.
[SEAL] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
0720218 8100 8810140
DATE:
971427381 12-13-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 01:45 PM 04/25/1995
950090838--720218
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
DANBURY PHARMACAL, INC.
(PURSUANT TO SECTION 242 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
It is hereby certified that:
1. The name of the corporation is Danbury Pharmacal, Inc. (the
"Corporation"). The Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on July 10, 1969.
2. The Board of Directors of the Corporation duly adopted a resolution
proposing and declaring it advisable that Article FOURTH of the Certificate of
Incorporation of the Corporation be amended in its entirety to read as
follows:
FOURTH. The aggregate number of shares of stock which the Corporation
shall have authority to issue is 60, of which 10 shares of the par value of
$.01 per share shall be designated "Common Stock" and 50 shares of the par
value of $.01 per share shall be designated "Preferred Stock."
Upon the filing in the office of the Secretary of State of the State of
Delaware of this Certificate of Amendment to the Certificate of
Incorporation whereby this Article Fourth is amended to read as set forth
herein, each 50 issued and outstanding shares of voting Common Stock, par
value $.10 per share, of the Corporation shall be automatically
reclassified as and changed into one share of validly issued, fully paid
and nonassessable share of voting Common Stock, par value $.01 per share,
and each 14,562.5 issued and outstanding shares of Preferred Stock, par
value $.10 per share, shall
<PAGE>
be automatically reclassified as and changed into one share of validly
issued, fully paid and nonassessable share of Preferred Stock, par value
$.01 per share. No scrip or fractional shares will be issued by reason of
this Amendment.
3. In lieu of a vote, written consent to the foregoing amendment has been
given by the sole stockholder of the Corporation, in accordance with Section
228 of the General Corporation Law of the State of Delaware, and such
amendment has been duly adopted in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware.
4. This amendment to the Certificate of Incorporation shall be effective on
and as of the date of filing this Certificate of Amendment with the office of
the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment
to be executed in its name by its President and attested to by its Secretary
this 21st day of April, 1995, and the statements contained herein are affirmed
as true under penalties of perjury.
DANBURY PHARMACAL, INC.
/s/ Martin Sperber
-------------------------------------
Martin Sperber
President
ATTEST:
/s/ Paul M. Feuerman
By: _________________________________
Paul M. Feuerman
Secretary
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "DANBURY PHARMACAL, INC.", FILED IN THIS OFFICE ON THE THIRTY-
FIRST DAY OF MARCH, A.D. 1973, AT 9 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
0720218 8100 8810138
DATE:
971427381 12-13-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/31/1997
971102141-0720218
CERTIFICATE OF CORRECTION
TO THE
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
DANBURY PHARMACAL, INC.
Danbury Pharmacal, Inc., a Delaware corporation (the "Corporation"), does
hereby certify:
1. The name of the Corporation is Danbury Pharmacal, Inc.
2. The Certificate of Amendment of the Certificate of Incorporation of the
Corporation, which was filed by the Secretary of State on April 25, 1995, is
hereby corrected.
3. Said instrument is to be corrected: first, to correct a typographical
error, such that the rate of reclassification of each issued and outstanding
share of voting Common Stock of the Corporation shall have been 500 to 1,
rather than 50 to 1; and second, to clarify that non-voting Common Stock of
the Corporation shall have been eliminated.
4. The second paragraph of Article Fourth of the Certificate of
Incorporation of the Corporation in corrected form is as follows:
"Upon the filing in the office of the Secretary of State of Delaware of
this Certificate of Amendment to the Certificate of Incorporation whereby
this Article Fourth is amended to read as set forth herein, each 500 issued
and outstanding shares of voting Common Stock, par value $.01 per share, of
the Corporation shall be automatically reclassified as and changed into one
validly issued, fully paid and nonassessable share of voting Common Stock,
par value $.01 per share, each issued and outstanding share of non-voting
Common Stock, par value $.10 per share, of the Corporation shall be
canceled and all authorized shares of such non-voting Common Stock shall be
eliminated, and each
<PAGE>
14,562.5 issued and outstanding shares of Preferred Stock par value $.01
per share, shall be automatically reclassified as and changed into one
validly issued, fully paid and nonassessable share of Preferred Stock, par
value $.01 per share. No scrip or fractional shares will be issued by
reason of this Amendment."
Executed on this 25th day of March 1997.
/s/ Paul Feuerman
-------------------------------------
Paul Feuerman, Secretary
2
<PAGE>
EXHIBIT 3.16
BY-LAWS
OF
R. H. MAXWELL & CO., INC.
(A DELAWARE CORPORATION)
----------------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the corporation
shall be entitled to have a certificate signed by, or in the name of, the
corporation by the Chairman or Vice-Chairman of the Board of Directors, if
any, or by the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
corporation certifying the number of shares owned by him in the corporation.
If such certificate is countersigned by a transfer agent other than the
corporation or its employee or by a registrar other than the corporation or
its employee, any other signature on the certificate may be a facsimile. In
case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one class of
stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen, or
destroyed, and the Board of Directors may require the owner of any lost,
stolen, or destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify the corporation against any claim
that may be made against it on account of the alleged
<PAGE>
loss, theft, or destruction of any such certificate or the issuance of any
such new certificate.
2. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. In lieu thereof it shall either pay
in cash the fair value of fractions of a share, as determined by the Board of
Directors, to those entitled thereto or issue scrip or fractional warrants in
registered or bearer from over the manual or facsimile signature of an officer
of the corporation or of its agent, exchangeable as therein provided for full
shares, but such scrip or fractional warrants shall not entitle the holder to
any rights of a shareholder except as therein provided. Such scrip or
fractional warrants may be issued subject to the condition that the same shall
become void if not exchanged for certificates representing full shares of
stock before a specified date, or subject to the condition that the shares of
stock for which such scrip or fractional warrants are exchangeable may be sold
by the corporation and the proceeds thereof distributed to the holders of such
scrip or fractional warrants, or subject to any other conditions which the
Board of Directors may determine.
3. STOCK TRANSFERS. Upon compliance with provisions restricting the transfer
or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof,
or by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for
such shares of stock properly endorsed and the payment of all taxes due
thereon.
4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to or dissent from any
corporate action in writing without a meeting, or for the purpose of
determining stockholders entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion, or exchange of stock, or for the
purpose of any other lawful action, the directors may fix, in advance, a date
as the record date for any such determination of stockholders. Such date shall
not be more than sixty days not less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If no record date
is fixed, the record date for the determination of stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which
2
<PAGE>
notice is given, or, of notice is waived, at the close of business on the day
next preceding the day on which the meeting is held; the record date for
determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. When a determination of stockholders of record entitled to
notice of or to vote at any meeting of stockholders has been made as provided
in this paragraph, such determination shall apply to any adjournment thereof;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the right to notice
of a meeting of stockholders or a waiver thereof or to participate or vote
thereat or to consent or dissent in writing in lieu of a meeting, as the case
may be, the term "share" or "shares" or "share of stock" or "shares of stock"
or "stockholder" or "stockholders" refers to an outstanding share or shares of
stock and to a holder or holders of record of outstanding shares of stock when
the corporation is authorized to issue only one class of shares of stock, and
said reference is also intended to include any outstanding share or shares of
stock and any holder or holders of record of outstanding shares of stock of any
class upon which or upon whom the certificate of incorporation confers such
rights where there are two or more classes or series of shares of stock or upon
which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation.
6. STOCKHOLDER MEETINGS.
--TIME. The annual meeting shall be held on the date and at the time fixed,
from time to time, by the directors, provided, that the first annual meeting
shall be held on a date within thirteen months after the organization of the
corporation, and each successive annual meeting shall be held on a date within
thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
--PLACE. Annual meetings and special meetings shall be held at such place,
within or without the State of Delaware, as the directors may, from time to
time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
3
<PAGE>
--CALL. Annual meetings and special meetings may be called by the directors
or by any officer instructed by the directors to call the meeting.
--NOTICE OF WAIVER OF NOTICE. Written notice of all meetings shall be given,
stating the place, date, and hour of the meeting and stating the place within
the city or other municipality or community at which the list of stockholders
of the corporation may be examined. The notice of an annual meeting shall
state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall, (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. If any action is proposed to be taken which would, if
taken, entitle stockholders to receive payment for their shares of stock, the
notice shall include a statement of that purpose and to that effect. Except as
otherwise provided by the General Corporation Law, a copy of the notice of any
meeting shall be given, personally or by mail, no less than ten days nor more
than fifty days before the date of the meeting, unless the lapse of the
prescribed period of time shall have been waived, and directed to each
stockholder at his record address or at such other address which he may have
furnished by request in writing to Secretary of the corporation. Notice by
mail shall be deemed to be given when deposited, with postage thereon prepaid,
in the United States mail. If a meeting is adjourned to another time, not more
than thirty days hence, and/or to another place, and if an announcement of the
adjourned time and/or place is made at the meeting, it shall not be necessary
to give notice of the adjourned meeting unless the directors, after
adjournment, fix a new record date for the adjourned meeting. Notice need not
be given to any stockholder who submits a written waiver of notice by him
before or after the time stated therein. Attendance of a person at a meeting
of stockholders shall constitute a waiver of notice of such meeting, except
when the stockholder attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need to be specified in any written waiver of notice.
--STOCKHOLDER LIST. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list
4
<PAGE>
of stockholders, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city or other municipality or community where the meeting is to be held, which
place shall be specified in the notice of the meeting, or if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by this section or the books of the
corporation, or to vote at any meeting of stockholders.
--CONDUCT OF MEETING. Meetings of the stockholders shall be presided over by
one of the following officers in the order of seniority and if present and
acting--the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the President, a Vice-President, or, if none of the foregoing is in office
and present and acting, by a chairman to be chosen by the stockholders. The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
--PROXY REPRESENTATION. Every stockholder may authorize another person or
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiver notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
--INSPECTORS AND JUDGES. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election or judges of the vote, as
the case may be,
5
<PAGE>
to act at the meeting or any adjournment thereof. If an inspector or inspectors
or judge or judges are not appointed, the person presiding at the meeting may,
but need not, appoint one or more inspectors or judges. In case any person who
may be appointed as an inspector or judge fails to appear or act, the vacancy
may be filled by appointment made by the directors in advance of the meeting or
at the meeting by the person presiding thereat. Each inspector or judge, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspector or judge at such meeting
with strict impartiality and according to the best of his ability. The
inspectors or judges, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at
the meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors or
judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them and execute a certificate of any
fact found by him or them.
--QUORUM. The holders of a majority of the outstanding shares of stock shall
constitute a quorum at a meeting of stockholders for the transaction of any
business. The stockholders present may adjourn the meeting despite the absence
of a quorum.
--VOTING. Each share of stock shall entitle the holder thereof to one vote.
In the election of directors, a plurality of the votes cast shall elect. Any
other action shall be authorized by a majority of the votes cast except where
the General Corporation Law prescribes a different percentage of votes and/or a
different exercise of voting power. In the election of directors, voting need
not be by ballot. Voting by ballot shall not be required for any other
corporate action except as otherwise provided by the General Corporation Law.
--STOCKHOLDER ACTION WITHOUT MEETINGS. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, the meeting and vote of stockholders may be dispensed
with if all of the stockholders who would have been entitled to vote upon the
action if such meeting were held shall consent in writing to such corporate
action being taken; or if less than all of said stockholders, but not less than
those having at least the minimum voting power required to take corporate
action under the provisions of the General Corporation Law, shall consent in
writing
6
<PAGE>
to such corporate action; provided that prompt notice be given to all
stockholders of the taking of such action without a meeting and by less than
unanimous written consent.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITIONS. The business of the corporation shall be
managed by the Board of Directors of the corporation. The use of the phrase
"whole board" herein refers to the total number of directors which the
corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident or the State of Delaware. The
initial Board of Directors shall consist of two persons. Thereafter the number
of directors constituting the whole board shall be at least three, except
that, where all the shares of stock of the corporation are owned beneficially
and of record by less than three stockholders, the number of directors may be
less than three but not less than the number of such stockholders. Subject to
the foregoing limitation and except for the first Board of Directors, such
number may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be two. The number
of directors may be increased or decreased by action of the stockholders or of
the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors have been
elected and qualified or until their earlier resignation or removal. Any
director may resign at any time upon written notice to the corporation.
Thereafter, directors who are elected at an annual meeting of stockholders,
and directors who are elected in the interim to fill vacancies and newly
created directorships, shall hold office until the next annual meeting of
stockholders and until their successors have been elected and qualified or
until their earlier resignation or removal. In the interim between annual
meetings of stockholders or of special meetings of stockholders called for the
election of directors and/or for the removal of one or more directors and for
the filling of any vacancy in that connection, newly created directorships and
any vacancies in the Board of Directors, including vacancies resulting from
the removal of directors for cause or without cause, may be filled by the vote
of a majority of the remaining directors then in office, although less than a
quorum, or by the sole remaining director.
7
<PAGE>
4. MEETINGS.
--TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after
its election as the directors may conveniently assemble.
--PLACE. Meetings shall be held at such place within or without the State of
Delaware as shall be fixed by the Board.
--CALL. No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, of the President, or of a majority of the directors in office.
--NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for
regular meetings for which the time and place have been fixed. Written, oral,
or any other mode of notice of the time and place shall be given for special
meetings in sufficient time for the convenient assembly of the directors
thereat. The notice of any meeting need not specify the purpose of the
meeting. Any requirement of furnishing a notice shall be waived by any
director who signs a written waiver of such notice before or after the time
stated therein.
--QUORUM AND ACTION. A majority of the whole Board shall constitute a quorum
except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A
majority of the directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the General Corporation Law, the
act of the Board shall be the act by vote of a majority of the directors
present at a meeting, a quorum being present. The quorum and voting provisions
herein stated shall not be construed as conflicting with any provisions of the
General Corporation Law and these By-Laws which govern a meeting of directors
held to fill vacancies and newly created directorships in the Board.
--CHAIRMAN OF THE MEETING. The Chairman of the Board if any and if present
and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the
Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Any or all of the directors may be removed for
cause or without cause by the stockholders. One or more of the directors may
be removed for cause by the Board of Directors.
8
<PAGE>
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of two or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise the powers of the Board of Directors in the management
of the business and affairs of the corporation, and may authorize the seal of
the corporation to be affixed to all papers which may require it. In the
absence or disqualification of any member of any such committee or committees,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
7. ACTION IN WRITING. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The directors shall elect a President, a Secretary, and a Treasurer, and may
elect a Chairman of the Board of Directors, a Vice-Chairman thereof, and one
or more Vice-Presidents, Assistant Secretaries, and Assistant Treasurers, and
may elect or appoint such other officers and agents as are desired. The
President may but need not be a director. Any number of offices may be held by
the same person.
Unless otherwise provided in the resolution of election or appointment, each
officer shall hold office until the meeting of the Board of Directors
following the next annual meeting of stockholders and until his successor has
been elected and qualified. Any officer may resign at any time upon written
notice.
Officers shall have the powers and duties defined in the resolutions
appointing them; provided, that the Secretary shall record all proceedings of
the meetings or of the written actions of the stockholders and of the
directors, and any committee thereof, in a book to be kept for that purpose.
9
<PAGE>
The Board of Directors may remove any officer for cause or without cause.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VI
AMENDMENTS
The by-laws of the corporation may be made, and shall be subject to
alteration and repeal, by the stockholders of the corporation, at any annual
or special meeting, and by the board of directors at any regular or special
meeting, provided, however, that by-laws made or altered by the Board of
Directors may be altered or repealed by the stockholders at any annual or
special meeting.
10
<PAGE>
EXHIBIT 3.17
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THAT "DANBURY PHARMACAL PUERTO RICO, INC." IS DULY INCORPORATED UNDER
THE LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL
CORPORATE EXISTENCE NOT HAVING BEEN CANCELLED OR DISSOLVED SO FAR AS THE
RECORDS OF THIS OFFICE SHOW AND IS DULY AUTHORIZED TO TRANSACT BUSINESS.
THE FOLLOWING DOCUMENTS HAVE BEEN FILED:
CERTIFICATE OF INCORPORATION, FILED THE THIRTIETH DAY OF DECEMBER, A.D.
1991, AT 10:15 O'CLOCK A.M.
CERTIFICATE OF AMENDMENT, CHANGING ITS NAME FROM "DANBURY PHARMACAL CARIBE,
INC." TO "DANBURY PHARMACAL PUERTO RICO, INC." FILED THE ELEVENTH DAY OF MAY,
A.D. 1994, AT 12:15 O'CLOCK P.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE ONLY
CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO
DATE.
AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE
[SEAL] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2283317 8310 8809437
DATE:
971427387 12-12-97
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 2
----------------
BEEN FILED TO DATE.
[SEAL] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2283317 8310 8809437
DATE:
971427387 12-12-97
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "DANBURY PHARMACAL CARIBE, INC.", FILED IN THIS OFFICE ON THE
THIRTIETH DAY OF DECEMBER, A.D. 1991, AT 10:15 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2283317 8100 8810123
DATE:
971427390 12-13-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:15 AM 12/30/1991
751364005 - 2283317
CERTIFICATE OF INCORPORATION
OF
DANBURY PHARMACAL CARIBE, INC.
I, the undersigned, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the corporation is:
DANBURY PHARMACAL CARIBE, INC.
SECOND: The registered office of the Corporation in the State of Delaware is
to be located at 32 Loockerman Square, Suite L-100, in the City of Dover,
County of Kent. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FOURTH: The aggregate number of shares of stock which the Corporation shall
have authority to issue is 100 shares of Common Stock, par value $0.10 per
share.
FIFTH: The name and the mailing address of the sole incorporator is Allan H.
Cohen, 1585 Broadway, New York, New York 10036.
<PAGE>
SIXTH: The number of directors of the Corporation shall be the number from
time to time fixed by or in the manner provided in the By-Laws. Elections of
directors need not be by ballot unless the By-Laws of the Corporation shall so
provide.
SEVENTH: The Board of Directors shall have the power without the assent or
vote of the stockholders to adopt, amend, modify or repeal By-Laws of the
Corporation.
EIGHTH: The Corporation shall, to the fullest extent permitted by law, as the
same is now or may hereafter be in effect, indemnify each person (including the
heirs, executors, administrators and other personal representatives of such
person) against expenses including attorneys' fees, judgments, fines and
amounts paid in settlement, actually and reasonably incurred by such person in
connection with any threatened, pending or completed suit, action or proceeding
(whether civil, criminal, administrative or investigative in nature or
otherwise) in which such person may be involved by reason of the fact that he
or she is or was a director or officer of the Corporation or is or was serving
any other incorporated or unincorporated enterprise in such capacity at the
request of the Corporation. The Corporation shall, to the fullest extent
permitted by law, pay the expenses incurred by officers, directors and other
employees or agents of the Corporation in defending such actions, suits or
proceedings in advance of the final disposition thereof.
NINTH: To the fullest extent that elimination or limitation of the liability
of directors is permitted by law, as the same is now or may hereafter be in
effect, no director of the
<PAGE>
Corporation shall be liable to the Corporation or its stockholders for
monetary damages for branch of his or her fiduciary duty as a director.
TENTH: The Corporation reserves the right to amend, modify or repeal any
provisions contained in this Certificate of Incorporation in the manner now or
thereafter prescribed by law, and all rights and powers conferred herein on
stockholders, directors, officers or others are granted subject to this
reservation.
ELEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of section 291 of the Title B of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any
<PAGE>
reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of December,
1991.
/s/ Allan H. Cohen
-------------------------------------
Allan H. Cohen
Sole Incorporator
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "DANBURY PHARMACAL CARIBE, INC.", CHANGING ITS NAME FROM "DANBURY
PHARMACAL CARIBE, INC." TO "DANBURY PHARMACAL PUERTO RICO, INC.", FILED IN
THIS OFFICE ON THE ELEVENTH DAY OF MAY, A.D. 1994, AT 12:15 O'CLOCK P.M.
[SEAL] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2283317 8100 8810124
DATE:
971427390 12-13-97
<PAGE>
EXHIBIT 3.18
BY - LAWS
OF
DANBURY PHARMACAL CARIBE, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE.--A registered office shall be
established and maintained in the State of Delaware as required by law.
SECTION 2. OTHER OFFICES.----The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. --Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. OTHER MEETINGS.--Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.
SECTION 3. VOTING.--Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and these By-Laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholder, but no proxy shall be voted after three years
from its date unless such proxy provides for a longer period. Upon the demand of
any stockholder, the vote for directors and the
<PAGE>
vote upon any question before the meeting, shall be by ballot. All elections for
directors shall be decided by plurality vote; all other questions shall be
decided by majority vote except as otherwise provided by the Certificate of
Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM.--Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed; but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 5. SPECIAL MEETINGS. --Special meetings of the stockholders
for any purpose or purposes may be called by the President or Secretary, or by
resolution of the directors or by vote of the stockholders holding twenty five
(25) percent or more of the outstanding stock of the corporation.
SECTION 6. NOTICE OF MEETINGS.--Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
2
<PAGE>
SECTION 7. ACTION WITHOUT MEETING.--Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM.--The number of directors constituting the
Board of Directors shall be not more than nine nor less than one, as fixed from
time to time by action of the stockholders or the Board of Directors. The
directors shall be elected at the annual meeting of the stockholders and each
director shall be elected to serve until his or her successor shall be elected
and shall qualify. Directors need not be stockholders.
SECTION 2. RESIGNATIONS.--Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES.--If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
or her successor shall be duly chosen provided, however, that if there are no
directors then in office due to such a vacancy, the stockholders may elect a
successor who shall hold office for the unexpired term and until his or her
successor shall be elected and qualified.
SECTION 4. REMOVAL.--Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote, at a special meeting of the stockholders
called for that purpose, and the vacancies thus created may be filled, at the
3
<PAGE>
meeting held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
Unless the Certificate of Incorporation otherwise provides,
stockholders may effect removal of a director who is a member of a classified
Board of Directors only for cause. If the Certificate of Incorporation provides
for cumulative voting and if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him or her if then cumulatively voted at an
election of the entire board of directors, or, if there be classes of directors,
at an election of the class of directors of which he or she is a part.
If the holders of any class or series are entitled to elect one or
more directors by the provisions of the Certificate of Incorporation, these
provisions shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
SECTION 5. INCREASE OF NUMBER.---The number of directors may be
increased by the affirmative vote of a majority of the directors, though less
than a quorum, or, by the affirmative vote of a majority in interest of the
stockholders, at the annual meeting or at a special meeting called for that
purpose, and by like vote the additional directors may be chosen at such meeting
to hold office until the next annual election and until their successors are
elected and qualify.
SECTION 6. POWERS.--The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By--Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES.--The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he, she or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall
4
<PAGE>
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the By-Laws of the corporation; and, unless the
resolution, these By-Laws or the Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
SECTION 8. MEETINGS.--The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the board may be called by the President or by the
Secretary on the written request of any two directors on at least two days'
notice to each director and shall be held at such place or places as may be
determined by the directors, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
SECTION 9. QUORUM.--A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
so adjourned.
SECTION 10. COMPENSATION.--Directors shall not receive any stated
salary for their services as directors or as members
5
<PAGE>
of committees, but by resolution of the board a fixed fee and expenses of
attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING.--Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is signed
by all members of the board, or of such committee as the case may be, and such
written consent is filed with the minutes of proceedings of the board or
committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS.--The officers of the corporation shall be a
President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, one or
more Vice-Presidents and such Assistant Secretaries and Assistant Treasurers as
they may deem proper. None of the officers of the corporation need be directors.
The officers shall be elected at the first meeting of the Board of Directors
after each annual meeting. More than two offices may be held by the same person.
Any officer may be removed, with or without cause, by the Board of Directors.
Any vacancy may be filled by the Board of Directors.
SECTION 2. OTHER OFFICERS AND AGENTS.--The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN.--The Chairman of the Board of Directors, if one
be elected shall preside at all meetings of the Board of Directors and he or she
shall have and perform such other duties as from time to time may be assigned to
him or her by the Board of Directors.
SECTION 4. PRESIDENT.--The President shall preside at all meetings of
the stockholders if present thereat, and in the absence or non-election of the
Chairman of the Board of Directors, at all meetings of the Board of Directors,
and shall have general supervision, direction and control of the business of the
corporation subject to the authorization and control of the Board of Directors.
Except as the Board of Directors shall authorize the execution thereof in some
other manner, he shall
6
<PAGE>
execute bonds, mortgages and other contracts on behalf of the corporation, and
shall cause the seal to be affixed to any instrument requiring it and when so
affixed the seal shall be attested by the signature of the Secretary or the
Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE-PRESIDENT.--Each Vice-President shall have such powers
and shall perform such duties as shall be assigned to him or her by the
directors.
SECTION 6. TREASURERS.--The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He or she
shall deposit all moneys and other valuables in the name and to the credit of
the corporation in such depositaries as may be designated by the Board of
Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers for
such disbursements. He or she shall render to the President and Board of
Directors at the regular meetings of the Board of Directors, or whenever they
may request it, an account of all his or her transactions as Treasurer and of
the financial condition of the corporation. If required by the Board of
Directors, he or she shall give the corporation a bond for the faithful
discharge of his or her duties in such amount and with such surety as the board
shall prescribe.
SECTION 7. SECRETARY.--The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these ByLaws, and in case of his or her absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President, or by the directors, or stockholders, upon
whose requisition the meeting is called as provided in these By-Laws. He or she
shall record all the proceedings of the meetings of the corporation and of the
directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him or her by the directors or the President. He or
she shall have custody of the seal of the corporation and shall affix the same
to all instruments requiring it, when authorized by the directors or the
President, and attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.--
Assistant Treasurers and Assistant Secretaries, if any, shall be elected and
shall have such powers and shall perform such duties as shall be assigned to
them, respectively, by the directors.
7
<PAGE>
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK.--Certificates of stock, signed by
the Chairman or Vice Chairman of the Board of Directors, if they be elected, or
President or Vice-President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him or her in the corporation. Any or
all the signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES.--A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his or
her legal representatives, to give the corporation a bond, in such sum as they
may direct, not exceeding double the value of the stock, to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss of any such certificate, or the issuance of any such new
certificate.
SECTION 3. TRANSFER OF SHARES.--The shares of stock of the
corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE.--In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
8
<PAGE>
SECTION 5. DIVIDENDS.--Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL.--The corporate seal shall be circular in form and
shall contain the name of the corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR.--The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS.--All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE.--Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his or her address as it appears on
the records of the corporation, and such notice shall be deemed to have been
given on the day of such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by
statute.
Whenever any notice whatsoever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the corporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
9
<PAGE>
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at
any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed alteration or repeal or By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-Law or By-Laws
to be made, be contained in the notice of such special meeting.
10
<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
Among
SCHEIN PHARMACEUTICAL, INC.,
THE LENDERS,
as defined herein,
and
CHEMICAL BANK,
as Issuing Bank,
as Administrative Agent
and as Collateral Agent for the Lenders
[LOGO]SCHEIN
PHARMACEUTICAL
Dated as of September 5, 1995
- --------------------------------------------------------------------------------
<PAGE>
Schein Pharmaceutical After $5MM Pre-Payment
Revised
T/L
Repayment Schedule
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Date Balance after $5MM Applied
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
<S> <C>
Sep-96
- ----------------------------------------------------------------------
Dec-96
- ----------------------------------------------------------------------
Mar-97
- ----------------------------------------------------------------------
Jun-97
- ----------------------------------------------------------------------
Sep-97
- ----------------------------------------------------------------------
Dec-97
- ----------------------------------------------------------------------
Mar-98
- ----------------------------------------------------------------------
Jun-98
- ----------------------------------------------------------------------
Sep-98 $7,368,421
- ----------------------------------------------------------------------
Dec-98 $7,368,421
- ----------------------------------------------------------------------
Mar-99 $9,210,527
- ----------------------------------------------------------------------
Jun-99 $9,210,527
- ----------------------------------------------------------------------
Sep-99 $9,210,527
- ----------------------------------------------------------------------
Dec-99 $9,210,527
- ----------------------------------------------------------------------
Mar-00 $11,052,631
- ----------------------------------------------------------------------
Jun-00 $11,052,631
- ----------------------------------------------------------------------
Sep-00 $11,052,631
- ----------------------------------------------------------------------
Dec-00 $11,052,631
- ----------------------------------------------------------------------
Mar-01 $11,052,631
- ----------------------------------------------------------------------
Jun-01 $11,052,631
- ----------------------------------------------------------------------
Sep-01 $11,052,631
- ----------------------------------------------------------------------
Dec-01 $11,052,633
- ----------------------------------------------------------------------
Total $140,000,000
- ----------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
Schein Pharmaceutical, Inc.
$350M Credit Facilities
Chemical Bank, Agent
Amount: $350M
RC Facility $100M
Term Facility $250M
Tenor:
6.5 Years (Matures 12/31/01 )
Interest (price grid): LIBOR + 1.25% Range .75%[arrow] 1.50% 7.25%
Prime + .25% Range 0% [arrow] .50% 9.00%
Letter of Credit: Up to 330M available @ 1.625% (subject to grid)
Commitment Fee: 0.375% (unused portion) Range .25% [arrow] .50%
Arrangement Fee: 1.5% -- ($5,250,000)
Agent Fee: $100K annually
Mandatory Prepayments: 75% of Excess cash flow, 100% of new financing
above $10M, and % of proceeds from stock
offering:
50% if leverage is between 3.0x - 4.0x
25% if leverage is between 2.5x - 3.0x
0% if leverage is between 1.0x - 2.5x
Scheduled Prepayments: '95 - $0 '99 - $50M
'96 - $10M '00 - $60M
'97 - $30M '01 - $60M
'98 - $40M
Security: Mortgage all real property
Liens on receivables & inventory
Pledge of all domestic subsidiaries stock including
Marsam and 65% of wholly owned foreign
subsidiaries
Cross company guarantees by domestic subsidiaries
<PAGE>
Schein Pharmaceutical, Inc.
$350M Credit Facilities
Chemical Bank, Agent
<TABLE>
<CAPTION>
Conditions to Closing: Status
---------------------- ------
<S> <C>
Bank required due diligence
Schein Pharmaceutical, Inc.
Financial review Done
Facilities visit Done
Collateral review Done
Environmental review Done
Solvency opinion 8/23/95
Marsam Pharmaceuticals, Inc.
Financial review Done
Facilities visit Done
Collateral review 8/21-22/95
Environmental review Done
Syndication:
Bank Meeting: Done
Information Memorandum Done
Management slides Done
Loan documents 4th Draft 8/22/95
Bank commitments due 8/24/95
Pre Closing 8/24/95
Closing 9/1/95
Funding 9/6/95
Merger Agreement: Done
Tender Offer Expires 9/1/95
Hart Scott Rodino Release Done
</TABLE>
<PAGE>
Financial Schedules
$350M Credit Facilities
PRICING GRID:
<TABLE>
<CAPTION>
Frcst
Financial Ratio Price Grid Commitment
(Category) 0.75%- 1.50% Fee
---------- ------------ ----------
<S> <C> <C> <C>
YR 1995 4 1.25 .375
YR 1996 4-3 1.25 - 1.00 .375
YR 1997 2-1 .875 - .75 .3125-.25
YR 1998 1 .75 .25
YR 1999 1 .75 .25
</TABLE>
WORKING CAPITAL:
Working Capital (June 30, 1995) 3.0X
Projections (1996-1999) 2.5X (Average)
CAPITAL EXPENDITURE:
<TABLE>
<CAPTION>
Projected Limitation
--------- ----------
<S> <C> <C>
YR 1995 20 25
YR 1996 22 25
YR 1997 24 25
YR 1998 23 25
YR 1999 23 25
<CAPTION>
INTERNATIONAL JV'S
Projected Limitation
--------- ----------
<S> <C> <C>
YR 1995 7 10
YR 1996 10 10
YR 1997 5 10
YR 1998 0 10
YR 1999 0 10
<CAPTION>
INVESTMENTS (ALL OTHER)
Projected
---------
<S> <C> <C>
YR 1995 3 Limitation = $10M Aggregate (95,96,97
YR 1996 3 Limitation = $15M Aggregate (97,98,99
YR 1997 3
YR 1998 3
YR 1999 3
</TABLE>
<PAGE>
Financial Schedules
$350M Credit Facilities
<TABLE>
<CAPTION>
NET WORTH
Projected Test
--------- ----
<S> <C> <C>
YR 1995 154 145
YR 1996 196 170
YR 1997 262 225
YR 1998 345 275
YR 1999 435 350
</TABLE>
<TABLE>
<CAPTION>
LEVERAGE RATIO
{Total Debt/EBITDA}
Projected Test Senior Test
--------- ---- -----------
<S> <C> <C> <C>
YR 1995 4.4 5.0 5.0
YR 1996 2.5 4.0 4.0
YR 1997 1.6 3.5 3.0
YR 1998 1.0 3.0 2.5
YR 1999 0.6 3.0 2.5
</TABLE>
<TABLE>
<CAPTION>
MINIMUM FIXED CHARGE COVERAGE
Projected Test
--------- ----
<S> <C> <C>
YR 1995 3.6 1.5
YR 1996 3.0 1.5
YR 1997 2.5 1.5
YR 1998 2.6 1.5
YR 1999 2.8 1.5
</TABLE>
DIVIDEND LIMITATION
Dividend Limitation is in effect until Total Debt/EBITDA = 2.5X Estimated at
Year End 1996
<PAGE>
[EXECUTION COPY]
================================================================================
CREDIT AGREEMENT
Among
SCHEIN PHARMACEUTICAL, INC.,
THE LENDERS,
as defined herein,
and
CHEMICAL BANK,
as Issuing Batik,
as Administrative Agent
and as Collateral Agent for the Lenders
Dated as of September 5, 1995
================================================================================
[CS&M Ref. 6700-331/P95-0114]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definitions
<S> <C>
SECTION 1.01. Defined Terms .............................................. 3
SECTION 1.02. Terms Generally ............................................ 35
ARTICLE II
The Credits
SECTION 2.01. Commitments ................................................ 35
SECTION 2.02. Loans ...................................................... 36
SECTION 2.03. Borrowing Procedure ........................................ 39
SECTION 2.04. Evidence of Debt; Repayment of Loans ....................... 40
SECTION 2.05. Fees ....................................................... 41
SECTION 2.06. Interest on Loans .......................................... 43
SECTION 2.07. Default Interest ........................................... 44
SECTION 2.08. Alternate Rate of Interest ................................. 44
SECTION 2.09. Termination and Reduction of
Commitments .............................................. 45
SECTION 2.10. Conversion and Continuation of
Borrowings ............................................... 46
SECTION 2.11. Repayment of Term Facility
Borrowings ................................................ 48
SECTION 2.12. Optional Prepayment ........................................ 49
SECTION 2.13. Mandatory Prepayments ...................................... 50
SECTION 2.14. Reserve Requirements; Change in
Circumstances ............................................ 51
SECTION 2.15. Change in Legality ......................................... 54
SECTION 2.16. Indemnity .................................................. 55
SECTION 2.17. Pro Rata Treatment ......................................... 56
SECTION 2.18. Sharing of Setoffs ......................................... 56
SECTION 2.19. Payments ................................................... 57
SECTION 2.20. Taxes ...................................................... 58
SECTION 2.21. Assignment of Commitments under
Certain Circumstances; Duty To
Mitigate ................................................. 62
</TABLE>
<PAGE>
2
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 2.22. Letters of Credit ........................................... 63
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers ........................................ 69
SECTION 3.02. Authorization ............................................... 69
SECTION 3.03. Enforceability .............................................. 70
SECTION 3.04. Governmental Approvals ...................................... 70
SECTION 3.05. Financial Statements ........................................ 71
SECTION 3.06. No Material Adverse Change .................................. 72
SECTION 3.07. Title to Properties; Possession
under Leases .............................................. 72
SECTION 3.08. Subsidiaries ................................................ 73
SECTION 3.09. Litigation; Compliance with Laws ............................ 73
SECTION 3.10. Agreements .................................................. 74
SECTION 3.11. Federal Reserve Regulations ................................. 74
SECTION 3.12. Investment Company Act; Public
Utility Holding Company Act ............................... 74
SECTION 3.13. Use of Proceeds ............................................. 75
SECTION 3.14. Tax Returns ................................................. 75
SECTION 3.15. No Material Misstatements ................................... 75
SECTION 3.16. Employee Benefit Plans ...................................... 75
SECTION 3.17. Environmental Matters ....................................... 76
SECTION 3.18. Insurance ................................................... 77
SECTION 3.19. Solvency .................................................... 77
SECTION 3.20. Location of Real Property and Leased
Premises .................................................. 78
SECTION 3.21. Labor Matters ............................................... 79
SECTION 3.22. Tender Offer; Merger ........................................ 79
SECTION 3.23. Capitalization of the Borrower .............................. 80
ARTICLE IV
Conditions of Lending
SECTION 4.01. All Credit Events ........................................... 81
SECTION 4.02. First Credit Event .......................................... 82
SECTION 4.03. Additional Conditions Precedent ............................. 88
</TABLE>
<PAGE>
3
<TABLE>
<CAPTION>
Page
----
ARTICLE V
Affirmative Covenants
<S> <C>
SECTION 5.01. Existence; Businesses and Properties ....................... 89
SECTION 5.02. Insurance .................................................. 89
SECTION S.03. Obligations and Taxes ...................................... 91
SECTION 5.04. Financial Statements, Reports, etc ......................... 91
SECTION 5.05. Litigation and Other Notices ............................... 93
SECTION 5.06. Employee Benefits .......................................... 93
SECTION 5.07. Maintaining Records; Access to
Properties and Inspections ............................... 93
SECTION 5.08. Use of Proceeds ............................................ 94
SECTION 5.09. Compliance with Environmental Laws ......................... 94
SECTION 5.10. Preparation of Environmental Reports ....................... 94
SECTION 5.11. Further Assurances ......................................... 95
SECTION 5.12. Rate Protection Agreements ................................. 96
SECTION 5.13. Merger ..................................................... 96
SECTION 5.14. Board of Directors of the Company .......................... 96
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness ............................................... 96
SECTION 6.02. Liens ...................................................... 98
SECTION 6.03. Sale and Lease-Back Transactions ........................... 100
SECTION 6.04. Investments, Loans and Advances ............................ 100
SECTION 6.05. Mergers, Consolidations and Sales of
Assets ................................................... 101
SECTION 6.06. Dividends and Distributions;
Restrictions on Ability of
Subsidiaries To Pay Dividends ........................... 102
SECTION 6.07. Transactions with Affiliates ............................... 103
SECTION 6.08. Business of Borrower and Subsidiaries ...................... 103
SECTION 6.09. Operating Leases ........................................... 104
SECTION 6.10. Amendments of Certain Agreements;
Conduct of Acquisition ................................... 104
SECTION 6.11. Fiscal Year ................................................ 104
SECTION 6.12. Payment on Other Indebtedness .............................. 104
SECTION 6.13. Capital Expenditures ....................................... 105
</TABLE>
<PAGE>
4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.14. Leverage Ratio ............................................. 105
SECTION 6.15. Senior Debt Ratio .......................................... 106
SECTION 6.16. Net Worth .................................................. 107
SECTION 6.17. Working Capital ............................................ 107
SECTION 6.18. Fixed Charge Coverage Ratio ................................ 107
ARTICLE VII
Events of Default ........................................................ 107
ARTICLE VIII
The Administrative Agent and the Collateral Agent ........................ 112
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices .................................................... 116
SECTION 9.02. Survival of Agreement ...................................... 117
SECTION 9.03. Binding Effect ............................................. 118
SECTION 9.04. Successors and Assigns ..................................... 118
SECTION 9.05. Expenses; Indemnity ........................................ 123
SECTION 9.06. Rights of Setoff ........................................... 124
SECTION 9.07. Applicable Law ............................................. 125
SECTION 9.08. Waivers; Amendment ......................................... 125
SECTION 9.09. Interest Rate Limitation ................................... 127
SECTION 9.10. Entire Agreement ........................................... 127
SECTION 9.11. WAIVER OF JURY TRIAL ....................................... 127
SECTION 9.12. Severability ............................................... 128
SECTION 9.13. Counterparts ............................................... 128
SECTION 9.14. Headings ................................................... 128
SECTION 9.15. Jurisdiction; Consent to Service of
Process ................................................. 128
SECTION 9.16. Mortgaged Property Casualty and
Condemnation ............................................ 129
SECTION 9.17. Confidentiality ............................................ 135
</TABLE>
<PAGE>
5
Schedule 1.01 Certain Permitted Holders
Schedule 2.01 Commitments
Schedule 3.08 Subsidiaries
Schedule 3.18 Insurance
Schedule 3.20(a) Owned Real Property
Schedule 3.20(b) Leased Real Property
Schedule 4.02(a) Local Counsel
Schedule 6.01 Existing Indebtedness
Schedule 6.02 Existing Liens
Schedule 6.04 Existing Investments
Exhibit A Form of Administrative
Questionnaire
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Borrowing Request
Exhibit D Form of Guarantee Agreement
Exhibit E Form of Indemnity, Subrogation and
Contribution Agreement
Exhibit F Form of Mortgage
Exhibit G Form of Pledge Agreement
Exhibit H Form of Security Agreement
Exhibit I-1 Form of Opinion of PRG&M
Exhibit I-2 Form of Opinion of Local Counsel
Exhibit J Form of Opinion of Counsel to the
Company
<PAGE>
CREDIT AGREEMENT dated as of September 1, 1995, among SCHEIN
PHARMACEUTICAL, INC., a Delaware corporation (the "Borrower"); the LENDERS (as
defined in Article I); and CHEMICAL BANK, a New York banking corporation as
issuing bank (in such capacity, the "Issuing Bank"), as administrative agent (in
such capacity, the "Administrative Agent") and as collateral agent (in suck
capacity, the "Collateral Agent") for the Lenders.
The Borrower has requested the Lenders to extend credit in order to enable
the Borrower, on the terms and subject to the conditions of this Agreement, to
borrow (a) on a term basis, on the Tender Offer Date (such term and each other
tern used but not otherwise defined in this preamble having the meaning assigned
to it in Article I), an aggregate principal amount not in excess of $250,000,000
(the "Tender Facility") and (b) on a revolving basis, at any time and from time
to time on or after the Tender Offer Date and prior to the Pre-Merger Facilities
Maturity Date, an aggregate principal amount at any time outstanding not in
excess of $100,000,000 (the "Pre-Merger Revolving Facility"). The proceeds of
borrowings under the Tender Facility and up to $50,000,000 of proceeds of
borrowings under the Pre-Merger Revolving Facility are to be used (a) by the
Borrower or Acquisition Co. (i) to purchase outstanding shares of common stock,
par value $.01 per share (the "Shares"), of Marsan Pharmaceuticals Inc., a
Delaware corporation (the "Company"), which Shares will be acquired by the
Borrower or Acquisition Co. pursuant to an all cash tender offer for all the
outstanding Shares (the "Tender Offer") to be made by Acquisition Co. pursuant
to the Merger Agreement, or (ii) to pay related fees and expenses not in excess
of $15,000,000, or (b) used by the Borrower to refinance up to $65,000,000
existing debt of the Borrower and the Subsidiaries (other than the Company and
its subsidiaries). The remaining proceeds of borrowings under the Pre-Merger
Revolving Facility are to be used to provide working capital for the Borrower
and the Subsidiaries and for general corporate purposes.
The Borrower has also requested the Lenders to extend credit in order to
enable the Borrower, on the terms and subject to the conditions of this
Agreement, to borrow (a) on a term basis, from time to time on or after the
<PAGE>
2
Merger Date and prior to the date 120 days after the Merger Date, an aggregate
principal amount not in excess of $250,000,000 (the "Term Facility"), and (b) on
a revolving basis, at any time and from time to time on or after the Merger Date
and prior to the Post-Merger Facilities Maturity Date, an aggregate principal
amount at any time outstanding not in excess of $100,000,000 (the "Post-Merger
Revolving Facility").
The Borrower has also requested the Issuing Bank to issue letters of credit
from time to time on or after the Merger Date and prior to the date that is five
Business Days prior to the Post-Merger Facilities Maturity Date, in an aggregate
face amount at any time outstanding not in excess of $30,000,000, to support
payment obligations incurred in the ordinary course of business by the Borrower
and its Subsidiaries.
The proceeds of the borrowings under the Term Facility and $50,000,000 of
the proceeds of borrowings under the Post-Merger Revolving Facility are to be
used solely (a) to pay any cash consideration due in the Merger to holders of
Shares, (b) to refinance borrowings under the Tender Facility and the Pre-Merger
Revolving Facility and (c) to pay fees and expenses related to the Acquisition
not in excess of $15,000,000 less the amount of such fees and expenses paid on
the Tender Offer Date. The remaining proceeds of borrowings under the
Post-Merger Revolving Facility are to be used to refinance borrowings under the
Pre-Merger Revolving Facility and to provide working capital for the Borrower
and the Subsidiaries.
The Lenders are willing to extend such credit to the Borrower and the
Issuing Bank is willing to issue letters of credit for the account of the
Borrower on the
<PAGE>
3
terms and subject to the conditions set forth herein. Accordingly, the parties
hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following terms
shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any ABR Term Loan or ABR Revolving Loan.
"ABR Revolving Loan" shall mean any Revolving Loan bearing interest at a
rate determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"ABR Term Loan" shall mean any Term Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Acquisition" shall mean the Tender Offer, the Merger and the other
transactions contemplated by the Merger Agreement and the Tender Offer
Materials.
"Acquisition Co." shall mean SM Acquiring Co., Inc., a Delaware
corporation.
"Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 3%) equal to the product of (a) the LIBO Rate in
effect for such Interest Period and (b) Statutory Reserves.
"Administrative Agent Fees" shall have the meaning assigned to such term in
Section 2.05(b).
"Administrative Questionnaire" shall mean an Administrative Questionnaire
in the form of Exhibit A.
<PAGE>
6
Interest Expense Coverage Ratio shall be effective with respect to all Loans,
Commitments and Letters of Credit outstanding on and after the due date for
delivery to the Administrative Agent of the financial statements and
certificates required by Section 5.04(a) or 5.04(b) and Section 5.04(c)
indicating such change (even if such statements and certificates are delivered
prior to such due date) until the date immediately preceding the next due date
for delivery of such financial statements and certificates indicating another
such change (even if such statements and certificates are delivered prior to
such due date). Notwithstanding the foregoing, the Applicable Percentage shall
be determined by reference to (a) Category 5(i) for any period after the last
day of the second complete fiscal quarter to commence after the Merger Date
during which the Borrower has failed to deliver the financial statements and
certificates required by Section 5.04(a) or 5.04(b) and Section 5.04(c) if such
failure has continued unremedied for three Business Days following notice
thereof from the Administrative Agent or any Lender and (ii) at any time after
the last day of the second complete fiscal quarter to commence after the Merger
Date during the continuance of an Event of Default and (b) subject to clause (a)
above, Category 4 on or prior to the delivery of the financial statements and
certificates required by Section 5.04(a) or 5.04(b) and Section 5.04(c) for the
second complete fiscal quarter to commence after the Merger Date.
"Assessment Rate" shall mean for any date the annual rate (rounded upwards,
if necessary, to the next 1/100 of 1%) most recently estimated by the
Administrative Agent as the then current net annual assessment rate that will be
employed in determining amounts payable by the Administrative Agent to the
Federal Deposit Insurance Corporation (or any successor thereto) for insurance
by such Corporation (or such successor) of time deposits made in dollars at the
Administrative Agent's domestic offices.
"Asset Sale" shall mean (a) the sale, transfer or other disposition by the
Borrower or any Subsidiary to any person, other than the Borrower or a wholly
owned Subsidiary that is a Guarantor, of (i) any outstanding capital stock of
any Subsidiary or (ii) any other assets of the Borrower or any Subsidiary (other
than inventory, obsolete or worn out assets and Permitted Investments, in each
case disposed of in the ordinary course of business) and (b) the issuance or
sale by any Subsidiary of any shares of its capital stock or other equity
securities of such Subsidiary, or any
<PAGE>
7
obligations convertible into or exchangeable for, or giving any person a right,
option or warrant to acquire such securities or such convertible or exchangeable
obligations, other than an issuance or sale to the Borrower or a wholly owned
Subsidiary.
"Assignment and Acceptance" shall mean an assignment and acceptance entered
into by a Lender and an assignee, and accepted by the Administrative Agent and
the Borrower, respectively, in the form of Exhibit B or such other form as shall
be approved by the Administrative Agent and the Borrower, respectively.
"Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month
Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate.
"Board" shall mean the Board of Governors of the Federal Reserve System of
the United States of America.
"Book-Entry Shares" shall mean the Shares tendered pursuant to the Tender
Offer in book-entry form through the Book-Entry Transfer Facilities.
"Book-Entry Transfer Facilities" shall mean the registered clearing
corporations designated by Acquisition Co. as "Book-Entry Facilities" for the
purpose of the Tender Offer.
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders on a single date and as to which a single Interest Period is in effect.
"Borrowing Request" shall mean a request by the Borrower in accordance with
the terms of Section 2.03 and substantially in the form of Exhibit C.
"Breakage Event" shall have the meaning assigned to such term in Section
2.16.
"Business Day" shall mean any day other than a Saturday, Sunday or day on
which banks in New York City are authorized or required by law to close;
provided, however, that, when used in connection with a Eurodollar Loan, the
term "Business Day" shall also exclude any day on which banks are not open for
dealings in dollar deposits in the London interbank market.
<PAGE>
8
"Capital Expenditures" for any period shall mean (a) the sum of (i) net
property, plant and equipment a property rights and deferred license costs of
the Borrower and the Subsidiaries as of the last May of such period, in each
case determined on a consolidated basis in accordance with GAAP, and (ii)
depreciation and amortization of property, plant and equipment and property
rights and deferred license costs of the Borrower and the Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP minus (b) the
sum of (i) the book value as of the last day prior to such period, for the
Borrower and the Subsidiaries determined on a consolidated basis in accordance
with GAAP, of those items of property, plant and equipment, and property rights,
and deferred license costs attributable to licenses, held by the Borrower or a
Subsidiary throughout such period, (ii) any additions to "net property, plant
and equipment" during such period, for the Borrower and the Subsidiaries,
determined on a consolidated basis in accordance with GAAP, resulting from
expenditures of proceeds of insurance settlements in respect of lost, destroyed
or damaged assets, equipment or other property to the extent such expenditures
are made to replace or repair all or any part of such lost, destroyed or damaged
assets, equipment or other property within 12 months of the receipt of such
proceeds and (iii) any additions, net of minority interests, if any, to "net
property, plant and equipment" and "net property rights and deferred license
costs" arising from the Acquisition.
"Capital Lease Obligations" of any person shall mean the obligations of
such person to pay rent or other amounts under any lease of or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"Casualty" shall have the meaning assigned to such term in Section 9.16.
A "Chance in Control" shall be deemed to have occurred if (a) any person or
group (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934
as in effect on the date hereof) other than a Permitted Holder or a group
consisting solely of Permitted Holders shall own directly or indirectly,
beneficially or of record, shares
<PAGE>
9
representing (i) both more than 30% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Borrower and a
higher percentage of such aggregate ordinary voting power than is then
represented by shares owned by the Permitted Holders or (ii) more than 50% of
such aggregate ordinary voting power; (b) a majority of the seats (other than
vacant seats) on the board of directors of the Borrower shall at any time have
been occupied by persons who were neither (i) nominated by a Permitted Holder,
nor (ii) on the board of directors of the Borrower on the date of this Agreement
(the "Incumbent Board"); (c) any person or group other than a Permitted Holder
or a group consisting solely of Permitted Holders shall otherwise Control the
Borrower; or (d) a "change in control", however defined, shall occur under any
instrument evidencing other Indebtedness in a principal amount in excess of
$5,000,000 of the Borrower or any Subsidiary. For purposes of clause (b)(ii)
hereof, any individual who becomes a member of the board of directors of the
Borrower subsequent to the date of this Agreement, and whose election, or
nomination for election by the Borrower's stockholders, was approved by the
members of the board who are also members of the Incumbent Board (or so deemed
to be pursuant hereto) shall be deemed a member of the Incumbent Board;
provided, however, that any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A under the Securities Exchange
Act of 1934) or other actual or threatened solicitation of proxies or consents
by or on behalf of a person other than the then board of directors of the
Borrower shall be deemed not to be member of the Incumbent Board.
"Charges" shall have the meaning assigned to such term in Section 9.09.
"Chattel Mortgages" shall mean the chattel mortgages, chattel mortgage
notes and pledge agreements related to the Puerto Rico Subsidiary's machinery
and equipment and other security documents executed and delivered by the Puerto
Rico Subsidiary pursuant to Section 4.02(g)(ii) or 5.11, all in form and
substance acceptable to the Lenders.
"Closing Date" shall mean the date of the first Credit Event.
<PAGE>
10
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time.
"Collateral" shall mean all the "Collateral" as defined in any Security
Document and shall also include the Mortgaged Properties.
"Commitment" shall mean, with respect to any Lender, such Lender's
Revolving Credit Commitment and Term Loan Commitment.
"Commitment Fee" shall have the meaning assigned to such term in Section
2.05(a).
"Commitments" shall mean the Tender Facility Commitments, the Pre-Merger
Revolving Credit Commitments, the Term Facility Commitments, the Post-Merger
Revolving Credit Commitments and the L/C Commitment.
"Company" shall have the meaning assigned to such term in the preamble.
"Condemnation" shall have the meaning assigned to such term in Section
9.16.
"Condemnation Proceeds" shall have the meaning assigned to such term in
Section 9.16.
"'Confidential Information Memorandum" shall mean the Confidential
Information Memorandum of the Borrower dated August 1995.
"Control" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a person,
whether through the ownership of voting securities, by contract or otherwise,
and "Controlling" and "Controlled" shall have meanings correlative thereto.
"Credit Event" shall have the meaning assigned to such term in Section
4.01.
"Current Assets" as of any date shall mean the total assets that would
properly be classified as consolidated current assets, excluding cash and
Permitted Investments, of the Borrower and the Subsidiaries as of such date in
accordance with GAAP.
<PAGE>
11
"Current Liabilities" as of any date shall mean the total liabilities that
would properly be classified as consolidated current liabilities, excluding all
Loans, of the Borrower and the Subsidiaries as of such date in accordance with
GAAP.
"Default" shall mean any event or condition that upon notice, lapse of time
or both would constitute an Event of Default.
"Defaulted Advance" shall mean, with respect to any Lender at any time, the
amount of any Loan required to have been made by such Lender to the Borrower
pursuant to Section 2.01 at or prior to such time that has not been so made as
of such time by such Lender or by the Administrative Agent on its behalf;
provided, however, any such amount arising in connection with the failure by the
Required Lenders to make Loans that would have been part of a single Borrowing
shall be deemed not to be a Defaulted Advance. In the event that a portion of a
Defaulted Advance shall be deemed made pursuant to Section 2.02(g), the
remaining portion of such Defaulted Advance shall continue to be considered a
Defaulted Advance. To the extent any portion of a Loan made by the
Administrative Agent on a Lender's behalf is not fully repaid by such Lender by
the close of the Business Day following the making of such Loan and the
Administrative Agent thereafter exercises its right pursuant to Section 2.02(c)
to require repayment of such advance by the Borrower, then effective at the time
of such repayment by the Borrower, a Defaulted Advance shall arise equal to the
amount of such repayment.
"Defaulting Lender" shall mean, at any time, any Lender that, at such time,
owes a Defaulted Advance.
"dollars" or "$" shall mean lawful money of the United States of America.
"Domestic Subsidiary" shall mean any Subsidiary organized under the laws of
the United States of America, any State or territory thereof, the District of
Columbia or Puerto Rico.
"EBITDA" for any period shall mean Net Income for such period plus, to the
extent deducted in computing Net Income, the sum of (a) income tax expense, (b)
Interest Expense and (c) depreciation and amortization expense minus, to the
extent added in computing Net Income, (i) any non-
<PAGE>
12
cash, non-recurring gains and (ii) any interest income, all as determined on a
consolidated basis with respect to the Borrower and the Subsidiaries in
accordance with GAAP; provided, however, that, for the purpose of determining
the Leverage Ratio and compliance with Section 6.15 as of any date prior to the
last day of the third fiscal quarter of 1996, EBITDA for any four quarter period
shall equal EBITDA for the period from and including the first day of the fourth
fiscal quarter of 1995 to and including the last day of the most recently
completed fiscal quarter period multiplied by a fraction the numerator of which
is four and the denominator of which is the number of complete fiscal quarters
since September 30, 1995.
"environment" shall mean ambient air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface or
subsurface strata, the workplace or as otherwise defined in any Environmental
Law.
"Environmental Claim" shall mean any written accusation, allegation, notice
of violation, claim, demand, order, directive, cost recovery action or other
cause of action by, or on behalf of, any Governmental Authority or any person
for damages, injunctive or equitable relief, Remedial Action costs, property
damage, natural resource damages, nuisance, pollution or for fines, penalties or
restrictions, resulting from or based upon: (a) the existence, or the
continuation of the existence, of a Release (including sudden or non-sudden,
accidental or non-accidental Releases); (b) exposure to any Hazardous Material;
(c) the presence, ___; handling, transportation, storage, treatment or disposal
of any Hazardous Material; or (d) the violation or alleged violation of any
Environmental Law or Environmental Permit.
"Environmental Law" shall mean any and all applicable treaties, laws,
rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions
or binding agreements issued, promulgated by or entered into with any
Governmental Authority, relating in any way to the environment, preservation or
reclamation of natural resources, the management, Release or threatened Release
of any Hazardous Material or to health and safety matters, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
ss.ss. 9601 et seq. (collectively "CERCLA"), the Solid
<PAGE>
13
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of
1976 and Hazardous and Solid Amendments of 1984, 42 U.S.C. ss.ss. 6901 et seq.
the Federal Water Pollution Control Act, as amended by the Clean Water Act of
1977, 33 U.S.C. ss.ss. 1251 et seq. the Clean Air Act of 1970, as amended 42
U.S.C. ss.ss. 7401 et seq. the Toxic Substances Control Act of 1976, 15 U.S.C.
ss.ss. 2601 et seq., the Occupational Safety and Health Act of 1970, as amended,
29 U.S.C. ss.ss. 651 et seq., the Emergency Planning and Community Right-to-Know
Act of 1986, 42 U.S.C. ss.ss. 11001 et seq. the Safe Drinking Water Act of 1974,
as amended, 42 U.S.C. ss.ss. 300(f) et seq. the Hazardous Materials
Transportation Act, 49 U.S.C. ss.ss. 1801 et sea., and any similar or
implementing state or local law, and all amendments or regulations promulgated
thereunder.
"Environmental Permit" shall mean any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from any
Governmental Authority pursuant to any Environmental Law.
"Equity Issuance" shall mean any issuance or sale by the Borrower of any
shares of its capital stock or other equity securities of the Borrower, or any
obligations convertible into or exchangeable for, or giving any person a right,
option or warrant to acquire such securities or such convertible or exchangeable
obligations; provided, however, that Equity Issuance shall not include any of
the foregoing to the extent arising from or in connection with the issuance of
any stock rights, options or warrants to a director, officer or employee of the
Borrower or any Subsidiary under a duly instituted stock option plan and any
exercise thereof, to the extent the aggregate Net Proceeds thereof in any fiscal
year do not exceed $3,000,000.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that, together with the Borrower or the Company, is treated as a
single employer under Section 414(b) or (c) of the Code, or solely for purposes
of Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
<PAGE>
14
"ERISA Event" shall mean (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder, with respect to a Plan; (b)
the adoption of any amendment to a Plan that would require the provision of
security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c)
the existence with respect to any Plan of an "accumulated funding deficiency"
(as defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA
with respect to the termination of any Plan or the withdrawal or partial
withdrawal of the Borrower or any of its ERISA Affiliates from any Plan or
Multiemployer Plan; (f) the receipt by the Borrower or any ERISA Affiliate from
the PBGC or a plan administrator of any notice relating to the intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g)
the receipt by the Borrower or any ERISA Affiliate of any notice concerning the
imposition of Withdrawal Liability or a determination that a Multiemployer Plan
is, or is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with respect
to which the Borrower or any of its Subsidiaries is a "disqualified person"
(within the meaning of Section 4975 of the Code) or with respect to which the
Borrower or any such Subsidiary could otherwise be liable, other than a
transaction for which a statutory exemption is available or for which an
administrative exemption has been obtained; and (i) any other event or condition
with respect to a Plan or Multiemployer Plan that would reasonably be expected
to result in liability or the Borrower.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" shall mean any Eurodollar Revolving Loan or Eurodollar
Term Loan.
"Eurodollar Revolving Loan" shall mean any Revolving Loan bearing interest
at a rate determined by reference to the Adjusted LIBO Rate in accordance with
the provisions of Article II.
"Eurodollar Term Loan" shall mean any Term Loan bearing interest at a rate
determined by reference to the
<PAGE>
15
Adjusted LIBO Rate in accordance with the provisions of Article II.
"Event of Default" shall have the meaning assigned to such term in Article
VII.
"Excess Cash Flow" for any period shall mean EBITDA for such period minus
(a) Interest Expense for such period, to the extent paid in cash during such
period, (b) any prepayments of Term Loans made during such period and any
scheduled repayments of principal of Indebtedness made by the Borrower or any
Subsidiary in cash during such period, (c) permitted Capital Expenditures and
investments pursuant to Section 6.04(i) or 6.04(1) during such period that are
paid in cash, (d) taxes paid in cash by the Borrower and the Subsidiaries on a
consolidated basis during such period, (e) an amount equal to any increase in
Net Working Capital during such period (to the extent not taken into account in
clauses (a), (d) and (f) of this definition), (f) extraordinary cash expenses of
the Borrower and the Subsidiaries paid on a consolidated basis during such
period but not included in determining EBITDA, (g) cash disbursements incurred
by the Borrower in transactions described in Section 6.07(d) to the extent that
GAAP does not permit such disbursements to be accounted for as expenses and
requires such disbursements to be accounted for as a distribution to
shareholders and (h) cash dividends paid by the Borrower in accordance with
Section 6.06(a)(iv) plus (i) an amount equal to any decrease in Net Working
Capital during such period (to the extent not taken into account in clauses (a),
(d) and (f) of this definition) and (ii) extraordinary cash income of the
Borrower and the Subsidiaries received on a consolidated basis during such
period but not included in determining EBITDA.
"Facility" shall mean the Tender Facility, the Pre-Merger Revolving Credit
Facility, the Term Loan Facility or the Post-Merger Revolving Credit Facility.
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the average of
the quotations for the day for such transactions received by the
<PAGE>
16
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"Fee Letter" shall mean the Amended and Restated Fee Letter dated June 6,
1995, between the Borrower and the Administrative Agent.
"Fees" shall mean the Commitment Fees, the Administrative Agent Fees, the
L/C Participation Fees and the Issuing Bank Fees.
"Financial Officer" of any corporation shall mean the chief financial
officer, principal accounting officer, Treasurer or Controller of such
corporation.
"Fixed Charge Coverage Ratio" as of any date shall mean the ratio of (a)(i)
EBITDA plus (ii) if such date is on or after the last day of the third fiscal
quarter of 1997, the Permitted Carryforward Amount, minus (iii) Capital
Expenditures, in each case for the most recent complete four fiscal quarter
period ended on or prior to such date, to (b)(i) Interest Expense plus (ii) the
aggregate scheduled payments of principal in respect of Indebtedness of the
Borrower or any Subsidiary, in each case for the most recent complete four
fiscal quarter period ended on or prior to such date. The "Permitted
Carryforward Amount" for any four fiscal quarter period (the "subject period")
shall mean the lowest of (A) 50% of the excess, if any, of (I) $25,000,000 over
(II) Capital Expenditures for the four fiscal quarter period (the "prior
Period") ending immediately prior to the commencement of the subject period, (B)
50% of the amount of additional Capital Expenditures that could have been made
in the prior period without violating Section 6.18 and (C) actual Capital
Expenditures for the subject period.
"Foreign Subsidiary" shall mean any Subsidiary other than a Domestic
Subsidiary.
"GAAP" shall mean United States generally accepted accounting principles
applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local or foreign
government, court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantee" of or by any person shall mean any obligation, contingent or
otherwise, of such person guaranteeing any Indebtedness of any other person (the
<PAGE>
17
"primary obligor") in any manner, whether directly or indirectly, and including
any obligation of such person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness, (b) to purchase or lease property, securities
or services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness or (c) to maintain working capital, equity capital
or any other financial statement condition or liquidity of the primary obligor
so as to enable the primary obligor to pay such Indebtedness; provided, however,
that the term Guarantee shall not include endorsements for collection or deposit
in the ordinary course of business.
"Guarantee Agreements" shall mean the Guarantee Agreement, substantially in
the form of Exhibit D, made by the Guarantors in favor of the Collateral Agent
for the benefit of the Secured Parties.
"Guarantor" shall mean any person from time to time party to the Guarantee
Agreement as a guarantor.
"Hazardous Materials" shall mean all explosive or radioactive substances or
wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or
gaseous wastes, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls ("PCBs") or
PCB-containing materials or equipment, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Health Care Laws" shall mean any and all applicable current and future
treaties, laws, rules, regulations, codes, ordinances, orders, decrees,
judgments, injunctions, notices or binding agreements issued, promulgated or
entered into by the Food and Drug Administration, the Health Care Financing
Administration, the Department of Health and Human Services ("HHS"), the Office
of Inspector General of HHS, the Drug Enforcement Administration or any other
Governmental Authority (including any professional licensing laws, certificate
of need laws and state reimbursement laws), relating in any way to the
manufacture, distribution, marketing, sale, supply or other disposition of any
product or service of the Borrower or any Subsidiary, the conduct of the
business of the
<PAGE>
18
Borrower or any Subsidiary, the provision of health care services generally, or
to any relationship among the Borrower and the Subsidiaries, on the one hand,
and their suppliers and customers and patients and other end-users of their
products and services, on the other hand.
"Indebtedness" of any person shall mean, without duplication, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such person
upon which interest charges are customarily paid, (d) all obligations of such
person under conditional sale or other title retention agreements relating to
property or assets purchased by such person, (e) all obligations of such person
issued or assumed as the deferred purchase price of property or services
(excluding trade accounts payable and accrued obligations incurred in the
ordinary course of business), (f) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
person, whether or not the obligations secured thereby have been assumed, (g)
all Guarantees by such person of Indebtedness of others, (h) all Capital Lease
Obligations of such person, (i) all obligations of such person in respect of
Rate Protection Agreements add (j) all obligations of such person as an account
party in respect of letters of credit and bankers' acceptances (and the amount
of such Indebtedness shall equal the net payments accrued by such person in
accordance with GAAP); provided, however, that Indebtedness described in clause
(i) above shall be excluded for purposes of determining the Leverage Ratio and
the amount of Senior Debt. The Indebtedness of any person shall include the
Indebtedness of any partnership in which such person is a general partner.
"Indemnitee" shall have the meaning assigned to such term in Section 9.05.
"Indemnity, Subrogation and Contribution Agreement" shall mean the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit E, among the Borrower, the Guarantors and the Collateral Agent.
"Information" shall have the meaning assigned to such term in Section 9.17.
<PAGE>
19
"Insurance Proceeds" shall have the meaning assigned to such term in
Section 9.16.
"Interest Expense" for any period shall mean the gross interest expense of
the Borrower and the Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP, including (a) the amortization of debt discounts,
(b) the amortization of all fees (including fees with respect to interest rate
protection agreements) payable in connection with the incurrence of Indebtedness
to the extent included in interest expense and (c) the portion of any payments
or accruals with respect to Capital Lease Obligations allocable to interest
expense. For purposes of the foregoing, gross interest expense shall be
determined after giving effect in accordance with GAAP to any net payments made,
received or accrued by such person with respect to Rate Protection Agreements
entered into as a hedge against interest rate exposure.
"Interest Expense Coverage Ratio" as of any date shall mean the ratio of
(a) EBITDA to (b) Interest Expense, in each case for the most recent complete
four fiscal quarter period ended on or prior to such date.
"Interest Payment Date" shall mean, with respect to any Loan, (a) the last
day of the Interest Period applicable to the Borrowing of which such Loan is a
part and, in the case of a Eurodollar Borrowing with an Interest Period of more
than three months' duration, each day that would have been an Interest Payment
Date had successive Interest Periods of three months' duration been applicable
to such Borrowing, (b) the date of any prepayment of such Loan (other than the
prepayment pursuant to Section 2.12(a) of an ABR Revolving Loan) or conversion
of such Loan (if a Eurodollar Loan) to a Borrowing of a different Type and (c)
the Pre-Merger Facilities Maturity Date and the Post-Merger Facilities Maturity
Date.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is 1, 2, 3 or 6 months (or, if Interest Periods
of such duration shall be available from each Lender, 9 or 12 months)
thereafter, as the Borrower may elect and (b) as to any ABR Borrowing, the
period commencing on the date of such Borrowing and ending on the next
succeeding March 31, June 30, September 30 or
<PAGE>
21
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing, the rate
(rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits
approximately equal in principal amount to the Administrative Agent's portion of
such Eurodollar Borrowing and for a maturity comparable to such Interest Period
are offered to the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset
(excluding any leases that constitute operating leases under GAAP) and (c) in
the case of securities, shall also include any purchase option, call or similar
right of a third party with respect to such securities (excluding any option,
call or similar right in respect of securities that are not issued and
outstanding).
"Loan Documents" shall mean this Agreement, the Letters of Credit, the
Guarantee Agreement, the Security Documents and the Indemnity, Subrogation and
Contribution Agreement.
"Loan Parties" shall mean the Borrower and the Guarantors.
"Loans" shall mean the Revolving Loans and the Term Loans.
"Margin Stock" shall have the meaning assigned to such term in Regulation
U.
"Material Adverse Effect" shall mean (a) a materially adverse effect on the
business, assets, operations or condition, financial or otherwise, of the
Borrower and the Subsidiaries, taken as a whole, (b) impairment of the ability
of the Borrower and the Subsidiaries, taken as a whole, to perform their
obligations under the Loan Documents in any material respect or (c) material
impairment of the rights of or benefits available to the Lenders under any Loan
Document. In determining whether any Casualty or Condemnation has
<PAGE>
22
resulted in a Material Adverse Effect, appropriate regard shall be had for any
related Insurance Proceeds or Condemnation Proceeds and the Borrowers or any
Subsidiary's application thereof.
"Maturity Date" shall mean the Pre-Merger Facilities Maturity Date or the
Post-Merger Facilities Maturity Date, as applicable.
"Maximum Rate" shall have the meaning assigned to such term in Section
9.09.
"Merger" shall mean the merger of Acquisition Co. with and into the
Company, in which the Company shall be the surviving corporation, to be effected
pursuant to the Merger Agreement.
"Merger Agreement" shall mean the Agreement and Plan of Merger dated as of
July 28, 1995, among the Borrower, Acquisition Co. and the Company.
"Merger Date" shall mean the date of consummation of the Merger.
"Mortgaged Properties" shall mean the owned real properties of the Loan
Parties from time to time.
"Mortgages" shall mean the mortgages, deeds of trust, assignments of
leases and rents and other security documents executed and delivered by any Loan
Party pursuant to Section 4.02(j) or 5.11, each substantially in the form of
Exhibit F.
"Multiemployer Plan" shall mean a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net Income" for any period shall mean the consolidated net income or loss
of the Borrower and the Subsidiaries for such period determined in accordance
with GAAP, excluding (a) (to the extent included in such consolidated net income
or loss) the income (or loss) of any person (other than any Subsidiary) in which
any other person (other than the Borrower or any wholly owned Subsidiary) has an
equity interest, except to the extent of the amount of dividends or other
distributions actually paid to the Borrower or any Subsidiary by such person
during such period, (b) the income (or loss) of any person accrued prior to the
date it becomes a Subsidiary or is merged into or
<PAGE>
23
consolidated with the Borrower or any Subsidiary or the date such person's
assets are acquired by the Borrower or any Subsidiary, (c) any after tax gains
or losses attributable to sales of assets not in the ordinary course of business
and (d) (to the extent not included in clauses (a) through (c) above) any
extraordinary gains or non-cash extraordinary losses determined in accordance
with GAAP.
"Net Proceeds" shall mean: (a) with respect to any Asset Sale, the cash
proceeds thereof net of (i) costs of sale (including payment of the outstanding
principal amount of, premium or penalty, if any, and interest on any
Indebtedness (other than Loans) required to be repaid under the terms thereof as
a result of such Asset Sale), (ii) taxes paid or payable in the year such Asset
Sale occurs or in the following year as a result thereof and (iii) amounts
provided as a reserve, in accordance with GAAP, against any liabilities under
any indemnification obligations associated with such Asset Sale (provided that,
to the extent and at the time any such amounts are released from such reserve,
such amounts shall constitute Net Cash Proceeds); provided, however, that, with
respect to any Asset Sale described in clause (a)(ii) of the definition thereof,
the Net Proceeds thereof shall equal zero except to the extent that such Net
Proceeds (determined without regard to this proviso), together with the Net
Proceeds of all Asset Sales described in clause (a)(ii) of the definition
thereof (determined without regard to this proviso) previously received during
the then-current fiscal year, exceeds $1,000,000; and (b) with respect to any
Equity Issuance or any Specified Debt Issuance, the cash proceeds thereof net of
underwriting commissions or placement fees and expenses directly incurred in
connection therewith.
"Net Working Capital" as of any date shall mean the excess as of such date
of (a) Current Assets over (b) Current Liabilities.
"Net Worth" as of any date shall mean Stockholder's Equity as of such date.
"New Lending Office" shall have the meaning assigned to such term in
Section 2.20.
"Non-U.S. Lender" shall have the meaning assigned to such term in Section
2.20.
<PAGE>
24
"Obligations" shall mean, collectively, (a) the obligation to pay (i) the
principal of and premium, if any, and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (ii) all other monetary obligations,
including reimbursement obligations, fees, costs, expenses and indemnities,
whether primary, secondary, direct, contingent, fixed or otherwise (including
monetary obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Loan Parties to the Secured Parties under
this Agreement and the other Loan Documents and (iii) any amount in respect of
the foregoing that the Administrative Agent, the Collateral Agent or any Lender,
in its sole discretion, may elect to pay or advance under this Agreement or any
other Loan Document on behalf of any Loan Party after the occurrence and during
the continuation of a Default or an Event of Default, (b) the reimbursement
obligations of the Borrower described in Section 6.01(i) and (c) unless
otherwise agreed upon in writing by the applicable Lender, all net monetary
obligations of the Borrower under each Rate Protection Agreement entered into
with any Lender to hedge interest rate exposure with respect to this Agreement.
"Other Taxes" shall have the meaning assigned to such term in Section
2.20.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"Perfection Certificate" shall mean the Perfection Certificate
substantially in the form of Annex 1 to the Security Agreement.
"Permitted Foreign Company" shall mean (a) any corporation, business trust,
joint venture, association, company or partnership formed under the laws of a
country (or any political subdivision thereof) other than the United States,
engaged primarily in a segment of the pharmaceutical or health-care industry or
ancillary thereto and at least 50% of the equity interest of which is held,
directly or indirectly, by the Borrower and Bayer AG (provided that, if
applicable local law would not permit 50% of the equity
<PAGE>
25
interest in such an entity to be held by the Borrower and Bayer AG, such
percentage may be as low as 49% if the Borrower and Bayer AG otherwise Control
the applicable entity), (b) any subsidiary of a Permitted Foreign Company
described in clause (a) above and (c) any wholly owned Foreign Subsidiary the
only material assets of which are securities of Permitted Foreign Companies
described in clause (a) above.
"Permitted Holders" shall mean (a)(i) the persons listed on Schedule 1.01,
(ii) any individual forming part of the senior management of the Borrower on the
date of this Agreement, (iii) any trust for the benefit of any of the foregoing
and (iv) the estate or personal representative of any of the foregoing, (b) any
employee benefit plan (or related trust) for the benefit of the employees of the
Borrower and the Subsidiaries and (c) Bayer AG and any of its subsidiaries.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within 90 days from the date of acquisition thereof;
(b) investments in commercial paper maturing within 90 days from the
date of acquisition thereof and having, at such date of acquisition, credit
ratings that are not lower than "A2" if rated by Standard & Poor's or "P2"
if rated by Moody's Investors Service, Inc.;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 90 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of (i) any commercial bank
organized under the laws of the United States of America or any State
thereof that has a combined capital and surplus and undivided profits of
not less than $25O,000,000 or (ii) any Lender;
(d) in the case of any Foreign Subsidiary, investments not in excess
of $5,000,000 in the
<PAGE>
26
aggregate in dollar-denominated certificates of deposit, banker's
acceptances and time deposits maturing within 90 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any local office of (i) any
commercial bank organized under the laws of the United States of America or
any State thereof that has a combined capital and surplus and undivided
profits of not less than $250,000,000, (ii) any Lender or (iii) any local
commercial bank that is an Affiliate of any Lender; and
(e) other investment instruments approved in writing by the Required
Lenders and offered by financial institutions which have a combined capital
and surplus and undivided profits of not less than $250,000,000.
"person" shall mean any natural person, corporation, business trust, joint
venture, association, company, limited liability company, partnership or
government, or any agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 307 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement" shall mean the Pledge Agreement, substantially in the
form of Exhibit G, among Borrower, the Subsidiaries from time to time party
thereto and the Collateral Agent for the benefit of the Secured Parties.
"Post-Merger Facilities Maturity Date" shall mean December 31, 2001.
"Post-Merger Revolving Credit Commitment" shall mean, with respect to any
Lender, the commitment of such Lender to make Post-Merger Revolving Loans
hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance
pursuant to which such Lender assumed its Post-Merger Revolving Credit
Commitment, as applicable, as the same may be (a) reduced from time to time
pursuant to Section 2.09
<PAGE>
27
and (b) reduced or increased from time to time pursuant to assignments by or to
such Lender pursuant to Section 9.04.
"Post-Merger Revolving Credit Exposure" shall mean, with respect to any
Lender at any time, the aggregate principal amount at such time of all
outstanding Post-Merger Revolving Loans of such Lender, plus the aggregate
amount at such time of such Lender's L/C Exposure.
"Post-Merger Revolving Facility" shall have the meaning assigned to such
term in the preamble.
"Post-Merger Revolving Facility Borrowing" shall mean a Borrowing comprised
of Post-Merger Revolving Loans.
"Post-Merger Revolving Loan" shall mean a Loan made pursuant to Section
2.01(d).
"Pre-Merger Facilities Maturity Date" shall mean the earlier of the Merger
Date and the date 270 days after the Tender Offer Date.
"Pre-Merger Revolving Credit Commitment" shall mean, with respect to any
Lender, the commitment of such Lender to make Pre-Merger Revolving Loans
hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance
pursuant to which such Lender assumed its Pre-Merger Revolving Credit
Commitment, as applicable, as the same may be (a) reduced from time to time
pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant
to assignments by or to such Lender pursuant to Section 9.04.
"Pre-Merger Revolving Facility" shall have the meaning assigned to such
term in the preamble.
"Pre-Merger Revolving Facility Borrowing" shall mean a Borrowing comprised
of Pre-Merger Revolving Loans.
"Pre-Merger Revolving Loan" shall mean a Loan made pursuant to Section
2.01(b).
"Prime Rate" shall mean the rate of interest per annum publicly announced
from time to time by the Administrative Agent as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective on the date such change is publicly announced as being effective.
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28
"Pro Rata Percentage" of any Revolving Credit Lender at any time shall mean
the percentage of the Total Revolving Credit Commitment at such time represented
by such Lender's Revolving Credit Commitment at such time. In the event the
Revolving Credit Commitments shall have expired or been terminated, the Pro Rata
Percentages shall be determined on the basis of the Revolving Credit Commitments
most recently in effect, but giving effect to any assignments pursuant to
Section 9.04.
"Properties" shall have the meaning assigned to such term in Section 3.17.
"Puerto Rico Subsidiary" shall mean Danbury Pharmacal Puerto Rico, Inc., a
Delaware corporation.
"Rate Protection Agreement" shall mean any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, currency exchange
agreement or similar agreement entered into by the Borrower or any Subsidiary to
provide protection against fluctuations in interest rates or currency exchange
rates.
"Register" shall have the meaning assigned to such term in Section 9.04.
"Regulation G" shall mean Regulation G of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the environment.
"Remedial Action" shall mean: (a) "remedial action" as such term is defined
in CERCLA, 42 U.S.C. Section 9601(24); and (b) any other action required by any
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29
Governmental Authority or voluntarily undertaken to (x) cleanup, remove, treat,
abate or in any other way address any Hazardous Material in the environment; (y)
prevent the Release or threat of Release, or minimize the further Release of any
Hazardous Material so it does not migrate or endanger or threaten to endanger
public health, welfare or the environment; or (z) perform studies and
investigations in connection with, or as a precondition to, clause (x) or (y)
above.
"Repayment Date" shall have the meaning assigned to such term in Section
2.11.
"Required Lenders" at any time shall mean Lenders having Loans, L/C
Exposures and unused Revolving Credit Commitments and Term Loan Commitments at
such time representing at least a majority of the sum of all Loans outstanding,
L/C Exposures and unused Revolving Credit Commitments and Term Loan Commitments
at such time; provided, however, if any Lender shall be a Defaulting Lender at
such time, there shall be excluded from the determination of Required Lenders at
such time (a) the aggregate principal amount of the Loans made by such Lender
and outstanding at such time and (b) the aggregate Commitments of such Lender at
such time.
"Responsible Officer" of any corporation shall mean any senior executive
officer or Financial Officer of such corporation and any other officer or
similar official thereof responsible for the administration of the obligations
of such corporation in respect of this Agreement.
"Revolving Credit Borrowing" shall mean a Borrowing comprised of Revolving
Loans.
"Revolving Credit Commitment" shall mean, with respect to any Lender, (a)
prior to the Merger Date, the Pre-Merger Revolving Credit Commitment of such
Lender and (b) on and after the Merger Date, the Post-Merger Revolving Credit
Commitment.
"Revolving Credit Exposure" shall mean, with respect to any Lender at any
time, the aggregate principal amount at such time of all outstanding Revolving
Loans of such Lender, plus the aggregate amount at such time of such Lender's
L/C Exposure.
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"Revolving Credit Lender" at any time shall mean a Lender with a Revolving
Credit Commitment at such time.
"Revolving Loans" shall mean the Pre-Merger Revolving Loans and Post-Merger
Revolving Loans. Each Revolving Loan shall be a Eurodollar Revolving Loan or an
ABR Revolving Loan.
"Sale and Lease-Back Transaction" shall mean any arrangement, directly or
indirectly, whereby the Borrower or any Subsidiary shall sell or transfer to any
person any property, real or personal, used or useful in its business, whether
now owned or hereafter acquired, and thereafter the Borrower or any Subsidiary
shall rent or lease (for a term in excess of one year) such property, or other
property that it intends to use for substantially the same purpose or purposes
as the property being sold or transferred, from such person or any of its
Affiliates.
"Secured Parties" shall mean each Lender, the Issuing Bank, the
Administrative Agent, the Collateral Agent, the beneficiary of each
indemnification obligation on the part of any Loan Party contained in any Loan
Document and the successors and assigns of the foregoing.
"Security Agreement" shall mean the Security Agreement, substantially in
the form of Exhibit H, between the Borrower, the Subsidiaries from time to time
party thereto and the Collateral Agent for the benefit of the Secured Parties.
"Security Documents" shall mean the Mortgages, the Security Agreement, the
Pledge Agreement, the Chattel Mortgages and each of the security agreements,
mortgages and other instruments and documents executed and delivered pursuant to
any of the foregoing or pursuant to Section 5.11.
"Senior Debt" shall mean (a) all Indebtedness of the Borrower and the
Guarantors, other than Subordinated Debt, and (b) all Indebtedness of the
Subsidiaries that are not Guarantors.
"Shares" shall have the meaning assigned to such term in the preamble.
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31
"Specified Debt Issuance" shall mean the issuance by the Borrower of any
Indebtedness permitted by Section 6.01(g).
"Specified Guarantor" shall mean any Guarantor that would be a "significant
subsidiary" of the Borrower, determined in accordance with Regulation 1.01 of
Regulation S-X of the Securities and Exchange Commission as if the references to
"10 percent" in the definition thereof were references to "5 percent".
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority, domestic or foreign,
to which the Administrative Agent or any Lender (including any branch,
Affiliate, or other fronting office making or holding a Loan) is subject (a)
with respect to the Base CD Rate, for new negotiable nonpersonal time deposits
in dollars of over $100,000 with maturities approximately equal to three months,
and (b) with respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities (as
defined in Regulation D of the Board). Such reserve percentages shall include
those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to
constitute Eurocurrency Liabilities and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
that may be available from time to time to any Lender under such Regulation D.
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage.
"Stockholder's Equity" as of any date shall mean, on a consolidated basis
for the Borrower and the Subsidiaries, (a) the sum of capital stock taken at par
value, capital surplus and retained earnings as of such date, minus (b) treasury
stock and any minority interest in Subsidiaries as of such date, all determined
in accordance with GAAP.
"Subordinated Debt" means unsecured Indebtedness of the Borrower that (a)
does not have any scheduled payments of principal prior to the 180th day
following the Post-Merger Facilities Maturity Date, (b) the principal of which
is subordinated to the prior payment in full in cash
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32
of all the Obligations in a manner reasonably satisfactory to the Administrative
Agent and (c) otherwise has terms and conditions reasonably satisfactory to the
Administrative Agent.
"subsidiary" shall mean, with respect to any person (herein referred to as
the "parent"), any corporation, partnership, limited liability company,
association or other business entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or more than 50% of the general partnership interests are,
at the time any determination is being made, owned, controlled or held by the
parent or one or more other subsidiaries of the parent, or (b) that is or would
otherwise be treated on a consolidated basis with the parent under, and in
accordance with, GAAP.
"Subsidiary" shall mean any subsidiary of the Borrower, including (on and
after the Tender Offer Date) the Company and its subsidiaries.
"Taxes" shall have the meaning assigned to such term in Section 2.20.
"Tender Facility" shall have the meaning assigned to such term in the
preamble.
"Tender Facility Borrowing" shall mean a Borrowing comprised of Tender
Facility Loans.
"Tender Facility Commitment" shall mean, with respect to any Lender, the
commitment of such Lender to make a Tender Facility Loan hereunder as set forth
on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such
Lender assumed its Tender Facility Commitment, as applicable, as the same may be
(a) reduced from time to time pursuant to Section 2.09 and (b) reduced or
increased from time to time pursuant to assignments by or to such Lender
pursuant to Section 9.04.
"Tender Facility Loan" shall mean a Loan made pursuant to Section
2.01(a).
"Tender Offer" shall have the meaning assigned to such term in the
preamble.
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33
"Tender Offer Date" shall mean the first date on which the Borrower or
Acquisition Co. accepts Shares for payment pursuant to the Tender Offer.
"Tender Offer Materials" shall mean the tender offer statement on Schedule
14D-1 filed by the Borrower with the Securities and Exchange Commission with
respect to the Tender Offer, and all amendments and supplements thereto that are
similarly filed.
"Term Borrowing" shall mean a Borrowing comprised of Tender Facility Loans
or Term Facility Loans.
"Term Facility" shall have the meaning assigned to such term in the
preamble.
"Term Facility Availability Period" shall mean the period from and
including the Merger Date to and including the date 120 days thereafter.
"Term Facility Borrowing" shall mean a Borrowing comprised of Term Facility
Loans.
"Term Facility Commitment" shall mean' with respect to any Lender, the
commitment of such Lender to make Term Facility Loans hereunder as set forth on
Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender
assumed its Term Facility Commitment, as applicable, as the same may be (a)
reduced from time to time pursuant to Section 2.09 and (b) reduced or increased
from time to time pursuant to assignments by or to such Lender pursuant to
Section 9.04.
"Term Facility Loan" shall mean a Loan made pursuant to Section 2.01(c).
"Term Loan Commitment" shall mean, with respect to any Lender, (a) prior to
the Merger Date, the Tender Facility Commitment of such Lender and (b) on and
after the Merger Date, the Term Facility Commitment of such Lender.
"Term Loans" shall mean the Tender Facility Loans and the Term Facility
Loans. Each Term Loan shall be a Eurodollar Term Loan or an ABR Term Loan.
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such
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34
day (or, if such day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Administrative Agent from three New York City negotiable
certificate of deposit dealers of recognized standing selected by it.
"Total Debt" as of any date shall mean the total Indebtedness of the
Borrower and the Subsidiaries as of such date determined on a consolidated basis
in accordance with GAP .
"Total Revolving Credit Commitment" at any time shall mean the aggregate
amount of the Revolving Credit Commitments, as in effect at such time.
"Transaction Party" shall mean the Borrower, the Company and each
subsidiary of the Borrower or the Company.
"Transactions" shall have the meaning assigned to such term in Section
3.02.
"Transferee" shall have the meaning assigned to such term in Section 2.20.
"Type", when used in respect of any Loan or Borrowing, shall refer to the
Rate by reference to which interest on such Loan or on the Loans comprising such
Borrowing is determined. For purposes hereof, the term "Rate" shall include the
Adjusted LIBO Rate and the Alternate Base Rate.
"wholly owned Subsidiary" shall mean a Subsidiary the securities (except
for directors' qualifying shares) or other ownership interests representing 100%
of the equity or 100% of the ordinary voting power or 100% of the general
partnership interests of which are, at the time any determination is being made,
owned by the Borrower or one of
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35
more wholly owned Subsidiaries or by the Borrower and one or more wholly owned
Subsidiaries.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
"Work" shall have the meaning assigned to such term in Section 9.16.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed references
to Articles and Sections of, and Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. Except as otherwise expressly
provided herein, (a) any reference in this Agreement to any Loan Document shall
mean such document as amended, restated, supplemented or otherwise modified from
time to time and (b) all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided,
however, that for purposes of determining compliance with the covenants
contained in Article VI and the definition of "Applicable Percentage", all
accounting terms herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with GAAP as in effect or the date of this
Agreement and applied on a basis consistent with the application used in the
financial statements referred to in Section 3.05(a).
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions and relying
upon the representations and warranties herein set forth, each Lender agrees,
severally and not jointly, (a) to make a term loan to the Borrower on the Tender
Offer Date in an aggregate principal amount not to exceed the Tender Facility
Commitment of such Lender, (b) to make revolving loans to the Borrower, at any
time and
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36
from time to time on or after the Tender Offer Date and until the earlier of the
Pre-Merger Facilities Maturity Date and the termination of the Pre-Merger
Revolving Credit Commitment of such Lender in accordance with the terms hereof,
in an aggregate principal amount at any time outstanding not to exceed the
Pre-Merger Revolving Credit Commitment of such Lender, (c) to make term loans to
the Borrower, at any time and from time to time during the Term Facility
Availability Period, in an aggregate principal amount not to exceed the Term
Facility Commitment of such Lender and (d) to make revolving loans to the
Borrower, at any time and from time to time on or after the Merger Date and
until the earlier of the Post-Merger Facilities Maturity Date and the
termination of the Post-Merger Revolving Credit Commitment of such Lender in
accordance with the terms hereof, in an aggregate principal amount at any time
outstanding that will not result in (i) the Post-Merger Revolving Credit
Exposure of such Lender exceeding (ii) the Post-Merger Revolving Credit
Commitment of such Lender. Within the limits set forth in clauses (b) and (d) of
the preceding sentence, the Borrower may borrow, pay or prepay and reborrow
Pre-Merger Revolving Loans and Post-Merger Revolving Loans subject to the terms,
conditions and limitations set forth herein. Amounts paid or prepaid in respect
of Tender Facility Loans and Term Facility Loans may not be reborrowed.
SECTION 2.02. Loans. (a) Each Loan shall be made as part of a Borrowing
consisting of Loans made by the Lenders ratably in accordance with their
applicable Tender Facility Commitments, Pre-Merger Revolving Credit Commitments,
Term Facility Commitments or Post-Merger Revolving Credit Commitments; provided,
however, that the failure of any Lender to make any Loan shall not in itself
relieve any other Lender of its obligation to lend hereunder (it being
understood, however, that no Lender shall be responsible for the failure of any
other Lender to make any Loan required to be made by such other Lender). Except
for Loans deemed made pursuant to Section 2.02(f) or 2.02(g), the Loans
comprising any Borrowing shall be in an aggregate principal amount that is (i)
an integral multiple of $1,000,000 and, in the case of a Eurodollar Borrowing,
not less than $5,000,000 or (ii) equal to the remaining available balance of the
applicable Commitments.
(b) Subject to Sections 2.08 and 2.15, each Borrowing shall be comprised
entirely of AIR Loans or Eurodollar Loans, as the Borrower may request pursuant
to
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37
Section 2.03. Each Lender may at its option make any Eurodollar Loan by causing
any domestic or foreign branch or Affiliate of such Lender to make such Loan;
provided, however, that (i) any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
this Agreement and (ii) the exercise of such option shall not result in an
increase in Statutory Reserves above those applicable to members of the Federal
Reserve System. Borrowings of more than one Type may be outstanding at the same
time; Provided, however, that the Borrower shall not be entitled to request any
Borrowing that, if made, would result in more than 15 Eurodollar Borrowings
outstanding hereunder at any time. For purposes of the foregoing, Borrowings
having different Interest Periods, regardless of whether they commence on the
same date, shall be considered separate Borrowings.
(c) Each Lender shall make each Loan to be made by it hereunder on the
proposed date thereof by wire transfer of immediately available funds to such
account in New York City as the Administrative Agent may designate not later
than 1:00 p.m., New York City time, and the Administrative Agent shall by 2:00
p.m., New York City time, credit the amounts so received to an account with the
Administrative Agent designated by the Borrower in the applicable Borrowing
Request, which account must be in the name of the Borrower, or, if a Borrowing
shall not occur on such date because any condition precedent herein specified
shall not have been met, return the amounts so received to the respective
Lenders.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to 1:00 p.m. on the date of any Borrowing that such Lender shall
not make available to the Administrative Agent such Lender's portion of such
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such Borrowing in
accordance with paragraph (c) above and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If the Administrative Agent shall have so made funds
available then, to the extent that such Lender shall not have made such portion
available to the Administrative Agent, the Borrower and such Lender severally
agree to repay to the Administrative Agent, in the case of the Borrower, within
one Business Day of demand, and in the case of such Lender, forthwith on demand,
such corresponding amount together with
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38
interest thereon, for each day from and including the date such amount is made
available to the Borrower until the date such amount is repaid to the
Administrative Agent at (i) in the case of the Borrower, the interest rate
applicable at the time to the Loans comprising such Borrowing and (ii) in the
case of such Lender, a rate determined by the Administrative Agent to represent
its cost of overnight or short-term funds (which determination shall be
conclusive absent manifest error). If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this Agreement. The
Administrative Agent will promptly notify the Borrower of any Lender's failure
to make available such Lender's portion of any Borrowing if such failure
continues unremedied for one Business Day.
(e) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request any Eurodollar Borrowing if the Interest Period
requested with respect thereto would end after the Pre-Merger Facilities
Maturity Date or the Post-Merger Facilities Maturity Date, as applicable.
(f) If the Issuing Bank shall not have received from the Borrower the
payment required to be made by Section 2.22(e) within the time specified in such
Section, the Issuing Bank shall promptly notify the Administrative Agent of the
L/C Disbursement and the Administrative Agent shall promptly notify each
Revolving Credit Lender of such L/C Disbursement and its Pro Rata Percentage
thereof. Each Revolving Credit Lender shall pay by wire transfer of immediately
available funds to the Administrative Agent not later than 2:00 p.m., New York
City time, on such date (or, if such Revolving Credit Lender shall have received
such notice later than 12:00 noon, New York City time, on any day, not later
than 10:00 a.m., New York City time, on the immediately following Business Day),
an amount equal to such Lender's Pro Rata Percentage of such L/C Disbursement
(it being understood that such amount shall be deemed to constitute an ABR
Revolving Loan of such Lender and such payment shall be deemed to have reduced
the L/C Exposure), and the Administrative Agent shall promptly pay to the
Issuing Bank amounts so received by it from the Revolving Credit Lenders. The
Administrative Agent shall promptly pay to the Issuing Bank any amounts received
by it from the Borrower pursuant to Section 2.22(e) prior to the time that any
Revolving Credit Lender makes any payment pursuant to
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39
this paragraph (f); any such amounts received by the Administrative Agent
thereafter shall be promptly remitted by the Administrative Agent to the
Revolving Credit Lenders that shall have made such payments and to the Issuing
Bank, as their interests may appear. If any Revolving Credit Lenders shall not
have made its Pro Rata Percentage of such L/C Disbursement available to the
Administrative Agent as provided above, the Borrower and such Lender severally
to pay interest on such amount, for each day from and including the date such
amount is required to be paid in accordance with this paragraph (f) to but
excluding the date such amount is paid, to the Administrative Agent at (i) in
the case of the Borrower, a rate per annum equal to the interest rate applicable
to ABR Revolving Loans and (ii) in the case of such Lender, for the first such
day, the Federal Funds Effective Rate, and for each day thereafter, the
Alternate Base Rate. The Administrative Agent will promptly notify the Borrower
or any Lender's failure to make available such Lender's Pro Rata Percentage of
any L/C Disbursement if such failure continues unremedied for one Business Day.
(g) If the Borrower shall exercise its right of set-off pursuant to Section
9.06(b), the amount so set off shall be deemed to be a Eurodollar Revolving Loan
with an Interest Period of one month made by the applicable Defaulting Lender on
the date, and to the extent, of such set-off.
SECTION 2.03. Borrowing Procedure. In order to request a Borrowing (other
than a deemed Borrowing pursuant to Section 2.02(f) or 2.02(g), as to which this
Section 2.03 shall not apply), the Borrower shall telecopy (with receipt
confirmed telephonically) to the Administrative Agent a duly completed Borrowing
Request (a) in the case of a Eurodollar Borrowing, not later than 12:00 noon,
New York City time, three Business Days before a proposed Borrowing, and (b) in
the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on
the same Business Day as the proposed Borrowing is to be made. Each Borrowing
Request shall be irrevocable, shall be signed by or on behalf of the Borrower
and shall specify the following information: (i) whether being requested is to
be a Tender Facility Borrowing, a Term Facility Borrowing, a Pre-Merger
Revolving Facility Borrowing or a Post-Merger Revolving Facility Borrowing, and
whether such Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing; (ii)
the date of such Borrowing (which shall be a Business Day); (iii) the
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number and location of the account to which funds are to be disbursed (which
shall be an account that complies with the requirements of Section 2.02(c));
(iv) the amount of such Borrowing; and (v) if such Borrowing is to be a
Eurodollar Borrowing, the Interest Period with respect thereto; provided,
however, that, notwithstanding any contrary specification in any Borrowing
Request, each requested Borrowing shall comply with the requirements set forth
in Section 2.02. If no election as to the Type of Borrowing is specified in any
such notice, then the requested Borrowing shall be an ABR Borrowing. If no
Interest Period with respect to any Eurodollar Borrowing is specified in any
such notice, then the Borrower shall be deemed to have selected an Interest
Period of one month's duration. The Administrative Agent shall promptly (and in
any event on the same day that the Administrative Agent receives such notice, if
received by 1:00 p.m., New York City time, on such day) advise the applicable
Lenders of any notice given pursuant to this Section 2.03 (and the contents
thereof), and of each Lender's portion of the requested Borrowing.
SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) Subject to Section
9.06(b), the Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender (i) the principal amount of
each Tender Facility Loan of such Lender on the Pre-Merger Facilities Maturity
Date, (ii) the principal amount of each Term Facility Loan of such Lender as
provided in Section 2.11 and (iii) the then unpaid principal amount of each
Revolving Loin of such Lender on the applicable Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable from the Borrower to each Lender hereunder and (iii) the amount
of any sum received by the Administrative Agent hereunder from the Borrower and
each Lender's share thereof.
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41
(d) The entries made in the accounts maintained pursuant to paragraphs (b)
and (c) above shall be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein shall
not in any manner affect the obligations of the Borrower to repay the Loans in
accordance with their terms, except to the extent that the correction of such
error results in a reduction of the Borrower's obligations hereunder.
(e) Notwithstanding any other provision of this Agreement, in the event any
Lender shall request and receive a promissory note payable to such Lender and
its registered assigns to evidence the Loans made by it hereunder, the interests
represented by such note shall at all times (including after any assignment of
all or part of such interests pursuant to Section 9.04) be represented by one or
more promissory notes payable to the payee named therein or its registered
assigns.
SECTION 2.05. Fees. (a) The Borrower shall pay to each Lender, through the
Administrative Agent, on the date of this Agreement and on the last day of
March, June, September and December in each year and on each date on which the
Tender Facility Commitment or the Pre-Merger Revolving Credit Commitment of such
Lender shall expire or be terminated as provided herein, a commitment fee (a
"Commitment Fee") equal to 0.375% per annum on the average daily unused amount
of the Tender Facility Commitment and Pre-Merger Revolving Loan Commitment of
such Lender during the preceding quarter (or other period commencing with the
date, on or prior to the date of this Agreement, on which the Borrower shall
accept the Commitments of such Lender or ending with the Pre-Merger Facilities
Maturity Date or the date on which the Commitments of such Lender shall expire
or be terminated). In addition, the Borrower shall, after the Merger Date, pay
to each Lender, through the Administrative Agent, on the last day of March,
June, September and December in each year and on the date on which the Term
Facility Commitment and the Post-Merger Revolving Credit Commitment of such
Lender shall expire or be terminated as provided herein, a Commitment Fee equal
to the Applicable Percentage per annum in effect from time to time on the
average daily unused amount of the Term Facility Commitment and the Post-Merger
Revolving Credit Commitment (taking into account such Lender's L/C Exposure as a
used amount thereof) of such Lender during the preceding quarter (or other
period
<PAGE>
42
commencing with the Merger Date or ending with the Post-Merger Facilities
Maturity Date or the date on which the Term Facility Commitment and the
Post-Merger Revolving Credit Commitment of such Lender shall expire or be
terminated). All Commitment Fees shall be computed on the basis of the actual
number of days elapsed in a year of 360 days. The Commitment Fee due to each
Lender shall commence to accrue on the date of acceptance by the Borrower of the
Commitment of such Lender and shall cease to accrue on the date on which the
Commitment of such Lender shall be terminated as provided herein.
Notwithstanding this paragraph (a), no Commitment Fee shall be due or payable to
any Lender that is a Defaulting Lender on the due date for payment of such
Commitment Fee.
(b) The Borrower shall pay to the Administrative Agent, for its own
account, the administrative fees set forth in the Fee Letter at the times and in
the amounts specified therein (the "Administrative Agent Fees").
(c) The Borrower shall pay (i) to each Revolving Credit Lender with a
Post-Merger Revolving Credit Commitment, through the Administrative Agent, on
the last day of March, June, September and December of each year (commencing
with the first such day following the Merger Date) and on the date on which the
Post-Merger Revolving Credit Commitment of such Lender shall be terminated
pursuant to Section 2.09 and no Letter of Credit shall remain outstanding, a fee
(an "L/C Participation Fee") calculated on such Lender's Pro Rata Percentage of
the average daily aggregate L/C Exposure during the preceding quarter (or other
period commencing with the Merger Date or ending with the Post-Merger Revolving
Facilities Maturity Date or the date on which all Letters of Credit have been
canceled or have expired and the Post-Merger Revolving Credit Commitments of all
Lenders shall expire or be terminated pursuant to Section 2.09) at a rate equal
to the Applicable Percentage from time to time used pursuant to Section 2.06 to
determine the interest rate on Revolving Credit Borrowings comprised of
Eurodollar Loans, and (ii) to the Issuing Bank on the last day of March, June,
September and December of each year (commencing with the first such day
following the Merger Date), a fronting fee of 0.125% per annum on the average
daily aggregate L/C Exposure during the preceding quarter (or other period
commencing with the Merger Date or ending with the Post-Merger Facilities
Maturity Date or the date on which all Letters of Credit have been canceled or
have expired and the Post-Merger
<PAGE>
43
Revolving Credit Commitments of all Lenders shall expire or be terminated) and,
with respect to each Letter of Credit, any other fees agreed upon by the
Borrower and the Issuing Bank plus, in connection with the issuance, amendment
or transfer of any Letter of Credit or any L/C Disbursement, the Issuing Bank's
customary documentary and processing charges, as disclosed to the Borrower prior
to the issuance of such Letter of Credit (the "Issuing Bank Fees"). All L/C
Participation Fees and Issuing Bank Fees shall be computed on the basis of the
actual number of days elapsed in a year of 360 days. Notwithstanding this
paragraph (c), no L/C Participation Fee shall be due or payable to any Lender
that is a Defaulting Lender on the due date for payment of such L/C
Participation Fee.
(d) The payment of Fees shall be subject to Section 9.06(b). All Fees shall
be paid on the dates due, in immediately available funds, to the Administrative
Agent for distribution, if and as appropriate, among the Lenders, except that
the Issuing Bank Fees shall be paid directly to the Issuing Bank. Once paid,
none of the Fees shall be refundable under any circumstances, except to the
extent such payment shall have been made as a consequence of manifest error.
SECTION 2.06. Interest on Loans. (a) Subject to the provisions of Section
2.07, the Loans comprising each ABR Borrowing shall bear interest (computed on
the basis of the actual number of days elapsed over a year of 365 or 366 days,
as the case may be, when the Alternate Base Rate is determined by reference to
the Prime Rate and over a year of 360 days at all other times) at a rate per
annum equal to the Alternate Base Rate plus the Applicable Percentage in effect
from time to time.
(b) Subject to the provisions of Section 2.07, the Loans comprising each
Eurodollar Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to the
Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the
Applicable Percentage in effect from time to time.
(c) The payment of interest shall be subject to Section 9.06(b). Interest
shall accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period. Interest on each Loan shall
accrue daily for the account of the holder from time
<PAGE>
44
to time of such Loan and shall be payable on the Interest Payment Dates
applicable to such Loan except as otherwise provided in this Agreement. The
applicable Alternate Base Rate or Adjusted LIBO Rate for each Interest Period or
day within an Interest Period, as the case may be, shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error.
SECTION 2.07. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, by acceleration or otherwise, or under any other Loan Document,
the Borrower shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount to but excluding the date of actual
payment (after as well as before judgment) (a) in the case of overdue principal,
at the rate otherwise applicable to such Loan pursuant to Section 2.06 plus
2.00% per annum and (b) in all other cases, at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 365 or 366 days, as
the case may be, when determined by reference to the Prime Rate and over a year
of 360 days at all other times) equal to the sum of the Alternate Base Rate plus
2.00%.
SECTION 2.08. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined in good faith that dollar deposits in the principal amounts of the
Loans comprising such Borrowing are not generally available in the London
interbank market, or that the rates at which such dollar deposits are being
offered will not adequately and fairly reflect the cost any Lender of making or
maintaining its Eurodollar Loan during such Interest Period, or that reasonable
means do not exist for ascertaining the Adjusted LIBO Rate, the Administrative
Agent will, as soon as practicable thereafter, give written notice of such
determination to the Borrower and the Lenders. In the event of any such
determination, until the Administrative Agent shall have advised the Borrower
and the Lenders that the circumstances giving rise to such notice no longer
exist, any request by the Borrower for a Eurodollar Borrowing pursuant to
Section 2.03 or 2.10 shall be deemed to be a request for an ABR Borrowing. The
Administrative Agent will promptly advise the Borrower once the circumstances
giving rise to any such notice no longer exist. Each determination by the
<PAGE>
45
Administrative Agent hereunder shall be conclusive absent manifest error.
SECTION 2.09. Termination and Reduction of Commitments. (a) The Tender
Facility Commitments shall automatically terminate at 5:00 p.m., New York City
time, on the Tender Offer Date. The Term Facility Commitments shall
automatically terminate at 5:00 p.m., New York City time, on the last day of the
Term Facility Availability Period. The Pre-Merger Revolving Credit Commitments
shall automatically terminate at 5:00 p.m., New York City time, on the
Pre-Merger Facilities Maturity Date. The Post-Merger Revolving Credit
Commitments shall automatically terminate on the Post-Merger Facilities Maturity
Date. The L/C Commitment shall automatically terminate at the earlier-of (i)
5:00 p.m., New York City time, on the sixth Business Day prior to the
Post-Merger Facilities Maturity Date and (ii) the termination of the Post-Merger
Revolving Credit Commitments. Notwithstanding the foregoing, (i) all the
Commitments shall automatically terminate at 5:00 p.m., New York City time, on
December 1, 1995, if the initial Credit Event shall not have occurred by such
time and (ii) the Post-Merger Revolving Credit Commitments and the Term Facility
Commitments shall automatically terminate at 5:00, New York City time, on the
Pre-Merger Facilities Maturity Date unless the Merger shall previously have been
consummated.
(b) Upon at least three Business nays' prior irrevocable telephonic notice
to the Administrative Agent (confirmed in writing), the Borrower may at any time
in whole permanently terminate, or from time to time in part permanently reduce,
the Tender Facility Commitments, the Term Facility Commitments, the Pre-Merger
Revolving Loan Commitments or the Post-Merger Revolving Credit Commitments;
provided, however, that (i) each partial reduction of the Commitments with
respect to any Facility shall be in an integral multiple of $1,000,000 and in a
minimum amount of $5,000,000 and (ii) the Total Revolving Credit Commitment
shall not be reduced to an amount that is less than the Aggregate Revolving
Credit Exposure at the time. Any payment of Revolving Loans pursuant to Section
2.13(a) or 2.13(c) shall automatically reduce the applicable Revolving Credit
Commitments by the amount of such payment.
(c) Each reduction in the Tender Facility Loan Commitments, the Term
Facility Loan Commitments, the Pre-Merger Revolving Loan Commitments or the
Post-Merger
<PAGE>
46
Revolving Credit Commitments hereunder shall be made ratably among the Lenders
in accordance with their respective applicable Commitments. The Borrower shall
pay to the Administrative Agent for the account of the applicable Lenders, on
the date of each termination or reduction, the Commitment Fees on the amount of
the Commitments so terminated or reduced accrued to but excluding the date of
such termination or reduction.
SECTION 2.10. Conversion and Continuation of Borrowings. The Borrower shall
have the right at any time upon prior irrevocable telephonic notice to the
Administrative Agent (confirmed promptly in writing) (a) not later than 11:00
a.m., New York City time, on the Business Day of the proposed conversion, to
convert any Eurodollar Borrowing into an ABR Borrowing, (b) not later than 12:00
noon, New York City time, three Business Days prior to conversion or
continuation, to convert any ABR Borrowing, into a Eurodollar Borrowing or to
continue any Eurodollar Borrowing as a Eurodollar Borrowing for an additional
Interest Period, and (c) not later than 12:00 noon, New York City time, three
Business Days prior to conversion, to convert the Interest Period with respect
to any Eurodollar Borrowing to another permissible Interest Period, subject in
each case to the following:
(i) each conversion or continuation shall be made pro rata among the
Lenders in accordance with the respective principal amounts of the Loans
comprising the converted or continued Borrowing;
(ii) if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, then each resulting Borrowing
shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b)
regarding the principal amount and maximum number of Borrowings of the
relevant Type;
(iii) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the new
Loan of such Lender resulting from such conversion and reducing the Loan
(or portion thereof) of such Lender being converted by an equivalent
principal amount;
(iv) if any Eurodollar Borrowing is converted at a time other than the
end of the Interest Period applicable thereto, the Borrower shall pay, upon
<PAGE>
47
demand, any amounts due to the Lenders pursuant to Section 2.16;
(v) unless each Lender otherwise agrees, any portion of a Borrowing
maturing or required to be repaid in less than one month from the date of
any conversion or continuation may not be converted into or continued as a
Eurodollar Borrowing;
(vi) any portion of a Eurodollar Borrowing that cannot be converted
into or continued as a Eurodollar Borrowing by reason of the immediately
preceding clause shall be automatically converted at the end of the
Interest Period in effect for such Borrowing into an ABR Borrowing;
(vii) no Interest Period may be selected for any Eurodollar Term
Borrowing that would end later than a Repayment Date occurring on or after
the first day of such Interest Period if, after giving effect to such
selection, the aggregate outstanding amount of (A) the Eurodollar Term
Borrowings with Interest Periods ending on or prior to such Repayment Date
and (B) the ABR Term Borrowings would not be at least equal to the
principal amount of Term Borrowings to be paid on such Repayment Date;
(viii) no Borrowing may be converted into, or continued as, a
Eurodollar Borrowing when any Default has occurred and is continuing and
the Administrative Agent or the Required Lenders have determined that such
conversion or continuation is not appropriate (and, instead, any such
Borrowing will be converted into or remain as an ABR Borrowing on the last
day of the Interest Period applicable thereto); and
(ix) no Borrowing may be converted into, or continued as, a Eurodollar
Borrowing when any Event of Default has occurred and is continuing, unless
the Required Lenders have determined that such conversion or continuation
is appropriate (and, instead, any such Borrowing will be converted into or
remain as an ABR Borrowing on the last day of the Interest Period
applicable thereto).
Each notice pursuant to this Section 2.10 shall refer to this Agreement and
specify (i) the identity and amount of the Borrowing that the Borrower requests
be
<PAGE>
48
converted or continued, (ii) whether such Borrowing is to be converted to or
continued as a Eurodollar Borrowing or an ABR Borrowing, (iii) if such notice
requests a conversion, the date of such conversion (which shall be a Business
Day) and (iv) if such Borrowing is to be converted to or continued as a
Eurodollar Borrowing, the Interest Period with respect thereto. If no Interest
Period is specified in any such notice with respect to any conversion to or
continuation as a Eurodollar Borrowing, the Borrower shall be deemed to have
selected an Interest Period of one months duration. The Administrative Agent
shall advise the Lenders of any notice given pursuant to this Section 2.10 and
of each Lender's portion of any converted or continued Borrowing. If the
Borrower shall not have given notice in accordance with this Section 2.10 to
continue any Borrowing into a subsequent Interest Period (and shall not
otherwise have given notice in accordance with this Section 2.10 to convert such
Borrowing), such Borrowing shall, at the end of the Interest Period applicable
thereto (unless repaid pursuant to the terms hereof), automatically be continued
into a new Interest Period as an ABR Borrowing, unless such Borrowing is
comprised of Loans deemed made pursuant to Section 2.02(g), in which case such
Borrowing shall be continued as a Eurodollar Borrowing with an Interest Period
of one month.
SECTION 2.11. Repayment of Term Facility Borrowings. (a) The Term Facility
Borrowings shall be
<PAGE>
================================================================================
<TABLE>
<CAPTION>
SCHEIN DEBT REPAYMENT SCHEDULE CHANGE
Balance After
Original Date Original Amount $100 MM Applied
- --------------------------------------------------------------------------------
<S> <C> <C>
Sep-96 $5,000,000 $0(1)
Dec-96 $5,000,000 $0
Mar-96 $7,500,000 $0
Jun-97 $7,500,000 $0
Sep-97 $7,500,000 $0
Dec-97 $7,500,000 $0
Mar-98 $10,000,000 $0
Jun-98 $10,000,000 $0
Sep-98 $10,000,000 $7,631,579
Dec-98 $10,000,000 $7,631,579
Mar-99 $12,500,000 $9,539,474
Jun-99 $12,500,000 $9,539,474
Sep-99 $12,500,000 $9,539,474
Dec-99 $12,500,000 $9,539,474
Mar-00 $15,000,000 $11,447,368
Jun-00 $15,000,000 $11,447,368
Sep-00 $15,000,000 $11,447,368
Dec-00 $15,000,000 $11,447,368
Mar-01 $15,000,000 $11,447,368
Jun-01 $15,000,000 $11,447,368
Sep-01 $15,000,000 $11,447,368
Dec-01 $15,000,000 $11,447,370
</TABLE>
(1) regular payment made prior to $100 MM subordinated debt prepayment
<PAGE>
49
repaid in 22 consecutive installments payable on the dates (each a "Repayment
Date") and in the amounts set forth below:
<TABLE>
<CAPTION>
Repayment Date Amount
-------------- ------------
<S> <C>
9/30/96 $5,000,000
12/31/96 $5,000,000
3/31/97 $7,500,000
6/30/97 $7,500,000
9/30/97 $7,500,000
12/31/97 $7,500,000
3/31/98 $10,000,000
6/30/98 $10,000,000
9/30/98 $10,000,000
12/31/98 $10,000,000
3/31/99 $12,500,000
6/30/99 $12,500,000
9/30/99 $12,500,000
12/31/99 $12,500,000
3/31/00 $15,000,000
6/30/00 $15,000,000
9/30/00 $15,000,000
12/31/00 $15,000,000
3/31/01 $15,000,000
6/30/01 $15,000,000
9/30/01 $15,000,000
12/31/01 $15,000,000
</TABLE>
(b) Each prepayment of Term Loans pursuant to this Section 2.11 shall be
subject to Section 9.06(b). Each prepayment of principal of Term Facility
Borrowings pursuant to Section 2.12 or 2.13 shall be applied to reduce pro rata
the scheduled payments of principal due under this Section 2.11 after the date
of such prepayment. To the extent not previously paid, all Term Facility
Borrowings shall be due and payable on the Post-Merger Facilities Maturity Date.
Each payment of Term Facility Borrowings pursuant to this Section 2.11 shall be
accompanied by accrued interest on the principal amount paid to but excluding
the date of payment.
SECTION 2.12. Optional Prepayment. (a) The Borrower shall have the right at
any time and from time to time to prepay any Borrowing, in whole or in part,
upon at least three Business Days' prior irrevocable telephonic notice (promptly
confirmed in writing) to the Administrative Agent before 11:00 a.m., New York
City time; provided,
<PAGE>
50
however, that each partial prepayment of Borrowings under any Facility shall be
in an amount that is an integral multiple of $1,000,000.
(b) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid and shall
commit the Borrower to prepay such Borrowing by the amount stated therein on the
date stated therein. All prepayments under this Section 2.12 shall be subject to
Section 2.16 but otherwise without premium or penalty and shall be subject to
Section 9.06(b). All prepayments under this Section 2.12 (other than prepayments
of ABR Revolving Loans) shall be accompanied by accrued interest on the
principal amount being prepaid to but excluding the date of payment.
SECTION 2.13. Mandatory Prepayments. (a) Not later than 100 days after the
end of each fiscal year of Borrower, commencing with the fiscal year ending
December 28, 1996, the Borrower shall (i) calculate Excess Cash Flow for such
fiscal year and apply 75% of such Excess Cash Flow to prepay Borrowings in
accordance with paragraph (d) below and (ii) deliver to the Administrative Agent
a certificate signed by any Financial Officer of the Borrower setting forth the
amount, if any, of Excess Cash Flow for such period and the calculation thereof,
in reasonable detail.
(b) In the event of any termination of all the Pre-Merger Revolving Credit
Commitments or Post-Merger Revolving Credit Commitments, the Borrower shall
repay or prepay all the outstanding Pre-Merger Revolving Facility Borrowings or
Post-Merger Revolving Facility Borrowings, respectively, on the date of such
termination. In the event of any partial reduction of the Revolving Credit
Commitments, then (i) at or prior to the effective date of such reduction, the
Administrative Agent shall notify the Borrower and the Revolving Credit Lenders
of the Aggregate Revolving Credit Exposure after giving effect thereto and (ii)
if the Aggregate Revolving Credit Exposure would exceed the Total Revolving
Credit Commitment after giving effect to such reduction or termination, then the
Borrower shall, on the date of such reduction or termination, repay or prepay
Revolving Credit Borrowings or cash-collateralize outstanding Letters of Credit
in an amount sufficient to eliminate such excess.
<PAGE>
51
(c) The Borrower shall apply 100% of Net Proceeds promptly upon its receipt
thereof (or, if applicable, promptly upon any amounts being deemed to constitute
Net Proceeds as provided in the definition of such term) to prepay Borrowings in
accordance with paragraph (d) below; provided, however, that, in the case of Net
Proceeds from an Equity Issuance, (x) the Borrower shall only be required to
apply 50% of such Net Proceeds to the prepayment of Loans if immediately prior
to receipt thereof the Leverage Ratio is greater than 3.00 to 1.00 but not
greater than 4.00 to 1.00 and 25% of such Net Proceeds to the prepayment of
Loans if at the time of receipt thereof the Leverage Ratio is greater than 2.50
to 1.00 but not greater than 3.00 to 1.00 and (y) the Borrower shall not be
required to apply any of such Net Proceeds to the prepayment of Loans if at the
time of receipt thereof the Leverage Ratio is not greater than 2.50 to 1.00. The
Borrower shall deliver to the Administrative Agent (i) at the time of each
prepayment required under this paragraph (c), a certificate signed by a
Financial Officer of the Borrower setting forth in reasonable detail the
calculation of the amount of such prepayment and (ii) not later than the later
of (A) the date on which a Responsible Officer of the Borrower becomes aware
that such prepayment will be made and (B) the date that is three Business Days
prior to the date of such prepayment, a notice of such prepayment. Such
certificate shall also describe in reasonable detail the facts and circumstances
giving rise to the applicable prepayment event and a reasonably detailed
calculation of the Net Proceeds therefrom.
(d) Prepayments under paragraphs (a) and (c) above shall be applied first
against outstanding Term Loans and second against outstanding Revolving Loans.
Prepayments required under this Section 2.13 in respect of any Facility shall be
applied first against ABR Loans outstanding under such Facility and then against
Eurodollar Loans outstanding under such Facility.
(e) All prepayments under this Section 2.13 shall be subject to Section
2.16 but otherwise without premium or penalty and shall be subject to Section
9.06(b). All prepayments under this Section 2.13 shall be accompanied by accrued
interest on the principal amount being prepaid to but excluding the date of
payment.
SECTION 2.14. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision of this Agreement, if after the date of this
Agreement any
<PAGE>
52
change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender or the Issuing
Bank of the principal of or interest on any Eurodollar Loan made by such Lender
or any Fees or other amounts payable hereunder (other than changes in respect of
taxes imposed on the overall net income of such Lender or the Issuing Bank by
the jurisdiction in which such Lender or the Issuing Bank has its principal
office or by any political subdivision or taxing authority therein), or shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of or credit
extended by any Lender or the Issuing Bank (except any such reserve requirement
that is fully reflected in the Adjusted LIBO Rate) or shall impose on such
Lender or the Issuing Bank or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender or any Letter
of Credit or participation therein, and the result of any of the foregoing shall
be to increase the cost to such Lender or the Issuing Bank of making or
maintaining any Eurodollar Loan or increase the cost to any Lender of issuing or
maintaining any Letter of Credit or purchasing or maintaining a participation
therein or to reduce the amount of any sum received or receivable by such Lender
or the Issuing Bank hereunder (whether of principal, interest or otherwise) by
an amount deemed by such Lender or the Issuing Bank to be material, then the
Borrower shall pay to such Lender or the Issuing Bank, as the case may be, upon
demand such additional amount or amounts as shall compensate such Lender or the
Issuing Bank, as the case may be, for such additional costs incurred or
reduction suffered.
(b) If any Lender or the Issuing Bank shall determine that the adoption
after the date of this Agreement of any law, rule, regulation, agreement or
guideline regarding capital adequacy, or any change after the date hereof in any
such law, rule, regulation, agreement or guideline (whether such law, rule,
regulation, agreement or guideline has been adopted) or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or the Issuing Bank or any Lender's or the
Issuing Bank's holding company with any request or directive regarding capital
adequacy (whether or not having the force
<PAGE>
53
of law) of any Governmental Authority has or would have the effect of reducing
the rate of return on such Lender's or the Issuing Bank's capital or on the
capital of such Lender's or the Issuing Bank's holding company, if any, as a
consequence of this Agreement or the Loans made or participation's in Letters of
Credit purchased by such Lender pursuant hereto or the Letters of Credit issued
by the Issuing Bank pursuant hereto to a level below that which such Lender or
the Issuing Bank or such Lender's or the Issuing Bank's holding company could
have achieved but for such applicability, adoption, change or compliance (taking
into consideration such Lenders or the Issuing Bank's policies and the policies
of such Lender's or the Issuing Bank's holding company with respect to capital
adequacy) by an amount deemed by such Lender or the Issuing Bank to be material,
then from time to time the Borrower shall pay to such Lender or the Issuing
Bank, as the case may be, such additional amount or amounts as shall compensate
such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding
company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth in
reasonable detail (i) the calculation of amount or amounts necessary to
compensate such Lender or the Issuing Bank or its holding company, as
applicable, as specified in paragraph (a) or (b) above and (ii) the facts and
circumstances giving rise to such compensation, shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender or the Issuing Bank the amount shown as due on any such certificate
delivered by it within 10 Business Days after its receipt of the same.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation; provided,
however, that neither any Lender nor the Issuing Bank may demand compensation
under this Section 2.14 for any period commencing earlier than 60 days prior to
such demand. The protection of this Section 2.14 shall be available to each
Lender and the Issuing Bank regardless of any possible contention of the
invalidity or inapplicability of the law, rule, regulation, agreement, guideline
or other change or condition that shall have occurred or been imposed; provided,
however, that each Lender and the Issuing Bank shall take reasonable actions
<PAGE>
54
(which shall not require such Lender or the Issuing Bank to incur an
unreimbursed loss or unreimbursed cost or expense or otherwise take any action
precluded by legal or regulatory restrictions or suffer any disadvantage or
burden deemed by it to be significant) to avoid any need to claim compensation
under this Section 2.14 arising out of any reasonably foreseeable change in
circumstances.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.14 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder, the expiration or cancellation of all Letters of Credit and the
reimbursement of all draws thereunder.
SECTION 2.15. Change in Legality. (a) Notwithstanding any other provision
of this Agreement, if after the date of this Agreement, any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrower and to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans shall not thereafter
(for the duration of such unlawfulness) be made by such Lender hereunder
(or be continued for additional Interest Periods and ABR Loans will not
thereafter (for such duration) be converted into Eurodollar Loans),
whereupon any request for a Eurodollar Borrowing (or to convert an ABR
Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing,
for an additional Interest Period) shall, as to such Lender only, be deemed
a request for an ABR Loan (or a request to continue an ABR Loan as such for
an additional Interest Period or to convert a Eurodollar Loan into an ABR
Loan, as the case may be), unless such declaration shall be subsequently
withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar Loans
made by it be converted to ABR Loans, in which event all such Eurodollar
Loans shall be automatically converted to ABR Loans as of the
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55
effective date of such notice as provided in paragraph (b) below (and
Section 2.16 shall not apply to any such automatic conversion).
In the event any Lender shall exercise its rights under clause (i) or (ii)
above, all payments and prepayments of principal that would otherwise have been
applied to repay the Eurodollar Loans that would have been made by such Lender
or the converted Eurodollar Loans of such Lender shall instead be applied to
repay the ABR Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.15, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Loan made by such Lender, if
lawful, on the last day of the Interest Period currently applicable to such
Eurodollar Loan; in all other cases such notice shall be effective on the date
of receipt by the Borrower.
SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender against
any loss or expense that such Lender may sustain or incur as a direct
consequence of (a) any event, other than a default by such Lender in the
performance of its obligations hereunder, which results in (i) such Lender
receiving or being deemed to receive any amount on account of the principal of
any Eurodollar Loan prior to the end of the Interest Period in effect therefor,
(ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of
the Interest Period with respect to any Eurodollar Loan, in each case other than
on the last day of the Interest Period in effect therefor, or (iii) any
Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be
made pursuant to a conversion or continuation under Section 2.10) not being made
after notice of such Loan shall have been given by the Borrower hereunder (any
of the events referred to in this clause (a) being called a "Breakage Event") or
(b) any default in the making of any payment or prepayment required to be made
hereunder. In the case of any Breakage Event, such loss shall include an amount
equal to the excess, as reasonably determined by such Lender, of (i) its cost of
obtaining funds for the Eurodollar Loan that is the subject of such Breakage
Event for the period from the date of such Breakage Event to the last day of the
Interest Period in effect (or that would have been in effect) for such Loan over
(ii) the amount of interest likely to be realized by such Lender in redeploying
the funds released or not utilized by reason of such
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56
Breakage Event for such period. A certificate of any Lender setting forth in
reasonable detail (i) the calculation of any amount or amounts which such Lender
is entitled to receive pursuant to this Section 2.16 and (ii) the facts and
circumstances giving rise to such entitlement, shall be delivered to the
Borrower (in the case of a claim under clause (a) above, within 60 days of the
applicable Breakage Event) and shall be conclusive absent manifest error.
Without prejudice to the survival of any other agreement contained herein, the
agreements and obligations contained in this Section 2.16 shall survive the
payment in full of the principal of and interest on all Loans made hereunder,
the expiration or cancellation of all Letters of Credit and the reimbursement of
all draws thereunder.
SECTION 2.17. Pro Rata Treatment. Except as required under Section 2.15 and
subject to Section 9.06(b), each Borrowing, each payment or prepayment of
principal of any Borrowing, each payment of interest on the Loans, each payment
of the Commitment Fees, each reduction of Commitments and each refinancing of
any Borrowing with, conversion of any Borrowing to or continuation of any
Borrowing as a Borrowing of any Type shall be allocated pro rata among the
Lenders in accordance with their respective applicable Commitments (or, if such
Commitments shall have expired or been terminated, in accordance with the
respective principal amounts of their outstanding Loans). In computing any
Lender's portion of any Borrowing to be made hereunder, the Administrative Agent
may, in its discretion, round each Lender's percentage of such Borrowing to the
next higher or lower whole dollar amount.
SECTION 2.18. Sharing of Setoffs. If any Lender shall, through the exercise
of a right of banker's lien, setoff or counterclaim against the Borrower, or
pursuant to a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, obtain pavement
(voluntary or involuntary) in respect of any Loan or Loans or L/C Disbursement
as a result of which the unpaid principal portion of its Term Loans and
Revolving Loans and participations in L/C Disbursements shall be proportionately
less than the unpaid principal portion of the Term Loans and Revolving Loans and
participations in L/C Disbursements of any other Lender, it shall be deemed
simultaneously to have purchased from such other Lender at face value, and shall
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57
promptly pay to such other Lender the purchase price for, a participation in the
Term Loans and Revolving Loans and L/C Exposure, as the case may be of such
other Lender, so that the aggregate unpaid principal amount of the Term Loans
and Revolving Loans and L/C Exposure and participations in Term Loans and
Revolving Loans and L/C Exposure held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Term Loans and
Revolving Loans and L/C Exposure then outstanding as the principal amount of its
Term Loans and Revolving Loans and L/C Exposure prior to such exercise of
banker's lien, setoff or counterclaim or other event was to the principal amount
of all Term Loans and Revolving Loans and L/C Exposure outstanding prior to such
exercise of banker's lien, setoff or counterclaim or other event; provided,
however, that if any such purchase or purchases or adjustments shall be made
pursuant to this Section 2.18 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that any Lender holding a participation in a
Term Loan or Revolving Loan or L/C Disbursement deemed to have been so purchased
may exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrower to such Lender by reason
thereof as fully as if such Lender had made a Loan directly to the Borrower in
the amount of such participation.
SECTION 2.19. Payments (a) Subject to Section 9.06(b), the Borrower shall
make each payment (including principal of or interest on any Borrowing or any
L/C Disbursement or any Fees or other amounts) hereunder and under any other
Loan Document not later than 1:00 p.m., New York City time, on the date when due
in immediately available dollars, without setoff, defense or counterclaim (but
without prejudice, waiver or effect of estoppel with respect to any defense or
counterclaim). Each such payment (other than Issuing Bank Fees, which shall be
paid directly to the Issuing Bank) shall be made to the Administrative Agent at
its offices at 270 Park Avenue, New York, New York.
(b) Whenever any payment (including principal of or interest on any
Borrowing, any Fees or any other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Busi-
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ness Day, and such extension of time shall in such case be included in the
computation of interest or Fees, if applicable.
SECTION 2.20. Taxes. (a) Any and all payments by the Borrower hereunder and
under any other Loan Document shall be made, in accordance with Section 2.19,
free and clear of and without deduction for any and all current or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding (i) income taxes imposed on the net income of the
Administrative Agent, any Lender or the Issuing Bank (or any transferee or
assignee thereof, including a participation holder (any such entity a
"Transferee")) and (ii) franchise taxes imposed on the net income of the
Administrative Agent, any Lender or the Issuing Bank (or Transferee), in each
case by the jurisdiction (A) under the laws of which the Administrative Agent,
such Lender or the Issuing Bank (or Transferee) is organized or any political
subdivision thereof or (B) in which the applicable lending office of the
Administrative Agent, such Lender or the Issuing Bank (or any Transferee) is
located or any political subdivision thereof (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities, collectively
or individually, being called "Taxes"). If the Borrower shall be required to
deduct any Taxes from or in respect of any sum payable hereunder or under any
other Loan Document to the Administrative Agent, any Lender or the Issuing Bank
(or any Transferee), (i) the sum payable shall be increased by the amount (an
"additional amount") necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.20) the Administrative Agent, such Lender or the Issuing Bank (or Transferee),
as the case may be, shall receive an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower agrees to bear and shall pay to the relevant
Governmental Authority in accordance with applicable law any current or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies (including mortgage recording taxes and similar fees) that arise
from any payment made hereunder or under any other Loan Document or from the
execution, delivery or registration of, or otherwise with
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59
respect to, this Agreement or any other Loan Document ("Other Taxes').
(c) The Borrower shall indemnify the Administrative Agent, each Lender and
the Issuing Bank (or Transferee) for the full amount of Taxes and Other Taxes
paid by the Administrative Agent, such Lender or the Issuing Bank (or
Transferee), as the case may be, and any liability (including penalties,
interest and expenses (including reasonable attorney's fees and expenses))
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted by the relevant Governmental Authority.
A certificate as to the amount of such payment or liability prepared by the
Administrative Agent, a Lender or the Issuing Bank (or Transferee), or the
Administrative Agent on its behalf, and setting forth in reasonable detail (i)
the calculation of and (ii) the facts and circumstances giving rise to such
payment or liability, absent manifest error, shall be final, conclusive and
binding for all purposes. Such indemnification shall be made within 30 days
after the date the Administrative Agent, any Lender or the Issuing Bank (or
Transferee), as the case may be, makes written demand therefor. Neither any
Lender nor the Issuing Bank (or Transferee) may make any claim for
indemnification more than 180 days after such Lender or the Issuing Bank (or
Transferee), as applicable, knows of the payment or liability with respect to
which such indemnification is to be sought (such 180 days to be reduced to 60
days if at the time of such claim for indemnification such Lender (or
Transferee) holds Loans or participations therein or the Issuing Bank has
outstanding Letters of Credit, as applicable).
(d) If the Administrative Agent, a Lender or the Issuing Bank (or
Transferee) receives a refund in respect of any Taxes or Other Taxes as to which
it has been indemnified by the Borrower or with respect to which the Borrower
has paid additional amounts pursuant to this Section 2.20, it shall within 30
days from the date of such receipt pay over such refund to the Borrower (but
only to the extent of indemnity payments made, or additional amounts paid, by
the Borrower under this Section 2.20 with respect to the Taxes or Other Taxes
giving rise to such refund), net of all out-of-pocket expenses of the
Administrative Agent, such Lender or the Issuing Bank (or Transferee) and
without interest (other than interest paid by the relevant Governmental
Authority with respect to such refund); provided, however, that the Borrower,
upon the request of the Administrative
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60
Agent, such Lender or the Issuing Bank (or Transferee), shall repay the amount
paid over to the Borrower (plus penalties, interest or other charges) to the
Administrative Agent, such Lender or the Issuing Bank (or Transferee) in the
event the Administrative Agent, such Lender or the Issuing Bank (or Transferee)
is required to repay such refund to such Governmental Authority.
(e) As soon as practicable after the date of any payment of Taxes or Other
Taxes by the Borrower to the relevant Governmental Authority, the Borrower shall
deliver to the Administrative Agent, at its address referred to in Section 9.01,
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.20 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder, the expiration or cancellation of all Letters of Credit and the
reimbursement of all draws thereunder.
(g) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption
from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a
Form W-8, certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S.
Federal withholding tax on payments by the Borrower under this Agreement and the
other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on
or before the date it becomes a party to this Agreement (or, in the case of a
Transferee that is a participation holder, on or before
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the date such participation holder becomes a Transferee hereunder) and on or
before the date, if any, such Non-U.S. Lender changes its applicable lending
office by designating a different lending office (a "New Lending Office"). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Notwithstanding any other provision of this paragraph (g), a Non-U.S.
Lender shall not be required to deliver any form pursuant to this paragraph (g)
that such Non-U.S. Lender is not legally able to deliver.
(h) The Borrower shall not be required to indemnify any Non-U.S. Lender or
to pay any additional amounts to any Non-U.S. Lender, in respect of United
States Federal withholding tax pursuant to paragraph (a) or (c) above to the
extent that (i) the obligation to withhold amounts with respect to United States
Federal withholding tax existed on the date such Non-U.S. Lender became a party
to this Agreement (or, in the case of a Transferee that is a participation
holder, on the date such participation holder became a Transferee hereunder) or,
with respect to payments to a New Lending Office, the date such Non-U.S. Lender
designated such New Lending Office with respect to a Loan; provided, however,
that this paragraph (h) shall not apply (x) to any Transferee or New Lending
Office that becomes a Transferee or New Lending Office as a result of an
assignment, participation, transfer or designation made at the request of the
Borrower and (y) to the extent the indemnity payment or additional amounts any
Transferee, or any Lender (or Transferee), acting through a New Lending Office,
would be entitled to receive (without regard to this paragraph (h)) do not
exceed the indemnity payment or additional amounts that the person making the
assignment, participation or transfer to such Transferee, or Lender (or
Transferee) making the designation of such New Lending Office, would have been
entitled to receive in the absence of such assignment, participation, transfer
or designation or (ii) the obligation to pay such additional amounts would not
have arisen but for a failure by such Non-U.S. Lender to comply with the
provisions of paragraph (g) above.
(i) Nothing contained in this Section 2.20 shall require any Lender or the
Issuing Bank (or any Transferee) or the Administrative Agent to make available
any of its tax returns (or any other information that it deems to be
confidential or proprietary).
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SECTION 2.21. Assignment of Commitments under Certain Circumstances; Duty
To Mitigate. (a) In the event (i) any Lender or the Issuing Bank delivers a
certificate requesting compensation pursuant to Section 2.14, (ii) any Lender or
the Issuing Bank delivers a notice described in Section 2.15, (iii) the Borrower
is required to pay any additional amount to any Lender or the Issuing Bank or
any Governmental Authority on account of any Lender or the Issuing Bank pursuant
to Section 2.20 or (iv) the Administrative Agent notifies the Borrower of any
Lender's failure to fund as provided in Section 2.02(d) or 2.02(f), the Borrower
may, at its sole expense and effort, upon notice to such Lender or the Issuing
Bank and the Administrative Agent, require such Lender or the Issuing Bank to
transfer and assign, without recourse (in accordance with and subject to the
restrictions contained in Section 9.04), all its interests, rights and
obligations under this Agreement to an assignee that shall assume such assigned
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided, however, that (x) such assignment shall not conflict with
any law, rule or regulation or order of any court or other Governmental
Authority having jurisdiction, (y) the Borrower or such assignee shall have paid
to the affected Lender or the Issuing Bank in immediately available funds an
amount equal to the sum of the principal of the outstanding Loans and
participations in L/C Disbursements of such Lender or the Issuing Bank plus all
other amounts (excluding interest and Fees, which shall be paid when due to the
assigning Lender or the Issuing Bank under Sections 2.06 and 2.05, respectively)
accrued for the account of such Lender or the Issuing Bank hereunder (including
any amounts under Sections 2.14, 2.16 and 2.20) and (z) if prior to any such
transfer and assignment the circumstances or event that resulted in such
Lender's or the Issuing Bank's claim for compensation under Section 2.14 or
notice under Section 2.1 or the amounts paid pursuant to Section 2.20, as the
case may be, cease to cause such Lender or the Issuing Bank to suffer increased
costs or reductions in amounts received or receivable or reduction in return on
capital, or cease to have the consequences specified in Section 2.15, or cease
to result in amounts being payable under Section 2.20, as the case may be
(including as a result of any action taken by such Lender or the Issuing Bank
pursuant to paragraph (b) below), or if such Lender or the Issuing Bank shall
waive its right to claim further compensation under Section 2.14 in respect of
such circumstances or event or shall withdraw its notice under Section 2.15 or
shall waive its right to
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further payments under Section 2.20 in respect of such circumstances or event or
shall fund as provided in Section 2.02(d) or 2.02(f), as the case may be, then
such Lender or the Issuing Bank shall not thereafter be required to make any
such transfer and assignment hereunder.
(b) If (i) any Lender or the Issuing Bank shall request compensation under
Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in
Section 2.15 or (iii) the Borrower is required to pay any additional amount to
any Lender or the Issuing Bank or any Governmental Authority on account of any
Lender or the Issuing Bank, pursuant to Section 2.20, then such Lender or the
Issuing Bank shall use reasonable efforts (which shall not require such Lender
or the Issuing Bank to incur an unreimbursable loss or unreimbursable cost or
expense or otherwise take any action inconsistent with its internal policies or
legal or regulatory restrictions or suffer any disadvantage or burden deemed by
it in good faith to be significant) (x) to file any certificate or document
reasonably requested in writing by the Borrower or (y) to assign its rights and
delegate and transfer its obligations hereunder to another of its offices,
branches or affiliates, if such filing or assignment would reduce its claims for
compensation under Section 2.14 or enable it to withdraw its notice pursuant to
Section 2.15 or would reduce amounts payable pursuant to Section 2.20, as the
case may be, in the future. The Borrower shall pay all reasonable costs and
expenses incurred by any Lender or the Issuing Bank in connection with any such
filing or assignment, delegation and transfer.
SECTION 2.22. Letters of Credit. (a) General. The Borrower may request the
issuance, after the Merger Date, of a Letter of Credit, in a form reasonably
acceptable to the Administrative Agent and the Issuing Bank, appropriately
completed, for the account of the Borrower, at any time and from time to time
while the L/C Commitment remains in effect. This Section 2.22 shall not be
construed to impose an obligation upon the Issuing Bank to issue any Letter of
Credit that is inconsistent with the terms and conditions of this Agreement.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.
In order to request the issuance of a Letter of Credit (or to amend, renew or
extend an existing Letter of Credit), the Borrower shall hand deliver or
telecopy to the Issuing Bank and the Administrative Agent (reasonably in advance
of the requested
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date of issuance, amendment, renewal or extension) a notice requesting the
issuance of a Letter of Credit, or identifying the Letter of Credit to be
amended, renewed or extended, the date of issuance, amendment, renewal or
extension, the date on which such Letter of Credit is to expire (which shall
comply with paragraph (c) below), the amount of such Letter of Credit, the name
and address of the beneficiary thereof and such other information as shall be
necessary to prepare such Letter of Credit. Following receipt of such notice and
prior to the issuance of the requested Letter of Credit or the applicable
amendment, renewal or extension, the Administrative Agent shall notify the
Borrower and the Issuing Bank of the amount of the Aggregate Revolving Credit
Exposure after giving effect to (i) the issuance, amendment, renewal or
extension of such Letter of Credit, (ii) the issuance or expiration of any other
Letter of Credit that is to be issued or shall expire prior to the requested
date of issuance of such Letter of Credit and (iii) the borrowing or repayment
of any Revolving Credit Loans that (based upon notices delivered to the
Administrative Agent by the Borrower) are to be borrowed or repaid prior to the
requested date of issuance of such Letter of Credit. A Letter of Credit shall be
issued, amended, renewed or extended only if, and upon issuance, amendment,
renewal or extension of each Letter of Credit the Borrower shall be deemed to
represent and warrant that, after giving effect to such issuance, amendment,
renewal or extension (A) the L/C Exposure shall not exceed $30,000,000, and (B)
the Aggregate Revolving Credit Exposure shall not exceed the Total Revolving
Credit Commitment.
(c) Expiration Date. Each Letter of Credit shall expire at the close of
business on the earlier of the date one year after the date of the issuance of
such Letter of Credit and the date that is five Business Days prior to the
Post-Merger Facilities Maturity Date, unless such Letter of Credit expires by
its terms on an earlier date.
(d) Participations. By the issuance of a Letter of Credit and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Lender, and each such Lender hereby acquires from the
applicable Issuing Bank, a participation in such Letter of Credit equal to such
Lender's Pro Rata Percentage of the aggregate amount available to be drawn under
such Letter of Credit, effective upon the issuance of such Letter of Credit. In
consideration and in furtherance of the foregoing, each Lender hereby absolutely
and unconditionally
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agrees to pay to the Administrative Agent, for the account of the Issuing Bank,
in accordance with Section 2.02(f), such Lender's Pro Rata Percentage of each
L/C Disbursement made by the Issuing Bank and not reimbursed by the Borrower
forthwith on the date due as provided in paragraph (e) below. Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this paragraph (d) in respect of Letters of Credit is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or an Event of Default,
and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any L/C Disbursement in
respect of a Letter of Credit, the Borrower shall pay the amount of such L/C
Disbursement to the Administrative Agent, for the account of the Issuing Bank,
not later than two hours after the Borrower shall have received notice from the
Issuing Bank that payment of such draft has been made, or, if the Borrower shall
have received such notice later than 10:00 a.m., New York City time, on any
Business Day, not later than 10:00 a.m., New York City time, on the immediately
following Business Day. The Borrower's obligations to reimburse L/C
Disbursements as provided in this paragraph (e) shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, under any and all circumstances whatsoever, and irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit or
any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure from all
or any of the provisions of any Letter of Credit or any Loan Document;
(iii) the existence of any claim, setoff, defense or other right that
the Borrower, any other party guaranteeing, or otherwise obligated with,
the Borrower, any Subsidiary or other Affiliate thereof or any other person
may at any time have against the beneficiary under any Letter of Credit,
the Issuing Bank, the Administrative Agent or any Lender or any other
person, whether in connection with this
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Agreement, any other Loan Document or any other related or unrelated
agreement or transaction;
(iv) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the
terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of the
Issuing Bank, the Lenders, the Administrative Agent or any other person or
any other event or circumstance whatsoever, whether or not similar to any
of the foregoing, that might, but for the provisions of this Section 2.22,
constitute a legal or equitable discharge of the Borrower's obligations
hereunder;
provided, however, that any payment by the Borrower under this paragraph (e)
shall be without prejudice to, and shall not have any effect of estoppel or
waiver with respect to, any claim of the Borrower against the Issuing Bank under
paragraph (f) below.
(f) Liability of Issuing Bank. Without limiting the generality of paragraph
(e) above, it is expressly understood and agreed that the absolute and
unconditional obligation of the Borrower hereunder to reimburse L/C
Disbursements shall not be excused by the gross negligence or wilful misconduct
of the Issuing Bank. However, the foregoing shall not be construed to excuse the
Issuing Bank from liability to the Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrower to the extent permitted by applicable law) suffered by
the Borrower that are caused by the Issuing Bank's gross negligence or wilful
misconduct in determining whether drafts and other documents presented under a
Letter of Credit comply with the terms thereof; it is understood that the
Issuing Bank may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice or
information to the contrary and, in making any payment under any Letter of
Credit, (i) the Issuing Bank's exclusive reliance on the documents presented to
it
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under such Letter of Credit as to any and all matters set forth therein,
including reliance on the amount of any draft presented under such Letter of
Credit, whether or not the amount due to the beneficiary thereunder equals the
amount of such draft and whether or not any document presented pursuant to such
Letter of Credit proves to be insufficient in any respect, if such document on
its face appears to be in order, and whether or not any other statement or any
other document presented pursuant to such Letter of Credit proves to be forged
or invalid or any statement therein proves to be inaccurate or untrue in any
respect whatsoever and (ii) any noncompliance in any immaterial respect of the
documents presented under such Letter of Credit with the terms thereof shall, in
each case, be deemed not to constitute wilful misconduct or gross negligence of
the Issuing Bank.
(g) Disbursement Procedures. The Issuing Bank shall, promptly following its
receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall as promptly as possible
give telephonic notification, confirmed by telecopy, to the Administrative Agent
and the Borrower of such demand for payment and whether the Issuing Bank has
made or will make an L/C Disbursement thereunder; provided, however, that any
failure to give or delay in giving such notice shall not relieve the Borrower of
its obligation to reimburse the Issuing Bank and the Lenders with respect to any
such L/C Disbursement. The Administrative Agent shall promptly give each Lender
notice thereof.
(h) Interim Interest. If the Issuing Bank shall make any L/C Disbursement
in respect of a Letter of Credit, then, unless the Borrower shall reimburse such
L/C Disbursement in full on such date, the unpaid amount thereof shall bear
interest for the account of the Issuing Bank, for each day from and including
the date of such L/C Disbursement, to but excluding the earlier of the date of
payment or the date on which interest shall commence to accrue thereon at the
rate per annum that would apply to such amount if such amount were an ABR Loan.
(i) Resignation or Removal of the Issuing Bank. The Issuing Bank may resign
at any time by giving 180 days' prior written notice to the Administrative
Agent, the Lenders and the Borrower, and may be removed at any time by the
Borrower by notice to the Issuing Bank, the Administrative Agent and the
Lenders. Subject to the next
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succeeding paragraph, upon the acceptance of any appointment as the Issuing Bank
hereunder by a Lender that shall agree to serve as successor Issuing Bank, such
successor shall succeed to and become vested with all the interests, rights and
obligations of the retiring Issuing Bank and the retiring Issuing Bank shall be
discharged from its obligations to issue additional Letters of Credit hereunder.
At the time such removal or resignation shall become effective, the Borrower
shall pay all accrued and unpaid Fees pursuant to Section 2.05(c)(ii). The
acceptance of any appointment as the Issuing Bank hereunder by a successor
Lender shall be evidenced by an agreement entered into by such successor, in a
form satisfactory to the Borrower and the Administrative Agent, and, from and
after the effective date of such agreement, (i) such successor Lender shall have
all the rights and obligations of the previous Issuing Bank under this Agreement
and the other Loan Documents and (ii) references herein and in the other Loan
Documents to the term "Issuing Bank" shall be deemed to refer to such successor
or to any previous Issuing Bank, or to such successor and all previous Issuing
Banks, as the context shall require. After the resignation or removal of the
Issuing Bark hereunder, the retiring Issuing Bank shall remain a party hereto
and shall continue to have all the rights and obligations of an Issuing Bank
under this Agreement and the other Loan Documents with respect to Letters of
Credit issued by it prior to such resignation or removal, but shall not be
required to issue additional Letters of Credit.
(j) Cash Collateralizatlon. If any Event of Default shall occur and be
continuing, the Borrower shall, on the Business Day it receives notice from the
Administrative Agent, deposit in an account with the Collateral Agent, for the
benefit of the Revolving Credit Lenders, an amount in cash equal to the L/C
Exposure as of such date. Such deposit shall be held by the Collateral Agent as
collateral for the payment and performance of the Obligations. The Collateral
Agent shall have exclusive dominion and control, including the exclusive right
of withdrawal, over such account. Other than any interest earned on the
investment of such deposits in Permitted Investments, which investments shall be
made at the option and sole discretion of the Collateral Agent, such deposits
shall not bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall (i) automatically be
applied by the Collateral Agent to reimburse the Issuing Bank for L/C
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Disbursements for which it has not been reimbursed, (ii) be held for the
satisfaction of the reimbursement obligations of the Borrower for the L/C
Exposure at such time and (iii) if the maturity of the Loans has been
accelerated (but subject to the consent of Revolving Credit Lenders holding
participations in outstanding Letters of Credit representing greater than 50% of
the aggregate undrawn amount of all outstanding Letters of Credit), be applied
to satisfy the Obligations. If the Borrower is required to provide an amount of
cash collateral hereunder as a result of the occurrence of an Event of Default,
such amount (to the extent not applied as aforesaid) shall be returned, together
with any remaining interest, to the Borrower within two Business Days after all
Events of Default have been cured or waived.
ARTICLE III
Representations and warranties
The Borrower represents and warrants to the Administrative Agent, the
Collateral Agent, the Issuing Bank and each of the Lenders that:
SECTION 3.01. Organization; Powers. The Borrower and each Subsidiary (a) is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (b) has all requisite power and
authority to own its property and assets and to carry on its business as now
conducted and as proposed to be conducted, (c) is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required, except where the failure so to qualify could not reasonably be
expected to result in a Material Adverse Effect, and (d) has the corporate power
and authority to execute, deliver and perform its obligations under each of the
Loan Documents, the Merger Agreement and each other agreement or instrument
contemplated hereby to which it is or will be a party and, in the case of the
Borrower, to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance by
each Loan Party of the Merger Agreement, each of the Loan Documents and the
borrowings hereunder (collectively, the "Transactions") and the Acquisition (a)
have been duly authorized by all requisite corporate and, if required,
stockholder action (other than
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any action by the stockholders of the Company to approve the Merger) and (b)
will not (i) violate (A) any provision of law, statute, rule or regulation, or
of the certificate or articles of incorporation or other constitutive documents
or by-laws of the Borrower or any Subsidiary, (B) any order of any Governmental
Authority or (C) any provision of any indenture, agreement or other instrument
to which the Borrower or any Subsidiary is a party or by which any of them or
any of their property is or may be bound, (ii) be in conflict with, result in a
breach of or constitute (alone or with notice or lapse of time or both) a
default under, or give rise to any right to accelerate or to require the
prepayment, repurchase or redemption of any obligation under any such indenture,
agreement or other instrument or (iii) result in the creation or imposition of
any Lien upon or with respect to any property or assets now owned or hereafter
acquired by the Borrower or any Subsidiary (other than any Lien created under
the Security Documents), other than (in the case of clauses (b)(i)(C) and (ii)
above) for such matters that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.03. Enforceability. This Agreement has been duly executed and
delivered by the Borrower and constitutes, and each other Loan Document when
executed and delivered by each Loan Party thereto will constitute, a legal,
valid and binding obligation of such Loan Party enforceable against such Loan
Party in accordance with its terms, except as enforceability thereof may be
limited by bankruptcy, insolvency or similar laws of general application
affecting creditors' rights.
SECTION 3.04. Governmental Approvals. No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority is
or will be required in connection with the Transactions or the Acquisition,
except for (a) the filing of Uniform Commercial Code financing statements, (b)
recordation of the Mortgages, (c) the items described in Section 3.22, (d)
securing documentation from the New Jersey Department of Environmental
Protection to the effect that the requirements of the New Jersey Industrial Site
Recovery Act have been complied with and that the Acquisition may proceed and
(e) such as have been made or obtained and are in full force and effect.
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SECTION 3.05. Financial Statements. (a) The Borrower has heretofore
furnished to the Lenders its consolidated balance sheets and statements of
income, shareholders' equity and cash flows (i) as of and for the fiscal year
ended December 31, 1994, audited by and accompanied by the opinion of BDO
Seidman, independent public accountants, and (ii) as of and for the fiscal
quarter and the portion of the fiscal year ended July 1, 1995, certified by a
Financial Officer. Such financial statements present fairly the financial
condition and results of operations of the Borrower and its consolidated
Subsidiaries as of such dates and for such periods. Such balance sheets and the
notes thereto disclose all material liabilities, direct or contingent, of the
Borrower and its consolidated Subsidiaries as of the dates thereof. Such
financial statements were prepared in accordance with GAAP applied on a
consistent basis, subject (in the case of the statements referred to in clause
(ii) above) to normal, year-end recurring adjustments.
(b) The Borrower has heretofore furnished to the Lenders its unaudited pro
forma consolidated balance sheet as of July 1, 1995, and pro forma consolidated
income statement for the two fiscal quarters ended July 1, 1995, prepared giving
effect to the Transactions and the Acquisition as if they had occurred on July
1, 1995, and December 31, 1994, respectively. Such pro forma financial
statements have been prepared in good faith by the Borrower, based on the
assumptions used to prepare the pro forma financial information contained in the
Confidential Information Memorandum (which assumptions are believed by the
Borrower on the date hereof and on the Tender Offer Date to be reasonable), are
based on the best information available to the Borrower as of the date of
delivery thereof, accurately reflect all adjustments required to be made to give
effect to the Transactions and the Acquisition and present fairly on a pro forma
basis the estimated consolidated financial position of the Borrower and the
Subsidiaries as of July 1, 1995, and estimated consolidated results of
operations of the Borrower and the Subsidiaries for the two fiscal quarters
ended July 1, 1995, assuming that the Transactions and the Acquisition had
actually occurred at July 1, 1995, and December 31, 1994, respectively.
(c) The Borrower has heretofore furnished to the Lenders the consolidated
balance sheets and statements of operations, stockholders' equity and cash flows
of the
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Company (i) as of and for the fiscal year ended December 31, 1994, audited by
and accompanied by the opinion of Coopers & Lybrand LLP, independent public
accountants, and (ii) as of and for the fiscal quarter and the portion of the
fiscal year ended June 30, 1995. The Borrower has no knowledge that these
financial statements have not been prepared in accordance with GAAP applied on a
consistent basis (except to the extent set forth in those financial statements,
including the notes, if any) or do not present fairly in all material respects
the consolidated financial position of the Company as of their respective dates,
and the consolidated results of operations and changes in financial condition
and cash flows for the periods presented, subject, in the case of the unaudited
interim financial statements, to normal, recurring, year-end adjustments.
SECTION 3.06. No Material Adverse Change. There has been no material
adverse change in the business, assets, operations, prospects or condition,
financial or otherwise, of the Borrower and the Subsidiaries, taken as a whole,
since December 31, 1994.
SECTION 3.07. Title to Properties; Possession under Leases. (a) Each of the
Borrower and the Subsidiaries has good and marketable title to, or valid
leasehold interests in, all its material properties and assets (including all
Mortgaged Property). All such material properties and assets are free and clear
of Liens, other than Liens expressly permitted by Section 6.02, and no material
portion of any Mortgaged Property is subject to any lease, license, sublease or
other agreement granting to any person any right to use, occupy or enjoy such
portion.
(b) Each of the Borrower and the Subsidiaries has complied with all
obligations under all material leases to which it is a party and all such leases
are in full force and effect. Each of the Borrower and the Subsidiaries enjoys
peaceful and undisturbed possession under all such material leases.
(c) Neither the Borrower nor any Subsidiary has received any notice of, nor
has any knowledge of, any pending or contemplated condemnation proceeding
affecting the Mortgaged Properties or any sale or disposition thereof in lieu of
condemnation.
(d) Neither the Borrower nor any Subsidiary is obligated under any right of
first refusal, option or other
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contractual right to sell, assign or otherwise dispose of any Mortgaged Property
or any interest therein.
SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Tender Offer
Date a list of the Subsidiaries (other than the Company and its subsidiaries)
and the percentage ownership interest of the Borrower therein. The shares of
capital stock or other ownership interests so indicated on Schedule 3.08 are
fully paid and non-assessable and are owned by the Borrower, directly or
indirectly, free and clear of all Liens (other than Liens pursuant to the
Security Documents).
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as disclosed in
the Tender Offer Materials or the Company's Schedule 14D-9 with respect to the
Tender Offer, there are not any actions, suits or proceedings at law or in
equity or by or before any Governmental Authority now pending or, to the
knowledge of the Borrower, threatened against or affecting any Transaction Party
or any business, property or rights of any such person (i) that involve any Loan
Document, the Transactions or the Acquisition or (ii) as to which there is a
likelihood of an adverse determination and that, if adversely determined, could
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect.
(b) None of the Borrower and the Subsidiaries or any of their respective
material properties or assets (including the Mortgaged Properties) is in
violation of, nor will the continued operation of such material properties and
assets as currently conducted violate, any law, rule or regulation (including
any Health Care Law, any Environmental Law, any zoning or building ordinance,
code or approval or any building permit) or any restriction of record or
agreements affecting the Mortgaged Property, or is in default with respect to
any judgment, writ, injunction, decree or order of any Governmental Authority,
other than, in each case, such violations and defaults that, individually and in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
(c) Certificates of occupancy and material permits (or other documents
expressly provided for under applicable law in lieu thereof) are in effect for
each Mortgaged Property as currently constructed, and true and complete copies
of such certificates of occupancy have been
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delivered to the Collateral Agent as mortgagee with respect to each Mortgaged
Property.
SECTION 3.10. Agreements. (a) Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any corporate restriction
that has resulted or could reasonably be expected to result in a Material
Adverse Effect.
(b) Neither the Borrower nor any of the Subsidiaries is in default in any
manner under any provision of any indenture or other agreement or instrument
evidencing Indebtedness, the General Shareholders Agreement dated September 30,
1994, or any other agreement or instrument to which it is a party or by which it
or any of its properties or assets are or may be bound, other than such defaults
that, individually and in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) Neither the Borrower nor any
Subsidiary is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of buying or carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will be
used, whether directly or indirectly, and whether immediately, incidentally or
ultimately, for any purpose that entails a violation of, or that is inconsistent
with, the provisions of the Regulations of the Board, including, to one extent
applicable, Regulation G, U or X. Margin Stocks do not constitute 25% or more of
the assets of the Borrower and the Subsidiaries, taken as a whole.
(c) No Indebtedness of the Borrower or any Subsidiary (other than the
Obligations) is "directly or indirectly secured" (within the meaning of
Regulation U and Regulation G) by any Margin Stock.
SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.
Neither the Borrower nor any Subsidiary is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940,
(b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of
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1935 or (c) otherwise subject to any law, rule or regulation that limits its
ability to incur Indebtedness.
SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of the
Loans and will request the issuance of Letters of Credit only for the purposes
specified in the preamble to this Agreement.
SECTION 3.14. Tax Returns. Each of the Borrower and the Subsidiaries has
filed or caused to be filed all Federal, state, local and foreign tax returns or
materials required to have been filed by it and has paid or caused to be paid
all taxes due and payable by it and all assessments received by it, except taxes
that are being contested in good faith by appropriate proceedings and for which
the Borrower or such Subsidiary, as applicable, shall have set aside on its
books (in accordance with GAAP accounting requirements) adequate reserves.
SECTION 3.15. No Material Misstatements. (a) the Confidential Information
Memorandum or (b) information, report, financial statement, schedule authored
by, and furnished by or on behalf of, the Borrower in writing to the
Administrative Agent in connection with the negotiation of any Loan Document or
included therein or delivered pursuant thereto contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they are made
misleading; provided, however, that to the extent any such information, report,
financial statement, exhibit or schedule was based upon or constitutes a
forecast or projection, the Borrower represents only that (x) it acted in good
faith and utilized reasonable assumptions and due care in the preparation of
such information, report, financial statement, exhibit or schedule and (y) with
respect to the projections contained in the Confidential Information Memorandum,
as of the date of this Agreement and as of the Closing Date, the Borrower
believes the assumptions underlying such projections are reasonable.
SECTION 3.16. Employee Benefit Plans. Each of the Borrower and the ERISA
Affiliates is in compliance in all respects with the applicable provisions of
ERISA and the Code and the regulations and published interpretations thereunder,
except for such failures to comply that, individually and in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect. No
ERISA
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Event has occurred or is reasonably expected to occur that, when taken together
with all other such ERISA Events, could reasonably be expected to result in a
Material Adverse Effect. As of the date of this Agreement, none of the Plans is
a "defined benefit plan" as defined in Section 3(35) of ERISA or Section 414(j)
of the Code. The present value of all benefit liabilities under each Plan (based
on those assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the last annual valuation date applicable
thereto, exceed by more than $15,000,000 the fair market value of the assets of
such Plan, and the present value of all benefit liabilities of all underfunded
Plans (based on those assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the last annual valuation dates
applicable thereto, exceed by more than $15,000,000 the fair market value of the
assets of all such underfunded Plans.
SECTION 3.17. Environmental Matters. (a) The properties owned or operated
by the Borrower and the Subsidiaries (the "Properties") do not contain any
Hazardous Materials in amounts or concentrations that constitute a violation of,
or could give rise to under, any Environmental Law, other than such violations
and liabilities that, individually and in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
(b) The Properties and all operations of the Borrower and the Subsidiaries
are in compliance, and in the last six years have been in compliance, with all
Environmental Laws and all Environmental Permits have been obtained and are in
effect, other than such items that, individually and in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
(c) There have not been any Releases or threatened Releases at, from, under
or, to the knowledge of the Borrower, proximate to the Properties or otherwise
in connection with the operations of the Borrower or the Subsidiaries, which
Releases or threatened Releases, in the aggregate, could reasonably be expected
to result in a Material Adverse Effect.
(d) Neither the Borrower nor any Subsidiary has received any notice of an
Environmental Claim in connection with the Properties or the operations of the
Borrower or the Subsidiaries or with regard to any person whose liabilities for
environmental matters the Borrower or the Subsidiaries
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has retained or assumed, in whole or in part, contractually, or to the knowledge
of the Borrower by operation of law or otherwise, which, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect,
nor do the Borrower or the Subsidiaries have any knowledge that any such notice
is likely to be received or is being threatened.
(e) Hazardous-Materials have not been transported from the Properties, nor
have Hazardous Materials been generated, treated, stored or disposed of at, on
or under any Property in a manner that could reasonably be expected to give rise
to any material liability under any Environmental Law, nor has the Borrower or
Subsidiary retained or assumed any liability, contractually, or to the knowledge
of the Borrower by operation of law or otherwise, with respect to the
generation, treatment, storage or disposal of Hazardous Materials, which
transportation, generation, treatment, storage or disposal, or retained or
assumed liabilities, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and
correct description of all insurance maintained by the Borrower or the
Subsidiaries as of the date hereof and the Closing Date. As of each such date,
such insurance is in full force and effect and all premiums due have been paid.
The Borrower and the Subsidiaries have insurance in such amounts and covering
such risks and liabilities as are in accordance with normal industry practice.
SECTION 3.19. Solvency. (a) The fair salable value of the assets of the
Borrower and each Subsidiary exceeds and shall, immediately following each of
the Tender Offer Date and the Merger Date and the consummation of the related
financings, exceed the amount that will be required to be paid on or in respect
of the existing debts and other liabilities (including contingent liabilities)
of the Borrower or such Subsidiary as they mature.
(b) The assets of the Borrower and each Subsidiary do not, and upon
consummation of the Acquisition will not, constitute unreasonably small capital
for the Borrower or such Subsidiary to carry out its business as now conducted
and as proposed to be conducted, including the capital needs of the Borrower or
such Subsidiary, taking
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into account the particular capital requirements of the business conducted by
the Borrower and each Subsidiary, and the projected capital requirements and
capital availability thereof.
(c) The Borrower and each Subsidiary do not intend to and shall not incur
debts beyond their respective ability to pay such debts as they mature taking
into account the timing and amounts of cash to be received by the Borrower and
such Subsidiary and of amounts to be payable on or in respect of obligations of
the Borrower and such Subsidiary. The cash flow of the Borrower and each
Subsidiary, after taking into account all anticipated uses of the cash of the
Borrower and each Subsidiary, will at all times be sufficient to pay all such
amounts on or in respect of debt of the Borrower or such Subsidiary when such
amounts are required to be paid.
(d) The representations made in this Section 3.19 with respect to any
Subsidiary that is a Guarantor are made after taking into consideration and
giving effect to the Indemnity, Contribution and Subrogation Agreement.
SECTION 3.20. Location of Real Property and Leased Premises. (a) Schedule
3.20(a) lists completely and correctly as of the date of this Agreement all real
property owned by the Borrower and the Subsidiaries and the addresses thereof
and, to the knowledge of the Borrower, all real property owned by the Company
and its subsidiaries as of the date of this Agreement and the addresses thereof.
The Borrower and the Subsidiaries own in all the real property set forth on
Schedule 3.20(a) as owned by the Borrower or any Subsidiary and, to the
knowledge of the Borrower, the Company and its subsidiaries own in fee all the
real property set forth on Schedule 3.20(a) as owned by the Company or any of
its subsidiaries.
(b) Schedule 3.20(b) lists completely and correctly as of the date of this
Agreement all material real property leased by the Borrower and the Subsidiaries
and the addresses thereof and, to the knowledge of the Borrower, all real
property leased by the Company and its subsidiaries as of the date of this
Agreement and the addresses thereof. The Borrower and the Subsidiaries, as the
case may be, have valid leasehold interests in all the material real property
set forth on Schedule 3.20(b) as leased by the Borrower or any Subsidiary and,
to the knowledge of the Borrower, the Company and its subsidiaries, as the case
may be, have valid
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leasehold interests in all the real property set forth on Schedule 3.20(b) as
leased by the Company or any of its subsidiaries.
SECTION 3.21. Labor Matters. As of the date of this Agreement and the
Closing Date, there are no strikes, lockouts or slowdowns against the Borrower
or any Subsidiary pending or, to the knowledge of the Borrower, threatened. The
hours worked by and payments made to employees of the Borrower and the
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other applicable Federal, state, local or foreign law dealing with such matters.
All payments due from the Borrower or any Subsidiary, or for which any claim may
be made against the Borrower or any Subsidiary, on account of wages and employee
health and welfare insurance and other benefits, have been paid or accrued as a
liability on the books of the Borrower or such Subsidiary. The consummation of
the Acquisition will not give rise to any right of termination or right of
renegotiation on the part of any union under any collective bargaining agreement
to which the Borrower or any Subsidiary is bound.
SECTION 3.22. Tender Offer; Merger. (a) All consents and approvals of,
filings and registrations with and other actions in respect of all Governmental
Authorities required in order to make or consummate the Tender Offer, to
purchase Shares pursuant thereto and to consummate the Merger have been
obtained, given, filed or taken and are in full force and effect, other than (i)
the filing of the certificates of merger necessary to accomplish the Merger
with, and their acceptance by, the Secretary of State of the State of Delaware
and any necessary approval of the Merger by the stockholders of the Company, in
each case pursuant to the General Corporation Law of the State of Delaware, (ii)
filings and other actions required pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the respective rules and regulations
thereunder in connection with the Merger and any necessary approval thereof by
the stockholders of the Company and (iii) filings and other actions required
pursuant to state securities or blue sky laws in connection with the Merger.
(b) The Tender Offer Materials and all amendments or supplements thereto
disseminated to the public on or prior to the Tender Offer Date at the time of
their dissemination to the public did not and will not on the Tender Offer Date,
and the Tender Offer Materials and all
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amendments or supplements thereto that were or will be disseminated to the
public after the Tender Offer Date did not or will not at the time of their
dissemination to the public, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were or are made,
not misleading. Copies of the Tender Offer Materials and all amendments or
supplements thereto will be delivered to the Administrative Agent not later than
the time they are made available to the public or filed with the Securities and
Exchange Commission.
(c) The Merger Agreement has been duly authorized, executed and delivered
by each of the Borrower, Acquisition Co. and the Company and constitutes a
legal, valid and binding obligation of each such corporation, enforceable in
accordance with its terms. A true, correct and complete copy of the Merger
Agreement has been furnished to the Administrative Agent.
(d) As of the date of this Agreement and as of the Closing Date, (i) each
of the representations and warranties made by the Borrower and Acquisition Co.
in the Merger Agreement is true and correct in all material respects and (ii)
the Borrower does not have any knowledge of any circumstances or conditions that
would render the representations and warranties of the Company in the Merger
Agreement untrue or incorrect in any material respect.
(e) Prior to the Tender Offer Date, none of the Transaction Parties
purchased or otherwise acquired any Shares for a price per Share in excess of
the price specified in Section 1.1 (a) of the Merger Agreement, other than
Shares acquired by the Company not in violation of the Merger Agreement.
SECTION 3.23. Capitalization of the Borrower. As of the date of this
Agreement, the authorized capital stock of the Borrower consists of 529,295
shares of common stock, par value $0.01 per share, of which 273,742 shares are
issued and outstanding. All such outstanding shares of Stock are fully paid and
nonassessable.
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ARTICLE IV
Conditions of Lending
The obligations of the Lenders to make Loans and of the Issuing Bank to
issue, renew or extend Letters of Credit hereunder are subject to the
satisfaction of the following conditions:
SECTION 4.01. All Credit Events. On the date of each Borrowing and each
issuance, renewal or extension of a Letter of Credit (each such event being
called a "Credit Event"):
(a) The Administrative Agent shall have received any notice of such
Borrowing required by Section 2.03 or, in the case of the issuance, renewal or
extension of a Letter of Credit, the Issuing Bank and the Administrative Agent
shall have received a notice requesting the issuance of such Letter of Credit as
required by Section 2.22(b).
(b) The representations and warranties set forth in Article III shall be
true and correct in all material respects on and as of the date of such Credit
Event with the same effect as though made on and as of such date, except to the
extent such representations and warranties expressly relate to an earlier date.
(c) The Loan Parties, taken as a whole, shall be in compliance in all
material respects with all the terms and provisions set forth in this Agreement
and in the other Loan Documents, and at the time of and immediately after such
Credit Event, no Event of Default or Default shall have occurred and be
continuing.
(d) The Lenders shall be satisfied, in the exercise of good faith, that, so
long as the Shares constitute Margin Stock, 50% of the loan value (determined in
accordance with Regulation U) of the Shares held by the Borrower or Acquisition
Co., together with the good faith loan value (determined in accordance with
Regulation U) of all the other Collateral, shall exceed the outstanding
principal amount of the Loans and the L/C Exposure (taking into account the
Loans to be made and Letters of Credit to be issued on the date of such Credit
Event).
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Each Credit Event shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Credit Event as to the matters specified in
paragraphs (b) and (c) above.
SECTION 4.02. First Credit Event. On the Closing Date
(a) The Administrative Agent shall have received, on behalf of itself,
the Lenders and the Issuing Bank, a favorable written opinion of (i)
Proskauer Rose Goetz & Mendelsohn LLP, counsel for the Borrower,
substantially to the effect set forth in Exhibit I-1 and (ii) each local
counsel listed on Schedule 4.02(a), substantially to the effect set forth
in Exhibit I-2, in each case (A) dated the Closing Date, (B) addressed to
the Issuing Bank, the Administrative Agent and the Lenders, and (C)
covering such other matters relating to the Loan Documents, the
Transactions and the Acquisition as the Administrative Agent shall
reasonably request, and the Borrower hereby requests such counsel to
deliver such opinions.
(b) All legal matters incident to this Agreement and the other Loan
Documents shall be reasonably satisfactory to the Administrative Agent.
(c) The Administrative Agent shall have received (i) a copy of the
certificate or articles of incorporation, including all amendments thereto,
of each Loan Party, certificates of a recent date by the Secretary of State
of the state of its organization, and a certificate as to the good standing
of each Loan Party as of a recent date, from such Secretary of State; (ii)
a certificate of the Secretary or Assistant Secretary of each Loan Party
dated the Closing Date and certifying (A) that attached thereto is a true
and complete copy of the by-laws of such Loan Party as in effect on the
Closing Date and at all times since a date prior to the date of the
resolutions described in clause (B) below, (B) that attached thereto is a
true and complete copy of resolutions duly adopted by the Board of
Directors of such Loan Party authorizing the execution, delivery and
performance of the Loan Documents to which such person is a party and, in
the case of the Borrower, the borrowings hereunder, and that such
resolutions have not been modified, rescinded or amended and are in full
force and effect, (C) that
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the certificate or articles of incorporation of such Loan Party have not
been amended since the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to clause (i) above, and
(D) as to the incumbency and specimen signature of each officer executing
any Loan Document or any other document delivered in connection herewith on
behalf of such Loan Party; (iii) a certificate of another officer as to the
incumbency and specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to clause (ii) above; and (iv) such
other documents as the Administrative Agent may reasonably request.
(d) The Administrative Agent shall have received a certificate, dated
the Closing Date and signed by a Financial Officer of the Borrower,
confirming compliance with the conditions precedent set forth in Sections
4.01(b) and 4.04(c).
(e) The Administrative Agent shall have received all Fees and other
amounts due and payable on or prior to the Closing Date, including, to the
extent invoiced, reimbursement or payment of all reasonable out-of-pocket
expenses required to be reimbursed or paid by the Borrower hereunder or
under any other Loan Document.
(f) The Pledge Agreement shall have been duly executed by the Borrower
and each Subsidiary (other than the Company and its subsidiaries) and
delivered to the Collateral Agent and shall be in full force and effect,
and all the outstanding capital stock of the Subsidiaries held by the
Borrower or any such Subsidiary shall have been duly and validly pledged
thereunder to the Collateral Agent for the ratable benefit of the Secured
Parties, and certificates representing such shares, accompanied by
instruments of transfer and undated stock powers endorsed in blank, shall
be in the actual possession of the Collateral Agent or, in the case of
Book-Entry Shares, transferred into an account of the Collateral Agent
maintained with the applicable Book-Entry Transfer Facility; provided,
however, that (i) neither the Borrower nor any Domestic Subsidiary shall be
required to pledge more than 65% of the capital stock of any Foreign
Subsidiary and (ii) no Foreign Subsidiary shall be required to pledge the
capital stock of any Foreign Subsidiary.
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(g) (i) The Security Agreement shall have been duly executed by the
Borrower and each Subsidiary (other than the Company and its subsidiaries)
and shall have been delivered to the Collateral Agent and shall be in full
force and effect on such date and each document (including each Uniform
Commercial Code financing statement) required by law or reasonably
requested by the Collateral Agent to be filed, registered or recorded in
order to create in favor of the Collateral Agent for the benefit of the
Secured Parties a valid and perfected first priority security interest in
and lien on the Collateral (subject to any Lien expressly permitted by
Section 6.02 and in existence on the Closing Date) described in such
agreement shall have been delivered to the Collateral Agent; provided,
however, that the Foreign Subsidiaries and the Puerto Rico Subsidiary shall
not be required to execute the Security Agreement and (ii) the Chattel
Mortgages shall have been duly executed by the Puerto Rico Subsidiary and
shall have been delivered to the Collateral Agent and shall be in full
force and effect on such date and each document required by law or
reasonably requested by the Collateral Agent to be filed, registered or
recorded in order to create in favor of the Collateral Agent for the
benefit of the Secured Parties a valid and perfected first priority
security interest in and lien on the Collateral (subject to any Lien
expressly permitted by Section 6.02 and in existence on the Closing Date)
described in such agreement shall have been delivered to the Collateral
Agent.
(h) The Collateral Agent shall have received the results of a search
of the Uniform Commercial Code (or equivalent) filings made with respect to
the Loan Parties in the states (or other jurisdictions) in which the chief
executive office of each such person is located, any offices of such
persons in which records have been kept relating to Accounts and the other
jurisdictions in which Uniform Commercial Code filings (or equivalent
filings) are to be made pursuant to paragraph (g) above, together with
copies of the financing statements (or similar documents) disclosed by such
search, and accompanied by evidence satisfactory to the Collateral Agent
that the Liens indicated in any such financing statement (or similar
document) would be permitted under Section 6.02 or have been released.
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(i) The Collateral Agent shall have received a Perfection Certificate
with respect to the Loan Parties dated the Closing Date and duly executed
by a Responsible Officer of the Borrower.
(j) (i) Each of the Security Documents, in form and substance
satisfactory to the Lenders, relating to each of the Mortgaged Properties
shall have been duly executed by the parties thereto and delivered to the
Collateral Agent and shall be in full force and effect, (ii) each of such
Mortgaged Properties shall not be subject to any Lien other than those
permitted under Section 6.02, (iii) a lender's title insurance policy, in
form and substance acceptable to the Collateral Agent, insuring such
Security Document as a first lien on such Mortgaged Property (subject to
any Lien permitted by Section 6.02 and in existence on the Closing Date)
shall have been received by the Collateral Agent) and (iv) the Collateral
Agent shall have received such other documents, including a policy or
policies of title insurance issued by a nationally recognized title
insurance company, together with such endorsements, coinsurance and
reinsurance as may be requested by the Collateral Agent, insuring the
Mortgages as valid first liens on the Mortgaged Properties, free of Liens
other than those permitted under Section 6.02 and in existence on the
Closing Date, together with such surveys and legal opinions required to be
furnished pursuant to the terms of the Mortgages or as reasonably requested
by the Collateral Agent or the Lenders.
(k) The Guarantee Agreement shall have been duly executed by each
Subsidiary (other than the Company and its subsidiaries), shall have been
delivered to the Collateral Agent and shall be in full force and effect;
provided, however, that no Foreign Subsidiary shall be required to execute
the Guarantee Agreement.
(l) The Indemnity, Subrogation and Contribution Agreement shall have
been duly executed by each Loan Party, shall have been delivered to the
Collateral Agent and shall be in full force and effect.
(m) The Administrative Agent shall have received a copy of, or a
broker's or insurance company certificate as to coverage under, the
insurance
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policies required by Section 5.02 and the applicable provisions of the
Security Documents.
(n) The Shares to be purchased with the proceeds of the Loans to be
made on the Closing Date shall have been validly tendered to Acquisition
Co. in accordance with the Tender Offer Materials, and not withdrawn, and
shall be available for purchase pursuant to the Tender Offer.
(o) All conditions to the purchase of Shares in the Tender Offer shall
have been satisfied without giving effect to any waiver or amendment
thereof not approved by the Required Lenders, and Acquisition Co. shall
have accepted for payment pursuant to the Tender Offer a majority of the
Shares (on a fully diluted basis) (excluding any Shares tendered through
"guaranteed delivery" procedures and not yet delivered to Acquisition Co.
or its agents); provided, however, that the approval of the Required
Lenders shall not be required for any extension of the Tender Offer.
(p) There shall not be any action, suit or proceeding at law or in
equity or by or before any Governmental Authority pending or, to the
knowledge of the Borrower, threatened against or affecting any Transaction
Party or any business, property or rights of such person and relating to
the Transactions or the Acquisition (i) that could reasonably be expected
to result in a Material Adverse Effect or (ii) that is reasonably likely to
restrain, prevent or impose materially burdensome conditions on any
Transaction or the Acquisition.
(q) To the extent applicable, the Borrower shall have delivered to
each Lender a statement on Form U-1 or Form G-3 complying with the
requirements of Regulation U or Regulation G, as applicable.
(r) No change, and no development or event involving a prospective
change, in respect of the assets, capitalization, corporate structure,
securities, condition (financial or otherwise), prospects or results of
operations of the Borrower or the Company shall have occurred that is
deemed by the Lenders, in their good faith judgment, to involve a
reasonable likelihood of a Material Adverse Effect.
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(s) The Administrative Agent shall have received a customary
collateral review, reasonably satisfactory in form and substance to the
Administrative Agent.
(t) The Administrative Agent shall have received (i) the financial
statements referred to in Section 3.05(b) and (ii) consolidated income
statement projections, consolidated cash flow projections, consolidated
balance sheet projections and related assumptions for the Borrower for each
year until the Post-Merger Facilities Maturity Date, after giving effect to
the Transactions and the Acquisition.
(u) The Administrative Agent shall have received for each Mortgaged
Property a copy of the original permanent or temporary certificate of
occupancy, if any, issued upon completion of such Mortgaged Property (or
any amendment issued upon completion of any alteration) by the appropriate
Governmental Authority.
(v) The Administrative Agent shall have received (i) an environmental
assessment report in form, scope and substance reasonably satisfactory to
the Lenders, from Dames & Moore, as to any material environmental hazards,
liabilities or Remedial Action to which the Borrower or any of the
Subsidiaries may be subject and the Lenders shall be reasonably satisfied
with the nature and cost of any such hazards, liabilities or Remedial
Action and with the Borrower's plans with respect thereto and (ii) written
evidence of compliance with the New Jersey Industrial Site Recovery Act
pursuant to paragraph (I) of Annex A to the Merger Agreement.
(w) The Lenders shall have received a solvency letter from Valuation
Research Corporation satisfactory to the Lenders confirming the solvency of
the Borrower after giving effect to the Acquisition.
(x) The Administrative Agent shall have received evidence reasonably
satisfactory to it of the termination or cancellation of, and payment in
full of all amounts outstanding under or in respect of, (i) the Credit
Agreement dated as of November 25, 1992, among the Borrower, the Banks
named therein and Citibank, N.A., as agent, (ii) the Standby Letter of
Credit Agreement dated October, 1992, between the Borrower and Mellon Bank,
N.A., (iii) the $10,000,000 promissory
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note dated November 22, 1994, from the Borrower to Midlantic National Bank
and (iv) the Financing Agreement dated March 9, 1992, between Danbury
Pharmacal Puerto Rico, Inc. (formerly known as Danbury Pharmacal Caribe,
Inc.), and Banco Popular de Puerto Rico.
SECTION 4.03. Additional Conditions Precedent. On the date of the initial
Term Facility Borrowing or Post-Merger Revolving Facility Borrowing:
(a) The Merger shall have been, or simultaneously therewith shall be,
consummated in accordance with applicable law and the terms of the Merger
Agreement (and without giving effect to any waiver or amendment not
approved by the Required Lenders).
(b) The Company and each of its subsidiaries shall have become parties
to the Guarantee Agreement, the Security Agreement, the Pledge Agreement
and the Indemnity, Subrogation and Contribution Agreement and the
conditions set forth in paragraphs (f), (g), (h), (i), (j), (k), (1) and
(m) of Section 4.02 (but without giving effect to the first parenthetical
in each paragraph) shall, insofar as they relate to the Company and its
subsidiaries, have been satisfied on and as of such date as if all
references therein to the Closing Date were references to such date. The
Administrative Agent shall have received, with respect to the Company and
each of its subsidiaries, the certificates contemplated by Section 4.02(c)
and an opinion of counsel to the Company substantially in the form of
Exhibit J.
ARTICLE V
Affirmative Covenants
The Borrower covenants and agrees with each Lender that so long as this
Agreement shall remain in effect and until the Commitments have been terminated
and the principal of and interest on each Loan, all Fees and all other expenses
or amounts payable under any Loan Document have been paid in full and all
Letters of Credit have been canceled or have expired and all amounts drawn
thereunder
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have been reimbursed in full, unless the Required Lenders shall otherwise
consent in writing, the Borrower shall, and shall cause each Subsidiary to:
SECTION 5.01. Existence. Businesses and Properties. (a) Do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence, except as otherwise expressly permitted under Section 6.05.
(b) Do or cause to be done all things necessary to obtain, preserve, renew,
extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; comply with all applicable laws, rules,
regulations and decrees and orders of any Governmental Authority, whether now in
effect or hereafter enacted, except where the failure to comply could not
reasonably be expected to result in a Material Adverse Effect; and at all times
maintain and preserve all property material to the conduct of such business and
keep such property in good repair, working order and condition and from time to
time make, or cause to be made, all needful and proper repairs, renewals,
additions, improvements and replacements thereto necessary, in the Borrower's
reasonable judgment, in order that the business carried on in connection
therewith may be properly conducted at all times.
SECTION 5.02. Insurance. (a) Keep its insurable properties adequately
insured at all times by financially sound and reputable insurers; and maintain
such other insurance, to such extent and against such risks, including fire and
other risks insured against by extended coverage, as is customary with companies
in the same or similar businesses operating in the same or similar locations.
(b) If at any time the area in which the Premises (as defined in the
Mortgages) are located is designated a "flood hazard area" in any Flood
Insurance Rate Map published by the Federal Emergency Management Agency (or any
successor agency), obtain flood insurance in such total amount as may be
required by applicable law and otherwise comply with the National Flood
Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as
it may be amended from time to time.
(c) With respect to any Mortgaged Property, carry and maintain
comprehensive general liability insurance,
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including the "broad form CGL endorsement" and coverage against claims made for
personal injury (including bodily injury, death and property damage) and
umbrella liability insurance against any and all claims, in no event for a
combined single limit of less than $1,000,000, naming the Collateral Agent as an
additional insured, on forms reasonably satisfactory to the Collateral Agent.
Cause all policies insuring against damage to the Mortgaged Property to be
endorsed or otherwise amended to include a "standard" or "New York" lender's
loss payable endorsement, in form and substance satisfactory to the
Administrative Agent and the Collateral Agent, which endorsement shall provide
that, from and after the Closing Date, the insurance carrier shall give the
Administrative Agent or the Collateral Agent at least 30 days' prior notice of
termination of such policies.
(d) In connection with the covenants set forth in this Section 5.02, it is
understood and agreed that:
(i) none of the Administrative Agent, the Lenders, the Issuing Bank,
or their respective agents or employees shall be liable for any loss or
damage insured by the insurance policies required to be maintained under
this Section 5.02, it being understood that (A) the Borrower and the other
Loan Parties shall look solely to their insurance companies or any other
parties other than the aforesaid parties for the recovery of such loss or
damage and (B) such insurance companies shall have no rights of subrogation
against the Administrative Agent, the Collateral Agent, the Lenders, the
Issuing Bank or their agents or employees; provided, however, that the
insurance policies do not provide waiver of subrogation rights against such
parties, as required above, then the Borrower hereby agrees, to the extent
permitted by law, to waive (and to cause each Subsidiary to waive) its
right of recovery, if any, against the Administrative Agent, the Collateral
Agent, the Lenders, the Issuing Bank and their agents and employees; and
(ii) the designation of any form, type or amount of insurance coverage
by the Administrative Agent, the Collateral Agent or the Required Lenders
under this Section 5.02 shall in no event be deemed a representation,
warranty or advice by the Administrative Agent, the Collateral Agent or the
Lenders that such insurance is adequate for the purposes of the business
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of the Borrower and the Subsidiaries or the protection of their properties.
SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and pay or
perform its other material obligations in accordance with their terms and pay
and discharge when due all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise that, if unpaid, might
give rise to a Lien upon such properties or any part thereof; provided, however,
that such payment and discharge shall not be required with respect to any such
obligation, tax, assessment, charge, levy or claim so long as the validity,
amount or entitlement thereof shall be contested in good faith by appropriate
proceedings and the Borrower shall have set aside on its books adequate reserves
with respect thereto in accordance with GAAP and such contest operates to
suspend enforcement of any related Lien and, in the case of a Mortgaged
Property, there is no material risk of forfeiture of such property.
SECTION 5.04. Financial Statements, Reports, etc. In the case of the
Borrower, furnish to the Administrative Agent:
(a) within 100 days after the end of each fiscal year, its
consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows showing the financial condition of the
Borrower and its consolidated Subsidiaries as of the close of such fiscal
year and the results of its operations and the operations of such
Subsidiaries during such year, all audited by BDO Seidman LLP or other
independent public accountants of recognized national standing and
accompanied by an opinion of such accountants (which shall not be qualified
in any material respect) to the effect that such consolidated financial
statements fairly present the financial condition and results of operations
of the Borrower and its consolidated Subsidiaries on a consolidated basis
in accordance with GAAP consistently applied;
(b) within 60 days after the end of each of the first three fiscal
quarters of each fiscal year, its consolidated balance sheet and related
statements of operations, stockholders' equity and cash flows showing
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the financial condition of the Borrower and its consolidated Subsidiaries
as of the close of such fiscal quarter and the results of its operations
and the operations of such Subsidiaries during such fiscal quarter and the
then elapsed portion of the fiscal year, all certified by one of its
Financial Officers as fairly presenting the financial condition and results
of operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of the accounting firm (in the case
of delivery under clause (a) above) or Financial Officer (in the case of
delivery under clause (b) above) opining on or certifying such statements
(which certificate, when furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal interpretations)
certifying that, to the knowledge of the signer, no Event of Default or
Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto, and attaching
calculations showing compliance with Sections 6.13, 6.14, 6.15, 6.16, 6.17
and 6.18 and the Interest Expense Coverage Ratio as of the end of such
fiscal period;
(d) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the Securities and Exchange Commission,
or any Governmental Authority succeeding to any or all of the functions of
said Commission, or with any national securities exchange, or distributed
to its shareholders, as the case may be;
(e) as soon as available, and in any event no later than 100 days
after the end of each fiscal year, commencing with the fiscal year ending
December 30, 1995, forecasted financial projections for the Borrower
through the end of the then-current fiscal year (including a description of
the underlying assumptions and management's discussion of historical
results), all certified by a Financial Officer of the Borrower to be a good
faith estimate of the forecasted financial
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projections and results of operations for the period through the
then-current fiscal year; and
(f) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Borrower or any
Subsidiary, or compliance with the terms of any Loan Document, as the
Administrative Agent or any Lender may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the Administrative
Agent, the Issuing Bank and each Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) taken or proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any Governmental
Authority, against the Borrower or any Subsidiary thereof that could
reasonably be expected to result in a Material Adverse Effect; and
(c) any effect or impairment known to the Borrower that has resulted
in, or could reasonably be expected to result in, a Material Adverse
Effect.
SECTION 5.06. Employee Benefits. (a) Comply in all respects with the
applicable provisions of ERISA and the Code, except where the failure to comply
could not reasonably be expected to result in a Material Adverse Effect, and (b)
furnish to the Administrative Agent (i) as soon as possible after, and in any
event within 20 days after any Responsible Officer of the Borrower or any ERISA
Affiliate knows, any ERISA Event has occurred that, alone or together with any
other ERISA Events that have occurred could reasonably be expected to result in
liability of the Borrower in an aggregate amount exceeding $1,000,000, a
statement of a Financial Officer of the Borrower setting forth details as to
such ERISA Event and the action, if any, that the Borrower proposes to take with
respect thereto.
SECTION 5.07. Maintaining Records; Access to Properties and Inspections.
Keep proper books of record and
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account in which full, true and correct entries in conformity with GAAP and all
requirements of applicable law are made of all material dealings and
transactions in relation to its business. The Borrower will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative Agent
or any Lender to visit and inspect the financial records and the properties of
the Borrower or any Subsidiary upon prior notice to a Financial Officer of the
Borrower, at mutually agreed times during normal business hours and as often as
reasonably requested and to make extracts from and copies of such financial
records (such visits and inspections to be coordinated, to the extent possible,
through the Administrative Agent). Permit any representatives designated by the
Administrative Agent or any Lender to discuss the affairs, finances and
condition of the Borrower or any Subsidiary with the officers thereof (all in a
manner reasonably calculated not to materially disrupt the normal business
operations and activities of the Borrower and the Subsidiaries) and independent
accountants therefor.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans and request
the issuance of Letters of Credit only for the purposes set forth in the
preamble to this Agreement.
SECTION 5.09. Compliance with Environmental Laws. Comply, and cause all
lessees and other persons occupying its Properties to comply, in all material
respects with all Environmental Laws and Environmental Permits applicable to its
operations and Properties; obtain and renew all material Environmental Permits
necessary for its operations and Properties; and conduct any Remedial Action in
accordance with Environmental Laws; provided, however, that neither the Borrower
nor any Subsidiary shall be required to undertake any Remedial Action to the
extent that its obligation to do so is being contested in good faith and by
proper proceedings and appropriate reserves are being maintained with respect to
such circumstances.
SECTION 5.10. Preparation of Environmental Reports. If a Default caused by
reason of a breach of Section 3.17 or 5.09 shall have occurred and be
continuing, at the written request of the Required Lenders through the
Administrative Agent, provide to the Lenders within 45 days after such request,
at the expense of the Borrower, an environmental site assessment report for the
Properties which are the subject of such default prepared by an
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environmental consulting firm acceptable to the Administrative Agent and
indicating the presence or absence of Hazardous Materials and the estimated cost
of any compliance or Remedial Action required by Environmental Laws in
connection with such Properties.
SECTION 5.11. Further Assurances. Execute any and all further documents,
financing statements, agreements and instruments, and take all further action
(including filing Uniform Commercial Code and other financing statements,
mortgages and deeds of trust) that may be required under applicable law, or that
the Required Lenders, the Administrative Agent or the Collateral Agent may
reasonably request, in order to effectuate the transactions contemplated by the
Loan Documents and in order to grant, preserve, protect and perfect the validity
and first priority of the security interests created or intended to be created
by the Security Documents. The Borrower shall cause any subsequently acquired or
organized Subsidiary to became a party to the Guarantee Agreement and the
Indemnity Subrogation and Contribution Agreement and each applicable Security
Document; provided, however, that no Foreign Subsidiary shall be required to
become a party to the Guarantee Agreement or to any Security Document. In
addition, from time to time, the Borrower shall, at its cost and expense,
promptly secure the Obligations by pledging or creating, or causing to be
pledged or created, perfected security interests with respect to such of its
assets and properties as the Administrative Agent or the Required Lenders shall
designate (it being understood that it is the intent of the parties that the
Obligations shall be secured by, among other things, substantially all the
assets of the Borrower and the Domestic Subsidiaries (including real and other
properties acquired subsequent to the Closing Date)). Such security interests
and Liens shall be created under the Security Documents and other security
agreements, mortgages, deeds of trust and other instruments and documents in
form and substance satisfactory to the Collateral Agent, and the Borrower shall
deliver or cause to be delivered to the Lenders all such instruments and
documents (including legal opinions, title insurance policies and lien searches)
as the Collateral Agent shall reasonably request to evidence compliance with
this Section 5.11. The Borrower shall provide such evidence as the Collateral
Agent shall reasonably request as to the perfection and priority status of each
such security interest and Lien.
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SECTION 5.12. Rate Protection Agreements. In the case of the Borrower,
within 100 days following the Merger Date, enter into (and thereafter maintain
in effect) Rate Protection Agreements providing for interest rate protection on
customary terms, for a period of at least two years following the Merger Date,
with respect to at least 50% of the sum of the aggregate principal amount of the
then-outstanding Term Loans.
SECTION 5.13. Merger. (a) Use best efforts, consistent with applicable law,
to effect the Merger as promptly as practicable after the consummation of the
Tender Offer.
(b) If the Borrower or Acquisition Co. shall own at least 90% of the Shares
following the consummation of the Tender Offer, effect the Merger without a
meeting of stockholders of the Company within seven days.
SECTION 5.14. Board of Directors of the Company. In the case
of the Borrower, exercise its rights with respect to the Company's Board of
Directors under Section 1.4 of the Merger Agreement as soon as practicable
following the consummation of the Tender Offer.
ARTICLE VI
Negative Covenants
The Borrower covenants and agrees with each Lender that, so long as this
Agreement shall remain in effect and until the Commitments have been terminated
and the principal of and interest on each Loan, all Fees and all other expenses
or amounts payable under any Loan Document have been paid in full and all
Letters of Credit have been canceled or have expired and all amounts drawn
thereunder have been reimbursed in full, unless the Required Lenders shall
otherwise consent in writing, the Borrower shall not, and shall not cause or
permit any Subsidiary to:
SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist any
Indebtedness, except:
(a) Indebtedness existing on the date of this Agreement and set forth
in Schedule 6.01;
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(b) Indebtedness created hereunder or under any other Loan Document;
(c) in the case of any Subsidiary, Indebtedness owed to the Borrower
or any wholly owned Subsidiary that is a Guarantor, which Indebtedness is
evidenced by a note or notes pledged to the Collateral Agent under the
Pledge Agreement;
(d) prior to the Merger Date, Indebtedness of any subsidiary of the
Company owed to the Company;
(e) in the case of the Borrower, Indebtedness under Rate Protection
Agreements entered into in the ordinary course of business on terms and
with counterparties reasonably satisfactory to the Administrative Agent
(and any Lender is hereby deemed to be satisfactory);
(f) Indebtedness of the Company and its subsidiaries incurred after
the date of this Agreement and prior to the Tender Offer Date and not
incurred in violation of the Merger Agreement;
(g) Subordinated Debt issued after the Merger Date;
(h) accounts payable, rent obligations (other than Capital Lease
Obligations) and operating expenses incurred in the ordinary course of
business;
(i) in the case of the Borrower, reimbursement obligations in favor of
any Lender in respect of letters of credit issued by such Lender after the
date of this Agreement and prior to the Merger Date and not in excess of
$2,000,000, in the aggregate for all Lenders, at any time outstanding;
(j) purchase money Indebtedness incurred in the ordinary course of
business after the date of this Agreement (including financings through
industrial revenue and similar bonds) to finance Capital Expenditures
permitted under Section 6.13; provided, however, that such Indebtedness is
incurred within 90 days after the making of the Capital Expenditure so
financed;
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(k) in the case of the Borrower, Indebtedness issued as consideration
for the repurchase of stock or options, as permitted by Section 6.06
(a)(ii), not in excess of $5,000,000 aggregate principal amount outstanding
at any time;
(l) Indebtedness consisting of Guarantees of Indebtedness permitted
under clause (h) above; and
(m) other Indebtedness of the Borrower not in excess of $10,000,000
aggregate principal amount at any time outstanding, of which up to
$3,500,000 may be in the form of Capital Lease Obligations and the balance
shall be unsecured.
SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien on
any property or assets (including stock or other securities of any person,
including any Subsidiary) now owned or hereafter acquired by it or on any income
or revenues or rights in respect of any thereof, except:
(a) any Lien on property or assets of the Borrower and the
Subsidiaries existing on the date of this Agreement and set forth in
Schedule 6.02; provided, however, that such Lien shall secure only those
obligations that it secures on the date hereof;
(b) any Lien created under the Loan Documents;
(c) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary; provided, however,
that (i) such Lien is not created in contemplation of or in connection with
such acquisition, (ii) such Lien does not apply to any other property or
assets of the Borrower or any Subsidiary and (iii) such Lien does not (A)
materially interfere with the use and occupancy of any Mortgaged Property,
(B) materially reduce the fair market value of such Mortgaged Property but
for such Lien or (C) result in any material increase in the cost of
operating, occupying or owning or leasing such Mortgaged Property;
(d) any Lien incurred by the Company or any of its subsidiaries after
the date of this Agreement and prior to the Tender Offer Date and not
incurred in violation of the Merger Agreement; provided, however, that such
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Lien shall be discharged or released on or prior to the Merger Date;
(e) any Lien for taxes, assessments or government charges not yet due
or that are being contested in compliance with Section 5.03;
(f) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business and securing
obligations that are not due and payable or that are being contested in
compliance with Section 5.03;
(g) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations;
(h) deposits to secure the performance of bids, trade contracts (other
than for Indebtedness), leases (other than Capital Lease Obligations),
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(i) zoning restrictions, easements, rights-of-way, restrictions on use
of real property and other similar encumbrances incurred in the ordinary
course of business that, in the aggregate, are not substantial in amount
and do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct or the business of the
Borrower or any Subsidiary;
(j) unpaid vendors' Liens, rights of reclamation or other like Liens
of sellers of inventory arising in the ordinary course of business and
securing obligations not past due;
(k) any purchase money security interest in fixed assets; provided,
however, that (i) such security interest only secures Indebtedness
permitted under Section 6.01(j), (ii) such security interest is created and
perfected substantially simultaneously with the incurrence of such
Indebtedness, (iii) such security interest applies only to fixed assets the
purchase of which is financed with such Indebtedness and (iv) the
Indebtedness secured thereby is not less than 75% nor
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more than 85% of the fair market value of the fixed assets subject to such
security interest (measured at the date of incurrence of such security
interest); and
(l) any Lien represented by the interest of a lessor in property the
subject of a Capital Lease Obligation of the Borrower permitted by Section
6.01(m); and
(m) any Lien in favor of Bayer AG or any of its subsidiaries in
respect of securities of a Permitted Foreign Company (other than a
Permitted Foreign Company described in clause (c) of the definition
thereof).
SECTION 6.03. Sale and Lease-Back Transactions. Enter into any Sale and
Lease-Back Transaction.
SECTION 6.04. Investments, Loans and Advances. Purchase, hold or acquire
any capital stock, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, Guarantee any Indebtedness of, or make
or permit to exist any investment or any other interest in, any other person,
except:
(a) investments by the Borrower existing on or subscribed to prior to
the date of this Agreement in the capital stock of the Subsidiaries;
(b) investments in the Shares;
(c) investments by the Company existing on the Tender Offer Date in
the capital stock of its subsidiaries; provided, however, that none of such
investments shall have been made in violation of the Merger Agreement;
(d) loans and advances to officers or employees of the Borrower or any
Subsidiary in the ordinary course of business not in excess of $1,500,000
at any time outstanding;
(e) investments in, or loans and advances to, wholly owned
Subsidiaries that are Guarantors or, in the case of an investment, that
shall become wholly owned Subsidiaries that are Guarantors following such
investment;
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(f) Guarantees entered into in the ordinary course of business of
Indebtedness of wholly owned Subsidiaries that are Guarantors;
(g) Permitted Investments;
(h) investments existing on or subscribed to prior to the date of this
Agreement and set forth on Schedule 6.04;
(i) in the case of the Borrower and the Subsidiaries other than
Permitted Foreign Companies, investments in, and loans or advances to,
Permitted Foreign Companies in a net aggregate amount not to exceed
$10,000,000 in any fiscal year plus, commencing with fiscal year 1997, 50%
of the excess, if any, of (A) $10,000,000 over (B) the aggregate amount of
such investments, loans and advances made during the preceding fiscal year;
(j) in the case of the Borrower and the Subsidiaries other than
Permitted Foreign Companies, Guarantees of Indebtedness of Permitted
Foreign Companies; provided, however, that any payment on such a Guarantee
shall not be permitted under this clause (j) (but may be permitted under
clause (i) above or clause (l) below);
(k) in the case of Permitted Foreign Companies, any investment in, or
loan or advance to, or Guarantee of Indebtedness of, any Permitted Foreign
Company; and
(l) other or additional investments, loans and advances in a net
aggregate amount not to exceed $10,000,000 at any time prior to the last
day of fiscal year 1997 and $15,000,000 thereafter.
SECTION 6.05. Mergers, Consolidations and Sales of Assets. Other than the
Tender Offer and the Merger, merge into or consolidate with any other person, or
permit any other person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or in a series of
transactions) all or any substantial part of its assets (whether now owned or
hereafter acquired) or any capital stock of any Subsidiary, except that (a) the
Borrower and any Subsidiary may sell inventory in the ordinary course of
business, (b) if at the time thereof and immediately after giving effect thereto
no
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Event of Default or Default shall have occurred and be continuing (i) any wholly
owned Subsidiary may merge into the Borrower in a transaction in which the
Borrower is the surviving corporation and (ii) any wholly owned Subsidiary may
merge into or consolidate with any other Subsidiary in a transaction in which
the surviving entity is a wholly owned Subsidiary and (c) if at the time thereof
and immediately after giving effect thereto no Event of Default or Default shall
have occurred and be continuing, any Subsidiary may dissolve or liquidate
through a transfer of its assets to its shareholders.
SECTION 6.06. Dividends and Distributions; Restrictions on Ability of
Subsidiaries To Pay Dividends. (a) Other than the payment for Shares in the
Merger (including Shares with respect to which appraisal rights shall be
exercised) and payments required by the Merger Agreement in respect of options
covering Shares, declare or pay, directly or indirectly, any dividend or make
any other distribution (by reduction of capital or otherwise), whether in cash,
property, securities or a combination thereof, with respect to any shares of its
capital stock or directly or indirectly redeem, purchase, retire or otherwise
acquire for value (or permit any Subsidiary to purchase or acquire) any shares
of any class of its capital stock or set aside any amount for any such purpose;
provided, however, that (i) any Subsidiary may declare and pay dividends or make
other distributions to the Borrower or any wholly owned Subsidiary that is a
Guarantor, (ii) if at the time thereof and immediately after giving effect
thereto no Event of Default shall have occurred and be continuing, the Borrower
may repurchase stock or options from former directors, former officers and
former employees (or their legal representatives) in the ordinary cause of
business in accordance with any duly instituted stock option plan, (iii) the
Borrower may perform its obligations under the agreements referred to in Section
6.07(d) and (iv) after December 30, 1995, the Borrower may declare and pay
dividends with respect to its common stock if (A) at the time thereof and
immediately after giving effect thereto, no Event of Default or Default shall
have occurred and be continuing, (B) at the time thereof and after giving effect
to any Indebtedness to be incurred in connection therewith, the Leverage Ratio
shall not be greater than 2.5 to 1.0 and (C) after giving effect thereto, the
aggregate amount of all such dividends since December 31, 1995, shall not exceed
25% of Net Income for the period from and including October 1,
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1995, to and including the last day of the most recent complete fiscal quarter.
(b) Other than the Merger Agreement and this Agreement, permit any
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
such Subsidiary to (i) pay any dividends or make any other distributions on its
capital stock or any other interest or (ii) make or repay any loans or advances
to the Borrower or the parent of such Subsidiary.
SECTION 6.07. Transactions with Affiliates. Sell or transfer any property
or assets to, or purchase or acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates, except that the
Borrower or any Subsidiary may engage in any of the foregoing transactions in
the ordinary course of business at prices and on terms and conditions not less
favorable to the Borrower or such Subsidiary than could be obtained on an
arm's-length basis from unrelated third parties; provided, however, that the
foregoing shall not apply to:
(a) loans and advances permitted by Section 6.04(d);
(b) the formation of any Permitted Foreign Company;
(c) transactions between or among the Borrower and wholly owned
Subsidiaries that are Guarantors;
(d) transactions required by the General Shareholders Agreement dated
September 30, 1994, and the Continuing Shareholders Agreement dated
September 30, 1994, in each case as in effect on the date of this
Agreement; and
(e) the grant of stock options by the Borrower to its directors,
officers and employees in the ordinary course of business and the exercise
of such stock options; and
(f) the consummation of the Merger.
SECTION 6.08. Business of Borrower and Subsidiaries. (a) Own, manage or
operate any business not
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principally engaged in a segment of the pharmaceutical or health-care industry
or ancillary thereto.
(b) Make any change materially adverse to the Lenders in the nature of
its business as carried on at the date of this Agreement.
SECTION 6.09. Operating Leases. Permit the aggregate rental expense for the
Borrower and the Subsidiaries for any fiscal year, determined on a consolidated
basis in accordance with GAAP, to exceed $8,000,000.
SECTION 6.10. Amendments of Certain Agreements; Conduct of Acquisition. (a)
Amend, waive, modify or terminate any provisions of its constitutive documents
or any agreement if the effect of such amendment, waiver, modification or
termination could reasonably be expected to have a Material Adverse Effect.
(b) Amend, waive or modify any provision of the Merger Agreement in any
material respect or, after the Closing Date, terminate the Merger Agreement;
provided, however, that the approval of the Lenders shall not be required for
any extension of the Tender Offer.
(c) Pay more than $250,000,000 (net of any cash paid to the Company upon
the exercise of outstanding options) to shareholders to acquire all the
outstanding Shares (other than Shares with respect to which appraisal rights
shall be exercised) and acquire, redeem or terminate all outstanding rights to
acquire Shares.
SECTION 6.11. Fiscal Year. Change the end of its fiscal year; provided,
however, that approval from the Required Lenders for any such changes shall not
be unreasonably withheld.
SECTION 6.12. Payment on Other Indebtedness. Make any distribution, whether
in cash, property, securities or a combination thereof, other than scheduled
payments of principal and interest as and when due (to the extent not prohibited
by applicable subordination provisions), in respect of, or pay, or offer to
commit to pay, or directly or indirectly redeem, repurchase, retire or otherwise
acquire for consideration, or set apart any sum for the aforesaid purposes, any
Indebtedness (other than the
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Obligations), except for payments in the form of common stock of the Borrower.
SECTION 6.13. Capital Expenditures. Permit the aggregate amount of Capital
Expenditures made (a) for the period from and including September 1, 1995, to
and including December 30, 1995, to exceed $10,000,000 or (b) In any fiscal
year, commencing with fiscal year 1996, to exceed $25,000,000 plus, commencing
with fiscal year 1997, 50% of the excess, if any, of (i) $25,000,000 over (ii)
actual Capital Expenditures for the preceding fiscal year.
SECTION 6.14. Leverage Ratio. Permit the Leverage Ratio as of any date
during any period specified below to be in excess of the ratio set forth below
next to such period:
Period Ratio
From and including the last day
of fiscal 1995 to but
excluding the last day of
the second fiscal quarter
of 1996
5.00 to 1.00
From and including the last
day of the second fiscal
quarter of 1996 to but
excluding the last day of
the third fiscal quarter or
1996 4.75 to 1.00
From and including the last
day of the third fiscal
quarter of 1996 to but
excluding the last day of
fiscal 1996 4.50 to 1.00
From and including the last
day of fiscal 1996 to but
excluding the last day of
fiscal 1997 4.00 to 1.00
From and including the last
day of fiscal 1997 to but
excluding the last day of
fiscal 1998 3.50 to 1.00
Thereafter 3.00 to 1.00
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106
SECTION 6.15. Senior Debt Ratio. Permit the ratio of (i) Senior Debt as of
any date during any period specified below to (ii) EBITDA for the most recent
complete four fiscal quarter period ended on or prior to such date to be in
excess of the ratio set forth below next to such period:
Period Ratio
From and including the last
day of fiscal 1995 to but
excluding the last day of
the second fiscal quarter
of 1996 5.00 to 1.00
From and including the last
day of the second fiscal
quarter of 1996 to but
excluding the last day of
the third fiscal quarter of
1996 4.75 to 1.00
From and including the last
day of the third fiscal
quarter of 1996 to but
excluding the last day
of fiscal 1996 4.50 to 1.00
From and including the last
day of fiscal 1996 to but
excluding the last day of
fiscal 1997 4.00 to 1.00
From and including the last
day of fiscal 1997 to but
excluding the last day of
fiscal 1998 3.00 to 1.00
Thereafter 2.50 to 1.00
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SECTION 6.16. Net Worth. Permit Net Worth as of any date during any period
specified below to be less than the amount set forth below next to such period:
Period Amount
From and including the last
day of the third fiscal
quarter of 1995 to but
excluding the last day of
fiscal 1996 $145,000,000
From and including the last
day of fiscal 1996 to but
excluding the last day of
fiscal 1997 $170,000,000
From and including the last
day of fiscal 1997 to but
excluding the last day of
fiscal 1998 $225,000,000
From and including the last
day of fiscal 1998 to but
excluding the last day of
fiscal 1999 $275,000,000
Thereafter $350,000,000
SECTION 6.17. Working Capital. Permit the ratio of Current Assets to
Current Liabilities as of the last day of any fiscal quarter to be less than
1.75 to 1.Q0.
SECTION 6.18. Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage
Ratio as of any date to be less than 1.5 to 1.0.
ARTICLE VII
Events of Default
In case of the happening of any of the following events ("Events of
Default"):
(a) any material representation or warranty made or deemed made by any
Loan Party in any Loan Document or in connection with the borrowings or
issuances of Letters of Credit hereunder, or any representation,
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warranty, statement or information contained in any report, certificate,
financial statement or other instrument authored and furnished by any Loan
Party to the Administrative Agent in connection with or pursuant to any
Loan Document, shall prove to have been false or misleading in any material
respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any Loan
or the reimbursement with respect to any L/C Disbursement when and as the
same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or by acceleration thereof or otherwise;
(c) default shall be made in the payment of any Fee or any interest on
any Loan or L/C Disbursement or any other amount (other than an amount
referred to in clause (b) above) due under any Loan Document, when and as
the same shall become due and payable, and such default shall continue
unremedied for a period of three Business Days;
(d) default shall be made in the due observance or performance by the
Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 5.01(a), 5.05 or 5.08 or in Article VI;
(e) default shall be made in the due observance or performance by the
Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in clause (b),
(c) or (d) above) and such default shall continue unremedied for a period
of 30 days after notice thereof from the Administrative Agent or any Lender
to the Borrower;
(f) the Borrower or any Subsidiary shall (i) fail to pay any principal
or interest, regardless of amount, due in respect of any Indebtedness in a
principal amount in excess of $5,000,000, when and as the same shall become
due and payable, or (ii) fail to observe or perform any other term,
covenant, condition or agreement contained in any agreement or instrument
evidencing or governing any such Indebtedness if the effect of any failure
referred to in this clause (ii) is to cause, or to permit the holder or
holders of such Indebtedness or a trustee on its or their behalf (with
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or without the giving of notice, the lapse of time or both) to cause, such
Indebtedness to become due prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of the Borrower or any Subsidiary, or of a substantial
part of the property or assets of the Borrower or a Subsidiary, under Title
11 of the United States Code, as now constituted or hereafter amended, or
any other Federal, state or foreign bankruptcy, insolvency, receivership or
similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Subsidiary or for a substantial part of the property or assets of the
Borrower or a Subsidiary or (iii) the winding-up or liquidation of the
Borrower or any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of
the foregoing shall be entered;
(h) the Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal,
state or foreign bankruptcy, insolvency, receivership or similar law, (ii)
consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described
in clause (g) above, (iii) apply for or consent to the appointment Of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Subsidiary or for a substantial part of the
property or assets of the Borrower or any Subsidiary, (iv) file an answer
admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (vii) take any action for
the purpose of effecting any of the foregoing;
(i) one or more judgments for the payment of money in an aggregate
amount in excess of $5,000,000 (net of amounts covered by insurance) shall
be rendered against the Borrower, any Subsidiary or any combination thereof
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110
and the same shall remain undischarged for a period of 30 consecutive days
during which execution shall not be effectively stayed, or any action shall
me legally taken by a judgment creditor to levy upon assets or properties
of the Borrower or any Subsidiary to enforce any such judgment;
(j) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other such ERISA Events that
have occurred, could reasonably be expected to result in liability of the
Borrower and the ERISA Affiliates in an aggregate amount exceeding
$5,000,000;
(k) any security interest purported to be created by any Security
Document shall be asserted by the Borrower or any other Loan Party not to
be a valid, perfected, first priority (except as otherwise expressly
provided in this Agreement or such Security Document) security interest in
the securities, assets or properties covered thereby, except to the extent
(i) that any such loss of perfection or priority results from the failure
of the Collateral Agent to maintain possession of certificates representing
securities pledged under the Pledge Agreement, the failure of the
Collateral Agent to make filings in the jurisdictions indicated on the
Perfection Certificate or the failure of the Collateral Agent to make any
necessary continuation filing or (ii) that such loss is covered by a
lender's title insurance policy and the related insurer promptly after such
loss shall have acknowledged in writing that such loss is covered by such
title insurance policy;
(l) (i) the Pledge Agreement shall not, or shall cease to, be
effective to create in favor of the Collateral Agent, for the ratable
benefit of the Secured Parties, a legal, valid and enforceable security
interest in the Collateral (as defined in the Pledge Agreement) or the
Pledge Agreement shall not, or shall cease to, constitute a perfected Lien
on, and security interest in, all right, title and interest of the pledgors
thereunder in such Collateral, in each case prior and superior in right to
any other person, (ii) the Security Agreement or the Chattel Mortgage shall
not, or shall cease to, be effective to create in favor of the Collateral
Agent, for the ratable benefit of the Secured Parties, a legal, valid and
enforceable
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111
security interest in the Collateral (as defined in the Security Agreement)
or the Mortgaged Property (as defined in the Chattel Mortgage), as
applicable, or the Security Agreement or the Chattel Mortgage shall not, or
shall cease to, constitute a perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in such Collateral
or Mortgaged Property, as applicable, in each case prior and superior in
right to any other person, other than with respect to Liens expressly
permitted by Section 6.02, or (iii) the Mortgages shall not, or shall cease
to, be effective to create in favor of the Collateral Agent, for the
ratable benefit of the Secured Parties, a legal, valid and enforceable Lien
on all of the Loan Parties' right title and interest in and to the
Mortgaged Properties thereunder and the proceeds thereof, or the Mortgages
shall not, or shall cease to, constitute a perfected Lien on, and security
interest in, all right, title and interest of the Borrower and the
Subsidiaries in such Mortgaged Properties and the proceeds thereof, in each
case prior and superior in right to any other person, other than with
respect to Liens expressly permitted by Section 6.02, except in each case
to the extent (A) that any such loss of perfection or priority results from
the failure of the Collateral Agent to maintain possession of certificates
representing securities pledged under the Pledge Agreement or mortgage
notes pledged under any other Security Document, the failure of the
Collateral Agent to make filings in the jurisdictions indicated on the
Perfection Certificate (or instruct the Borrower to make such filings) or
the failure of the Collateral Agent to make any necessary continuation
filing (or instruct the Borrower to make such filings), (B) that such loss
is covered by a lender's title insurance policy and the related insurer
promptly after such loss shall have acknowledged in writing that such loss
is covered by such title insurance policy, or (C) the aggregate fair market
value of all Collateral with respect to which such loss applies is less
than $1,000,000;
(m) the Guarantee Agreement shall cease to be, or shall be asserted by
the Borrower or any other Loan Party not to be, a legal, valid and binding
obligation of (i) any Specified Guarantor or (ii) multiple Guarantors that,
taken together, would constitute a Specified Guarantor; or
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112
(n) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to the Borrower
described in clause (g) or (h) above), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of
the Required Lenders shall, by notice to the Borrower, take either or both of
the following actions, at the same or different times: (i) terminate forthwith
the Commitments and (ii) declare the Loans then outstanding to be forthwith due
and payable in whole or in part, whereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder
and under any other Loan Document, shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrower, anything contained herein or
in any other Loan Document to the contrary notwithstanding; and in any event
with respect to the Borrower described in paragraph (g) or (h) above, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and any unpaid accrued Fees
and all other liabilities of the Borrower accrued hereunder and under any other
Loan Document, shall automatically become due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein or in any other Loan
Document to the contrary notwithstanding.
ARTICLE VIII
The Administrative Agent and the Collateral Agent
In order to expedite the transactions contemplated by this Agreement,
Chemical Bank is hereby appointed to act as Administrative Agent and Collateral
Agent on behalf of the Lenders and the Issuing Bank (for purposes of this
Article VIII, the Administrative Agent and the Collateral Agent are referred to
collectively as the "Agents"). Each of the Lenders and each assignee of any such
Lender, hereby irrevocably authorizes the Agents to take such actions on behalf
of such Lender or assignee or the Issuing Bank and to exercise such powers as
are specifically delegated to the Agents by the terms and provisions hereof and
of the other Loan Documents, together with such actions and powers as are
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reasonably incidental thereto. The Administrative Agent is hereby expressly
authorized by the Lenders and the Issuing Bank, without hereby limiting any
implied authority, (a) to receive on behalf of the Lenders and the Issuing Bank
all payments of principal of and interest on the Loans, all payments in respect
of L/C Disbursements and all other amounts due to the Lenders hereunder, and
promptly to distribute to each Lender or the Issuing Bank its proper share of
each payment so received; (b) to give notice on behalf of each of the Lenders to
the Borrower of any Event of Default specified in this Agreement of which the
Administrative Agent has actual knowledge acquired in connection with its agency
hereunder; and (c) to distribute to each Lender copies of all notices, financial
statements and other materials delivered by the Borrower pursuant to this
Agreement as received by the Administrative Agent. Without limiting the
generality of the foregoing, the Agents are hereby expressly authorized to
execute any and all documents (including releases) with respect to the
Collateral and the rights of the Secured Parties with respect thereto, as
contemplated by and in accordance with the provisions of this Agreement and the
Security Documents.
Each Lender specifically acknowledges the provisions of Section 9.06(b),
which provide that, under certain circumstances, payments otherwise due to a
Defaulting Lender need not be made. Each Lender further acknowledges that one of
the consequences of such provisions is that amounts received by the
Administrative Agent for the account of the Lenders may not be distributed on a
pro rata basis. The Administrative Agent shall be conclusively entitled to rely
on any notice furnished pursuant to Section 9.06(b), and neither the
Administrative Agent nor any of its directors, officers, employees or agents
shall be liable as such for any action taken or omitted by them as contemplated
or required by Section 9.06(b) or in reliance upon any such notice except to the
extent of its gross negligence or willful misconduct in determining whether any
notice under Section 9.06(b) on its face meets the requirements thereof. The
exculpation provided in the immediately preceding sentence shall be available
notwithstanding: (a) any dispute as to whether a Lender is a Defaulting Lender;
(b) any dispute as to whether a Default shall have occurred and be continuing;
(c) any dispute as to the amount of any Defaulted Advance; (d) any other dispute
as to the validity of any set-off under Section 9.06(b); or (e) the belief of
the Administrative Agent as to any of the foregoing matters.
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Neither the Agents nor any of their respective directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or willful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by the
Borrower or any other Loan Party of any of the terms, conditions, covenants or
agreements contained in any Loan Document. The Agents shall not be responsible
to the Lenders for the due execution, genuineness, validity, enforceability or
effectiveness of this Agreement or any other Loan Documents, instruments or
agreements. The Agent shall in all cases be fully protected in acting, or
refraining from acting, in accordance with written instructions signed by the
Required Lenders and, except as otherwise specifically provided herein, such
instructions and any action or inaction pursuant thereto shall be binding on all
the Lenders. Each Agent shall, in the absence of knowledge to the contrary, be
entitled to rely on and instrument or document believed by it in good faith to
be genuine and correct and to have been signed or sent by the proper person or
persons. Neither the Agents nor any of their respective directors, officers,
employees or agents shall have any responsibility to the Borrower or any other
Loan Party on account of the failure of or delay in performance or breach by any
Lender or the Issuing Bank of any of its obligations hereunder or to any Lender
or the Issuing Bank on account of the failure of or delay in performance or
breach by any other Lender or the Issuing Bank or the Borrower or any other Loan
Parry of any or their respective obligations hereunder or under any other Loan
Document or in connection herewith or therewith. Each of the Agents may execute
any and all duties hereunder by or through agents or employees and shall be
entitled to rely upon the advice of legal counsel selected by it with respect to
all matters arising hereunder and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that neither Agent shall be under any duty
to take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so by
the Required Lenders.
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Subject to the appointment and acceptance of a successor Agent as provided
below, either Agent may resign at any time by notifying the Lenders and the
Borrower. Upon any such resignation, the Required Lenders shall have the right
to appoint a successor with the prior approval of the Borrower (such approval
not to be unreasonably withheld or delayed). If no successor shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within 30 days after the retiring Agent gives notice of its resignation, then
the retiring Agent may, on behalf of the Lenders, appoint a successor Agent
which shall be a bank with an office in New York, New York, having a combined
capital and surplus of at least $500,000,000 or an Affiliate of any such bank.
Upon the acceptance of any appointment as Agent hereunder by a successor bank,
such successor shall succeed to and become vested with all the rights,
powers,privileges and duties of the retiring Agent and the retiring Agent shall
be discharged from its duties and obligations hereunder. After the Agent's
resignation hereunder, the provisions of this Article and Section 9.05 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Agent.
With respect to the Loans made by it hereunder, each Agent in its
individual capacity and not as Agent shall have the same rights and powers as
any other Lender and may exercise the same as though it were not an Agent, and
the Agents and their Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not an Agent.
Each Lender agrees (a) to reimburse the Agents, on demand, in the amount of
its pro rata share (based on its Commitments hereunder) of any reasonable
out-of-pocket expenses incurred for the benefit of the Lenders by the Agents,
including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, that shall not have been reimbursed
by the Borrower and (b) to indemnify and hold harmless each Agent and any of its
directors, officers, employees or agents, on demand, in the amount of such pro
rata share, from and against any and all liabilities, taxes, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by or asserted against it in its capacity as Agent or any of them in any way
relating to or
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arising out of this Agreement or any other Loan Document or any action taken or
omitted by it or any of them under this Agreement or any other Loan Document, to
the extent the same shall not have been reimbursed by the Borrower, provided,
however, that no Lender shall be liable to an Agent or any such other
indemnified person for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of such Agent or any
of its directors, officers, employees or agents. In the event any Agent is
subsequently reimbursed by any Loan Party for any such expenses, liabilities,
taxes, obligations, losses, damages, penalties, judgments, costs or
disbursements, such Agent shall reimburse each Lender, pro rata, to the extent
of any payment made by such Lender with respect thereto under this paragraph.
Each Lender acknowledges that it has, independently and without reliance
upon the Agents or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon the Agents or any other Lender and based on such
documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement or any other Loan Document, any related agreement or any
document furnished hereunder or thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service,
mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 100 Campus Drive, Florham Park, NJ
07932, Attention of the Chief Financial Officer, Telecopy No. (201)
593-5580), with a copy to the General Counsel (Telecopy No. (201)
593-5820);
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(b) if to the Administrative Agent, to Chemical Bank Agency Services,
Grand Central Tower, 140 East 45th Street, New York, New York 10017,
Attention of Janet Belden (Telecopy No. (212) 622-0122), with a copy to
Chemical Bank, at 270 Park Avenue, New York 10017, Attention of David
Corcoran (Telecopy No. (212) 972-0009); and
(c) if to a Lender, to it at its address (or telecopy number)
set-forth in Schedule 2.01 or in the Assignment and Acceptance pursuant to
which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and the Issuing Bank and shall survive the
making by the Lenders of the Loans and the issuance of Letters of Credit by the
Issuing Bank, regardless of any investigation made by the Lenders or the Issuing
Bank or on their behalf, and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any Fee or any other
amount payable under this Agreement or any other Loan Document is outstanding
and unpaid or any Letter of Credit is outstanding and so long as the Commitments
have not been terminated. The provisions of Sections 2.14, 2.16, 2.20 and 9.05
shall remain operative and in full force and effect regardless of the expiration
of the term of this Agreement, the consummation of the transactions contemplated
hereby, the repayment of any Loans, the expiration of the Commitments, the
expiration of any Letter of Credit, the Invalidity or unenforceability of any
term or provision of his Agreement or any other Loan Document, or any
investigation made by or on behalf of the Administrative
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Agent, the Collateral Agent, any Lender or the Issuing Bank.
SECTION 9.03. Binding Effect. This Agreement shall become effective when it
shall have been executed by the Borrower and the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective permitted successors and assigns.
SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
permitted successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the Borrower, the Administrative Agent, the
Issuing Bank or the Lenders that are contained in this Agreement shall bind and
inure to the benefit of their respective successors and assigns
(b) Each Lender may assign to one or more assignees all or a portion of its
interests, rights and obligations under this Agreement (including all or a
portion of its Commitments and the Loans at the time owing to it); provided,
however, that (i) except in the case of an assignment to a Lender or an
Affiliate of such Lender, (x) the Borrower and the Administrative Agent (and, in
the case of any assignment of a Revolving Credit Commitment, the Issuing Bank)
must give their prior written consent to such assignment (which consent shall
not be unreasonably withheld), (y) no assignment may be offered or made to any
pharmaceutical company or to any Affiliate of a pharmaceutical company and (z)
the amount of the Commitment and Loans of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $10,000,000 (or, if less, the entire remaining amount of such
Lender's Commitment), (ii) the parties to each such assignment shall execute and
deliver to the Administrative Agent an Assignment and Acceptance, with a copy
thereof furnished to the Borrower, together (except in the case of any
assignment to an Affiliate of the assigning Lender) with a processing and
recordation fee of $3,500 and (iii) the assignee, if it shall not be a Lender,
shall deliver to the Administrative Agent an Administrative Questionnaire Upon
acceptance and recording pursuant to paragraph (e) below, from and after
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the effective date specified in each Assignment and Acceptance, which effective
date shall be at least five Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement and (B) the assigning Lender thereunder shall, to
the extent of the interest assigned by such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.14, 2.16, 2.20 and 9.05, as well as to any interest and Fees accrued for its
account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the assignee thereunder shall be deemed to confirm to and
agree with each other and the other parties hereto as follows: (i) such
assigning Lender warrants that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim and that its
Commitments and the outstanding balances of its Term Loans and Revolving Loans,
in each case without giving effect to assignments thereof which have not become
effective, are as set forth in such Assignment and Acceptance, (ii) except as
set forth in (i) above, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement, any other Loan Document or any other instrument or
document furnished pursuant hereto, or the financial condition of the Borrower
or any Subsidiary or the performance or observance by the Borrower or any
Subsidiary of any of its obligations under this Agreement, any other Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance and that neither it nor any of its
Affiliates is engaged in the pharmaceutical or health-care industry; (iv) such
assignee confirms that it has received a copy of this Agreement, together with
copies of the most recent financial statements referred to in Section 3.05(a) or
delivered pursuant to Section 5.04 and such other documents and information as
it has deemed appropriate to make its own
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credit analysis and decision to enter into such Assignment and Acceptance; (v)
such assignee shall independently and without reliance upon the Administrative
Agent, the Collateral Agent, such assigning Lender or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (vi) such assignee appoints and authorizes the Administrative
Agent and the Collateral Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Administrative
Agent and the Collateral Agent, respectively, by the terms hereof, together with
such powers as are reasonably incidental thereto; and (vii) such assignee agrees
that it shall perform in accordance with their terms all the obligations which
by the terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices in The City of Net York a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive and the Borrower, the Administrative Agent, the Issuing Bank, the
Collateral Agent and the Lenders may treat each person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrower, the Issuing Bank, the Collateral Agent
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance executed
by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) above and, if required, the written consent of the Borrower, the Issuing
Bank and the Administrative Agent to such assignment, the Administrative Agent
shall (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Lenders and the Issuing Bank. No assignment shall be
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effective unless it has been recorded in the Register as provided in this
paragraph (e).
(f) Each Lender may without the consent of the Borrower, the Issuing Bank
or the Administrative Agent sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided, however, that (i) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) each participating
bank or other entity shall be entitled to the benefit of the cost protection
provisions contained in Sections 2.14, 2.16 and 2.20 to the same extent as if it
were a Lender, but not in an amount greater than that of the Lender from which
it acquired its participation (and any entitlement thereto of such participant
shall reduce pro tanto the right of such Lender to claim the benefit of such
provisions), (iv) a participation may not be offered or sold to any
pharmaceutical company or to any Affiliate of a pharmaceutical company and (v)
the Borrower, the Administrative Agent, the Issuing Bank and the Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement, and such Lender shall
retain the sole right to enforce the obligations of the Borrower relating to the
Loans or L/C Disbursements and to approve any amendment, modification or waiver
of any provision of this Agreement (other than amendments, modifications or
waivers decreasing any fees payable hereunder or the amount of principal of or
the rate at which interest is payable on the Loans, extending any scheduled
principal payment date or date fixed for the payment of interest on the Loans or
changing or extending the Commitments).
(g) Notwithstanding Section 9.17, any Lender or participant may, in
connection with any assignment or participation or proposed assignment or
participation pursuant to this Section 9.04, disclose to the assignee or
participant or proposed assignee or participant any information relating to the
Borrower furnished to such Lender by or on behalf of the Borrower; provided,
however, that, prior to any such disclosure of information designated by the
Borrower as confidential, each such assignee or participant or proposed assignee
or participant shall execute an agreement (a copy of which shall be given to the
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Borrower) whereby such assignee or participant shall agree to preserve the
confidentiality of such confidential information on terms no less restrictive
than those applicable to the Lenders pursuant to Section 9.17.
(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement or any note issued in connection herewith to a Federal
Reserve Bank to secure extensions of credit by such Federal Reserve Bank to such
Lender; provided, however, that no such assignment shall release a Lender from
any of its obligations hereunder or substitute any such Bank for such Lender as
a party hereto. In order to facilitate such an assignment to a Federal Reserve
Bank, the Borrower shall, at the request of the assigning Lender, duly execute
and deliver to the assigning Lender a promissory note or notes evidencing the
Loans made to the Borrower by the assigning Lender hereunder.
(i) The Borrower shall not assign or delegate any of its rights or duties
hereunder without the prior written consent of the Administrative Agent, the
Issuing Bank and each Lender, and any attempted assignment without such consent
shall be null and void.
(j) In the event that Standard & Poor's, Moody's Investors Service, Inc.,
and Thompson's BankWatch (or InsuranceWatch Ratings Service, in the case of
Lenders that are insurance companies (or Best's Insurance Reports, if such
insurance company is not rated by InsuranceWatch Ratings Service)) shall, after
the date that any Lender becomes a Lender, downgrade the long-term certificate
of deposit ratings of such Lender, and the resulting ratings shall be below
BBB-, Baa3 and C (or BE, in the case of a Lender that is an insurance company
(or B. in the case of an insurance company not rated by InsuranceWatch Ratings
Service)), then the Issuing Bank shall have the right, but not the obligation,
at its own expense, upon notice to such Lender and the Administrative Agent, to
replace (or to request the Borrower to use its reasonable efforts to replace)
such Lender with an assignee (in accordance with and subject to the restrictions
contained in paragraph (b) above), and such Lender hereby agrees to transfer and
assign without recourse (in accordance with and subject to the restrictions
contained in paragraph (b) above) all its interests, rights and obligations in
respect of its Revolving Credit Commitment to such assignee; provided, however,
that (i) no such assignment shall conflict with any
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law, rule and regulation or order of any Governmental Authority and (ii) the
Issuing Bank or such assignee, as the case may be, shall pay to such Lender in
immediately available funds on the date of such assignment the principal of and
interest accrued to the date of payment on the Loans made by such Lender
hereunder and all other amounts accrued for such Lender's account or owned to it
hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower shall pay all
reasonable out-of-pocket expenses reasonably incurred by the Administrative
Agent, the Collateral Agent and the Issuing Bank in connection with the
syndication of the credit facilities provided for herein and the preparation and
administration of this Agreement and the other Loan Documents or in connection
with any amendments, modifications or waivers of the provisions hereof or
thereof) (whether or not the transactions hereby or thereby contemplated shall
be consummated) or incurred during the continuance of a Default by the
Administrative Agent, the Collateral Agent or any Lender in connection with the
enforcement or protection of its rights in connection with this Agreement and
the other Loan Documents or in connection with the Loans made or Letters of
Credit issued hereunder, including the reasonable fees, charges and
disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent
and the Collateral Agent, and, in connection with any such enforcement or
protection, the reasonable fees, charges and disbursements of any other counsel
for the Administrative Agent, the Collateral Agent or any Lender; provided,
however, that the Borrower shall not be required to pay for separate counsel for
the Administrative Agent and the Collateral Agent.
(b) The Borrower shall indemnify the Administrative Agent, the Collateral
Agent, each Lender and the Issuing Bank, each Affiliate of any of the foregoing
persons and each of their respective directors, officers, employees and agents
(each such person being called an "Indemnitee") against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable counsel fees, charges and disbursements,
incurred by or asserted against any Indemnitee arising out of, in any way
connected with, or as a result of (i) the execution or delivery of this
Agreement or any other Loan Document or any agreement or instrument contemplated
thereby, the performance by the parties thereto of their respective obligations
thereunder or the consummation of the Transactions and the other transactions
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contemplated thereby (excluding, in the case of each Indemnitee other than
Chemical Bank and its Affiliates, legal expenses incurred prior to the date of
this Agreement), (ii) the use of the proceeds of the Loans or issuance of
Letters of Credit, (iii) any claim, litigation, investigation or proceeding
relating to any of the foregoing, whether or not any Indemnitee is a party
thereto, (iv) any actual or alleged presence or Release of Hazardous Materials
on any property owned or operated by the Borrower or any Subsidiary, or any
Environmental Claim related in any way to the Borrower or the Subsidiaries or
(v) in the case of the Administrative Agent, its Affiliates and each of their
respective directors, officers, employees and agents, any claims by any Lender
arising out of any exercise or attempted exercise by the Borrower of rights
under Section 9.06(b); provided, however, that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee (limited, in the case of
clause (v) above, to gross negligence or wilful misconduct in determining
whether any notice under Section 9.06(b) on its face meets the requirements
thereof).
(c) The provisions of this Section 9.05 shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the expiration of the Commitments, the expiration of any Letter of
Credit, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation made by or on behalf
of the Administrative Agent, the Collateral Agent, any Lender or the Issuing
Bank. All amounts due under this Section 9.05 shall be payable on written demand
therefor.
SECTION 9.06. Rights of Setoff. (a) If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement and
other Loan Documents held by such
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Lender, irrespective of whether or not such Lender shall have made any demand
under this Agreement or such other Loan Document and although such obligations
may be unmatured. The rights of each Lender under this paragraph (a) are in
addition to other rights and remedies (including other rights of setoff) which
such Lender may have.
(b) If, at any time, (i) any Lender shall be a Defaulting Lender and shall
owe a Defaulted Advance to the Borrower, (ii) no Default shall have occurred and
be continuing and neither the Required Lenders (determined without regard for
the proviso in the definition thereof) nor the Administrative Agent shall have
asserted in writing to the Borrower that a Default shall have occurred and be
continuing and (iii) the Borrower shall be required to make any payment
hereunder or under any Loan Document to or for the account of such Defaulting
Lender, then, unless the Borrower otherwise notifies the Administrative Agent,
the Borrower shall, to the fullest extent permitted by law, set off and apply
the amount of such payment against the Defaulted Advance. Prior to the due time
for any payment with respect to which the Borrower intends to exercise its
rights under this paragraph (b), the Borrower will deliver to the Administrative
Agent a notice signed by a Responsible Officer stating (A) that the conditions
set forth in clauses (i) and (ii) above are satisfied, (B) the amount of the
Defaulted Advance and the applicable Defaulting Lender and (C) the amount to be
set off.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN
DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF
CREDIT, OR IF NO SUCH LAWS OR ROLES ARE DESIGNATED, THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF
COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT
GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank in
exercising any power or right hereunder or under any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any
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abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent, the
Collateral Agent, the Issuing Bank and the Lenders hereunder and under the other
Loan Documents are cumulative and are not exclusive of any rights or remedies
that they would otherwise have. No waiver of any provision of this Agreement or
any other Loan Document or consent to any departure by the Borrower therefrom
shall in any event be effective unless the same shall be permitted by paragraph
(b) below, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrower and the Required Lenders; provided, however, that no such
agreement shall (i) decrease the principal amount of, or extend the maturity of
or any scheduled principal payment date or date for the payment of any interest
on any Loan or any date for reimbursement of an L/C Disbursement, or waive or
excuse any such payment or any part thereof, or decrease the rate of interest on
any Loan or L/C Disbursement, without the prior written consent of each Lender
directly affected thereby, (ii) change or extend the Commitment or decrease the
Commitment Fees or L/C Participation Fees of any Lender or extend the time for
payment thereof without the prior written consent of such Lender, or (iii) amend
or modify the provisions of Section 2.16 or 9.04(i), the provisions of this
Section 9.08 or the definition of the term "Required Lenders" without the prior
written consent of each Lender, (iv) release all or a substantial part of the
Collateral, or release any Specified Guarantor, without the prior written
consent of Lenders having Loans, L/C Exposures and unused Revolving Credit and
Term Loan Commitments at such time representing at least 80% of the sum of all
Loans outstanding, L/C Exposures and unused Revolving Credit and Term Loan
Commitments at such time, or (v) amend, modify or otherwise affect the rights or
duties of the Administrative Agent, the Collateral Agent or the Issuing Bank
hereunder or under any other Loan Document without the prior written consent of
the Administrative Agent, the Collateral Agent or the Issuing Bank.
<PAGE>
127
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein to
the contrary, if at any time the interest rate applicable to any Loan or
participation in any L/C Disbursement, together with all fees, charges and other
amounts which are treated as interest on such Loan or participation in such L/C
Disbursement under applicable law (collectively the "Charges"), shall exceed the
maximum lawful rate (the "Maximum Rate") which may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan or participation in
accordance with applicable law, the rate of interest payable in respect of such
Loan or participation hereunder, together with all Charges payable in respect
thereof, shall be limited to the Maximum Rate and, to the extent lawful, the
interest and Charges that would have been payable in respect of such Loan or
participation but were not payable as a result or the operation of this Section
shall be cumulated and the interest and Charges payable to such Lender in
respect of other Loans or participations or periods shall be increased (but not
above the Maximum Rate therefor) until such cumulated amount, together with
interest thereon at the Federal Funds Effective Rate to the date of repayment,
shall have been received by such Lender.
SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter and the
other Loan Documents constitute the entire contract between the parties relative
to the subject matter hereof. Any other previous agreement among the parties
with respect to the subject matter hereof is superseded by this Agreement and
the other Loan Documents. Nothing in this Agreement or in the other Loan
Documents, expressed or implied, is intended to confer upon any party other than
the parties hereto and thereto any rights, remedies, obligations or liabilities
under or by reason of this Agreement or the other Loan Documents.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG
<PAGE>
128
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.
SECTION 9.12. Severability. In the event any one or more of the provisions
contained in this Agreement or in any other Loan Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original but all of which when taken together shall constitute a
single contract, and shall become effective as provided in Section 9.03.
Delivery of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 9.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) Each party
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction o
f any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each party hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each party hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any
<PAGE>
129
right that the Administrative Agent, the Collateral Agent, the Issuing Bank or
any Lender may otherwise have to bring any action or proceeding relating to this
Agreement or the other Loan Documents against the Borrower or its properties in
the courts of any jurisdiction.
(b) Each party hereto hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party hereto irrevocably consents to service of process in the
manner provided for notices in Section 9.01. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 9.16. Mortgaged Property Casualty and Condemnation. (a)
Notwithstanding any other provision of this Agreement or the Security Documents,
the Collateral Agent is authorized, at its option (for the benefit of the
Secured Parties), to collect and receive, to the extent payable to the Borrower
or any other Loan Party, all insurance proceeds, damages, claims and rights of
action under any insurance policies with respect to any casualty or other
insured damage ("Casualty") to any portion of any Mortgaged Property
(collectively "Insurance Proceeds"), unless the amount of the related Insurance
Proceeds is less than $1,000,000 and an Event of Default shall not have occurred
and be continuing. The Borrower shall notify the Collateral Agent and the
Administrative Agent, in writing, promptly after the Borrower or any Subsidiary
obtains notice or knowledge of any Casualty to a Mortgaged Property, which
notice shall set forth a description of such Casualty and the Borrower's good
faith estimate of the amount of related damages. The Borrower shall, subject to
the foregoing limitations, endorse and transfer or cause to be endorsed or
transferred any Insurance Proceeds received by it or any other Loan Party to the
Collateral Agent.
(b) In the event of any Casualty of less than or equal to 50% of the
useable square footage of the
<PAGE>
130
improvements of any Mortgaged Property, the Borrower shall, subject to the
conditions contained in paragraph (f) below, restore such Mortgaged Property to
substantially its same condition immediately prior to such Casualty. In the
event of any Casualty of greater than 50% of the useable square footage of the
improvements of any Mortgaged Property and so long as no Default or Event of
Default has occurred and is continuing, the Borrower shall have the option to:
(i) subject to the conditions contained in paragraph (f) below,
restore such Mortgaged Property to a condition substantially similar to its
condition immediately prior to such Casualty and to invest the balance, if
any, of any Insurance Proceeds in equipment or other assets used in the
Borrower's principal lines of business within 20 months after the receipt
thereof, provided that the Borrower, pending such reinvestment, promptly
deposits such excess Insurance Proceeds in a cash collateral account
established with the Collateral Agent for the benefit of the Secured
Parties,
(ii) replace such Mortgaged Property with property of utility
comparable to that of the replaced Mortgaged Property and to invest the
balance, if any, of any Insurance Proceeds, in equipment, vehicles or other
assets used in the Borrowers principal lines of business within 20 months
after the receipt thereof, provided that the Borrower, pending such
reinvestment, promptly deposits such excess Insurance Proceeds in a cash
collateral account established with the Collateral Agent for the benefit of
the Secured Parties, or
(iii) apply the related Insurance Proceeds to (after reimbursement of
the reasonable costs, if any, incurred by the Collateral Agent in
connection with such Casualty) prepay Loans (in the order set forth in
Section 2.13(d)).
Any Insurance Proceeds on account of damage to fixed assets, fixtures, plant or
equipment that are not applied to restore or replace such Mortgaged Property or
reinvested in the Borrower's principal lines of business as contemplated above
shall be applied (after reimbursement of the reasonable costs, if any, incurred
by the Collateral Agent in connection with such Casualty) to prepay Loans (in
the order set forth in Section 2.13(d)).
<PAGE>
131
(c) If required to do so, the Borrower shall make the election contemplated
by paragraph (b) above by notifying the Collateral Agent and the Administrative
Agent promptly after the later to occur of (i) 10 Business Days after the
Borrower and its insurance carrier reach a final determination of the amount of
any Insurance Proceeds and (ii) 90 days after the occurrence of the Casualty. If
the Borrower shall be required or shall elect to restore the Mortgaged Property,
the insufficiency of any Insurance Proceeds to defray the entire expense of such
restoration shall in no way relieve the Borrower of such obligation so to
restore. In the event the Borrower shall be required to restore or shall notify
the Collateral Agent and the Administrative Agent of its election to restore,
the Borrower shall diligently and continuously prosecute the restoration of the
Mortgaged Property to completion. In the event of a Casualty where the Borrower
is required to make the election set forth in paragraph (b) above and the
Borrower shall fail to notify the Collateral Agent and the Administrative Agent
of its election within the period set forth above or shall elect not to restore
the Mortgaged Property, the Borrower shall apply such Insurance Proceeds (after
reimbursement of all reasonable costs incurred by the Collateral Agent in
connection with the applicable Casualty) to prepay Loans (in the order set forth
in Section 2.13(d)). In addition, upon such prepayment, the Borrower shall be
obligated to place the remaining portion, if any, of the Mortgaged Property in a
safe condition that is otherwise in compliance with the requirements of
applicable Governmental Authorities and the provisions of this Agreement and the
applicable Mortgage.
(d) The Borrower shall notify the Collateral Agent and the Administrative
Agent immediately upon obtaining knowledge of the institution of any action or
proceeding for the taking of any Mortgaged Property, or any part thereof or
interest therein, for public or quasi-public use under the power of eminent
domain, by reason of any public improvement or condemnation proceeding, or in
any other manner (a "Condemnation"). No settlement or compromise of any claim in
connection with any such action or proceeding shall be made without the consent
of the Collateral Agent, which consent shall not be unreasonably withheld. The
Collateral Agent is authorized, at its option (for the benefit of the Secured
Parties), to collect and receive, for application in accordance with paragraphs
(e) and (f) below, all proceeds of any such Condemnation (in each case, the
"Condemnation Proceeds"), unless the amount
<PAGE>
132
of the related Condemnation Proceeds is less than $1,000,000 and an Event of
Default shall not have occurred and be continuing. The Borrower shall execute or
cause to be executed such further assignments of any Condemnation Proceeds as
the Collateral Agent may reasonably require.
(e) In the event of any Condemnation of the Mortgaged Property or any part
thereof, and subject to paragraph (f) below, the Borrower shall apply any
Condemnation Proceeds first, in the case of a partial Condemnation, to the
repair or restoration of any integrated structure subject to such Condemnation
or, in the case of a total Condemnation or a Condemnation of substantially all a
Mortgaged Property (a "substantially all" Condemnation), to the location of a
replacement property, acquisition of such replacement property and construction
of the replacement structures, and second, shall apply the remainder of such
Condemnation Proceeds (after reimbursement of the reasonable costs, if any,
incurred by the Collateral Agent in connection with such Condemnation) to prepay
Loans (in the order set forth in Section 2.13(d)).
(f) Except as otherwise specifically provided in this Section 9.16, all
Insurance Proceeds (other than Insurance Proceeds arising out of any Casualty
but not on account of damage to fixed assets, fixtures, plant or equipment) and
all Condemnation Proceeds (i) are to be applied to the restoration of the
applicable Mortgaged Property (after reimbursement of the reasonable costs, if
any, incurred by the Collateral Agent in connection with the applicable Casualty
or Condemnation, including reasonable attorneys' fees, other charges and
disbursements and costs allocable to inspecting the Work (as defined below)) and
(ii) shall be applied to the payment of the cost of restoring or replacing the
Mortgaged Property so damaged, destroyed or taken or of the portion or portions
of the Mortgaged Property not so taken (the "Work") and (iii) shall be paid out
from time to time to the Borrower as and to the extent the Work (or the location
and acquisition of any replacement of any Mortgaged Property) progresses for the
payment thereof, but subject to each of the following conditions:
(A) the Borrower must promptly commence the restoration process
or the location, acquisition and replacement process in connection
with the Mortgaged Property;
<PAGE>
133
(B) the Work shall be in the charge of an architect or engineer
and before the Borrower commences any Work, other than temporary work
to protect property or prevent interference with business, the
Collateral Agent shall have received the plans and specifications and
the general contract for the Work from the Borrower (which plans and
specifications shall provide for such Work that, upon completion
thereof, the improvements shall (x) be in compliance with all
requirements of applicable Governmental Authorities such that all
representations and warranties of the Borrower relating to the
compliance of such Mortgaged Property with applicable laws, rules or
regulations in this Agreement or the Security Documents shall be
correct in all respects and (y) be at least equal in value and general
utility to the improvements that were on such Mortgaged Property (or
that were on the Mortgaged Property that has been replaced, if
applicable) prior to the Casualty or Condemnation, and in the case of
a Condemnation, subject to the effect of such Condemnation;
(C) except as provided in clause (D) below, each request for
payment shall be made on seven days' prior notice to the Collateral
Agent and shall be accompanied by a certificate to be made by a
Responsible Officer of the Borrower, stating (x) that all the Work
completed has been done in substantial compliance with the plans and
specifications and (y) that the sum requested is justly required to
reimburse the Borrower for payments by the Borrower to, or is justly
due to, the contractor, subcontractors, materialmen, laborers,
engineers, architects or other persons rendering services or materials
for the Work (giving a brief description of such services and
materials) and that, when added to all sums previously paid out by the
Collateral Agent, does not exceed the value of the Work done to the
date of such certificate;
(D) each request for payment in connection with the acquisition
of a replacement Mortgaged Property shall be made on 30 days' prior
notice to the Collateral Agent and, in connection therewith, (x) each
such request shall be accompanied by a copy of the sales contract or
other document governing the acquisition of the replacement property
by the Borrower and a certificate of the Borrower stating that the sum
requested represents the sales price under such contract or document
and the related reasonable
<PAGE>
134
transaction fees and expenses (including brokerage fees) and setting
forth in sufficient detail the various components of such requested
sum and (y) the Borrower shall (I) in addition to any other items
required to be delivered under this Section 9.16), provide the
Administrative Agent and the Collateral Agent with such opinions,
documents, certificates, title insurance policies, surveys and other
insurance policies as they may reasonably request and (II) take such
other actions as the Administrative Agent and the Collateral Agent may
reasonably deem necessary or appropriate (including actions with
respect to the delivery to the Collateral Agent of a first priority
Mortgage with respect to such real property for the ratable benefit of
the Secured Parties);
(E) there shall be no Default or Event of Default that has
occurred and is continuing (other than any Default or Event of Default
arising out of such Casualty or Condemnation);
(F) the request for any payment after the Work has been completed
shall be accompanied by a copy of any certificate or certificates
required by law to render occupancy of the improvements being rebuilt,
repaired or restored legal; and
(G) after commencing the Work, the Borrower shall continue to
perform the Work diligently and in good faith to completion in
accordance with the approved plans and specifications.
(g) Notwithstanding any other provisions of this Section 9.16, if the
Borrower shall have elected to replace a Mortgaged Property in connection with a
total or "substantially all" Condemnation as contemplated in paragraph (e)
above, all Condemnation Proceeds held by the Collateral Agent in connection
therewith shall be applied to prepay Loans (in the order set forth in Section
2.13(d)) if (i) the Borrower notifies the Collateral Agent and the
Administrative Agent that it does not intend to replace the related Mortgaged
Property, (ii) a Responsible Officer of the Borrower shall not have notified the
Administrative Agent and the Collateral Agent in writing that the Borrower has
acquired or has entered into a binding contract to acquire land upon which it
will construct the replacement property within six months after the related
Condemnation or (iii) the Borrower shall have not have begun construction of
<PAGE>
135
the replacement structures within one year after the related Condemnation and
the principal reason for such failure to begin construction is the failure of
the Borrower to diligently pursue the replacement of the related Mortgaged
Property.
(h) Any amounts held by the Collateral Agent pursuant to this Section 9.16
shall be held as collateral for the payment and performance of the Obligations.
Except as otherwise expressly specified in this Section 9.16, the Collateral
Agent shall have exclusive dominion and control, including the exclusive right
of withdrawal, over such amounts. At the option of the Collateral Agent, such
amounts may be invested in Permitted Investments (in which event interest
thereon shall be added to such amounts and be subject to this Section 9.16) or,
if the Borrower so directs, used to prepay Revolving Credit Borrowings (in which
event any reborrowing of such amounts shall be applied in accordance with this
Section 9.16). Except as provided in the preceding sentence, such amounts shall
not bear interest. Nothing in this Section 9.16 shall prevent the Collateral
Agent from applying at any time all or any part of the Insurance Proceeds or
Condemnation Proceeds to the curing of any Event of Default under this
Agreement.
(i) Any Insurance Proceeds not on account of damage to fixed assets,
fixtures, plant or equipment need not be applied to restoration, repair or the
prepayment of Loans and, if received by the Collateral Agent, shall promptly be
paid over to the Borrower unless an Event of Default shall be continuing.
SECTION 9.17. Confidentiality . The Administrative Agent, the Collateral
Agent, the Issuing Bank and each of the Lenders agrees to keep confidential (and
to use its best efforts to cause its respective agents and representatives to
keep confidential) the Information (as defined below) and all copies thereof,
extracts therefrom and analyses or other materials based thereon, except that
the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender
shall be permitted to disclose Information (a) to such of its respective
officers, directors, employees, agents, affiliates and representatives as need
to know such Information, (b) to the extent requested by any regulatory
authority, (c) to the extent otherwise required by applicable laws and
regulations or by any subpoena or similar legal process, upon prior notice
thereof (unless prohibited by the terms of such subpoena or process) to the
<PAGE>
136
Borrower in a manner reasonably calculated to afford the Borrower an opportunity
to seek a protective order or other injunctive relief, (d) in connection with
any suit, action or proceeding relating to the enforcement or protection of its
rights hereunder or under the other Loan Documents or (e) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Section 9.17 or (ii) becomes available to the Administrative Agent, the
Issuing Bank, any Lender or the Collateral Agent on a nonconfidential basis from
a source other than the Borrower. For the purposes of this Section 9.17,
"Information" stall mean all financial statements, certificates, reports,
agreements and information (including all analyses, compilations and studies
prepared by the Administrative Agent, the Collateral Agent, the Issuing Bank or
any Lender based on any of the foregoing) that are received from the Borrower
and related to the Borrower, any shareholder of the Borrower or any employee,
customer or supplier of the Borrower, other than any of the foregoing that were
available to the Administrative Agent, the Collateral Agent, the Issuing Bank or
any Lender on a nonconfidential basis prior to its disclosure thereto by the
Borrower, and which are in the case of Information provided after the date
hereof, clearly identified at the time of delivery as confidential. The
provisions of this Section 9.17 shall remain operative and in full force and
effect regardless of the expiration and term of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SCHEIN PHARMACEUTICAL, INC.,
by __________________________
Name:
Title:
<PAGE>
Chemical Bank $350 M Loan
Amortization of Loan fees
Schedule of Fees
Syndication Fee 5,250,000
Valuation Research (solvency) 35,566
Dames & Moore (environment) 28,000
PR filing fees (mort tax) 36,618
Cravath Fees (legal bank) 214,786
Proskauer Fees (legal co) 150,000
Title fees (Carmel & Phoenix) 256,120
5,971,090
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Repayment Date 250,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Sep-95 0 250,000,000 100,000,000 350,000,000 29,166,667 0.01808318
31-Dec-95 0 250,000,000 100,000,000 350,000,000 87,500,000 0.05424955
- -----------------------------------------------------------------------------------------------------------------------------------
31-Mar-96 0 250,000,000 100,000,000 350,000,000 87,500,000 0.05424955
30-Jun-96 0 250,000,000 100,000,000 350,000,000 87,500,000 0.05424955
30-Sep-96 5,000,000 245,000,000 100,000,000 345,000,000 86,250,000 0.05347455
31-Dec-96 5,000,000 240,000,000 100,000,000 340,000,000 85,000,000 0.05269956
- -----------------------------------------------------------------------------------------------------------------------------------
31-Mar-97 7,500,000 232,500,000 100,000,000 332,500,000 83,125,000 0.05153707
30-Jun-97 7,500,000 225,000,000 100,000,000 325,000,000 81,250,000 0.05037458
30-Sep-97 7,500,000 217,500,000 100,000,000 317,500,000 79,375,000 0.04921209
31-Dec-97 7,500,000 210,000,000 100,000,000 310,000,000 77,500,000 0.0480496
- -----------------------------------------------------------------------------------------------------------------------------------
31-Mar-98 10,000,000 200,000,000 100,000,000 300,000,000 75,000,000 0.04649961
30-Jun-98 10,000,000 190,000,000 100,000,000 290,000,000 72,500,000 0.04494963
30-Sep-98 10,000,000 180,000,000 100,000,000 280,000,000 70,000,000 0.04339964
31-Dec-98 10,000,000 170,000,000 100,000,000 270,000,000 67,500,000 0.04184965
- -----------------------------------------------------------------------------------------------------------------------------------
31-Mar-99 12,500,000 157,500,000 100,000,000 257,500,000 64,375,000 0.03991217
30-Jun-99 12,500,000 145,000,000 100,000,000 245,000,000 61,250,000 0.03797468
30-Sep-99 12,500,000 132,500,000 100,000,000 232,500,000 58,125,000 0.03603720
31-Dec-99 12,500,000 120,000,000 100,000,000 220,000,000 55,000,000 0.03409972
- -----------------------------------------------------------------------------------------------------------------------------------
31-Mar-00 15,000,000 105,000,000 100,000,000 205,000,000 51,250,000 0.03177474
30-Jun-00 15,000,000 90,000,000 100,000,000 190,000,000 47,500,000 0.02944975
30-Sep-00 15,000,000 75,000,000 100,000,000 175,000,000 43,750,000 0.02712477
31-Dec-00 15,000,000 60,000,000 100,000,000 160,000,000 40,000,000 0.02479979
- -----------------------------------------------------------------------------------------------------------------------------------
31-Mar-01 15,000,000 45,000,000 100,000,000 145,000,000 36,250,000 0.02247481
30-Jun-01 15,000,000 30,000,000 100,000,000 130,000,000 32,500,000 0.02014983
30-Sep-01 15,000,000 15,000,000 100,000,000 115,000,000 28,750,000 0.01782485
31-Dec-01 15,000,000 0 100,000,000 100,000,000 25,000,000 0.01549987
- -----------------------------------------------------------------------------------------------------------------------------------
250,000,000 1,612,916,667 1
</TABLE>
<TABLE>
<CAPTION>
Closing Exp $100K Ticking Total Year
Amortization Agent Fee Amortization Expense
Fees Chemical Fees
Repayment Date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sep-95 107,976.31 8,333.33 309,896.00 426,205.64
31-Dec-95 323,928.92 25,000.00 348,928.92 775,134.56
- ----------------------------------------------------------------------------------------------------------------------
31-Mar-96 323,928.92 25,000.00 348,928.92
30-Jun-96 323,928.92 25,000.00 348,928.92
30-Sep-96 319,301.36 25,000.00 344,301.36
31-Dec-96 314,673.80 25,000.00 339,673.80 1,381,833.00
- ----------------------------------------------------------------------------------------------------------------------
31-Mar-97 307,732.47 25,000.00 332,732.47
30-Jun-97 300,791.14 25,000.00 325,791.14
30-Sep-97 293,849.80 25,000.00 318,849.80
31-Dec-97 286,908.47 25,000.00 311,908.47 1,289,281.88
- ----------------------------------------------------------------------------------------------------------------------
31-Mar-98 277,653.36 25,000.00 302,653.36
30-Jun-98 268,398.25 25,000.00 293,398.25
30-Sep-98 259,143.13 25,000.00 284,143.13
31-Dec-98 249,888.02 25,000.00 274,888.02 1,155,082.76
- ----------------------------------------------------------------------------------------------------------------------
31-Mar-99 238,319.13 25,000.00 263,319.13
30-Jun-99 226,750.24 25,000.00 251,750.24
30-Sep-99 215,181.35 25,000.00 240,181.35
31-Dec-99 203,612.46 25,000.00 228,612.46 983,863.19
- ----------------------------------------------------------------------------------------------------------------------
31-Mar-00 189,729.79 25,000.00 214,729.79
30-Jun-00 175,847.13 25,000.00 200,847.13
30-Sep-00 161,964.46 25,000.00 186,964.46
31-Dec-00 148,081.79 25,000.00 173,081.79 775,623.17
- ----------------------------------------------------------------------------------------------------------------------
31-Mar-01 134,199.12 25,000.00 159,199.12
30-Jun-01 120,316.45 25,000.00 145,316.45
30-Sep-01 106,433.79 25,000.00 131,433.79
31-Dec-01 92,551.12 25,000.00 117,551.12 553,500.48
- ----------------------------------------------------------------------------------------------------------------------
5,971,089.70 6,914,319.03 6,914,319.03
</TABLE>
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
CHEMICAL BANK CREDIT AGREEMENT
LIST OF CLOSING DOCUMENTS
SCHEDULE 1.01
CERTAIN PERMITTED HOLDERS
SCHEDULE 3.08
SUBSIDIARIES AND PERCENTAGE OWNED THEREIN
SCHEDULE 3.18
INSURANCE
SCHEDULE 3.20 (A)
LIST OF OWNED LOCATIONS
SCHEDULE 3.20 (B)
LIST OF MATERIAL LEASED LOCATIONS
SCHEDULE 4.02(A)
LIST OF LOCAL COUNSEL
SCHEDULE 6.01
EXISTING INDEBTEDNESS
SCHEDULE 6.02
EXISTING LIENS
SCHEDULE 6.04
EXISTING INVESTMENTS
EXHIBIT D
GUARANTEE AGREEMENT
SCHEDULE I - NAME AND ADDRESS OF EACH GUARANTOR
EXHIBIT G
SCHEDULE I - SHARES OF CAPITAL STOCK PLEDGED
EXHIBIT G
SCHEDULE II - NAME AND ADDRESS OF EACH PLEDGOR
EXHIBIT G
ANNEX I - PERFECTION CERTIFICATE
EXHIBIT H
SCHEDULE I - COPYRIGHTS
SCHEDULE II - LICENSES
SCHEDULE III - PATENTS
SCHEDULE IV - TRADEMARKS
<PAGE>
BY LAWS - SCHEIN PHARMACEUTICAL, INC.
BY LAWS - SCHEIN PHARMACEUTICAL INTERNATIONAL, INC.
BY LAWS - SCHEIN PHARMACEUTICAL PA, INC.
BY LAWS - SCHEIN PHARMACEUTICAL SERVICE COMPANY
BY LAWS - SM ACQUIRING CO., INC.
BY LAWS - STERIS LABORATORIES, INC.
BY LAWS - DANBURY PHARMACAL, INC.
BY LAWS - DANBURY PHARMACAL PUERTO RICO, INC.
RESOLUTIONS - SCHEIN PHARMACEUTICAL, INC.
RESOLUTIONS - SCHEIN PHARMACEUTICAL INTERNATIONAL, INC.
RESOLUTIONS - SCHEIN PHARMACEUTICAL PA, INC.
RESOLUTIONS - SCHEIN PHARMACEUTICAL SERVICE COMPANY
RESOLUTIONS - SM ACQUIRING CO., INC.
RESOLUTIONS - STERIS LABORATORIES, INC.
RESOLUTIONS - DANBURY PHARMACAL, INC.
RESOLUTIONS - DANBURY PHARMACAL PUERTO RICO, INC.
CTF INCORP. - SCHEIN PHARMACEUTICAL, INC.
CTF INCORP. - SCHEIN PHARMACEUTICAL INTERNATIONAL, INC.
CTF INCORP. - SCHEIN PHARMACEUTICAL PA, INC.
CTF INCORP. - SCHEIN PHARMACEUTICAL SERVICE COMPANY
CTF INCORP. - SM ACQUIRING CO., INC.
CTF INCORP. - STERIS LABORATORIES, INC.
CTF INCORP. - DANBURY PHARMACAL, INC.
CTF INCORP. - DANBURY PHARMACAL PUERTO RICO, INC.
<PAGE>
SECRETARY'S CTF. - SCHEIN PHARMACEUTICAL, INC.
SECRETARY'S CTF. - SCHEIN PHARMACEUTICAL INTERNATIONAL, INC.
SECRETARY'S CTF. - SCHEIN PHARMACEUTICAL PA, INC.
SECRETARY'S CTF. - SCHEIN PHARMACEUTICAL SERVICE COMPANY
SECRETARY'S CTF. - SM ACQUIRING CO., INC.
SECRETARY'S CTF. - STERIS LABORATORIES, INC.
SECRETARY'S CTF. - DANBURY PHARMACAL, INC.
SECRETARY'S CTF. - DANBURY PHARMACAL PUERTO RICO, INC.
FINANCIAL OFFICER'S CERTIFICATE - SCHEIN PHARMACEUTICAL, INC.
CERTIFICATE OF OCCUPANCY FOR EACH MORTGAGED PROPERTY
INSURANCE BROKER'S CERTIFICATES
EVIDENCE OF CANCELLATION - CITIBANK
EVIDENCE OF CANCELLATION - MELLON BANK
EVIDENCE OF CANCELLATION - MIDLANTIC
EVIDENCE OF CANCELLATION - BANCO POPULAR
SOLVENCY LETTER
UCC FINANCING STATEMENTS
FORMS U-1
<PAGE>
****** -COMM. JOURNAL- ********* DATE MAR-18-1996 ********** TIME 17:49 *** P.01
MODE = MEMORY TRANSMISSION START=MAR-18 17:46 END=MAR-18 17:49
NO. COM ABBR/NTWK STATION NAME/ PAGES PRG.NO. PROGRAM NAME
TELEPHONE NO.
001 OK [07] PROSKAUR 010/010
-SCHEIN PHARMACEUTICALS -
******************************** -201-593-5598 - ***** - - *********
10
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA,
by
______________________________
Name:
Title:
THE NIPPON CREDIT BANK, LTD.,
by
______________________________
Name:
Title:
UNITED JERSEY BANK,
by
______________________________
Name:
Title:
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH
by
______________________________
Name:
Title:
<PAGE>
****** -COMM. JOURNAL- ********* DATE MAR-18-1996 ********** TIME 12:32 *** P.01
MODE = MEMORY TRANSMISSION START=MAR-18 12:29 END=MAR-18 12:32
FILE NO = 190
NO. COM ABBR/NTWK STATION NAME/ PAGES PRG.NO. PROGRAM NAME
TELEPHONE NO.
001 OK [08] BDO SIEDMAN 011/011
-SCHEIN PHARMACEUTICALS -
******************************** -201-593-5598 - ***** - - *********
CRAVATH, SWAINE & MOORE
Worldwide Plaza, 825 Eighth Avenue
New York, NY 10019
Telephone: (212) 474-1190
Fax: (212) 474-3700
Date: March 18, 1996
================================================================================
Name/Firm Fax No. Phone No.
- --------------------------------------------------------------------------------
To: Mr. James Meer (201) 593-5598 (201) 593-5911
- --------------------------------------------------------------------------------
From: S. Soundararajan (212) 474-3700 (212) 474-1942
================================================================================
TOTAL NUMBER OF PAGES, INCLUDING THIS COVER SHEET: 11
IF YOU DO NOT RECEIVE ALL THE PAGES, PLEASE CALL (212) 474-1190
================================================================================
Message: Attached is the execution copy of the Amendment circulated last week.
Please call if you have any questions.
================================================================================
THIS MESSAGE IS INTENDED ONLY FOR THE USE OF THE INDIVIDUAL OR ENTITY TO WHICH
IT IS ADDRESSED AND MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL AND
EXEMPT FROM DISCLOSURE. If the reader of this message is not the intended
recipient or an employee or agent responsible for delivering the message to the
intended recipient, you are hereby notified that any dissemination,
distribution, or COpying of this communication is strictly prohibited. If you
have received this communication in error, please notify us immediately by
telephone at (212)474-1190 and return the original message to us by mail. Thank
you.
Reference No. 6700-331
Document Description: _________________________________________________________
<PAGE>
CRAVATH, SWAINE & MOORE
Worldwide Plaza, 825 Eighth Avenue
New York, NY 10019
Telephone: (212) 474-1190
Fax: (212) 474-3700
Date: March 18, 1996
================================================================================
Name/Firm Fax No. Phone No.
- --------------------------------------------------------------------------------
To: Mr. James Meer (201) 593-5598 (201) 593-5911
- --------------------------------------------------------------------------------
From: S. Soundararajan (212) 474-3700 (212) 474-1942
================================================================================
TOTAL NUMBER OF PAGES, INCLUDING THIS COVER SHEET: 11
IF YOU DO NOT RECEIVE ALL THE PAGES, PLEASE CALL (212) 474-1190
================================================================================
Message: Attached is the execution copy of the Amendment circulated last week.
Please call if you have any questions.
================================================================================
THIS MESSAGE IS INTENDED ONLY FOR THE USE OF THE INDIVIDUAL OR ENTITY TO WHICH
IT IS ADDRESSED AND MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL AND
EXEMPT FROM DISCLOSURE. If the reader of this message is not the intended
recipient or an employee or agent responsible for delivering the message to the
intended recipient, you are hereby notified that any dissemination,
distribution, or copying of this communication is strictly prohibited. If you
have received this communication in error, please notify us immediately by
telephone at (212)474-1190 and return the original message to us by mail. Thank
you.
Reference No. 6700-331
Document Description: _________________________________________________________
<PAGE>
Schein Pharmaceutical, Inc.
$350M Credit Facilities
Chemical Bank, Agent
Amount: $350M
RC Facility $100M
Term Facility $250M
Tenor: 6.5 Years (Matures 12/31/01)
Interest (price grid): LIBOR + 1.25% Range .75% > 1.50% 7.25%
Prime + .25% Range 0% > .50% 9.00%
Letter of Credit: Up to $30M available @ 1.625% (subject to grid)
Commitment Fee: 0.375% (unused portion, Range .25% > .50%
Arrangement Fee: 1.5% -- ($5,250,000)
Agent Fee: $100K annually
Mandatory Prepayments: 75% of Excess cash flow, 100% of new financing
above $10M, and % of proceeds from stock
offering:
50% if leverage is between 3.0x - 4.0x
25% if leverage is between 2.5x - 3.0x
0% if leverage is between 1.0x - 2.5x
Scheduled Prepayments: '95 - $0 '99 - $50M
'96 - $10M '00 - $60M
'97 - $30M '01 - $60M
'98 - $40M
Security: Mortgage all real property
Liens on receivables & inventory
Pledge of all domestic subsidiaries stock including
Marsam and 65% of wholly owned foreign
subsidiaries
Cross company guarantees by domestic subsidiaries
<PAGE>
Financial Covenants: Limitations on capital expenditures -
$25M/yr + 50% carryforward of unspent amount
commencing fiscal year '97
Maximum Total Leverage (debt) to EBITDA for '95
5x > '98 3x
Minimum net worth - $145M
+$25M earnings in '96
+$55M earnings in '97
+$50M earnings in '98
+$75M earnings in '99
Minimum levels of working capital - 1.75x
Minimum fixed charge coverage - 1.5x all years
(EBITDA-Cap Exp/Interest + Debt Payments)
Limitations on dividends -
Deemed dividends per the Shareholder
Agreement for registration expenses & fees
permitted + 25% of Net Income after leverage
drop below 2.5x (Est. '96 end of year)
Limitations on investments:
A) $10M annually for foreign investments, Bayer
JV's) (-50% of carryforward of unspent
amount)
B) $10M Aggregate of all other investments up
to '97 and $15M aggregate thereafter
Limitations on Debt to buy back stock options
$5M
Transactions with Affiliates (Bayer and
Shareholders)
A) Limits to Shareholder agreement
B) Stock options permitted
C) Foreign JV's permitted up to $10M/yr
D) Loans to officers and amployees up to $1.5 M
aggregate
Limitations on Merger Agreement
A) Materially change terms other than to extend
Tender Offer period
B) To pay more than $250M for Marsam
<PAGE>
<TABLE>
<CAPTION>
Bank Allocation
---- ----------
<S> <C>
Arranger and Administrative Agent:
Chemical Bank $ 22,500,000
Lead Managers:
The Bank of Nova Scotia 20,000,000
Chase National Corporate Services, Inc. 20,000,000
Citicorp 20,000,000
Credit Lyonnais 20,000,000
Deutsche Bank 20,000,000
Mellon Bank, N.A. 20,000,000
National Westminster Bank USA 20,000,000
Participants:
The Bank of Tokyo Trust Company 12,500,000
Comerica Bank 12,500,000
Credit Suisse 12,500,000
HypoBank 12,500,000
Midlantic Bank, N.A. 12,500,000
Rabobank Nederland 12,500,000
Societe Generale 12,500,000
Society National Bank 12,500,000
Westdeutsche Landesbank Girozentrale 12,500,000
ABN-Amro Bank 7,500,000
Bank of Montreal 7,500,000
The Bank of New York 7,500,000
Commerzbank 7,500,000
The Daiwa Bank, Limited 7,500,000
DG Bank 7,500,000
First Union National Bank of North Carolina 7,500,000
The Nippon Credit Bank, Ltd. 7,500,000
United Jersey Bank 7,500,000
The Yasuda Trust and Banking Co., LTD. 7,500,000
------------
$350,000,000
</TABLE>
<PAGE>
Schein Pharmaceutical, Inc.
Fund Summary
As of September 30, 1995
<TABLE>
<CAPTION>
Market % of
Fund Value Total
---- ----- -----
<S> <C> <C>
LaSalle Bank (GIC) $ 7,004,409 19.41%
Columbia Fixed Income 7,374,917 20.44%
Vanguard Quantitative 10,357,325 28.70%
PBHG Growth Fund 7,734,374 21.43%
T. Rowe Price Int'l Stock Fund 3,613,526 10.01%
-----------
Total * $36,084,551
</TABLE>
* Includes Lifestyle funds
<TABLE>
<CAPTION>
-----------------------------------------------------------
Market % of
Value Total
Lifestyle Funds LaSalle Columbia Vanguard PBHG T. Rowe
- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Conservative $ 2,266,595 13.21% 832,391 675,602 514,228 138,487 105,888
36.72% 29.81% 22.69% 6.11% 4.67%
Moderate 8,824,227 51.45% 1,161,293 2,942,105 2,890,303 1,040,537 789,999
13.16% 33.34% 32.75% 11.79% 8.95%
Aggressive 6,061,687 35.34% 1,389,574 2,859,584 1,029,314 783,215
22.92% 47.17% 16.98% 12.92%
Total $17,152,508
-----------------------------------------------------------
</TABLE>
<PAGE>
Schedule 6.04
-------------
EXISTING INVESTMENTS
Nature of
Name Investment
- ---- ----------
Elensys Care Services Inc. Con. Pfd. Stk.
Triomed (Proprietary) Limited, South Africa Common Stock
*Brovar S&P (Proprietary) Ltd., South Africa Common Stock
*Ethical Generics Limited, UK Common Stock
Schein Bayer Pharm. Svcs. Common Stock
*Schein Pharmaceutical Canada, Inc. Common Stock
Duramed Pharmaceuticals, Inc. Convertible Note
Miscellaneous investments not exceeding $250,000 in aggregate.
* Currently owned 100% by Schein Pharmaceutical, Inc. or one of its
affiliates; it is contemplated that a 50% interest will be transferred to
an affiliate of Bayer AC.
<PAGE>
CRAVATH, SWAIN & MOORE
Worldwide Plaza, 825 Eighth Avenue
New York, NY 10019
Telephone: (212) 474-1000
Fax: (212) 474-3700
Date: December 17, 1996
================================================================================
Name/Firm Fax No. Phone No.
- --------------------------------------------------------------------------------
To: See Next Page For
Multiple Addressees
- --------------------------------------------------------------------------------
From: S. Soundararajan Room: 4438 (212) 474-3700 (212) 474-1942
================================================================================
TOTAL NUMBER OF PAGES, INCLUDING THIS COVER SHEET: 17
IF YOU DO NOT RECEIVE ALL THE PAGES, PLEASE CALL (212) 474-3130
================================================================================
Message: This version of the amendment will be circulated to the Bank Group
tonight (along with the Subordinated Loan Agreement) absent any
objections. Please call me if you have any questions or comments.
Thank you.
CC: DH, WKS, PF, CO
================================================================================
THIS MESSAGE IS INTENDED ONLY FOR THE USE OF THE INDIVIDUAL OR ENTITY TO WHICH
IT IS ADDRESSED AND MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL AND
EXEMPT FROM DISCLOSURE. If the reader of this message is not the intended
recipient or an employee or agent responsible for delivering the message to the
intended recipient, you are hereby notified that any dissemination,
distribution, or copying of this communication is strictly prohibited. If you
have received this communication in error, please notify us immediately by
telephone at (212)474-3130 and return the original message to us by mail. Thank
you.
Reference No. 6700-331
DATE SENT: _______________ DATE CONFIRMED: ____________ [ILLEGIBLE]
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Name/Firm Fax No. Phone No.
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To: Dawn Lee Lum (212) 270-3279 (212) 2472
Chase
- --------------------------------------------------------------------------------
2. To: Greg Weiss (212) 455-2502 (212) 455-7080
Simpson Thacher & Bartlett
- --------------------------------------------------------------------------------
3. To: Jeff Mullen (212) 455-2502 (212) 455-2000
Simpson Thacher & Bartlett
- --------------------------------------------------------------------------------
4. To: Scott Phillips (212) 278-5387 (212) 278-5460
Societe Generale
- --------------------------------------------------------------------------------
5. To: Robert Cantone (212) 969-2900 (212) 969-3000
Proskauer Rose Goetz &
Mendelsohn
- --------------------------------------------------------------------------------
6. To: Charles Dropkin (212) 969-2900 (212)969-3535
Proskauer Rose Goetz &
Mendelsohn
- --------------------------------------------------------------------------------
7. To: Jim Meer (201) 593-5598 (201) 593-5911
Schein Pharmaceutical
================================================================================
</TABLE>
<PAGE>
THIRD AMENDMENT dated as of December 20, 1996
(this "Amendment"), to the CREDIT AGREEMENT dated
as of September 1, 1995, among SCHEIN
PHARMACEUTICAL, INC., a Delaware corporation (the
"Borrower"); the LENDERS (as defined in Article I
of the Credit Agreement); and THE CHASE MANHATTAN
BANK, a New York banking corporation as issuing
bank (in such capacity, the "Issuing Bank"), as
administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent
(in such capacity, the "Collateral Agent") for the
Lenders.
The Borrower has requested that the Credit Agreement be amended as
hereinafter set forth, and the Lenders have agreed to such amendment, upon the
terms and subject to the conditions set forth herein. Accordingly, the Borrower
and the Lenders hereby agree as follows:
ARTICLE I
Defined Terms
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement, as amended hereby (the
"Amended Credit Agreement").
ARTICLE II
Amendments to and Waivers under the Credit Agreement
The Credit Agreement is amended, effective as of the date hereof (but
subject to the conditions set forth in Article IV hereof), as set forth below:
SECTION 2.01 Amendments to Article I. (a) The following definitions are
added to Section 1.01 of the Credit Agreement in the proper alphabetical order:
"'Acceptable Refinancing' shall mean a series of transactions in which
the Borrower (a) completes an issuance and sale of its capital stock (or
rights, warrants or options to acquire its capital stock) or of
Subordinated Debt (which Subordinated Debt, unless it (x) is described in
the second sentence of the definition of "Subordinated Debt" or (y) is on
terms (including, without limitation, maturity, interest rates,
subordination provisions, prepayment, redemption, defeasance or similar
provisions, covenants and events of default) at least as favorable in all
respects to the Borrower or the Lenders as the terms of the Indebtedness
issued (or that would have been issued) under the Conversion Note
Indenture), or any combination thereof, in either case yielding net cash
proceeds to the Borrower of at least $96,000,000, and (b) applies such net
cash proceeds to prepay Term Loans in the manner contemplated by Sections
2.11 and 2.13."
<PAGE>
3
"'Conversion Note Indenture' shall mean the "Conversion Note
Indenture" referred to in the Senior Subordinated Loan Agreement, in the
form attached as Annex I-B to the Third Amendment."
"'Refinancing Debt' shall have the meaning assigned to such term in
Section 6.01(g)."
"'Senior Subordinated Loan Agreement' shall mean the $100,000,000
Senior Subordinated Loan Agreement dated as of December [ ], 1996, among
the Borrower, certain lenders and Societe Generale, as administrative
agent, in the form attached as Annex I-A to the Third Amendment."
"'Third Amendment' shall mean the Third Amendment dated as of December
20, 1996, to this Agreement."
(b) The definition of "Subordinated Debt" is amended to read as follows:
"'Subordinated Debt' means unsecured Indebtedness of the Borrower that
(a) does not have any scheduled payment of principal prior to the 180th day
following the Post-Merger Facilities Maturity Date, (b) the principal of
which is subordinated to the prior payment in full in cash of all the
Obligations in a manner reasonably satisfactory to the Administrative Agent
and (c) otherwise has terms and conditions reasonably satisfactory to the
Administrative Agent. Notwithstanding any other provision of this
Agreement, Subordinated Debt shall include (i) Indebtedness incurred under
and on the terms set forth in the Senior Subordinated Loan Agreement or the
Conversion Note Indenture, and (ii) Refinancing Debt; provided that the
terms of such Refinancing Debt (including, without limitation, maturity,
interest rates, subordination provisions, prepayment, redemption,
defeasance or similar provisions, covenants and events of default) shall be
in all material respects at least as favorable to the Borrower and the
Lenders as the terms of the Indebtedness being refinanced, or, in the case
of interest rates, shall be consistent with rates of interest at the time
prevailing in the market for comparable obligations (or, if the
Indebtedness being refinanced was incurred under the Senior Subordinated
Loan Agreement or the Conversion Note Indenture, at least as favorable to
the Borrower and the Lenders as the terms of the Indebtedness issued (or
that would have been issued) under the Conversion Note Indenture including,
without limitation, the interest rate provided for in the form of Senior
Subordinated Conversion Note annexed as Exhibit B thereto)."
SECTION 2.02 Amendments to Article II. (a) Section 2.11(b) of the Credit
Agreement is amended by (i) inserting the phrase "(other than Section 2.13(f))"
between "2.13" and "shall" and (ii) inserting the following at the end of the
second sentence following the word "prepayment":
", and each prepayment of principal of Term Facility Borrowings
pursuant to Section 2.13(f) shall be applied (A) first, to reduce
<PAGE>
4
in full the amounts due on or prior to June 30, 1998, in order of maturity
and (B) second, to reduce pro rata the scheduled payments of principal due
under this Section 2.11 after June 30, 1998".
(b) Section 2.13 of the Credit Agreement is amended by inserting the
following new subsection (f):
"(f) Notwithstanding anything in paragraph (a), (b) or (c) above, (i)
the Borrower shall apply 100% of the Net Proceeds of any Acceptable
Refinancing promptly upon receipt to prepay outstanding Term Loans in
accordance with Section 2.11(b), and (ii) the Borrower may apply the Net
Proceeds of any Refinancing Debt incurred in compliance with Section
6.01(g) or of any issuance and sale of its capital stock (or rights,
warrants or options to acquire its capital stock) to repay any Indebtedness
incurred as part of an Acceptable Refinancing or any other Refinancing
Debt."
SECTION 2.03 Amendments to Article VI. (a) Clause (g) of Section 6.01 is
amended to read as follows:
"(g) Subordinated Debt issued after the Merger Date (including any
Indebtness incurred as part of an Acceptable Refinancing, and any
Subordinated Debt the proceeds of which are used to refinance any such
Indebtedness or any other Subordinated Debt the proceeds of which have been
so used ("Refinancing Debt"); provided that the terms of such Refinancing
Debt (including, without limitation, maturity, interest rates,
subordination provisions, prepayment, redemption, defeasance or similar
provisions, covenants and events of default) shall be in all material
respects at least as favorable to the Borrower and the Lenders as the terms
of the Indebtedness being refinanced or, in the case of interest rates,
shall be consistent with rates of interest at the time prevailing in the
market for comparable obligations (or, if the Indebtedness being refinanced
was incurred under the Senior Subordinated Loan Agreement or the Conversion
Note Indenture, at least as favorable to the Borrower and the Lenders as
the terms of the Indebtedness issued (or that would have been issued) under
the Conversion Note Indenture including, without limitation, the interest
rate provided for in the form of Senior Subordinated Conversion Note
annexed as Exhibit B thereto)."
(b) Section 6.12 is amended by deleting the text after the word
"Indebtedness" and inserting in place thereof:
"except that the Borrower and the Subsidiaries may (i) make payments in
respect of the Obligations, (ii) make payments in the form of common stock
of the Borrower and (iii) refinance Indebtedness incurred as part of an
Acceptable Refinancing or Refinancing Debt with the proceeds of any
issuance and sale of capital stock (or rights, warrants or options to
acquire capital stock) of the Borrower or of any Refinancing Debt permitted
under Section 6.01(g)."
<PAGE>
11
THE BANK OF NOVA SCOTIA,
by ______________________________
Name:
Title:
CITICORP USA, INC.,
by ______________________________
Name:
Title:
CREDIT LYONNAIS, NEW YORK BRANCH,
by ______________________________
Name:
Title:
CREDIT LYONNAIS, CAYMAN ISLAND
BRANCH,
by ______________________________
Name:
Title:
DEUTSCHE BANK, A.G., NEW YORK AND/OR
CAYMAN ISLAND BRANCHES,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
MELLON BANK, N.A.,
by ______________________________
Name:
Title:
<PAGE>
FLEET BANK, N.A. (formerly known as
NatWest Bank, N.A.),
by ______________________________
Name:
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, successor by merger to:
THE BANK OF TOKYO TRUST COMPANY,
by ______________________________
Name:
Title:
BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK
AKTIENGESSELLSCHAFT, NEW YORK BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
COMERICA BANK,
by ______________________________
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEIFEN-
BOERENLESNBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
<PAGE>
12
CREDIT SUISSE,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
by ______________________________
Name:
Title:
PNC BANK, N.A.,
by ______________________________
Name:
Title:
SOCIETE GENERALE, NEW YORK BRANCH,
by ______________________________
Name:
Title:
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
<PAGE>
14
ABN AMRO BANK N.V., NEW YORK BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
BANK OF MONTREAL,
by ______________________________
Name:
Title:
THE BANK OF NEW YORK,
by ______________________________
Name:
Title:
COMMERZBANK AKTIENGESELLSHAFT, NEW YORK
BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLAND BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
<PAGE>
15
FIRST UNION NATIONAL BANK,
by ______________________________
Name:
Title:
THE NIPPON CREDIT BANK, LTD.,
by ______________________________
Name:
Title:
SUMMIT BANK,
by ______________________________
Name:
Title:
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH,
by ______________________________
Name:
Title:
<PAGE>
EXHIBIT 4.2
- --------------------------------------------------------------------------------
FIRST,
SECOND
&
THIRD AMENDMENTS
To The
$350 MILLION
CREDIT AGREEMENT
- --------------------------------------------------------------------------------
[LOGO] SCHEIN
P H A R M A C E U T I C A L
<PAGE>
-EXECUTION COPY-
December 17, 1996
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Gentlemen:
Reference is made to that certain General Shareholders Agreement (the
"Agreement") dated September 30, 1994 among Schein Pharmaceutical, Inc.
(formerly Schein Holdings, Inc.) (hereinafter "you" or the "Company"), Bayer
Corporation (formerly Miles Inc.) (hereinafter "we" or "Bayer"), each of the
family shareholders listed as such on Schedule A to the Agreement, each of the
other shareholders listed as such on Schedule A to the Agreement, and Martin
Sperber as trustee under the Voting Trust Agreement dated September 30, 1994.
1. You have advised Bayer that the Company proposes to refinance (the
"Refinancing") a portion of its indebtedness substantially in accordance with
the attached Senior Subordinated Credit Facility Term Sheet.
2. You have also requested that the references in the attached letter dated
June 14, 1995 between Bayer and the Company (the "Letters) to "1996" and "1997,"
be changed to "1997" and "l998", respectively.
3. You have further requested that "stockholders equity" as determined
under the Agreement be deemed to include the amount of any charge by the Company
for acquired in process research and development expenses of the Company
resulting from the acquisition of Marsam Pharmaceuticals Inc. to the extent such
charge is less than $35,000,000.
On the terms and subject to the fulfillment of the conditions set forth
below, and for the purposes of Section 2.3 of the Agreement, Bayer hereby
consents to the Refinancing (including the Conversion Notes thereunder) so that
upon and after such Refinancing the ratio of the sum of all Funded Debt plus the
redemption price of all Redeemable Preferred Stock of the Company and its
consolidated subsidiaries to the Company's consolidated stockholders' equity
(excluding any Redeemable Preferred Stock), determined in accordance with GAAP
(subject to the adjustment described in paragraph 3, above) (the "Ratio"),
<PAGE>
Schein Pharmaceutical, Inc.
December 17, 1996
Page 2
shall forthwith be as described in the Letter as modified by paragraph 2, above.
Notwithstanding the foregoing, if for any reason (a) any Post-Merger
Facility (as defined by the Letter) that has not been refinanced and/or (b) any
credit facility entered into in connection with the Refinancing is prepaid in
whole, again refinanced (unless such refinancing is accomplished on terms no
less favorable to Company, as determined solely by Bayer in its reasonable
discretion) or otherwise terminated, then the applicable Ratio shall thereafter
be 1.50 to 1.
This consent shall become effective upon the execution and delivery of
definitive documentation regarding the Refinancing.
Please indicate your acceptance of the foregoing terms and conditions
imposed by this consent by executing both of the enclosed copies of this letter
and returning one copy to the undersigned.
BAYER CORPORATION
By: /s/ Jon R. Wyne
---------------------------
Name: Jon R. Wyne
------------------------
Title: Senior Vice President
------------------------
And Treasurer
Accepted and agreed to
this 17 day of December, 1996
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Dariush Ashrafi
----------------------
Name: DARIUSH ASHRAFI
---------------------------
Title: EXECUTIVE VICE PRESIDENT
---------------------------
& CHIEF FINANCIAL OFFICER
<PAGE>
Schein Pharmaceutical, Inc.
$100,000,000 Senior Subordinated Loan and Conversion Notes
SUMMARY OF TERMS
Issuer of Notes: Schein Pharmaceutical, Inc. (the "Company" or the
"Issuer").
Lender and Conversion Notes
Underwriter: Societe Generale or Societe Generale Securities
Corporation ("SocGen"), as determined by Societe
Generale.
Structure: Structured as a single facility with two parts,
the Initial Loan and its subsequent conversion
(the "Conversion") into the Conversion Notes under
certain circumstances as described in more detail
below. The Company expects that prior to the
issuance of the Conversion Notes, the Initial Loan
will be refinanced by any or all of the following:
bank debt, a public offering or private placement
of high yield senior subordinated or subordinated
securities or an initial public or private
offering of common equity of the Company or one of
its subsidiaries (the "Refinancing"). The Initial
Loan will convert to the Conversion Notes if such
Refinancing is not consummated and the Initial
Loan is outstanding as of January 31, 1998 (the
"Maturity Date") pursuant to the terms set forth
below.
Initial Loan
Title of Initial Loan: Senior Subordinated Loan.
Principal Amount: $100,000,000 aggregate principal amount.
Closing: Closing of the Initial Loan (the "Closing Date")
is expected to occur on or before December 20,
1996.
Maturity: The Initial Loan will mature on January 31, 1998
unless the Conversion has occurred. If the
Conversion occurs, the Initial Loan will be
converted to the Conversion Notes described below
on such date, provided that (i) there shall be no
default under the Initial Loan or any senior
indebtedness of the Issuer; (ii) all fees and
interest payable in connection with the Initial
Loan shall have been paid in full; and (iii) no
order shall be in effect enjoining the issuance of
the Conversion Notes.
Ranking: Senior subordinated, pursuant to subordination
provisions customary for high yield securities and
acceptable to SocGen. The Initial Loan will be
junior only to (i) the Company's existing senior
indebtedness as of the Closing Date and any
indebtedness which refinances such senior
indebtedness on substantially similar terms (the
"Senior Debt") and (ii) a basket of other senior
indebtedness in form, amount and terms
satisfactory to SocGen in all respects, and any
other future indebtedness will be junior to the
Initial Loan.
1
<PAGE>
It is understood and agreed that the obligations
in respect of the Initial Loan and the Conversion
Notes, as the case may be, will be and remain
obligations of the same corporate entity as the
Senior Debt and that the Initial Loan and the
Conversion Notes will have the benefit of
subordinated guarantees from each entity
guaranteeing senior debt.
Interest Payment Dates: Quarterly, in arrears, commencing the three-month
after the Closing Date.
Interest Rate: LIBOR from time to time in effect plus 400 basis
points.
Interest on any overdue interest and principal
payments and on other amounts overdue on the
Initial Loan shall accrue at a rate of 200 basis
points in excess of the applicable rate determined
as provided above.
All interest shall be computed on the basis of a
360-day year consisting of twelve 30-day months.
Upfront Fee: 1.5% of the principal amount of the Initial Loan
shall be earned at Closing; however, 1.0% shall be
paid at Closing and the other 0.5% shall be paid
at the earlier of (i) the repayment of the Initial
Loan and (ii) the Maturity Date.
Drawdowns: On the Closing Date, the Company shall draw down
the entire $100,000,000 principal amount of the
Initial Loan.
Mandatory Redemption: Subject to the requirements of the Senior Debt
(including, without limitation, certain carveouts
to be agreed upon with respect to asset
sales and permitted investments), the Company
must repay the Initial Loan at 100% of principal
amount redeemed plus accrued interest to the
redemption date with proceeds from the Refinancing
or from certain asset sales to be mutually agreed
upon.
Principal amounts repaid under this mandatory
redemption provision may not be drawn down again.
Conversion Notes
Amount: Principal amount of the Conversion Notes will
equal 103.5% of the principal amount of the
Initial Loan for which they are converted.
Maturity: Five (5) years following the original issuance of
the Conversion Notes.
Interest Payment Dates: Semi-annually, in arrears, commencing six-months
after the issuance of the Conversion Notes.
2
<PAGE>
Interest Rate: A rate fixed at the time of the issuance of the
Conversion Notes equal to the higher of (i) five
(5) year Treasuries plus 600 basis points and (ii)
the Bear Stearns High Yield Single B Index plus
175 basis points.
Interest on any overdue interest and principal
payments and on other amounts overdue on the
Conversion Notes shall accrue at a rule of 200
basis points in excess of the applicable rate
determined as provided above.
All interest shall be computed on the basis of a
360 day year consisting of twelve 30-day months.
Ranking: Same as the Initial Loan.
General Terms Applicable to the Initial Loan and the Conversion Notes
Optional Prepayment: The Initial Loan may be prepaid at the option of
the Company in whole or in part up to an aggregate
principal amount equal to $25 million plus accrued
interest to the prepayment date (see above).
Partial prepayments will be allowed only in whole
dollar amounts of at least $1,000,000 of principal
up to $25 million.
Principal amounts prepaid may not be drawn down
again.
The Conversion Notes will be non-callable for the
life of the issue.
Transferability: The Initial Loan and the Conversion Notes shall be
transferable, without restriction, by the
lender(s) or holder(s) thereof. See "Registration
Rights".
Registration Rights: The Issuer is required to file a registration
statement for the Conversion Notes by the date
that is 60 days prior to the Maturity Date. The
Issuer will then use its best efforts to cause to
become effective such registration statement for
the Conversion Notes as soon as practicable after
filing.
Representations: The Initial Loan agreement (the "Agreement") and
the Conversion Note indenture (which terms
includes any agreement, security documents or
other documents as SocGen may determine to be
appropriate to effect the transactions
contemplated hereby) will contain representations
and warranties by the Issuer to SocGen, including
affirmation of its intention to take all necessary
and deliberate actions to effect a Refinancing of
the Initial Loan as soon as practicable pursuant
to a securities offering or otherwise.
Covenants: The Agreement (and, if executed, the indenture for
the Conversion Notes) will contain affirmative and
negative covenants satisfactory to SocGen,
including those customary for financings of high
yield
3
<PAGE>
securities of this type.
Affirmative covenants will include, but not be
limited to, compliance with law, maintenance of
existence, insurance, payment of taxes, reporting
and delivery of financial statements.
Negative covenants will include, but not be
limited to, the following:
o limitations on liens securing debt that is
pari passu with or subordinate to the Initial
Loan or the Conversion Notes
o limitations on sale/leasebacks
o limitations on additional indebtedness,
contingent obligations and preferred stock of
the Company
o limitations on indebtedness and the issuance
of preferred stock by any subsidiary
o limitations on dividends or any payments on
the capital stock of the Company and for its
subsidiaries
o limitations on the redemption or repurchase of
capital stock
o limitations on the sale of assets and
subsidiary stock and transactions with
affiliates
o limitations on distributions from any
non-wholly owned subsidiaries
o limitations on mergers and/or consolidations
o limitations on investments and joint ventures
o financial covenants satisfactory to SocGen and
customary for privately held high yield
securities, except that certain of such
covenants as the Company and SocGen shall
mutually agree shall no longer apply
following the resale of the Conversion Notes
in a registered offering to more than fifteen
holders
Events of Default: The Agreement (and, if executed, the indenture for
the Conversion Notes) will contain default
provisions satisfactory to SocGen, including, but
not limited to:
o failure to pay principal or interest on the
Initial Loan or the Conversion Notes, as the
case may be, or any other amount due under
the Agreement (or, if applicable, the
indenture) when and as due
o failure to comply with any of the covenants or
other terms of the Agreement (or, if
applicable, the indenture)
4
<PAGE>
o material breach of any representation or
warranty in the Agreement (or, if applicable,
the indenture)
o cross-payment default and cross-acceleration
on material obligations of the Company or any
material subsidiary
o certain events of bankruptcy of the Company or
any material subsidiary
o change of control of the Company
o material judgment against the Company or any
material subsidiary not waived or stayed
Certain of the foregoing will be subject to grace
periods to be agreed upon.
Governing Law: The Agreement (and, if applicable, the indenture),
and all other documents related to the
transactions contemplated hereby (to the extent
determined to be appropriate by SocGen) shall be
governed by and construed in accordance with the
laws of the State of New York, without giving
effect to conflicts of law principles.
Underwriting
Advisory Fee: The Company shall pay to SocGen an advisory fee
equal to 1.5% of the principal amount of the
Initial Loan upon the occurrence of a Refinancing.
Underwriting Commission: In the event the Company selects SocGen to
participate as an underwriter in a Refinancing,
SocGen's underwriting commission (to be
determined at the time of Refinancing) shall be
reduced by an amount equal to the lesser of (i)
SocGen's total underwriting commission earned from
such Refinancing and (ii) the Advisory Fee. In the
event such underwriting commission exceeds
$1,500,000, the Company selects SocGen to act as
lead manager of such an underwriting, and SocGen
earns at least 70% of the total commissions paid
for such underwriting, and SocGen shall reimburse
the Company for expenses incurred by the Company
in connection with the Refinancing in an amount
equal to the lesser of (i) SocGen's total
underwriting commission earned from such
Refinancing minus $1,500,000 and (ii) $500,000.
5
<PAGE>
Bayer [LOGO]
================================================================================
June 14, 1995
Schein Holdings, Inc.
c/o Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Gentlemen:
Reference is made to that certain General Shareholders Agreement (the
"Agreement") dated September 30, 1994 among Schein Holdings, Inc. (hereinafter
"you" or the "Company"), Bayer Corporation (formerly Miles Inc.) (hereinafter
"we" or "Bayer"), each of the family shareholders listed as such on Schedule A
to the Agreement, each of the other shareholders listed as such on Schedule A to
the Agreement, and Martin Sperber as trustee under the Voting Trust Agreement
dated September 30, 1994.
You have advised Bayer that the Company proposes to make an Acquisition (as
such term is defined in a commitment letter dated June 6, 1995 from Chemical
Bank and Chemical Securities Inc. to the Company in the form attached hereto
(the "Commitment Letter") and that, in connection with the Acquisition, you will
require the Facilities (as such term is defined in the Commitment Letter). In
order to obtain the Facilities, you have requested that Bayer consent, as set
forth below, to the Incurrence of the indebtedness under the Facilities on the
terms and subject to the conditions provided for in the Commitment Letter (the
"Indebtedness").
Defined terms not otherwise defined herein shall have the meanings
specified in the Agreement.
On the terms and subject to the fulfillment of the conditions set forth
below, and for the purposes of Section 2.3 of the Agreement, Bayer hereby
consents to the incurrence of the Indebtedness so that upon and after such
incurrence the ratio of the sum of all Funded Debt plus the redemption price of
all Redeemable Preferred Stock of the Company and its consolidated subsidiaries
to the Company's consolidated stockholders' equity (excluding any Redeemable
Preferred Stock), determined in accordance with GAAP (the "Ratio"), shall
forthwith be as follows:
Bayer Corporation
One Mellon Center
500 Grant Street
Pittsburgh, PA 15219-2507
Phone: 412 394-5566
<PAGE>
Schein Holdings, Inc.
June 14, 1995
Page 2
Until but excluding
the last day of fiscal
year 1996 2.50 to 1
From the last day of fiscal year
1996 until but excluding
the last day at fiscal year 1997 1.90 to 1
From and after ths last day of fiscal
year 1997 1.50 to 1
; provided, however, if for any reason (a) the Pre-Merger Facilities (as defined
in the Commitment Letter) are terminated or prepaid prior to the Merger Data tan
defined in the Commitment Letter) without refinancing (i) pursuant to the
Post-Merger Facilities (as defined in the Commitment Letter) or (ii) on terms no
less favorable to Company (as determined solely by Bayer in its reasonable
discretion), or (b) either of the Post-Merger Facilities are prepaid in whole,
refinanced (unless such refinancing is accomplished on terms no less favorable
to Company, as determined by solely by Bayer in its reasonable discretion) or
otherwise terminated, then the applicable Ratio shall thereafter be 1.50 to 1.
In the event that the initial borrowing uncles the Facilities does not
occur on or before October 31, 1995, this letter and the consent contained
herein shall cease to have any effect and the Ratio shall thereafter be 1.50 to
l.
Please indicate your acceptance of the foregoing terms and conditions
imposed by this consent by executing both of the enclosed copies of this letter
and returning one copy to the undersigned.
BAYER CORPORATION
By: /s/ Gerd D. Mueller
------------------------------
Name: Gerd D. Mueller
----------------------------
Title: E.V.P., Chief Admin.
---------------------------
and Financia1 Officer
Accepted and agreed to
this _ day of June, l995
SCHEIN HOLDINGS, INC.
By: [ILLEGIBLE]
--------------------------
Name:
-------------------------
Title:
------------------------
<PAGE>
December 17, 1996
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Gentlemen:
Reference is made to that certain General Shareholders Agreement (the
"Agreement") dated September 30, 1994 among Schein Pharmaceutical, Inc.
(formerly Schein Holdings, Inc.) (hereinafter "you" or the "Company"), Bayer
Corporation (formerly Miles Inc.) (hereinafter "we" or "Bayer"), each of the
family shareholders listed as such on Schedule A to the Agreement, each of the
other shareholders listed as such on Schedule A to the Agreement, and Martin
Sperber as trustee under the Voting Trust Agreement dated September 30, 1994.
1. You have advised Bayer that the Company proposes to refinance (the
"Refinancing") a portion of its indebtedness substantially in accordance with
the attached Senior Subordinated Credit Facility Term Sheet.
2. You have also requested that the references in the attached letter dated
June 14, less between Bayer and the Company (the Letter) to "1996," and "1997,"
be changed to "1997" and "1998," respectively.
3. You have further requested that "stockholders equity" as determined
under the Agreement be deemed to include the amount of any charge by the Company
for acquired in process research and development expenses of the Company
resulting from the acquisition of Marsam Pharmaceuticals Inc. to the extent such
charge is less than $35,000,000.
On the terms and subject to the fulfillment of the conditions set forth
below, end for the purposes of Section 2.3 of the Agreement, Bayer hereby
consents to the Refinancing (including the Conversion Notes thereunder) so that
upon and after such Refinancing the ratio of the sum of all Funded Debt plus the
redemption price of all Redeemable Preferred Stock of the Company and its
consolidated subsidiaries to the Company's consolidated stockholders' equity
(excluding any Redeemable Preferred Stock), determined An accordance with GAAP
(subject to the adjustment described in paragraph 3, above) (the "Ratio"),
<PAGE>
FIRST AMENDMENT dated as of February 26,
1996 (this "Amendment"), to the CREDIT AGREEMENT
dated as of September 1, 1995, among SCHEIN
PHARMACEUTICAL, INC., a Delaware corporation (the
"Borrower"); the LENDERS (as defined in Article I
of the Credit Agreement); and CHEMICAL BANK, a New
York banking corporation as issuing bank (in such
capacity, the "Issuing Bank"), as administrative
agent (in such capacity, the "Administrative
Agent") and as collateral agent (in such capacity,
the "Collateral Agent") for the Lenders.
The Borrower has requested that the Credit Agreement be amended as
hereinafter set forth and the Lenders have agreed to such amendment, upon the
terms and subject to the conditions set forth herein. Accordingly, the Borrower
and the Lenders hereby agree as follows:
ARTICLE I
Defined Terms
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement.
ARTICLE II
Amendments to the Credit Agreement
The Credit Agreement is amended, effective as of the date hereof, as set
forth below:
SECTION 2.01. Amendment to Section 1.01. The definition of "Net Income" is
hereby amended by (1) deleting the period at the end of clause (d) and (ii)
adding at the end thereof the following:
"; provided that, solely for the purpose of determining Net Income for the
third fiscal quarter of 1995 (and for any fiscal period including the third
fiscal quarter of 1995), the amount of any charge by the Borrower for
acquired in process research and
<PAGE>
development expenses of the Company for the Marsam acquisition, to the
extent such charge is less than $35,000,000, and tax adjustments related
thereto shall be excluded."
SECTION 2.02. Amendment to Section 1.01. The definition of "Net Worth" is
hereby amended by (i) deleting the period at the end thereof and (ii) adding at
the end thereof the following:
"plus the amount of any charge by the Borrower for acquired in process
research and development expenses of the Company for the Marsam acquisition
to the extent such charge is less than $35,000,000."
ARTICLE III
Representations and Warranties
The Borrower hereby represents and warrants to each Lender that;
(a) The representations and warranties set forth in Article III of the
Credit Agreement are true and correct in all material respects as of the
date hereof with the same effect as made on and as of such date, except to
the extent such representations and warranties expressly relate to an
earlier date.
(b) After giving effect to Article II hereof, no Default or Event of
Default has occurred and is continuing.
(c) The charge by the Borrower for acquired in process research and
development expenses of the Company for the Marsam acquisition is not
expected to exceed $35,000,000.
<PAGE>
ARTICLE IV
Effectiveness
This Amendment shall become effective as of September 1, 1995, upon
satisfaction of each of the following conditions precedent.
(a) The Administrative Agent shall have received duly executed
counterparts hereof which, when taken together, bear the authorized
signatures of the Borrower and the Required Lenders.
(b) The Administrative Agent shall have received a certificate of a
Financial Officer of the Borrower, dated the date hereof, confirming (i)
that the representations and warranties set forth in the Credit Agreement
are true and correct in all material respects as of the date hereof, with
the same effect as though made on and as of such date, except to the extent
that such representations and warranties expressly relate to an earlier
dare, (ii) that, after giving effect to Article II hereof, no Event of
Default or Default has occurred and is continuing and (iii) that the charge
by the Borrower of purchased research and development expenses of the
Company for the Marsam acquisition is not expected to exceed $35,000,000
ARTICLE V
Miscellaneous
SECTION 5.01. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 5.02. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original but all of which, when taken
together, shall constitute but one instrument. Delivery of an executed
counterpart of a signature page of this Amendment by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 5.03. Headings. The headings of this Amendment are for reference
only and shall not limit or otherwise affect the meaning hereof.
<PAGE>
THE BANK OF NOVA SCOTIA,
by ______________________________
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.,
by ______________________________
Name:
Title:
CITICORP USA, INC.,
by ______________________________
Name:
Title:
CREDIT LYONNAIS, NEW YORK BRANCH,
by ______________________________
Name:
Title:
CREDIT LYONNAIS, CAYMAN ISLAND BRANCH,
by ______________________________
Name:
Title:
<PAGE>
DEUTSCHE BANK, A.G., NEW YORK
AND/OR CAYMAN ISLAND BRANCHES,
by ______________________________
Name:
Title:
MELLON BANK, N.A.,
by ______________________________
Name:
Title:
NATWEST BANK, N.A.,
by ______________________________
Name:
Title:
THE BANK OF TOKYO TRUST COMPANY,
by ______________________________
Name:
Title:
BAYERISCHE HYPOTHEKEN-UND WECHSEL-
BANK AKTIENGESSELLSCHAFT, NEW YORK
BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
<PAGE>
COMERICA BANK,
by ______________________________
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
CREDIT SUISSE,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
SOCIETY NATIONAL BANK,
by ______________________________
Name:
Title:
<PAGE>
MIDLANTIC BANK, N. A .,
by ______________________________
Name:
Title:
SOCIETE GENERALE, NEW YORK BRANCH,
by ______________________________
Name:
Title:
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
ABN AMRO BANK N.V., NEW YORK
BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
<PAGE>
BANK OF MONTREAL,
by ______________________________
Name:
Title:
THE BANK OF NEW YORK,
by ______________________________
Name:
Title:
COMMERZBANK AKTIENGESELLSHATT, NEW
YORK BRANCH
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CAYMAN ISLAND
BRANCH,
by ______________________________
Name:
Title:
by ______________________________
Name:
Title:
<PAGE>
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA,
by ______________________________
Name:
Title:
THE NIPPON CREDIT BANK, LTD.,
by ______________________________
Name:
Title:
UNITED JERSEY BANK,
by ______________________________
Name:
Title:
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH,
by ______________________________
Name:
Title:
<PAGE>
[LETTERHEAD OF CRAVATH, SWAINE & MOORE
(212) 474-1942
MEMORANDUM
Schein Pharmaceuticals
October 3, 1996
I enclose execution and conformed copies of the Schein Pharmaceutical
Second Amendment and Waiver. If you have any questions, please call.
Best regards,
Srinivasan Soundararajan
Ms. Dawn Lee Lum
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Mr. James A. Meer
Schein Pharmaceuticals
100 Campus Drive
Florham Park, NJ 07932
The Lenders party to
the Credit Agreement
Encl.
<PAGE>
SECOND AMENDMENT AND WAIVER dated as of
September 27, 1996 (this "Amendment"), to the
CREDIT AGREEMENT dated as of September 1, 1995,
among SCHEIN PHARMACEUTICAL, INC., a Delaware
corporation (the "Borrower"); the LENDERS (as
defined in Article I of the Credit Agreement); and
THE CHASE MANHATTAN BANK, a New York banking
corporation as issuing bank (in such capacity, the
"Issuing Bank"), as administrative agent (in such
capacity, the "Administrative Agent") and as
collateral agent (in such capacity, the
"Collateral Agent") for the Lenders.
The Borrower has requested that the Credit Agreement be amended and waived
as hereinafter set forth, and the Lenders have agreed to such amendments and
waivers, upon the terms and subject to the conditions set forth herein.
Accordingly, the Borrower and the Lenders hereby agree as follows:
ARTICLE I
Defined Terms
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement.
ARTICLE II
Amendments to the Credit Agreement
The Credit Agreement is amended, effective as of the date hereof, as set
forth below:
SECTION 2.01. Amendment to Section 1.01. The definition of "Applicable
Percentage" is hereby amended by (i) replacing the existing Category 5 with the
following new Category 5 and (ii) inserting the following two new categories,
Category 6 and Category 7, at the end of the table contained therein:
<PAGE>
2
<TABLE>
<S> <C> <C> <C>
Category 5
- ----------
Leverage Ratio greater than or equal to
4.5 to 1.0 but less than 5.0 to 1.0;
Interest Expense Coverage Ratio less
than or equal to 3.0 to 1.0 but greater
than 2.5 to 1.0 1.5000 0.5000 0.5000
Category 6
- ----------
Leverage Ratio greater than or equal to
5 to 1.0 but less than 5.5 to 1.0;
Interest Expense Coverage Ratio less
than or equal to 2.5 to 1.0 but greater
than 2.0 to 1.0 2.0000 1.0000 0.5000
Category 7
- ----------
Leverage Ratio greater than or equal to
5.5 to 1.0; or Interest Expense Coverage
Ratio less than or equal to 2.0 to 1.0 2.5000 1.5000 0.5000
</TABLE>
SECTION 2.02. Waivers. (a) The Lenders hereby waive any Event of Default
resulting from a failure to comply with the provisions of Sections 6.14 and 6.15
of the Credit Agreement for the period from and including the last day of the
third fiscal quarter of 1996 to but excluding the last day of fiscal 1996.
(b) The waivers provided for by paragraph (a) above shall terminate and
expire at 12:01 a.m., New York time, December 31, 1996, and at all times
thereafter the Credit Agreement shall apply in all respects, and the
Administrative Agent, the Collateral Agent and the Lenders shall have all such
rights and remedies, as if such waiver had never been granted.
SECTION 2.03. Maximum Utilization of Post-Merger Revolving Facility. The
Borrower hereby agrees that, from the date hereof until December 31, 1996, the
aggregate Post-Merger Revolving Credit Exposures will not exceed $75,000,000,
irrespective of the amount of the Post-Merger Revolving Credit Commitments
available during such period. The Borrower further agrees that any failure to
comply with this Section 2.03 shall constitute an Event of Default under the
Credit Agreement.
<PAGE>
3
ARTICLE III
Representations and Warranties
The Borrower hereby represents and warrants to each Lender that:
(a) After giving effect to this Amendment, the representations and
warranties set forth in Article III of the Credit Agreement are true and correct
in all material respects as of the date hereof with the same effect as made on
and as of such date, except to the extent such representations and warranties
expressly relate to an earlier date.
(b) After giving effect to Article II hereof, no Default or Event of
Default has occurred and is continuing.
ARTICLE IV
Effectiveness
This Amendment shall become effective as of the date hereof, upon
satisfaction of each of the following conditions precedent.
(a) The Administrative Agent shall have received duly executed counterparts
hereof which, when taken together, bear the authorized signatures of the
Borrower and the Required Lenders.
(b) The Administrative Agent shall have received a certificate of a
Financial Officer of the Borrower, dated the date hereof, confirming that after
giving effect to this Amendment (i) the representations and warranties set forth
in Article III of the Credit Agreement are true and correct in all material
respects on and as of the date hereof, with the same effect as though made on
and as of such date, except to the extent that such representations and
warranties expressly relate to an earlier date and (ii) no Event of Default or
Default has occurred and is continuing.
(c) Each of the Lenders executing this Amendment shall have received from
the Borrower, through the Administrative Agent, on the Effective Date, in
<PAGE>
4
immediately available funds, a fee equal to 0.10% of the sum of (x) its
Post-Merger Revolving Credit Commitment as in effect on the date hereof plus (y)
its portion of Term Facility Loans outstanding as of the date hereof.
ARTICLE V
Miscellaneous
SECTION 5.01. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 5.02. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original but all of which, when taken
together, shall constitute but one instrument. Delivery of an executed
counterpart of a signature page of this Amendment by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 5.03. Headings. The headings of this Amendment are for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 5.04. Effect of Amendment. Except as specifically amended hereby,
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof. As used therein, the terms "Agreement", "herein",
"hereunder", "hereinafter", "hereto", "hereof", and words of similar import
shall, unless the context otherwise requires, refer to the Credit Agreement as
amended hereby.
SECTION 5.05. Effect of Waiver Generally. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders under the Credit Agreement or any Loan Document, and shall not alter,
modify, amend or in any way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement or any other Loan
Document, all of which are ratified and affirmed in all respects and shall
continue in full force and effect. Nothing herein shall be deemed to entitle the
Borrower to a consent to, or a waiver, amendment, modification or other
<PAGE>
5
change of, any of the terms, conditions, obligations, covenants or agreements
contained in the Credit Agreement or any other Loan Document in similar or
different circumstances. This Amendment shall apply and be effective only with
respect to the provisions of the Credit Agreement specifically referred to
herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SCHEIN PHARMACEUTICAL, INC.,
by /s/ [ILLEGIBLE]
-------------------------------
Name:
Title: Vice President &
Treasurer
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), individually
and as Administrative Agent,
Collateral Agent and Issuing Bank,
by /s/ Dawn Lee Lum
-------------------------------
Name: Dawn Lee Lum
Title: Vice President
<PAGE>
6
THE BANK OF NOVA SCOTIA,
by
-------------------------------
Name:
Title:
CITICORP USA, INC.,
by
-------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH,
by /s/ Mary E. Collier
-------------------------------
Name: Mary E. Collier
Title: VICE PRESIDENT
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH,
by /s/ Mary E. Collier
-------------------------------
Name: Mary E. Collier
Title: AUTHORIZED SIGNATURE
DEUTSCHE BANK, A.G., NEW YORK
AND/OR CAYMAN ISLAND BRANCHES,
by /s/ Iain Stewart
-------------------------------
Name: Iain Stewart
Title: Assistant Vice President
by /s/ Alka Goyal
-------------------------------
Name: Alka Goyal
Title: Assistant Vice President
<PAGE>
7
MELLON BANK, N.A.,
by /s/ Caroline R. Walsh
-------------------------------
Name: Caroline R. Walsh
Title: Assistant Vice President
FLEET BANK, N.A. (formerly
known as NatWest Bank, N.A. ),
by /s/ Pauline McHugh
-------------------------------
Name: Pauline McHugh
Title: Vice President
Bank of Tokyo-Mitsubishi Trust THE BANK OF TOKYO TRUST
Company, successor by merger to: COMPANY,
by /s/ Michael C. Irwin
-------------------------------
Name: Michael C. Irwin
Title: Vice President
BAYERISCHE HYPOTHEKEN-UND WECHSEL-
BANK AKTIENGESSELLSCHAFT, NEW YORK
BRANCH
by /s/ Gisela Kroess
-------------------------------
Name: Gisela Kroess
Title: VP
by /s/ David Rockwell
-------------------------------
Name: David Rockwell
Title: SVP
COMERICA BANK,
by [ILLEGIBLE]
-------------------------------
Name: [ILLEGIBLE]
Title: VICE PRESIDENT
<PAGE>
8
COOPERATIVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
by /s/ Angel R. Reilly
-------------------------------
Name: Angel R. Reilly
Title: Vice President
by /s/ Ian Reece
-------------------------------
Name: Ian Reece
Title: Vice President &
Manager
CREDIT SUISSE,
by /s/ Christopher J. Eldin
-------------------------------
Name: CHRISTOPHER J. ELDIN
Title: MEMBER OF SENIOR
MANAGEMENT
by /s/ Thomas G. Muoio
-------------------------------
Name: THOMAS G. MUOIO
Title: ASSOCIATE
KeyBank National Association
by /s/ Marianne T. Meil
-------------------------------
Name: Marianne T. Meil
Title: Vice President
MIDLANTIC BANK, N.A.,
by /s/ Michael Nardo
-------------------------------
Name: Michael Nardo
Title: Vice President
<PAGE>
9
SOCIETE GENERALE, NEW YORK BRANCH,
by /s/ Michelle Martin
-------------------------------
Name: Michelle Martin
Title: Assistant Vice President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by /s/ [ILLEGIBLE]
-------------------------------
Name: [ILLEGIBLE]
Title: Vice President
by /s/ R. Cechura
-------------------------------
Name: R. CECHURA
Title: VP
ABN AMRO BANK N.V., NEW YORK
BRANCH
by /s/ George M. Dugan
-------------------------------
Name: George M. Dugan
Title: Vice President
by /s/ David W. Stack
-------------------------------
Name: David W. Stack
Title: Assistant Vice President
BANK OF MONTREAL
by /s/ Thomas H. Peer
-------------------------------
Name: Thomas H. Peer
Title: Director
<PAGE>
10
THE BANK OF NEW YORK,
by /s/ Walter C. Parelli
-------------------------------
Name: Walter C. Parelli
Title: Assistant Vice President
COMMERZBANK AKTIENGESELLSHAFT, NEW
YORK BRANCH,
by /s/ [ILLEGIBLE]
-------------------------------
Name:
Title:
by /s/ Jurgen Boysen
-------------------------------
Name: Jurgen Boysen
Title: Senior Vice President
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CAYMAN ISLAND
BRANCH,
by /s/ [ILLEGIBLE]
-------------------------------
Name: [ILLEGIBLE]
Title:
by /s/ Leo Von Reissig
-------------------------------
Name: LEO VON REISSIG
Title: Assistant Vice President
FIRST UNION NATIONAL BANK
by /s/ Robert H. Waters, Jr.
-------------------------------
Name: Robert H. Waters, Jr.
Title: Senior Vice President
<PAGE>
11
THE NIPPON CREDIT BANK, LTD.,
by /s/ Clifford Abramsky
-------------------------------
Name: Clifford Abramsky
Title: Senior Manager
SUMMIT BANK,
by /s/ Bruce A. Gray
-------------------------------
Name: BRUCE A. GRAY,
Title: VICE PRESIDENT
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH,
by /s/ Patrick J. Owens
-------------------------------
Name: Patrick J. Owens
Title: First Vice President
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
CERTIFICATE OF THE FINANCIAL OFFICER
To: The Chase Manhattan Bank (formerly known as Chemical Bank), as Issuing Bank,
Administrative Agent and Collateral Agent pursuant to the Credit Agreement
dated as of September 1, 1995 among Schein Pharmaceutical, Inc. (the
"Borrower"), Chase Manhattan Bank (in such capacities) and the Lenders party
thereto ("Credit Agreement").
1. This Certificate is furnished pursuant to the Second Amendment and
Waiver, dated as of September 27, 1996 to the Credit Agreement. Unless otherwise
defined herein, capitalized terms used in this Certificate shall have the
meanings set forth in the Credit Agreement.
2. On and as of the date hereof after giving effect to the Second
Amendment, the representations and warranties contained in the Credit Agreement
are true and correct in ail material respects with the same effect as though
such representations and warranties had been made on and as of the date hereof,
unless stated to relate to a specific earlier date, in which case such
representations and warranties were true and correct in all material respects as
of such earlier date.
3. On the date hereof after giving effect to Article III of the Second
Amendment, no Default or Event of Default has occurred and is continuing.
Dated: 9/27/96 By: /s/ James A. Meer
------------------------------
James A. Meer
Vice President & Treasurer
<PAGE>
CONFORMED COPY
SECOND AMENDMENT AND WAIVER dated as of
September 27, 1996 (this "Amendment"), to the
CREDIT AGREEMENT dated as of September 1, 1995,
among SCHEIN PHARMACEUTICAL, INC., a Delaware
corporation (the "Borrower"); the LENDERS (as
defined in Article I of the Credit Agreement); and
THE CHASE MANHATTAN BANK, a New York banking
corporation as issuing bank (in such capacity, the
"Issuing Bank"), as administrative agent (in such
capacity, the "Administrative Agent") and as
collateral agent (in such capacity, the
"Collateral Agent") for the Lenders.
The Borrower has requested that the Credit Agreement be amended and waived
as hereinafter set forth, and the Lenders have agreed to such amendments and
waivers, upon the terms and subject to the conditions set forth herein.
Accordingly, the Borrower and the Lenders hereby agree as follows:
ARTICLE I
Defined Terms
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement.
ARTICLE II
Amendments to the Credit Agreement
The Credit Agreement is amended, effective as of the date hereof, as set
forth below:
SECTION 2.01. Amendment to Section 1.01. The definition of "Applicable
Percentage" is hereby amended by (i) replacing the existing Category 5 with the
following new Category 5 and (ii) inserting the following two new categories,
Category 6 and Category 7, at the end of the table contained therein:
<PAGE>
2
<TABLE>
<S> <C> <C> <C>
Category 5
- ----------
Leverage Ratio greater than or equal
to 4.5 to 1.0 but less than 5.0 to
1.0; Interest Expense Coverage Ratio
less than or equal to 3.0 to 1.0 but
greater than 2.5 to 1.0 1.5000 0.5000 0.5000
Category 6
- ----------
Leverage Ratio greater than or equal
to 5 to 1.0 but less than 5.5 to 1.0;
Interest Expense Coverage Ratio less
than or equal to 2.5 to 1.0 but
greater than 2.0 to 1.0 2.0000 1.0000 0.5000
Category 7
- ----------
Leverage Ratio greater than or equal
to 5.5 to 1.0; or Interest Expense
Coverage Ratio less than or equal to
2.0 To 1.0 2.5000 1.5000 0.5000
</TABLE>
SECTION 2.02. Waivers. (a) The Lenders hereby waive any Event of Default
resulting from a failure to comply with the provisions of Sections 6.14 and 6.15
of the Credit Agreement for the period from and including the last day of the
third fiscal quarter of 1996 to but excluding the last day of fiscal 1996.
(b) The waivers provided for by paragraph (a) above shall terminate and
expire at 12:01 a.m., New York time, December 31, 1996, and at all times
thereafter the Credit Agreement shall apply in all respects, and the
Administrative Agent, the Collateral Agent and the Lenders shall have all such
rights and remedies, as if such waiver had never been granted.
SECTION 2.03. Maximum Utilization of Post-Merger Revolving Facility. The
Borrower hereby agrees that, from the date hereof until December 31, 1996, the
aggregate Post-Merger Revolving Credit Exposures will not exceed $75,000,000,
irrespective of the amount of the Post-Merger Revolving Credit Commitments
available during such period. The Borrower further agrees that any failure to
comply with this Section 2.03 shall constitute an Event of Default under the
Credit Agreement.
<PAGE>
3
ARTICLE III
Representations and Warranties
The Borrower hereby represents and warrants to each Lender that:
(a) After giving effect to this Amendment, the representations and
warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects as of the date hereof with the same effect
as made on and as of such date, except to the extent such representations
and warranties expressly relate to an earlier date.
(b) After giving effect to Article II hereof, no Default or Event of
Default has occurred and is continuing.
ARTICLE IV
Effectiveness
This Amendment shall become effective as of the date hereof, upon
satisfaction of each of the following conditions precedent.
(a) The Administrative Agent shall have received duly executed
counterparts hereof which, when taken together, bear the authorized
signatures of the Borrower and the Required Lenders.
(b) The Administrative Agent shall have received a certificate of a
Financial Officer of the Borrower, dated the date hereof, confirming that
after giving effect to this Amendment (i) the representations and
warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects on and as of the date hereof, with the
same effect as though made on and as of such date, except to the extent
that such representations and warranties expressly relate to an earlier
date and (ii) no Event of Default or Default has occurred and is
continuing.
(c) Each of the Lenders executing this Amendment shall have received
from the Borrower, through the Administrative Agent, on the Effective Date,
in
<PAGE>
4
immediately available funds, a fee equal to 0.10% of the sum of (x) its
Post-Merger Revolving Credit Commitment as in effect on the date hereof
plus (y) its portion of Term Facility Loans outstanding as of the date
hereof.
ARTICLE V
Miscellaneous
SECTION 5.01. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 5.02. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original but all of which, when taken
together, shall constitute but one instrument. Delivery of an executed
counterpart of a signature page of this Amendment by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 5.03. Headings. The headings of this Amendment are for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 5.04. Effect of Amendment. Except as specifically amended hereby,
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof. As used therein, the terms "Agreement", "herein",
"hereunder", "hereinafter", "hereto", "hereof", and words of similar import
shall, unless the context otherwise requires, refer to the Credit Agreement as
amended hereby.
SECTION 5.05. Effect of Waiver Generally. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders under the Credit Agreement or any Loan Document, and shall not alter,
modify, amend or in any way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement or any other Loan
Document, all of which are ratified and affirmed in all respects and shall
continue in full force and effect. Nothing herein shall be deemed to entitle the
Borrower to a consent to, or a waiver, amendment, modification or other
<PAGE>
5
change of, any of the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement or any other Loan Document in
similar or different circumstances. This Amendment shall apply and be
effective only with respect to the provisions of the Credit Agreement
specifically referred to herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SCHEIN PHARMACEUTICAL, INC.,
by
/s/ James A. Meer
-----------------------
Name: James A. Meer
Title: Vice President &
Treasurer
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), individually
and as Administrative Agent,
Collateral Agent and Issuing Bank,
by
/s/ Dawn Lee Lum
-----------------------
Name: Dawn Lee Lum
Title: Vice President
<PAGE>
6
THE BANK OF NOVA SCOTIA,
by
/s/ Stephen Lockhart
-----------------------
Name: Stephen Lockhart
Title: Vice President
CITICORP USA, INC.,
by
/s/ Margaret Au Brown
-----------------------
Name: Margaret Au Brown
Title: Vice President
CREDIT LYONNAIS, NEW YORK BRANCH,
by
/s/ Mary E. Collier
-----------------------
Name: Mary E. Collier
Title: Vice President
CREDIT LYONNAIS, CAYMAN ISLAND
BRANCH,
by
/s/ Mary E. Collier
-----------------------
Name: Mary E. Collier
Title: Vice President
<PAGE>
7
DEUTSCHE BANK, A.G., NEW YORK
AND/OR CAYMAN ISLAND BRANCHES,
by
/s/ Iain Stewart
-------------------------------
Name: Iain Stewart
Title: Assistant Vice President
by
/s/ Alka Goyal
-------------------------------
Name: Alka Goyal
Title: Assistant Vice President
MELLON BANK, N.A.,
by
/s/ Caroline R. Walsh
-------------------------------
Name: Caroline R. Walsh
Title: Assistant Vice President
FLEET BANK, N.A. (formerly
known as NatWest Bank, N.A.),
by
/s/ Pauline McHugh
-------------------------------
Name: Pauline McHugh
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, successor by merger
to: THE BANK OF TOKYO TRUST
COMPANY,
by
/s/ Michael C. Irwin
-------------------------------
Name: Michael C. Irwin
Title: Vice President
<PAGE>
8
BAYERISCHE HYPOTHEKEN-UND WECHSEL-
BANK AKTIENGESSELLSCHAFT, NEW YORK
BRANCH,
by
/s/ Gisela Kroess
-------------------------------
Name: Gisela Kroess
Title: Vice President
by
/s/ David Rockwell
-------------------------------
Name: David Rockwell
Title: Senior Vice President
COMERICA BANK,
by
/s/ Chris Georvassilis
-------------------------------
Name: Chris Georvassilis
Title: Vice President
COOPERATIEVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by
/s/ Angela R. Reilly
-------------------------------
Name: Angela R. Reilly
Title: Vice President
by
/s/ Ian Reece
-------------------------------
Name: Ian Reece
Title: Vice President &
Manager
,
<PAGE>
9
CREDIT SUISSE,
by
/s/ Christopher J. Eldin
-------------------------------
Name: Christopher J. Eldin
Title: Member of Senior
Management
by
/s/ Thomas G. Muoio
-------------------------------
Name: Thomas G. Muoio
Title: Associate
KEYBANK NATIONAL ASSOCIATION,
by
/s/ Marianne T. Meil
-------------------------------
Name: Marianne T. Meil
Title: Vice President
PNC BANK, N.A.,
by
/s/ Michael Nardo
-------------------------------
Name: Michael Nardo
Title: Vice President
SOCIETE GENERALE, NEW YORK BRANCH,
by
/s/ Michelle Martin
-------------------------------
Name: Michelle Martin
Title: Assistant Vice
President
<PAGE>
10
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by
/s/ Donald F. Wolf
-------------------------------
Name: Donald F. Wolf
Title: Vice President
by
/s/ R. Cechura
-------------------------------
Name: R. Cechura
Title: Vice President
ABN AMRO BANK N.V., NEW YORK
BRANCH,
by
/s/ George M. Dugan
-------------------------------
Name: George M. Dugan
Title: Vice President
by
/s/ David W. Stack
-------------------------------
Name: David W. Stack
Title: Assistant Vice
President
BANK OF MONTREAL,
by
/s/ Thomas H. Peer
-------------------------------
Name: Thomas H. Peer
Title: Director
THE BANK OF NEW YORK,
by
/s/ Walter C. Parelli
-------------------------------
Name: Walter C. Parelli
Title: Assistant Vice
President
<PAGE>
11
COMMERZBANK AKTIENGESELLSHAFT, NEW
YORK BRANCH,
by
/s/ Sean Harrigan
-------------------------------
Name: Sean Harrigan
Title: Senior Vice President
by
/s/ Jurgen Boysen
-------------------------------
Name: Jurgen Boysen
Title: Senior Vice President
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CAYMAN ISLAND
BRANCH,
by
/s/ Karen A. Brinkman
-------------------------------
Name: Karen A. Brinkman
Title: Vice President
by
/s/ Leo von Reissig
-------------------------------
Name: Leo von Reissig
Title: Assistant Vice
President
FIRST UNION NATIONAL BANK,
by
/s/ Robert H. Waters, Jr.
-------------------------------
Name: Robert H. Waters, Jr.
Title: Senior Vice President
THE NIPPON CREDIT BANK, LTD.,
by
/s/ Clifford Abramsky
-------------------------------
Name: Clifford Abramsky
Title: Senior Manager
<PAGE>
12
SUMMIT BANK,
by
/s/ Bruce A. Gray
-------------------------------
Name: Bruce A. Gray
Title: Vice President
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH,
by
/s/ Patrick J. Owens
-------------------------------
Name: Patrick J. Owens
Title: First Vice President
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
CERTIFICATE OF THE FINANCIAL OFFICER
To: The Chase Manhattan Bank (formerly known as Chemical Bank), as Issuing Bank,
Administrative Agent and Collateral Agent pursuant to the Credit Agreement dated
as of September 1, 1995 among Schein Pharmaceutical, Inc. (the "Borrower"),
Chase Manhattan Bank (in such capacities) and the Lenders party thereto ("Credit
Agreement").
1. This Certificate is furnished pursuant to the Second Amendment and
Waiver, dated as of September 27, 1996 to the Credit Agreement. Unless otherwise
defined herein, capitalized terms used in this Certificate shall have the
meanings set forth in the Credit Agreement.
2. On and as of the date hereof after giving effect to the Second
Amendment, the representations and warranties contained in the Credit Agreement
are true and correct in all material respects with the same effect as though
such representations and warranties had been made on and as of the date hereof,
unless stated to relate to a specific earlier date, in which case such
representations and warranties were true and correct in all material respects as
of such earlier date.
3. On the date hereof after giving effect to Article III of the Second
Amendment, no Default or Event of Default has occurred and is continuing.
Dated: 9/27/96 By: /s/ James A. Meer
--------------------------
James A. Meer
Vice President & Treasurer
<PAGE>
[LOGO] SCHEIN
PHARMACEUTICAL
MEMORANDUM
TO: P. Feuerman
FROM: Jim Meer
DATE: January 24, 1997
SUBJECT: Third Amendment to Chase Agreement
- --------------------------------------------------------------------------------
Attached is an execution copy of the Third Amendment to the Chase $350 Million
Credit Agreement along with the exhibits for your permanent flies.
A conformed copy of the amendment only is forwarded to the list below.
cc:
D. Ashrafi
D. Barron
B. Gilesa
C. O'Neill
W. Stearns (2) - BDO
Att
<PAGE>
CONFORMED COPY
THIRD AMENDMENT dated as of December 20,
1996 (this "'Amendment")' to the CREDIT AGREEMENT
dated as of September 1, 1995, among SCHEIN
PHARMACEUTICAL, INC., a Delaware corporation (the
"Borrower"); the LENDERS (as defined in Article I
of the Credit Agreement); and THE CHASE MANHATTAN
BANK, a New York banking corporation as issuing
bank (in such capacity, the "Issuing Bank"), as
administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent
(in such capacity, the "Collateral Agent") for the
Lenders.
The Borrower has requested that the Credit Agreement be amended as
hereinafter set forth, and the Lenders have agreed to such amendment, upon the
terms and subject to the conditions set forth herein. Accordingly, the Borrower
and the Lenders hereby agree as follows:
ARTICLE I
Defined Terms
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement, as amended hereby (the
"Amended Credit Aqreement").
ARTICLE II
Amendments to and Waivers under the Credit Agreement
The Credit Agreement is amended, effective as of the date hereof (but
subject to the conditions set forth in Article IV hereof), as set forth below:
SECTION 2.01. Amendments to Article I. (a) The following definitions are
added to Section 1.01 of the Credit Agreement in the proper alphabetical order:
" 'Acceptable Refinancing' shall mean a series of transactions in
which the Borrower (a) completes an issuance and sale of its capital stock
(or rights, warrants or options to acquire its capital stock) or of
Subordinated Debt (which Subordinated Debt, unless it (x) is described in
the second sentence of the definition of "Subordinated Debt" or (y) is on
terms (including, without limitation, maturity, interest rates,
subordination provisions, prepayment, redemption, defeasance or similar
provisions, covenants and events of default) at least as favorable in all
respects to the Borrower or the Lenders as the terms of the Indebtedness
issued (or that would have been issued) under the Conversion Note
Indenture, is on terms approved in writing by the Required Lenders), or any
combination thereof, in either case yielding net cash proceeds to the
Borrower of at least $96,000,000, and (b) applies such net cash proceeds to
prepay Term Loans in the manner contemplated by Sections 2.11 and 2.13."
<PAGE>
2
" 'Conversion Note Indenture' shall mean the "Conversion Note
Indenture" referred to in the Senior Subordinated Loan Agreement, in the
form attached as Annex I-B to the Third Amendment."
" 'Refinancing Debt' shall have the meaning assigned to such term in
Section 6.0l(g)."
" 'Senior Subordinated Loan Aareement' shall mean the $100,000,000
Senior Subordinated Loan Agreement dated as of December [ ], 1996, among
the Borrower, certain lenders and Societe Generale, as administrative
agent, in the form attached as Annex I-A to the Third Amendment."
" 'Third Amendment' shall mean the Third Amendment dated as of
December 20, 1996, to this Agreement.'
(b) The definition of "Subordinated Debts" is amended to read as follows:
" 'Subordinated Debt' means unsecured Indebtedness of the Borrower
that (a) does not have any scheduled payments of principal prior to the
180th day following the Post-Merger Facilities Maturity Date, (b) the
principal of which is subordinated to the prior payment in full in cash of
all the Obligations in a manner reasonably satisfactory to the
Administrative Agent and (c) otherwise has terms and conditions reasonably
satisfactory to the Administrative Agent. Notwithstanding any other
provision of this Agreement, Subordinated Debt shall include (i)
Indebtedness incurred under and on the terms set forth in the Senior
Subordinated Loan Agreement or the Conversion Note Indenture, and (ii)
Refinancing Debt; provided that the terms of such Refinancing Debt
(including, without limitation, maturity, interest rates, subordination
provisions, prepayment, redemption, defeasance or similar provisions,
covenants and events of default) shall be in all material respects at least
as favorable to the Borrower and the Lenders as the terms of the
Indebtedness being refinanced (or, if the Indebtedness being refinanced we,
incurred under the Senior Subordinated Loan Agreement or the Conversion
Note Indenture, at least as favorable to the Borrower and the Lenders as
the terms of the Indebtedness issued (or that would have been issued) under
the Conversion Note Indenture) or, in the case of interest rates, shall be
consistent with rates of interest at the time prevailing in the market for
comparable obligations."
SECTION 2.02. Amendments to Article II. (a) Section 2.11(b) of the Credit
Agreement is amended by (i) inserting the phrase "(other than Section 2.13(f))"
between "2.13" and "shall" and (ii) inserting the following at the end of the
second sentence following the word "prepayment":
", and each prepayment of principal of Term Facility Borrowings pursuant to
Section 2.13(f) shall be applied (A) first, to reduce in full the amounts
due on or prior to June 30, 1998, in order of maturity and (B) second, to
reduce pro rata the scheduled payments of principal due under this Section
2.11 after June 30, 1998".
<PAGE>
3
(b) Section 2.13 of the Credit Agreement is amended by inserting the
following new subsection (f):
"(f) Notwithstanding anything in paragraph (a), (b) or (c) above, (i)
the Borrower shall apply 100% of the Net Proceeds of any Acceptable
Refinancing promptly upon receipt to prepay outstanding Term Loans in
accordance with Section 2.11(b), and (ii) the Borrower may apply the Net
Proceeds of any Refinancing Debt incurred in compliance with Section
6.01(g) or of any issuance and sale of its capital stock (or rights,
warrants or options to acquire its capital stock) to repay any Indebtedness
incurred as part of an Acceptable Refinancing or any other Refinancing
Debt."
SECTION 2.03. Amendments to Article VI. (a) Clause (g) of Section 6.01 is
amended to read as follows:
"(g) Subordinated Debt issued after the Merger Date (including any
Indebtedness incurred as part of an Acceptable Refinancing, and any
Subordinated Debt the proceeds of which are used to refinance any such
indebtedness or any other Subordinated Debt the proceeds of which have been
so used ("Refinancing Debt"); provided that the terms of such Refinancing
Debt (including, without limitation, maturity, interest rates,
subordination provisions, prepayment, redemption, defeasance or similar
provisions, covenants and events of default) shall be in all material
respects at least as favorable to the Borrower and the Lenders as the terms
of the Indebtedness being refinanced (or, if the Indebtedness being
refinanced was incurred under the Senior Subordinated Loan Agreement or the
Conversion Note Indenture, at least as favorable to the Borrower and the
Lenders as the terms of the Indebtedness issued (or that would have been
issued) under the Conversion Note Indenture) or, in the case of interest
rates, shall be consistent with rates of interest at the time prevailing in
the market for comparable obligations.
(b) Section 6.12 is amended by deleting the text after the word
"Indebtedness" and inserting in place thereof:
"except that the Borrower and the Subsidiaries may (i) make payments in
respect of the Obligations, (ii) make payments in the form of common stock
of the Borrower and (iii) refinance Indebtedness incurred as part of an
Acceptable Refinancing or Refinancing Debt with the proceeds of any
issuance and sale of capital stock (or rights, warrants or options to
acquire capital stock) of the Borrower or of any Refinancing Debt permitted
under Section 6.01(g)."
(c) Section 6.14 of the Credit Agreement is amended by deleting the table
set forth therein and inserting in its place the following:
"From and including the last day of
fiscal 1996 to but excluding the
last day of the second fiscal
quarter of 1997 6.50 to 1.00
<PAGE>
4
From and including the last day of
the second fiscal quarter of 1997 to
but excluding the last day of the
third fiscal quarter of 1997 6.00 to 1.00
From and including the last day of
the third fiscal quarter of 1997 to
but excluding the last day of fiscal
1997 5.75 to 1.00
From and including the last day of
fiscal 1997 to but excluding the
last day of the second fiscal
quarter of 1998 5.25 to 1.00
From and including the last day of
the second fiscal quarter of 1998 to
but excluding the last day of the
third fiscal quarter of 1998 5.00 to 1.00
From and including the last day of
the third fiscal quarter of 1998 to
but excluding the last day of the
second fiscal quarter of 1999 4.50 to 1.00
From and including the last day of
the second fiscal quarter of 1999 to
but excluding the last day of fiscal
1999 4.00 to 1.00
Thereafter 3.50 to 1.00"
(d) Section 6.15 of the Credit Agreement is amended by deleting the table
set forth therein and inserting in its place the following:
"From and including the last day of
fiscal 1996 to but excluding the
last day of the second fiscal
quarter of 1997 6.50 to 1.00
<PAGE>
5
From and including the last day of
the second fiscal quarter of 1997 to
but excluding the last day of the
third fiscal quarter of 1997 4.50 to 1.00
From and including the last day of
the third fiscal quarter of 1997 to
but excluding the last day of the
second fiscal quarter of 1998 4.00 to 1.00
From and including the last day of
the second fiscal quarter of 1998 to
but excluding the last day of fiscal
1998 3.50 to 1.00
Thereafter 3.00 to 1.00
provided that if the Borrower completes an Acceptable Refinancing not later
than June 30, 1997, the ratio of Senior Debt to EBITDA for the period from
and including the day of the completion of such Acceptable Refinancing to
but excluding the last day of the second fiscal quarter of 1997 shall be
4.75 to 1.00"
(e) Section 6.16 of the Credit Agreement is amended by deleting the table
set forth therein and inserting in its place the following:
"From and including the last day of
fiscal 1996 to but excluding the
last day of the third fiscal charter
of 1998 $155,000,000
From and including the last day of
the third fiscal quarter of 1998 to
but excluding the last day of fiscal
1998 $160,000,000
From and including the last day of
fiscal 1998 to but excluding the
last day of fiscal 1999 $170,000,000
Thereafter $190,000,000"
<PAGE>
6
(f) Section 6.18 of the Credit Agreement is deleted and replaced with the
following new Section 6.18:
"SECTION 6.18. Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio as of any date during any period specified below to be less
than the amount set forth below opposite such period; provided that for
purposes of computing the Fixed Charge Coverage Ratio, the scheduled
principal repayments in respect of the Term Facility Loans due on September
30, 1996, and December 31, 1996, shall be excluded:
From and including the last day of
fiscal 1996 to but excluding the
last day of fiscal 1997 1.00 to 1.00
From and including the last day of
fiscal 1997 to but excluding the
last day of fiscal 1999 1.10 to 1.00
From and including the last day of
fiscal 1999 to but excluding the
last day of fiscal 2000 1.25 to 1.00
Thereafter 1.50 to 1.00"
(g) The following new Section 6.19 is inserted at the end of Article VI:
"SECTION 6.19. Amendment of Certain Indebtedness. Amend or modify any
provision of any instrument or agreement evidencing or governing (a) any
Indebtedness incurred as part of an Acceptable Refinancing, (b) any
Refinancing Debt or (c) any other Subordinated Debt, in each case in a
manner adverse in any respect to the Borrower or to the Lenders, without
the consent of the Required Lenders."
SECTION 2.05. FoxMeyer Receivables. The provisions of Sections 5.11 and
6.02 of the Credit Agreement and the provisions of the Security Agreement are
waived to the extent (and only to the extent) necessary to permit the Borrower
to assign the pre-bankruptcy receivables of FoxMeyer Corporation and its
affiliates ("FoxMeyer") to National Union Fire Insurance Company ("National
Union"), as required under the terms of a credit insurance policy issued by
National Union in favor of the Borrower in order to perfect a claim of the
Borrower under such policy (estimated by the Borrower to be in the range of
$3,300,000 to $3,600,000) resulting from the bankruptcy of FoxMeyer. In
connection with such assignment, the Collateral Agent is authorized and directed
to execute, deliver and file all such instruments and other documents as it may
deem necessary to effect or evidence the release of such receivables from the
Lien of the Security Agreement.
<PAGE>
7
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to each Lender that:
(a) After giving effect to this Amendment, the representations and
warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects as of the date hereof with the same effect
as if made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date.
(b) After giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing.
ARTICLE IV
Effectiveness
This Amendment shall become effective as of the date hereof but only upon
satisfaction of each of the following conditions precedent.
(a) The Administrative Agent shall have received duly executed
counterparts hereof which, when taken together, bear the authorized
signatures of the Borrower and the Required Lenders.
(b) The Administrative Agent shall have received a certificate of a
Financial Officer of the Borrower, dated the date hereof, confirming that
after giving effect to this Amendment (i) the representations and
warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects on and as of the date hereof, with the
same effect as though made on and as of such date, except to the extent
that such representations and warranties expressly relate to an earlier
date and (ii) no Event of Default or Default has occurred and is
continuing.
(c) Each of the Lenders executing this Amendment shall have received
from the Borrower, through the Administrative Agent, on the date hereof, in
immediately available funds, a fee equal to 0.10% of the sum of (x) its
Post-Merger Revolving Credit Commitment as in effect on the date hereof
plus (y) its portion of Term Facility Loans outstanding as of the date
hereof.
ARTICLE V
Miscellaneous
SECTION 5.01. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
<PAGE>
8
SECTION 5.02. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original but all of which, when taken
together, shall constitute but one instrument. Delivery of an executed
counterpart of a signature page of this Amendment by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 5.03. Headings. The headings of this Amendment are for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 5.04. Effect of Amendment. Except as specifically amended hereby,
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof. As used therein, the terms "Agreement", "herein",
"hereunder", "hereinafter", "hereto",
<PAGE>
9
"hereof", and words of similar import shall, unless the context otherwise
requires, refer to the Credit Agreement as amended hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SCHEIN PHARMACEUTICAL. INC.,
by
/s/ James A. Meer
------------------------------
Name: James A. Meer
Title: Vice President and
Treasurer
THE CHASE MANHATTAN BANK (formerly known
as Chemical Bank), individually and as
Administrative Agent, Collateral Agent
and Issuing Bank,
by
/s/ Dawn Lee Lum
-------------------------------
Name: Dawn Lee Lum
Title: Vice President
<PAGE>
10
THE BANK OF NOVA SCOTIA,
by
/s/ Brian Allen
-------------------------------
Name: Brian Allen
Title: Senior Relationship
Manager
CITICORP USA, INC.,
by
/s/ Thomas D. Stott
-------------------------------
Name: Thomas D. Stott
Title: Vice President
CREDIT LYONNAIS, NEW YORK BRANCH,
by
/s/ Robert Ivosevich
-------------------------------
Name: Robert Ivosevich
Title: Senior Vice President
CREDIT LYONNAIS, CAYMAN ISLAND BRANCH,
by
/s/ Robert Ivosevich
-------------------------------
Name: Robert Ivosevich
Title: Authorized Signature
DEUTSCHE BANK, A.G., NEW YORK AND/OR
CAYMAN ISLAND BRANCHES,
by
/s/ Alka Jainigoyal
-------------------------------
Name: Alka Jainigoyal
Title: Assistant Vice President
by
/s/ Iain Stewart
-------------------------------
Name: Iain Stewart
Title: Assistant Vice
President
MELLON BANK, N.A.,
by
/s/ Caroline R. Walsh
-------------------------------
Name: Caroline R. Walsh
Title: Assistant Vice
President
<PAGE>
11
FLEET BANK, N.A. (formerly known as
NatWest Bank, N.A.), by
by
-------------------------------
Name:
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, successor by merger to:
THE BANK OF TOKYO TRUST COMPANY,
by
/s/ George Stewart
-------------------------------
Name: George Stewart
Title: Senior Vice President
BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK
ARTIENGESSELLSCHAFT, NEW YORK BRANCH,
by
/s/ David A. Rockwell
-------------------------------
Name: David A. Rockwell
Title: Senior Vice President
by
/s/ Yoram Dankner
-------------------------------
Name: Yoram Dankner
Title: Senior Vice President
COMERICA BANK,
by
/s/ Chris Georvassilis
-------------------------------
Name: Chris Georvassilis
Title: Vice President
COOPERATIEVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by
/s/ Dana W. Hemenwav
-------------------------------
Name: Dana W. Hemenway
Title: Vice President
by
/s/ W. Jeffrey Vollack
-------------------------------
Name: W. Jeffrey Vollack
Title: Vice President, Manager
<PAGE>
12
CREDIT SUISSE,
by
/s/ Christopher J. Eldin
-------------------------------
Name: Christopher J. Eldin
Title: Member of Senior
Management
by
/s/ Thomas G. Muoio
-------------------------------
Name: Thomas G. Muolo
Title: Associate
KEYBANK NATIONAL ASSOCIATION,
by
/s/ Frank J. Jancar
-------------------------------
Name: Frank J. Jancar
Title: Vice President
PNC BANK, N.A.,
by
/s/ Michael Nardo
-------------------------------
Name: Michael Nardo
Title: Vice President
SOCIETE GENERALE, NEW YORK BRANCH,
by
/s/ Michelle Martin
-------------------------------
Name: Michelle Martin
Title: Assistant Vice President
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
by
/s/ Cynthia M. Niesen
-------------------------------
Name: Cynthia M. Niesen
Title: Managing Director
by
/s/ R. Cechura
-------------------------------
Name: R. Cechura
Title: Vice President
<PAGE>
13
ABN AMRO BANX N.V., NEW YORK BRANCH,
by
-------------------------------
Name:
Title:
by
-------------------------------
Name:
Title:
BANK OF MONTREAL,
by
/s/ Thomas H. Peer
-------------------------------
Name: Thomas H. Peer
Title: Director
THE BANK OF NEW YORK,
by
/s/ Walter S. Parelli
-------------------------------
Name: Walter S. Parelli
Title: Assistant Vice President
COMMERZBANK AKTIENGESELLSHAFT, NEW YORK
BRANCH,
by
-------------------------------
Name:
Title:
by
-------------------------------
Name:
Title:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLAND BRANCH,
by
/s/ Norah McCann
-------------------------------
Name: Norah McCann
Title: Senior Vice President
by
/s/ Karen A. Brinkman
-------------------------------
Name: Karen A. Brinkman
Title: Vice President
<PAGE>
14
FIRST UNION NATIONAL BANK,
by
/s/ Lance M. Zaremba
-------------------------------
Name: Lance M. Zaremba
Title: Assistant Cashier
THE NIPPON CREDIT BANK, LTD.,
by
/s/ Clifford Abramsky
-------------------------------
Name: Clifford Abramsky
Title: Senior Manager
SUMMIT BANK,
by
/s/ Lawrence F. Zema
-------------------------------
Name: Lawrence F. Zema
Title: Vice President and
Regional Manager
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH,
by
/s/ Rohn Laudenschlager
-------------------------------
Name: Rohn Laudenschlager
Title: Senior Vice President
<PAGE>
EXECUTION COPY
EXHIBIT 4.2
FOURTH AMENDMENT dated as of November 25, 1997
(this "Amendment"), to the CREDIT AGREEMENT dated as of
September 1, 1995, among SCHEIN PHARMACEUTICAL, INC., a Delaware
corporation (the "Borrower"); the LENDERS (as defined in Article
I of the Credit Agreement); and THE CHASE MANHATTAN BANK, a New
York banking corporation as issuing bank (in such capacity, the
"Issuing Bank"), as administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent (in such
capacity, the "Collateral Agent") for the Lenders.
The Borrower has requested that the Credit Agreement be amended
as hereinafter set forth to permit the Borrower to amend certain terms of the
form of Conversion Note Indenture attached as Annex l-B to the Third Amendment
to reflect the issuance of the Senior Floating Rate Notes on the Conversion Date
(as such term is defined in the Senior Floating Rate Note Documents). The
Lenders have agreed to amend the Credit Agreement as set forth herein, upon the
terms and subject to the conditions set forth below. Accordingly, the Borrower
and the Lenders hereby agree as follows:
ARTICLE I
Defined Terms
-------------
Capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement. As used herein, the
following terms shall have the meanings assigned to them below (and to the
extent such terms are used in the Credit Agreement after giving effect to this
Amendment and Waiver, the following definitions are hereby added in their proper
alphabetical order to Section 1.01 of the Credit Agreement):
"Senior Subordinated Loan Agreement" shall mean the Senior
----------------------------------
Subordinated Loan Agreement dated as of December 20, 1996, between the Borrower
and Societe Generale, as Lender and administrative agent.
"Senior Floating Rate Note Documents" means the agreements
-----------------------------------
and instruments governing or evidencing the Senior Floating Rate Notes.
"Senior Floating Rate Notes" means Indebtedness of the Borrower
--------------------------
in the amounts and on the terms set forth in Exhibit A hereto and the related
Guarantees of the Subsidiaries referred to in such Exhibit A and shall
include, without limitation, any Indebtedness of the Borrower the terms of
which (including, without limitation, principal amount, maturity, interest
rates, subordination provisions, prepayment or similar provisions, covenants and
events of default) are in all material respects at least as favorable to the
Borrower and the Lenders as the terms set forth in Exhibit A.
ARTICLE II
Amendments to the Credit Agreement
----------------------------------
The Credit Agreement is amended, effective upon the satisfaction
of the conditions set forth in Article IV, as set forth below:
<PAGE>
63
SECTION 2.01. Amendment of Section 1.01. The definition of "Loan
-------------------------
Documents" in Section 1.01 of the Credit Agreement is amended by the insertion
immediately prior to the period at the end of such definition of the words ",as
amended and in effect from time to time".
SECTION 2.02. Amendment of Section 6.01. Section 6.01 of the
-------------------------
Credit Agreement is amended by the deletion of the word "and" following clause
(l) thereof, the insertion of a semicolon and the word "and" after clause (m)
thereof and the insertion of the following new clause (n):
"(n) the Senior Floating Rate Notes".
SECTION 2.03. Amendment of Section 6.10. Section 6.10 of the
-------------------------
Credit Agreement is amended by the insertion of the following new paragraph (d):
"(d) Amend or modify the Senior Floating Rate Note Documents in
any respect adverse to the Borrower or any of its Subsidiaries or to the rights
or interests of the Lenders without the prior written consent of the Required
Lenders".
SECTION 2.04. Amendment of Section 6.12. Section 6.12 of the
-------------------------
Credit Agreement is amended by the insertion immediately prior to the period at
the end of such Section of the words ", and except that (iv) the outstanding
Subordinated Debt issued under the Senior Subordinated Loan Agreement may be
exchanged for the Senior Floating Rate Notes on the Conversion Date (as such
term is defined in the Senior Floating Rate Note Documents) and (v) Indebtedness
outstanding under the Senior Floating Rate Notes may be repaid with the proceeds
of (a) an Equity Issuance or (b) net proceeds of any Subordinated Debt incurred
on terms and conditions acceptable to the Lenders and used to refinance the
Senior Floating Rate Notes.
SECTION 2.05. Amendment of Section 6.15. Section 6.15 of the
-------------------------
Credit Agreement is amended as follows:
From and including the last day of
the second fiscal quarter of 1997 to
but excluding the last day of fiscal
1997 4.50 to 1.00
From and including the last day of
fiscal 1997 to but excluding the last
day of the second fiscal quarter of
1998 4.75 to 1.00
From and including the last day of
the second fiscal quarter of 1998 to
but excluding the last day of fiscal
1998 4.50 to 1.00
From and including the last day of
fiscal 1998 to but excluding the last
day of the second fiscal quarter of
1999 3.75 to 1.00
From and including the last day of
the second fiscal quarter of 1999 to
but excluding the last day of fiscal
1999 3.50 to 1.00
<PAGE>
64
From and including the last day of 2.75 to 1.00
fiscal 1999 to but excluding the last
day of the second fiscal quarter of
2000
Thereafter 2.50 to 1.00
ARTICLE III
Representations and Warranties
------------------------------
The Borrower hereby represents and warrants to each Lender that:
(a) After giving effect to this Amendment, the
representations and warranties set forth in Article III of the Credit
Agreement are true and correct in all material respects as of the date
hereof with the same effect as made on and as of such date, except to the
extent such representations and warranties expressly relate to an earlier
date.
(b) After giving effect to Article II hereof, no Default or
Event of Default has occurred and is continuing.
ARTICLE IV
Effectiveness
-------------
This Amendment shall become effective on and as of any date
on or prior to December 12, 1997, on which each of the following conditions
precedent shall have been satisfied.
(a) The Administrative Agent shall have received duly
executed counterparts hereof which, when taken together, bear the authorized
signatures of the Borrower and Lenders.
(b) The Administrative Agent shall have received a
certificate of a Financial officer of the Borrower, dated the date hereof,
confirming that after giving effect to this Amendment (i) the representations
and warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects on and as of the date hereof, with the same
effect as though made on and as of such date, except to the extent that such
representations and warranties expressly relate to an earlier date and (ii) no
Event of Default or Default has occurred and is continuing.
(c) The Senior Floating Rate Notes Documents shall have been
executed and delivered by the Borrower and the other parties thereto, shall be
consistent in all respects with the summaries of terms set forth in Exhibit A
hereto and shall be satisfactory in form and substance to the Administrative
Agent.
(d) Each of the Lenders executing this Amendment shall have
received from the Borrower, through the Administrative Agent, on or before the
date hereof, in immediately available funds, a fee equal to 0.15% of the sum of
(x) its Post-Merger Revolving Credit Commitment as in effect on the date hereof
plus (y) its portion of Term Facility Loans outstanding as of the date hereof.
- ----
<PAGE>
65
ARTICLE V
Miscellaneous
-------------
SECTION 5.01. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED
-------------
IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 5.02. Counterparts. This Amendment may be executed in
------------
any number of counterparts, each of which shall be an original but all of which,
when taken together, shall constitute but one instrument. Delivery of an
executed counterpart of a signature page of this Amendment by facsimile
transmission shall be as effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 5.03. Headings. The headings of this Amendment are for
--------
reference only and shall not limit or otherwise affect the meaning hereof.
SECTION 5.04. Effect of Amendment. Except as specifically
-------------------
amended hereby, the Credit Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used therein, the terms "Agreement",
"herein", "hereunder", "hereinafter", "hereto", "hereof", and words of
similar import shall, unless the context otherwise requires, refer to the Credit
Agreement as amended hereby. Except as expressly set forth herein, this
Amendment shall not by implication or otherwise limit, impair, constitute a
waiver of, or otherwise affect the rights and remedies of the Lenders under the
Credit Agreement or any Loan Document, and shall not alter, modify, amend or in
any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement or any other Loan Document, all of
which are ratified and affirmed in all respects and shall continue in full
force and effect. Nothing herein shall be deemed to entitle the Borrower to a
consent to, or a waiver, amendment, modification or other change of, any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document in similar or different circumstances. This
Amendment shall apply and be effective only with respect to the provisions of
the Credit Agreement specifically referred to herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
SCHEIN PHARMACEUTICAL, INC.,
by: /s/ James A. Meer
----------------------------
Name: James A. Meer
Title: Vice President
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), individually and
as Administrative Agent, Collateral Agent
and Issuing Bank,
by:
------------------------------
Name:
Title:
<PAGE>
66
ARTICLE V
Miscellaneous
-------------
SECTION 5.01. Governing Law, THiS AMENDMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 5.02. Counterparts. This Amendment may be executed in any
------------
number of counterparts, each of which shall be an original but all of which,
when taken together, shall constitute but one instrument. Delivery of an
executed counterpart of a signature page of this Amendment by facsimile
transmission shall be as effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 5.03. Headings. The headings of this Amendment are for
--------
reference only and shall not limit or otherwise affect the meaning hereof.
SECTION 5.04. Effect of Amendment. Except as specifically amended
-------------------
hereby, the Credit Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used therein, the terms "Agreement",
"herein", "hereunder", "hereinafter", "hereto", "hereof", and words of similar
import shall, unless the context otherwise requires, refer to the Credit
Agreement as amended hereby. Except as expressly set forth herein, this
Amendment shall not by implication or otherwise limit, impair, constitute a
waiver of, or otherwise affect the rights and remedies of the Lenders under the
Credit Agreement or any Loan Document, and shall not alter, modify, amend or in
any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement or any other Loan Document, all of
which are ratified and affirmed in all respects and shall continue in full force
and effect. Nothing herein shall be deemed to entitle the Borrower to a consent
to, or a waiver, amendment, modification or other change of, any of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document in similar or different circumstances. This
Amendment shall apply and be effective only with respect to the provisions of
the Credit Agreement specifically referred to herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
SCHEIN PHARMACEUTICAL, INC.,
by: /s/ James A. Meer
------------------------------
Name: James A. Meer
Title: Vice President
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), individually and
as Administrative Agent, Collateral Agent
and Issuing Bank,
by: /s/ Dawn Lee Lum
------------------------------
Name: Dawn Lee Lum
Title: Vice President
<PAGE>
67
THE BANK OF NOVIA SCOTIA,
by: /s/ Stephen Lockhart
------------------------
Name: Stephen Lockhart
Title: VP
CITICORP USA, INC.,
by: /s/ Dennis I. Bermack
------------------------
Name: Dennis I. Bermack
Title: Managing Director
CREDIT LYONNAIS, NEW YORK BRANCH,
by:
------------------------
Name:
Title:
CREDIT LYONNAIS, CAYMAN ISLAND BRANCH,
by:
------------------------
Name:
Title:
DEUTSCHE BANK, A.G., NEW YORK
AND/OR CAYMAN ISLAND BRANCHES,
by: /s/ Iain Stewart
------------------------
Name: Iain Stewart
Title: Vice President
by: /s/ Susan L. Pearson
------------------------
Name: Susan L. Pearson
Title: Vice President
MELLON BANK, N.A.,
by: /s/ Caroline R. Walsh
------------------------
Name: Caroline R. Walsh
Title: AVP
<PAGE>
68
FLEET BANK, N.A. (formerly known as
NatWest Bank, N.A.).
by: /s/ Robert Isaksen
------------------------
Name: Robert Isaksen
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, successor by merger to: THE
BANK OF TOKYO TRUST COMPANY,
by: /s/ S.E. Goddard
------------------------
Name: S.E. Goddard
Title: AVP
BAYERISCHE HYPOTHEKEN-UND WECHSEL-
BANK AKTIENGESSELLSCHAFT, NEW YORK
BRANCH,
by:
------------------------
Name:
Title:
by:
------------------------
Name:
Title:
COMERICA BANK,
by: /s/ Kimberly S. Kersten
------------------------
Name: Kimberly S. Kersten
Title: Vice President
COOPERATIVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, BA.,"RABOBANK
NEDERLAND", NEW YORK BRANCH,
by: /s/ Ellen A. Polansky
------------------------
Name: Ellen A. Polansky
Title: Vice President
by: /s/ Robert S. Bucklin
------------------------
Name: Robert S. Bucklin
Title: Chief Corporate Banking Officer
<PAGE>
69
CREDIT SUISSE,
by:
---------------------------
Name:
Title:
by:
---------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
by: /s/ Marianne T. Meil
---------------------------
Name: Marianne T. Meil
Title: Vice President
PNC BANK, N.A.
by: /s/ Michael Nardo
---------------------------
Name: Michael Nardo
Title: Vice President
SOCIETE GENERALE, NEW YORK BRANCH
by: /s/ Michelle Martin
---------------------------
Name: Michelle Martin
Title: Assistant Vice President
<PAGE>
70
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by: /s/ D. Wolf
---------------------------
Name: D. Wolf
Title: VP
by: /s/ Catherine Ruhland
---------------------------
Name: Catherine Ruhland
Title: Vice President
ABN AMRO BANK N.V., NEW YORK BRANCH,
by:
---------------------------
Name:
Title:
by:
---------------------------
Name:
Title:
BANK OF MONTREAL,
by:
---------------------------
Name:
Title:
THE BANK OF NEW YORK,
by: /s/ Pandolph E.J. Medrano
---------------------------
Name: Pandolph E.J. Medrano
Title: Vice President
<PAGE>
71
COMMERZBANK AKTIENGESELLSHAFT, NEW
YORK BRANCH,
by:
---------------------------
Name:
Title:
by:
---------------------------
Name:
Title:
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CAYMAN ISLAND
BRANCH,
by: /s/ Norah McCann
---------------------------
Name: Norah McCann
Title: SVP
by: /s/ Sabine Wendt
---------------------------
Name: Sabine Wendt
Title: Asst. Vice President
FIRST UNION NATIONAL BANK,
by: /s/ Richard W. Vieser, Jr.
---------------------------
Name: Richard W. Vieser, Jr.
Title: Sr. Portfolio Manager
THE NIPPON CREDIT BANK, LTD.,
by:
---------------------------
Name:
Title:
SUMMIT BANK,
by: /s/ Wayne R. Trotman
---------------------------
Name: Wayne R. Trotman
Title: Vice President & Regional Manager
<PAGE>
72
THE YASUDA TRUST AND BANKING CO.,
LIMITED, NEW YORK BRANCH,
by: /s/ Rohn Laudenschlager
---------------------------
Name: Rohn Laudenschlager
Title: Senior Vice President
COMMERCIAL LOAN FUNDING TRUST I,
by LEHMAN COMMERCIAL PAPER, INC., not
in its individual capacity but solely as
Administrative Agent
by: /s/ Michele A. Awernon
---------------------------
Name: Michele A. Awernon
Title: Authorized Signatory
<PAGE>
EXHIBIT 4.3
================================================================================
SCHEIN PHARMACEUTICAL, INC.,
$100,000,000
SENIOR SUBORDINATED LOAN AGREEMENT
Dated as of December 20, 1996
SOCIETE GENERALE
as Administrative Agent
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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ARTICLE I
<S> <C>
Definitions ........................................... 1
SECTION 1.1. Defined Terms ................................................ 1
SECTION 1.2. Terms Generally .............................................. 19
ARTICLE II
The Loans .............................................. 19
SECTION 2.1. Commitments .................................................. 19
SECTION 2.2. Loans ........................................................ 20
SECTION 2.3. Borrowing Procedure .......................................... 21
SECTION 2.4. Evidence of Debt; Repayment of Loans ......................... 21
SECTION 2.5. Fees ......................................................... 22
SECTION 2.6. Interest on Loans ............................................ 22
SECTION 2.7. Default Interest ............................................. 23
SECTION 2.8. Alternate Rate of Interest ................................... 23
SECTION 2.9. Conversion and Continuation of Borrowings .................... 23
SECTION 2.10. Optional Prepayment ......................................... 25
SECTION 2.11. Mandatory Prepayments ....................................... 25
SECTION 2.12. Reserve Requirements; Change in Circumstances ............... 26
SECTION 2.13. Change in Legality .......................................... 27
SECTION 2.14. Indemnity ................................................... 28
SECTION 2.15. Pro Rata Treatment .......................................... 29
SECTION 2.16. Sharing of Setoffs .......................................... 29
SECTION 2.17. Payments .................................................... 29
SECTION 2.18. Taxes ....................................................... 30
SECTION 2.19. Assignment of Commitments under Certain Circumstances;
Duty To Mitigate ...................................... 32
SECTION 2.20. Conversion Notes ............................................ 33
ARTICLE III
Representations and Warranties of the Borrower ......... 34
SECTION 3.1. Organization; Powers ......................................... 34
SECTION 3.2. Authorization ................................................ 34
SECTION 3.3. Enforceability ............................................... 35
SECTION 3.4. Governmental Approvals ....................................... 35
SECTION 3.5. Financial Statements ......................................... 35
SECTION 3.6. No Material Adverse Change ................................... 35
SECTION 3.7. Title to Properties; Possession under Leases ................. 35
SECTION 3.8. Subsidiaries ................................................. 36
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
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----
<S> <C>
SECTION 3.9. Litigation; Compliance with Laws ............................ 36
SECTION 3.10. Agreements ................................................. 36
SECTION 3.11. Federal Reserve Regulations ................................ 36
SECTION 3.12. Investment Company Act; Public Utility Holding Borrower
Act ........................................................ 37
SECTION 3.13. Use of Proceeds ............................................ 37
SECTION 3.14. Tax Returns ................................................ 37
SECTION 3.15. No Material Misstatements .................................. 37
SECTION 3.16. Employee Benefit Plans ..................................... 37
SECTION 3.17. Environmental Matters ...................................... 38
SECTION 3.18. Insurance .................................................. 39
SECTION 3.19. Solvency ................................................... 39
SECTION 3.20. Labor Matters .............................................. 39
SECTION 3.21. Capitalization of the Borrower ............................. 40
SECTION 3.22. Shareholders Agreements .................................... 40
ARTICLE IV
Closing Conditions ..................................... 40
SECTION 4.1. Proceedings Satisfactory ..................................... 40
SECTION 4.2. Opinions of Counsel to the Borrower and each Subsidiary ...... 41
SECTION 4.3. Representations and Warranties True, Etc.; Certificates ...... 41
SECTION 4.4. Consents and Approvals ....................................... 41
SECTION 4.5. Amendment to Chase Credit Agreement .......................... 41
SECTION 4.6. Guarantee .................................................... 41
SECTION 4.7. Conversion Notes Registration Rights Agreement ............... 41
SECTION 4.8. Fees ......................................................... 41
SECTION 4.9. Indemnity, Subrogation and Contribution Agreement ............ 42
ARTICLE V
Affirmative Covenants .................................. 42
SECTION 5.1. Existence; Businesses and Properties ......................... 42
SECTION 5.2. Insurance .................................................... 42
SECTION 5.3. Obligations and Taxes ........................................ 42
SECTION 5.4. Financial Statements, Reports, etc ........................... 43
SECTION 5.5. Litigation and Other Notices ................................. 44
SECTION 5.6. Employee Benefits ............................................ 44
SECTION 5.7. Maintaining Records; Access to Properties and Inspections .... 44
SECTION 5.8. Compliance with Environmental Laws ........................... 45
SECTION 5.9. Preparation of Environmental Reports ......................... 45
SECTION 5.10. Further Assurances .......................................... 45
SECTION 5.11. Registration of Conversion Notes ............................ 45
SECTION 5.12. Refinancing ................................................. 45
SECTION 5.13. Syndication of Loans ........................................ 46
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE VI
<S> <C>
Negative Covenants .................................... 46
SECTION 6.1. Indebtedness ................................................ 46
SECTION 6.2. Liens ....................................................... 47
SECTION 6.3. Sale and Lease-Back Transactions ............................ 48
SECTION 6.4. Investments, Loans and Advances ............................. 49
SECTION 6.5. Mergers, Consolidations and Sales of Assets ................. 50
SECTION 6.6. Dividends and Distributions; Restrictions on Ability of
Subsidiaries To Pay Dividends ......................... 50
SECTION 6.7. Transactions with Affiliates ................................ 50
SECTION 6.8. Business of Borrower and Subsidiaries ....................... 51
SECTION 6.9. Operating Leases ............................................ 51
SECTION 6.10. Amendments of Certain Agreements ........................... 51
SECTION 6.11. Fiscal Year ................................................ 51
SECTION 6.12. Payment on Other Indebtedness .............................. 51
SECTION 6.13. Net Worth .................................................. 52
ARTICLE VII
Events of Default ...................................... 52
SECTION 7.1. Events of Default ........................................... 52
ARTICLE VIII
Subordination ......................................... 54
SECTION 8.1. Subordinated Indebtedness Subordinated
to Senior Indebtedness ............................................ 54
SECTION 8.2. Subordinated Indebtedness Subordinated
to Prior Payment of All Senior Indebtedness on Dissolution,
Liquidation, Reorganization, Etc .................................. 55
SECTION 8.3. No Payments With Respect to
Subordinated Indebtedness in Certain Circumstances ................ 56
SECTION 8.4. Holders of Subordinated Indebtedness
to be Subrogated to Rights of Holders of Senior Indebtedness ...... 58
SECTION 8.5. Obligations of the Borrower and
the Guarantors Unconditional ...................................... 58
SECTION 8.6. Holders of Subordinated Indebtedness
Entitled to Assume Payments Not Prohibited in Absence of Notice ... 59
SECTION 8.7. Effect of Failure to Pay Subordinated Indebtedness .......... 59
SECTION 8.8. Miscellaneous Subordination Provisions ...................... 59
ARTICLE IX
The Administrative Agent .............................. 60
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
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----
ARTICLE X
<S> <C>
Miscellaneous .......................................... 63
SECTION 10.1. Notices ..................................................... 63
SECTION 10.2. Survival of Agreement ....................................... 63
SECTION 10.3. Binding Effect .............................................. 64
SECTION 10.4. Successors and Assigns ...................................... 64
SECTION 10.5. Expenses; Indemnity ......................................... 67
SECTION 10.6. Rights of Setoff ............................................ 68
SECTION 10.7. Applicable Law .............................................. 68
SECTION 10.8. Waivers; Amendment .......................................... 68
SECTION 10.9. Interest Rate Limitation .................................... 69
SECTION 10.10. Entire Agreement ........................................... 69
SECTION 10.11. WAIVER OF JURY TRIAL ....................................... 69
SECTION 10.12. Severability ............................................... 69
SECTION 10.13. Counterparts ............................................... 70
SECTION 10.14. Headings ................................................... 70
SECTION 10.15. Jurisdiction; Consent to Service of Process ................ 70
SECTION 10.16. Confidentiality ............................................ 70
Schedule 1.1 Certain Permitted Holders
Schedule 2.1 Commitments
Schedule 3.8 Subsidiaries
Schedule 3.18 Insurance
Schedule 6.2 Existing Liens
Schedule 6.4 Existing Investments
Exhibit A Form of Administrative Questionnaire
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Conversion Note Indenture
Exhibit D Form of Conversion Note Registration
Rights Agreement
Exhibit E Form of Guarantee Agreement
Exhibit F Form of Indemnity, Subrogation and
Contribution Agreement
Exhibit G Form of Opinion of PRG&M
</TABLE>
-iv-
<PAGE>
SENIOR SUBORDINATED LOAN AGREEMENT
SENIOR SUBORDINATED LOAN AGREEMENT, dated as of December 20, 1996, among
SCHEIN PHARMACEUTICAL, INC., a Delaware corporation (the "Borrower"), the
several banks and other financial institutions from time to time parties to this
Agreement (collectively, the "Lenders"; individually, a "Lender") and SOCIETE
GENERALE, a French banking corporation, acting through its New York Branch, as
Administrative Agent for the Lenders hereunder (in such capacity, the
"Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lenders enter into this
Agreement to make available to the Borrower a credit facility in the amount of
$100,000,000, and the Lenders are willing to do so on the terms and conditions
contained herein;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.1. Defined Terms. As used in this Agreement, the following terms
shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Loan bearing interest at a rate determined
by reference to the Alternate Base Rate in accordance with the provisions
of Article II.
"Adjusted LIBO Rate" shall mean, with respect to any Interest Period,
an interest rate per annum (rounded upwards, if necessary, to the next 1/16
of 1%) equal to the product of (a) the LIBO Rate in effect for such
Interest Period and (b) Statutory Reserves.
"Administrative Agent" has the meaning specified in the introductory
paragraph of this Agreement.
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit A.
<PAGE>
2
"Affiliate" shall mean, when used with respect to a specified Person,
another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control
with the Person specified and, for the purposes of Section 6.7, shall
include the officers, directors and shareholders of the Borrower or any
Subsidiary, their Affiliates, the members of their immediate family and any
trust for the benefit of any of the foregoing.
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day plus 1% and (c) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. If for any reason the Administrative
Agent shall have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Base CD Rate or the
Federal Funds Effective Rate or both for any reason, including the
inability or failure of the Administrative Agent to obtain sufficient
quotations in accordance with the terms thereof, the Alternate Base Rate
shall be determined as if the Base CD Rate or the Federal Funds Effective
Rate, or both, as appropriate, were unchanged from that existing on the
last date for which ascertainment thereof was made, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate
Base Rate due to a change in the Prime Rate, the Base CD Rate or the
Federal Funds Effective Rate shall be effective on the effective date of
such change in the Prime Rate, the Base CD Rate or the Federal Funds
Effective Rate, respectively.
"Applicable Margin" shall mean, with respect to (a) any Eurodollar
Loan, 4.00% and (b) any ABR Loan, 3.00%, provided, however, if and so long
as any amount of Net Proceeds shall be deposited in the cash collateral
account referred to in the proviso to Section 2.11 (c) the term "Applicable
Margin" shall mean, for any day with respect to that portion of the then
outstanding Loans as is equal to the amount of such Net Proceeds on deposit
in such cash collateral account at the close of business on such day, with
respect to (x) any Eurodollar Loan, 0.35% and (y) any ABR Loan, (0.65)%.
"Assessment Rate" shall mean for any date the annual rate (rounded
upwards, if necessary, to the next 1/100 of 1%) most recently estimated by
the Administrative Agent as the then current net annual assessment rate
that will be employed in determining amounts payable by the Administrative
Agent to the Federal Deposit Insurance Corporation (or any successor
thereto) for insurance by such Corporation (or such successor) of time
deposits made in dollars at the Administrative Agent's United States
offices.
"Asset Sale" shall mean (a) the sale, transfer or other disposition by
the Borrower or any Subsidiary to any Person, other than the Borrower or a
wholly owned Subsidiary that is a Guarantor, of (i) any outstanding capital
stock of any Subsidiary or (ii) any other assets of the Borrower or any
Subsidiary (other than inventory, obsolete or worn out assets and Permitted
Investments, in each case disposed of in the ordinary course of business)
and (b) the issuance or sale by any Subsidiary of any shares of its
<PAGE>
3
capital stock or other equity securities of such Subsidiary, or any
obligations convertible into or exchangeable for, or giving any Person a
right, option or warrant to acquire, such securities or such convertible or
exchangeable obligations, other than an issuance or sale to the Borrower or
a wholly owned Subsidiary.
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee, and, to the extent required by
Section 10.4(b), accepted by the Administrative Agent and the Borrower,
respectively, in the form of Exhibit B or such other form as shall be
approved by the Administrative Agent and the Borrower, respectively.
"Base CD Rate" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the
Assessment Rate.
"Bayer" shall mean Bayer AG, a German corporation.
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrower" shall have the meaning assigned to such term in the
preamble.
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders on a single date and as to which a single Interest Period is in
effect.
"Breakage Event" shall have the meaning assigned to such term in
Section 2.14.
"Business Day" shall mean any day other than a Saturday, Sunday or day
on which banks in New York City are authorized or required by law to close;
provided, however, that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall also exclude any day on which banks are not
open for dealings in dollar deposits in the London interbank market.
"Capital Lease Obligations" of any Person shall mean the obligations
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under
GAAP, and the amount of such obligations shall be the capitalized amount
thereof determined in accordance with GAAP.
A "Chance in Control" shall be deemed to have occurred if (a) any
Person or group (within the meaning of Rule 13d-5 of the Exchange Act as in
effect on the date hereof) other than a Permitted Holder or a group
consisting solely of Permitted Holders shall own directly or indirectly,
beneficially or of record, shares representing (i) both more than 30% of
the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Borrower and a higher percentage of such
<PAGE>
4
aggregate ordinary voting power than is then represented by shares owned by
the Permitted Holders or (ii) more than 50% of such aggregate ordinary
voting power; (b) a majority of the seats (other than vacant seats) on the
board of directors of the Borrower shall at any time have been occupied by
Persons who were neither (i) nominated by a Permitted Holder, nor (ii) on
the board of directors of the Borrower on the date of this Agreement (the
"Incumbent Board"); (c) any Person or group other than a Permitted Holder
or a group consisting solely of Permitted Holders shall otherwise Control
the Borrower or (d) a "change in control", however defined, shall occur
under any instrument evidencing other Indebtedness in a principal amount in
excess of $5,000,000 of the Borrower or any Subsidiary. For purposes of
clause (b)(ii) hereof, any individual who becomes a member of the board of
directors of the Borrower subsequent to the date of this Agreement, and
whose election, or nomination for election by the Borrower's stockholders,
was approved by the members of the board who are also members of the
Incumbent Board (or so deemed to be pursuant hereto) shall be deemed a
member of the Incumbent Board; provided, however, that any such individual
whose initial assumption of office occurs as a result of either an actual
or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the then board of directors of the Borrower shall be deemed not to be a
member of the Incumbent Board.
"Charges" shall have the meaning assigned to such term in Section
10.9.
"Chase Credit Agreement" shall mean the Credit Agreement, dated as of
September 1, 1995, among the Borrower, the lenders parties thereto and The
Chase Manhattan Bank, as agent for the lenders, as amended by agreements
dated February 26, 1996, September 27, 1996 and December 20, 1996, and as
the same hereafter may be amended, supplemented or otherwise modified from
time to time.
"Chase Credit Facility" shall mean the Chase Credit Agreement,
together with the documents related thereto (including, without limitation,
any guarantee agreements and security documents), in each case as such
agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including
any agreement or plan of reorganization extending the maturity of,
refinancing, replacing or otherwise restructuring (including adding
Subsidiaries of the Borrower as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or
any successor or replacement agreement and whether by the same or any other
agent, lender or group of lenders.
"Closing Date" shall mean the date upon which the conditions precedent
set forth in Article IV shall be satisfied.
"Code" shall mean the Internal Revenue Code of 1986, as the same may
be amended from time to time.
<PAGE>
5
"Commitment" shall mean, as to any Lender, its obligation to make a
Loan to the Borrower on the Closing Date in an amount equal to the amount
set forth opposite such Lender's name in Schedule 2.1 under the heading
"Commitment".
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings
correlative thereto.
"Conversion Date" shall mean January 31, 1998.
"Conversion Note Indenture" shall mean the indenture, to be dated on
or about the Conversion Date, by and among the Borrower and the
Subsidiaries of the Borrower (as guarantors) and the trustee thereunder
substantially in the form of Exhibit C hereto.
"Conversion Notes" shall mean the promissory notes to be issued
pursuant to the Conversion Note Indenture pursuant to Section 2.20.
"Conversion Notes Registration Rights Agreement" shall mean that
certain Conversion Notes Registration Rights Agreement to be executed and
delivered by the Borrower pursuant to Section 4.7 substantially in the form
of Exhibit D hereto.
"Default" shall mean any event or condition that upon notice, lapse of
time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States of
America.
"Domestic Subsidiary" shall mean any Subsidiary organized under the
laws of the United States of America, any State or territory thereof, the
District of Columbia or Puerto Rico.
"EBITDA" for any period shall mean Net Income for such period plus, to
the extent deducted in computing Net Income, the sum of (a) income tax
expense, (b) Interest Expense and (c) depreciation and amortization expense
minus, to the extent added in computing Net Income, (i) any non-cash,
non-recurring gains and (ii) any interest income, all as determined on a
consolidated basis with respect to the Borrower and the Subsidiaries in
accordance with GAAP.
"environment" shall mean ambient air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface
or subsurface strata, the workplace or as otherwise defined in any
Environmental Law.
"Environmental Claim" shall mean any written accusation, allegation,
notice of violation, claim, demand, order, directive, cost recovery action
or other cause of action by, or on behalf of, any Governmental Authority or
any Person for damages,
<PAGE>
6
injunctive or equitable relief, Remedial Action costs, property damage,
natural resource damages, nuisance, pollution or for fines, penalties or
restrictions, resulting from or based upon: (a) the existence, or the
continuation of the existence, of a Release (including sudden or
non-sudden, accidental or non-accidental Releases); (b) exposure to any
Hazardous Material; (c) the presence, use, handling, transportation,
storage, treatment or disposal of any Hazardous Material; or (d) the
violation or alleged violation of any Environmental Law or Environmental
Permit.
"Environmental Law" shall mean any and all applicable treaties, laws,
rules, regulations, codes, ordinances, orders, decrees, judgments,
injunctions or binding agreements issued, promulgated by or entered into
with any Governmental Authority, relating in any way to the environment,
preservation or reclamation of natural resources, the management, Release
or threatened Release of any Hazardous Material or to health and safety
matters, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. ss.ss. 9601 et seq. (collectively
"CERCLA"), the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976 and Hazardous and Solid Amendments of
1984, 42 U.S.C. ss.ss. 6901 et seq., the Federal Water Pollution Control
Act, as amended by the Clean Water Act of 1977, 33 U.S.C. ss.ss. 1251 et
seq., the Clean Air Act of 1970, as amended 42 U.S.C. ss.ss. 7401 et seq.,
the Toxic Substances Control Act of 1976, 15 U.S.C. ss.ss. 2601 et seq.,
the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C.
ss.ss. 651 et seq., the Emergency Planning and Community Right-to-Know Act
of 1986, 42 U.S.C. ss.ss. 11001 et seq., the Safe Drinking Water Act of
1974, as amended, 42 U.S.C. ss.ss. 300(f) et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. ss.ss. 1801 et seq., and any similar or
implementing state or local law, and all amendments or regulations
promulgated thereunder.
"Environmental Permit" shall mean any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from
any Governmental Authority pursuant to any Environmental Law.
"Equity Issuance" shall mean any issuance or sale by the Borrower of
any shares of its capital stock or other equity securities of the Borrower,
or any obligations giving any Person a right, option or warrant to acquire
such securities; provided. however, that Equity Issuance shall not include
any of the foregoing to the extent arising from or in connection with the
issuance of any stock rights, options or warrants to a director, officer or
employee of the Borrower or any Subsidiary under a duly instituted stock
option plan and any exercise thereof, to the extent the aggregate Net
Proceeds thereof in any fiscal year do not exceed $3,000,000.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single
employer under
<PAGE>
7
Section 414(b) or (c) of the Code, or solely for purposes of Section 302 of
ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" shall mean (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to
a Plan; (b) the adoption of any amendment to a Plan that would require the
provision of security pursuant to Section 401(a)(29) of the Code or Section
307 of ERISA; (c) the existence with respect to any Plan of an "accumulated
funding deficiency" (as defined in Section 412 of the Code or Section 302
of ERISA), whether or not waived; (d) the filing pursuant to Section 412(d)
of the Code or Section 303(d) of ERISA of an application for a waiver of
the minimum funding standard with respect to any Plan; (e) the incurrence
of any liability under Title IV of ERISA with respect to the termination of
any Plan or the withdrawal or partial withdrawal of the Borrower or any of
its ERISA Affiliates from any Plan or Multiemployer Plan; (f) the receipt
by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to the intention to terminate any Plan
or Plans or to appoint a trustee to administer any Plan; (g) the receipt by
the Borrower or any ERISA Affiliate of any notice concerning the imposition
of Withdrawal Liability or a determination that a Multiemployer Plan is, or
is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with
respect to which the Borrower or any of its Subsidiaries is a "disqualified
Person" (within the meaning of Section 4975 of the Code) or with respect to
which the Borrower or any such Subsidiary could otherwise be liable, other
than a transaction for which a statutory exemption is available or for
which an administrative exemption has been obtained; and (i) any other
event or condition with respect to a Plan or Multiemployer Plan that would
reasonably be expected to result in liability of the Borrower.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" shall mean any Loan bearing interest at a rate
determined by reference to the Adjusted LIBO Rate in accordance with the
provisions of Article II.
"Event of Default" shall have the meaning assigned to such term in
Article VII.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar statute then in effect, and a reference to a particular
section thereof shall include a reference to the comparable section, if
any, of any such similar statute.
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for
<PAGE>
8
the day for such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by it.
"Fee Letter" shall mean the fee letter, dated as of the date hereof,
between the Borrower and the Administrative Agent.
"Fees" shall have the meaning ascribed thereto in Section 2.5.
"Financial Officer" of any corporation shall mean the chief financial
officer, principal accounting officer, Treasurer or Controller of such
corporation.
"Foreign Subsidiary" shall mean any Subsidiary other than a Domestic
Subsidiary.
"GAAP" shall mean United States generally accepted accounting
principles applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local or
foreign government, court or governmental agency, authority,
instrumentality or regulatory body.
"Guarantee" of or by any Person shall mean any obligation, contingent
or otherwise, of such Person guaranteeing any Indebtedness of any other
Person (the "primary obliger") in any manner, whether directly or
indirectly, and including any obligation of such Person, direct or
indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase or lease property, securities or services for
the purpose of assuring the owner of such Indebtedness of the payment of
such Indebtedness or (c) to maintain working capital, equity capital or any
other financial statement condition or liquidity of the primary obliger so
as to enable the primary obliger to pay such Indebtedness; provided,
however, that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.
"Guarantee Agreement" shall mean the Guarantee Agreement,
substantially in the form of Exhibit E hereto, to be made by the Guarantors
in favor of the Administrative Agent for the benefit of the Lenders.
"Guarantor" shall mean any Person from time to time party to the
Guarantee Agreement as a guarantor.
"Hazardous Materials" shall mean all explosive or radioactive
substances or wastes, hazardous or toxic substances or wastes, pollutants,
solid, liquid or gaseous wastes, including petroleum or petroleum
distillates, asbestos or asbestos containing materials, polychlorinated
biphenyls ("PCBs") or PCB-containing materials or
<PAGE>
9
equipment, radon gas, infectious or medical wastes and all other substances
or wastes of any nature, regulated pursuant to any Environmental Law.
"Health Care Laws" shall mean any and all applicable current and
future treaties, laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by the Food and Drug Administration, the Health
Care Financing Administration, the Department of Health and Human Services
("HHS"), the Office of Inspector General of HHS, the Drug Enforcement
Administration or any other Governmental Authority (including any
professional licensing laws, certificate of need laws and state
reimbursement laws), relating in any way to the manufacture, distribution,
marketing, sale, supply or other disposition of any product or service of
the Borrower or any Subsidiary, the conduct of the business of the Borrower
or any Subsidiary, the provision of health care services generally, or to
any relationship among the Borrower and the Subsidiaries, on the one hand,
and their suppliers and customers and patients and other end-users of their
products and services, on the other hand.
"Indebtedness" of any Person shall mean, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits
or advances of any kind, (b) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, (c) all obligations of
such Person upon which interest charges are customarily paid, (d) all
obligations of such Person under conditional sale or other title retention
agreements relating to property or assets purchased by such Person, (e) all
obligations of such Person issued or assumed as the deferred purchase price
of property or services (excluding trade accounts payable and accrued
obligations incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not
the obligations secured thereby have been assumed, (g) all Guarantees by
such Person of Indebtedness of others, (h) all Capital Lease Obligations of
such Person, (i) all obligations of such Person in respect of Rate
Protection Agreements and (j) all obligations of such Person as an account
party in respect of letters of credit and bankers' acceptances (and the
amount of such Indebtedness shall equal the net payments accrued by such
Person in accordance with GAAP). The Indebtedness of any Person shall
include the Indebtedness of any partnership in which such Person is a
general partner.
"Indemnitee" shall have the meaning assigned to such term in Section
10.5.
"Indemnity, Subrogation and Contribution Agreement" shall mean the
Indemnity, Subrogation and Contribution Agreement, substantially in the
form of Exhibit F, to be entered into among the Borrower, the Guarantors
and the Administrative Agent.
"Information" shall have the meaning assigned to such term in Section
10.16.
<PAGE>
10
"Interest Expense" for any period shall mean the gross interest
expense of the Borrower and the Subsidiaries for such period determined on
a consolidated basis in accordance with GAAP, including (a) the
amortization of debt discounts, (b) the amortization of all fees (including
fees with respect to interest rate protection agreements) payable in
connection with the incurrence of Indebtedness to the extent included in
interest expense and (c) the portion of any payments or accruals with
respect to Capital Lease Obligations allocable to interest expense. For
purposes of the foregoing, gross interest expense shall be determined after
giving effect in accordance with GAAP to any net payments made, received or
accrued by such Person with respect to Rate Protection Agreements entered
into as a hedge against interest rate exposure.
"Interest Payment Date" shall mean, with respect to any Loan, (a) the
last day of the Interest Period applicable to the Borrowing of which such
Loan is a part and (b) the date of any prepayment of such Loan or
conversion of such Loan (if a Eurodollar Loan) to a Borrowing of a
different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the
numerically corresponding day (or, if there is no numerically corresponding
day, on the last day) in the calendar month that is 1, 2 or 3 months
thereafter, as the Borrower may elect and (b) as to any ABR Borrowing, the
period commencing on the date of such Borrowing and ending on the next
succeeding March 31, June 30, September 30 or December 31; provided,
however, that if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless, in the case of a Eurodollar Borrowing only, such next
succeeding Business Day would fall in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day.
"Junior Subordinated Payments" shall mean any payment, distribution or
other transfer of any kind or character, whether direct or indirect, by
set-off or otherwise, and whether in cash, property, securities or
otherwise, which may be payable or deliverable by reason of the payment of
any Indebtedness of the Borrower or any Guarantor subordinate in right of
payment to the payment of the Subordinated Indebtedness of the Borrower or
such Guarantor, as the case may be.
"Lenders" shall mean (a) the financial institutions listed on Schedule
2.1 (other than any such financial institution that has ceased to be a
party hereto pursuant to an Assignment and Acceptance) and (b) any
financial institution that has become a party hereto pursuant to an
Assignment and Acceptance.
"LIBO Rate" shall mean, with respect to any Interest Period, the rate
appearing on Page 3750 of the Telerate Service (or on any successor or
substitute page of such Service, or any successor to or substitute for such
Service, providing rate quotations comparable to those currently provided
on such page of such Service, as determined by the Administrative Agent
from time to time for purposes of providing quotations of
<PAGE>
11
interest rates applicable to dollar deposits in the London interbank
market) at approximately 11:00 a.m., London time, two Business Days prior
to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event
that such rate is not available at such time for any reason, then the "LIBO
Rate" with respect to such Interest Period shall be the rate (rounded
upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits of
$5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of
such Interest Period.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, encumbrance, charge or security interest in or on
such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement relating to such
asset (excluding any leases that constitute operating leases under GAAP)
and (c) in the case of securities, shall also include any purchase option,
call or similar right of a third party with respect to such securities
(excluding any option, call or similar right in respect of securities that
are not issued and outstanding).
"Loan" shall have the meaning assigned to such term in Section 2.2.
"Loan Documents" shall mean this Agreement, any promissory notes
evidencing the Loans, the Conversion Notes, the Conversion Notes
Registration Rights Agreement, the Conversion Note Indenture, the Guarantee
Agreement, the Indemnity, Subrogation and Contribution Agreement and all
other agreements, instruments and documents now or hereafter executed and
delivered pursuant to or in connection therewith, as each of such
agreements, instruments and documents may from time to time be amended,
modified or supplemented in accordance with its terms.
"Loan Party" shall mean the Borrower and each Guarantor.
"Margin Stock" shall have the meaning assigned to such term in
Regulation U.
"Material Adverse Effect" shall mean (a) a materially adverse effect
on the business, assets, operations or condition, financial or otherwise,
of the Borrower and the Subsidiaries, taken as a whole, (b) impairment of
the ability of the Borrower and the Subsidiaries, taken as a whole, to
perform their obligations under the Loan Documents in any material respect
or (c) material impairment of the rights of or benefits available to the
Lenders under any Loan Document.
"Maturity Date" shall mean January 31, 2003.
"Maximum Rate" shall have the meaning assigned to such term in Section
10.9.
"Moody's" shall mean Moody's Investors Service, Inc.
<PAGE>
12
"Multiemployer Plan" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Income" for any period shall mean the consolidated net income or
loss of the Borrower and the Subsidiaries for such period determined in
accordance with GAAP, excluding (a) (to the extent included in such
consolidated net income or loss) the income (or loss) of any Person (other
than any Subsidiary) in which any other Person (other than the Borrower or
any wholly owned Subsidiary) has an equity interest, except to the extent
of the amount of dividends or other distributions actually paid to the
Borrower or any Subsidiary by such Person during such period, (b) the
income (or loss) of any Person accrued prior to the date it becomes a
Subsidiary or is merged into or consolidated with the Borrower or any
Subsidiary or the date such Person's assets are acquired by the Borrower or
any Subsidiary, (c) any after tax gains or losses attributable to sales of
assets not in the ordinary course of business and (d) (to the extent not
included in clauses (a) through (c) above) any extraordinary gains or
non-cash extraordinary losses determined in accordance with GAAP.
"Net Proceeds" shall mean: (a) when used with respect to any Asset
Sale, the cash proceeds thereof net of (i) costs of sale (including payment
of the outstanding principal amount of, premium or penalty, if any, and
interest on any Indebtedness (other than Loans) required to be repaid under
the terms thereof as a result of such Asset Sale), (ii) taxes paid or
payable in the year such Asset Sale occurs or in the following year as a
result thereof and (iii) amounts provided as a reserve, in accordance with
GAAP, against any liabilities under any indemnification obligations
associated with such Asset Sale (provided that, to the extent and at the
time any such amounts are released from such reserve, such amounts shall
constitute Net Proceeds); provided, however, that, with respect to any
Asset Sale described in clause (a)(ii) of the definition thereof, the Net
Proceeds thereof shall equal zero except to the extent that such Net
Proceeds (determined without regard to this proviso), together with the Net
Proceeds of all Asset Sales described in clause (a)(ii) of the definition
thereof (determined without regard to this proviso) previously received
during the then-current fiscal year, exceeds $1,000,000; and (b) when used
with respect to any Equity Issuance or sale of Indebtedness of the
Borrower, the cash proceeds thereof net of underwriting commissions or
placement fees and expenses directly incurred in connection therewith.
"Net Worth" as of any date shall mean Stockholder's Equity as of such
date plus the amount of any charge by the Borrower for acquired in process
research and development expenses of the Borrower for the Marsam
acquisition to the extent such charge is less than $35,000,000.
"New Office" shall have the meaning assigned to such term in Section
2.18.
"Non-U.S. Lender" shall have the meaning assigned to such term in
Section 2.18.
<PAGE>
13
"Obligations" all obligations (monetary or otherwise) of the Borrower
and each other Loan Party arising under or in connection with this
Agreement and the other Loan Documents.
"Officer's Certificate" means with respect to any corporation, a
certificate signed by an Responsible Officer of the specified corporation.
"Other Taxes" shall have the meaning assigned to such term in Section
2.18.
"Payment Bar Notice" shall have the meaning assigned to such term in
Section 8.3.
"Payment Default" shall have the meaning assigned to such term in
Section 8.3.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
and defined in ERISA.
"Permitted Chase Credit Agreement Amendment" shall mean any amendment,
modification, supplement or refinancing (for the purposes of this
definition, an "amendment") of the Chase Credit Facility; provided, that
(i) such amendment shall not increase the aggregate outstanding principal
amount of such Indebtedness thereby amended or refinanced (or, in the case
of any revolving, letter of credit or similar Indebtedness, shall not
increase the maximum aggregate commitment with respect thereto in effect
immediately prior to such amendment) above the amount specified in Section
6.1(b) hereof, (ii) the documents pursuant to which such Indebtedness is
amended or refinanced shall not impose on the Borrower interest rate
margins (referred to as an "Applicable Percentage" under the Chase Credit
Agreement), unused commitment fees, or other fees or other amounts payable
over time that are more than 100 basis points per annum higher than the
highest respective amounts thereof payable under the terms of the Chase
Credit Facility as in effect on the date hereof and (iii) the documents
pursuant to which such Indebtedness is amended or refinanced shall not
contain terms or conditions that impose materially more restrictive terms
or conditions, taken as a whole, with respect to payments in respect of the
Subordinated Indebtedness than those contained in the Chase Credit Facility
as in effect on the date hereof.
"Permitted Foreign Company" shall mean (a) any corporation, business
trust, joint venture, association, company or partnership formed under the
laws of a country (or any political subdivision thereof) other than the
United States, engaged primarily in a segment of the pharmaceutical or
health-care industry or ancillary thereto and at least 50% of the equity
interest of which is held, directly or indirectly, by the Borrower and
Bayer (provided that, if applicable local law would not permit 50% of the
equity interest in such an entity to be held by the Borrower and Bayer,
such percentage may be as low as 49% if the Borrower and Bayer otherwise
Control the applicable entity), (b) any subsidiary of a Permitted Foreign
Company described in clause (a) above and (c) any wholly owned Foreign
Subsidiary the only material assets of which are securities of Permitted
Foreign Companies described in clause (a) above.
<PAGE>
14
"Permitted Holders" shall mean (a)(i) the Persons listed on Schedule
1.1, (ii) any individual forming part of the senior management of the
Borrower on the date of this Agreement, (iii) any trust for the benefit of
any of the foregoing and (iv) the estate or personal representative of any
of the foregoing, (b)any employee benefit plan (or related trust) for the
benefit of the employees of the Borrower and the Subsidiaries and (c) Bayer
and any of its subsidiaries.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within 90 days from the date of acquisition thereof;
(b) investments in commercial paper maturing within 90 days from the
date of acquisition thereof and having, at such date of acquisition, credit
ratings that are not lower than "A2" if rated by Standard & Poor's or "P2"
if rated by Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 90 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of (i) any commercial bank
organized under the laws of the United States of America or any State
thereof that has a combined capital and surplus and undivided profits of
not less than $250,000,000 or (ii) any Lender or any lender under the Chase
Credit Facility;
(d) in the case of any Foreign Subsidiary, investments not in excess
of $5,000,000 in the aggregate in dollar-denominated certificates of
deposit, banker's acceptances and time deposits maturing within 90 days
from the date of acquisition thereof issued or guaranteed by or placed
with, and money market deposit accounts issued or offered by, any local
office of (i) any commercial bank organized under the laws of the United
States of America or any State thereof that has a combined capital and
surplus and undivided profits of not less than $250,000,000, (ii) any
Lender or any lender under the Chase Credit Facility or (iii) any local
commercial bank that is an Affiliate of any Lender or any lender under the
Chase Credit Facility; and
(e) other investment instruments approved in writing by the Required
Lenders or required lenders under the Chase Credit Facility and offered by
financial institutions which have a combined capital and surplus and
undivided profits of not less than $250,000,000.
"Person" shall mean any natural person, corporation, business trust,
joint venture, association, company, limited liability company, partnership
or government, or any agency or political subdivision thereof.
<PAGE>
15
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code or Section 307 of ERISA, and in respect of which
the Borrower or any ERISA Affiliate is (or, if such plan were terminated,
would under Section 4069 of ERISA be deemed to be) an "employer" as defined
in Section 3(5) of ERISA.
"Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by SocGen as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective on the date such change is publicly announced as being effective.
"Properties" shall have the meaning assigned to such term in Section
3.17.
"Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement,
currency exchange agreement or similar agreement entered into by the
Borrower or any Subsidiary to provide protection against fluctuations in
interest rates or currency exchange rates.
"Register" shall have the meaning assigned to such term in Section
10.4.
"Regulation G" shall mean Regulation G of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, depositing, dispersing, emanating or migrating of any Hazardous
Material in, into, onto or through the environment.
"Remedial Action" shall mean: (a) "remedial action" as such term is
defined in CERCLA, 42 U.S.C. Section 9601(24); and (b) any other action
required by any Governmental Authority or voluntarily undertaken to (x)
cleanup, remove, treat, abate or in any other way address any Hazardous
Material in the environment; (y) prevent the Release or threat of Release,
or minimize the further Release of any Hazardous Material so it does not
migrate or endanger or threaten to endanger public health, welfare or the
environment; or (z) perform studies and investigations in connection with,
or as a precondition to, clause (x) or (y) above.
"Reorganization Securities" shall mean, with respect to any
reorganization, composition, arrangement, adjustment or readjustment of the
Borrower or any Guarantor or of their respective securities, securities of
the Borrower or such
<PAGE>
16
Guarantor as reorganized or readjusted that are subordinated, at least to
the same extent as the Loans, to the payment of all outstanding Senior
Indebtedness after giving effect to such plan of reorganization or
readjustment; provided, however, that (a) in the case of debt securities,
(i) such securities shall not provide for amortization (including sinking
fund and mandatory prepayment provisions) commencing prior to six months
following the final scheduled maturity of all Senior Indebtedness of the
Borrower or such Guarantor (as modified by such plan of reorganization or
readjustment), as the case may be, (ii) if the rate of interest on such
securities is fixed, such rate of interest shall not exceed the greater of
(A) the rate of interest on the Loans on the effective date of such plan of
reorganization or readjustment and (B) the sum of (x) the weighted average
rate of interest on the Indebtedness under the Chase Credit Agreement on
the effective date of such plan of reorganization or readjustment and (y)
the difference (such difference, the "Interest Differential"), if positive,
between the rate of interest on the Loans and the weighted average rate of
interest on Indebtedness under the Chase Credit Agreement, in each case
immediately prior to the commencement of such reorganization, composition,
arrangement, adjustment or readjustment, (iii) if the rate of interest on
such securities floats, such interest rate shall not exceed at any time the
sum of the weighted average interest rate on Indebtedness under the Chase
Credit Agreement at such time and the Interest Differential, and (iv) such
securities shall not have covenants or default provisions materially more
beneficial to the holders thereof or more restrictive on the Borrower or
the Guarantors than those in effect with respect to the Loans on the
Closing Date and (b) in the case of all securities (including debt
securities), the distribution of such securities was authorized by an order
or decree of a court of competent jurisdiction and such order gives effect
to (and states in such order or decree that effect has been given to) the
subordination of such securities to all Senior Indebtedness of the Borrower
or such Guarantor not paid in full in cash in connection with such
reorganization, provided that all such Senior Indebtedness is assumed by
the reorganized corporation, and the rights of the holders of any such
Senior Indebtedness are not, without the consent of such holders, altered
by such reorganization, which consent shall be deemed to have been given if
the holders of such Senior Indebtedness, individually or as a class, shall
have approved such reorganization.
"Required Lenders" shall mean, as of any date, the holder or holders
of a majority of the aggregate principal amount of the Loans outstanding on
such date, but excluding any Loans held by the Borrower or any of its
Subsidiaries or Affiliates.
"Responsible Officer" of any corporation shall mean any senior
executive officer or Financial Officer of such corporation and any other
officer or similar official thereof responsible for the administration of
the obligations of such corporation in respect of this Agreement.
"Sale and Lease-Back Transaction" shall mean any arrangement, directly
or indirectly, whereby the Borrower or any Subsidiary shall sell or
transfer to any Person any property, real or personal, used or useful in
its business, whether now owned or hereafter acquired, and thereafter the
Borrower or any Subsidiary shall rent or lease
<PAGE>
17
(for a term in excess of one year) such property, or other property that it
intends to use for substantially the same purpose or purposes as the
property being sold or transferred, from such Person or any of its
Affiliates.
"SEC" means the Securities and Exchange Commission and any successor
agency, authority, commission or Governmental Authority.
"Securities Act" means as of any date the Securities Act of 1933, as
amended, or any similar federal statute then in effect, and a reference to
a particular section thereof include a reference to the comparable section,
if any, of any such similar Federal statute.
"Senior Event of Default" shall have the meaning assigned to such term
in Section 8.3.
"Senior Indebtedness" shall mean (a) all obligations of the Borrower
and the Guarantors now or hereafter incurred with respect to payment of the
principal amount of the loans made under the Chase Credit Facility
(including, without limitation, all obligations in respect of letters of
credit issued thereunder), interest accrued thereon (including interest
accruing at the rate provided for in the Chase Credit Agreement after the
commencement of any bankruptcy, insolvency, reorganization or similar
proceeding with respect to the Borrower, whether or not an allowed claim in
such proceeding), prepayment premiums payable with respect thereto, and
fees, costs, expenses, indemnities and other amounts payable with respect
thereto, and (b) all obligations of the Borrower and the Guarantors under
Rate Protection Agreements payable to any lender or agent party to the
Chase Credit Agreement or any affiliate of such lender or agent (including,
without limitation, all obligations of the Guarantors incurred pursuant to
guarantees of the obligations referred to in clauses (a) and (b) above now
or hereafter executed) but in the case of any amendment or refinancing of
the Chase Credit Facility, only to the extent a Permitted Chase Credit
Agreement Amendment.
"SocGen" shall mean Societe Generale.
"Specified Guarantor" shall mean any Guarantor that would be a
"significant subsidiary" of the Borrower, determined in accordance with
Regulation 1.1 of Regulation S-X of the SEC as if the references to "10
percent" in the definition thereof were references to "5 percent".
"Standard and Poor's" shall mean Standard and Poor's Rating Group.
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is
the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves)
expressed as a decimal established by the Board and any other banking
authority, domestic or foreign, to which the
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18
Administrative Agent or any Lender is subject (a) with respect to the Base
CD Rate, for new negotiable nonpersonal time deposits in dollars of over
$100,000 with maturities approximately equal to three months, and (b) with
respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities (as defined
in Regulation D of the Board). Such reserve percentages shall include those
imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to
constitute Eurocurrency Liabilities and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or
offsets that may be available from time to time to any Lender under such
Regulation D. Statutory Reserves shall be adjusted automatically on and as
of the effective date of any change in any reserve percentage.
"Stockholder's Equity" as of any date shall mean, on a consolidated
basis for the Borrower and the Subsidiaries, (a) the sum of capital stock
taken at par value, capital surplus and retained earnings as of such date,
minus (b) treasury stock and any minority interest in Subsidiaries as of
such date, all determined in accordance with GAAP.
"Subordinated Indebtedness" means (a) all Obligations of the Borrower
now or hereafter incurred with respect to payment of the principal amount
of the Loans, interest accrued thereon, prepayment premiums payable with
respect thereto, and fees, costs, expenses, indemnities and other amounts
payable with respect thereto, and (b) all obligations of the Guarantors
incurred pursuant to Guarantees of such obligations now or hereafter
executed pursuant to the terms of this Agreement.
"subsidiary" shall mean, with respect to any Person (herein referred
to as the "parent"), any corporation, partnership, limited liability
company, association or other business entity (a) of which securities or
other ownership interests representing more than 50% of the equity or more
than 50% of the ordinary voting power or more than 50% of the general
partnership interests are, at the time any determination is being made,
owned, controlled or held by the parent or one or more other subsidiaries
of the parent, or (b) that is or would otherwise be treated on a
consolidated basis with the parent under, and in accordance with, GAAP.
"Subsidiary" shall mean any subsidiary of the Borrower.
"Taxes" shall have the meaning assigned to such term in Section 2.18.
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being in
effect on such day (or, if such day shall not be a Business Day, the next
preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will,
under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if
such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York
City received at approximately
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19
10:00 a.m., New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by SocGen from three New
York City negotiable certificate of deposit dealers of recognized standing
selected by it.
"Transactions" shall have the meaning assigned to such term in Section
3.2.
"Transferee" shall have the meaning assigned to such term in Section
2.18.
"Type", when used in respect of any Loan, shall refer to the Rate by
reference to which interest on such Loan is determined. For purposes
hereof, the term "Rate" shall include the Adjusted LIBO Rate and the
Alternate Base Rate.
"wholly owned Subsidiary" shall mean a Subsidiary the securities
(except for directors' qualifying shares) or other ownership interests
representing 100% of the equity or 100% of the ordinary voting power or
100% of the general partnership interests of which are, at the time any
determination is being made, owned by the Borrower or one or more wholly
owned Subsidiaries or by the Borrower and one or more wholly owned
Subsidiaries.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan,
as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.2. Terms Generally. The definitions in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed references
to Articles and Sections of, and Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. Except as otherwise expressly
provided herein, (a) any reference in this Agreement to any Loan Document shall
mean such document as amended, restated, supplemented or otherwise modified from
time to time and (b) all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided,
however, that for purposes of determining compliance with the covenants
contained in Article VI, all accounting terms herein shall be interpreted and
all accounting determinations hereunder shall be made in accordance with GAAP as
in effect on the date of this Agreement and applied on a basis consistent with
the application used in the financial statements referred to in Section 3.5(a).
ARTICLE II
The Loans
SECTION 2.1. Commitments. Subject to the terms and conditions and relying
upon the representations and warranties herein set forth, each Lender agrees,
severally and not jointly, to make a term loan to the Borrower on the Closing
Date in a principal amount equal
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20
to the Commitment of such Lender. Amounts paid or prepaid in respect of the
Loans may not be reborrowed.
SECTION 2.2. Loans. (a) Each loan hereunder (collectively, the "Loans")
shall be made as part of a Borrowing consisting of Loans made by the Lenders
ratably in accordance with their applicable Commitments; provided, however, that
the failure of any Lender to make any Loan shall not in itself relieve any other
Lender of its obligation to lend hereunder (it being understood, however, that
no Lender shall be responsible for the failure of any other Lender to make any
Loan required to be made by such other Lender).
(b) Subject to Sections 2.8 and 2.13, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request pursuant
to Section 2.3. Each Lender may at its option make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided, however, that (i) any exercise of such option shall not affect
the obligation of the Borrower to repay such Loan in accordance with the terms
of this Agreement and (ii) the exercise of such option shall not result in an
increase in Statutory Reserves above those applicable to members of the Federal
Reserve System. Borrowings of more than one Type may be outstanding at the same
time; provided, however, that the Borrower shall not be entitled to request any
Borrowing that, if made, would result in more than three Eurodollar Borrowings
outstanding hereunder at any time. For purposes of the foregoing, Borrowings
having different Interest Periods, regardless of whether they commence on the
same date, shall be considered separate Borrowings.
(c) Each Lender shall make the Loan to be made by it hereunder on the
Closing Date by wire transfer of immediately available funds to such account in
New York City as the Administrative Agent may designate not later than 1:00
p.m., New York City time, and the Administrative Agent shall by 2:00 p.m., New
York City time, credit the amounts so received to an account of the Borrower
designated by the Borrower in the applicable borrowing request.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to 1:00 p.m. on the Closing Date that such Lender shall not make
available to the Administrative Agent such Lender's portion of the Borrowing to
be effected on such Date, the Administrative Agent may assume that such Lender
has made such portion available to the Administrative Agent on the Closing Date
in accordance with paragraph (c) above and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on the Closing
Date a corresponding amount. If the Administrative Agent shall have so made
funds available then, to the extent that such Lender shall not have made such
portion available to the Administrative Agent, the Borrower and such Lender
severally agree to repay to the Administrative Agent, in the case of the
Borrower, within one Business Day of demand, and in the case of such Lender,
forthwith on demand, such corresponding amount together with interest thereon,
for each day from and including the date such amount is made available to the
Borrower until the date such amount is repaid to the Administrative Agent at (i)
in the case of the Borrower, the interest rate applicable at the time to the
Loans comprising such Borrowing and (ii) in the case of such Lender, a rate
determined by the Administrative Agent to represent its cost of overnight or
short-term funds (which
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21
determination shall be conclusive absent manifest error). If such Lender shall
repay to the Administrative Agent such corresponding amount, such amount shall
constitute such Lender's Loan as part of such Borrowing for purposes of this
Agreement. The Administrative Agent will promptly notify the Borrower of any
Lender's failure to make available such Lender's portion of any Borrowing if
such failure continues unremedied for one Business Day.
(e) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request any Eurodollar Borrowing if the Interest Period
requested with respect thereto would end after the Maturity Date.
SECTION 2.3. Borrowing Procedure. In order to request the Borrowing to be
made on the Closing Date, the Borrower shall telecopy (with receipt confirmed
telephonically) to the Administrative Agent a written borrowing request (a) in
the case of a Eurodollar Borrowing, not later than 10:30 a.m., New York City
time, two Business Days before a proposed Borrowing, and (b) in the case of an
ABR Borrowing, not later than 10:30 a.m., New York City time, on the same
Business Day as the proposed Borrowing is to be made. Such borrowing request
shall be irrevocable, shall be signed by or on behalf of the Borrower and shall
specify the following information: (i) whether the Borrowing then being
requested is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of
the Borrowing (which shall be a Business Day); (iii) the number and location of
the account to which funds are to be disbursed (which shall be an account that
complies with the requirements of Section 2.2(c)); and (iv) the length of the
initial Interest Period with respect thereto. If no election as to the Type of
Borrowing is specified in any such notice, then the requested Borrowing shall be
an ABR Borrowing. If no interest Period with respect to any Eurodollar Borrowing
is specified in any such notice, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration. The Administrative Agent
shall promptly (and in any event on the same day that the Administrative Agent
receives such notice, if received by 1:00 p.m., New York City time, on such day)
advise the applicable Lenders of any notice given pursuant to this Section 2.3
(and the contents thereof), and of each Lender's portion of the requested
Borrowing.
SECTION 2.4. Evidence of Debt; Repayment of Loans. (a) The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the principal amount of the Loan made by such Lender on the Maturity
Date (subject, however, to the provisions of Section 2.20).
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from the Loan made by such Lender, including the amounts of principal
and interest payable and paid such Lender from time to time under this
Agreement.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable from the Borrower to each Lender hereunder and (iii) the amount
of any sum received by the Administrative Agent hereunder from the Borrower and
each Lender's share thereof.
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22
(d) The entries made in the accounts maintained pursuant to paragraphs (b)
and (c) above shall be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein shall
not in any manner affect the obligations of the Borrower to repay the Loans in
accordance with their terms, except to the extent that the correction of such
error results in a reduction of the Borrower's obligations hereunder.
(e) Notwithstanding any other provision of this Agreement, in the event any
Lender shall request and receive a promissory note payable to such Lender and
its registered assigns to evidence the Loan made by it hereunder, the interests
represented by such note shall at all times (including after any assignment of
all or part of such interests pursuant to Section 10.4) be represented by one or
more promissory notes payable to the payee named therein or its registered
assigns. Any such promissory notes shall include a paragraph indicating that the
obligations evidenced thereby are subject to the provisions of Article VIII
hereof.
SECTION 2.5. Fees. (a) The Borrower shall pay to SocGen the Fees (the
"Fees") agreed to in the Fee Letter on the dates specified therein.
(b) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate as
determined by the Administrative Agent, among the Lenders but no Lender shall
have any claim against the Borrower once the Borrower has paid the Fees to the
Administrative Agent. Once paid, none of the Fees shall be refundable under any
circumstances, except to the extent such payment shall have been made as a
consequence of manifest error.
SECTION 2.6. Interest on Loans. (a) Subject to the provisions of Section
2.7, the Loans comprising each Eurodollar Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum equal to the Adjusted LIBO Rate for the Interest
Period in effect for such Borrowing plus 4.00%.
(b) Subject to the provisions of Section 2.7, the Loans comprising each ABR
Borrowing shall bear interest (computed on the basis of the actual number of
days elapsed over a year of 365 or 366 days, as the case may be, when the
Altemate Base Rate is determined by reference to the Prime Rate and over a year
of 360 days at all other times) at a rate per annum equal to the Alternate Base
Rate plus 3.00%.
(c) Interest shall accrue from and including the first day of an Interest
Period to but excluding the last day of such Interest Period. Interest on each
Loan shall accrue daily for the account of the holder from time to time of such
Loan and shall be payable on the Interest Payment Dates applicable to such Loan
except as otherwise provided in this Agreement. The applicable Alternate Base
Rate or Adjusted LIBO Rate for each Interest Period or day within an Interest
Period, as the case may be, shall be determined by the Administrative Agent, and
such determination shall be conclusive absent manifest error.
<PAGE>
23
SECTION 2.7. Default Interest. If the Borrower shall default in the payment
of the principal of or interest on any Loan or any other amount becoming due
hereunder, by acceleration or otherwise, or under any other Loan Document, the
Borrower shall on demand from time to time pay interest, to the extent permitted
by law, on such defaulted amount to but excluding the date of actual payment
(after as well as before judgment) (a) in the case of overdue principal, at the
rate otherwise applicable to such Loan pursuant to Section 2.6 plus 2.00% per
annum and (b) in all other cases, at a rate per annum (computed on the basis of
the actual number of days elapsed over a year of 365 or 366 days, as the case
may be, when determined by reference to the Prime Rate and over a year of 360
days at all other times) equal to the sum of the Alternate Base Rate plus 5.00%.
SECTION 2.8. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined in good faith that dollar deposits in the principal amounts of the
Loans comprising such Borrowing are not generally available in the London
interbank market, or that the rates at which such dollar deposits are being
offered will not adequately and fairly reflect the cost to any Lender of making
or maintaining its Eurodollar Loan during such Interest Period, or that
reasonable means do not exist for ascertaining the Adjusted LIBO Rate, the
Administrative Agent will, as soon as practicable thereafter, give written
notice of such determination to the Borrower and the Lenders. In the event of
any such determination, until the Administrative Agent shall have advised the
Borrower and the Lenders that the circumstances giving rise to such notice no
longer exist, any request by the Borrower for a Eurodollar Borrowing pursuant to
Section 2.3 or 2.9 shall be deemed to be a request for an ABR Borrowing. The
Administrative Agent will promptly advise the Borrower once the circumstances
giving rise to any such notice no longer exist. Each determination by the
Administrative Agent hereunder shall be conclusive absent manifest error.
SECTION 2.9. Conversion and Continuation of Borrowings. The Borrower shall
have the right at any time upon prior irrevocable telephonic notice to the
Administrative Agent (confirmed promptly in writing) (a) not later than 10:30
a.m., New York City time, two Business Days prior to the proposed conversion, to
convert any Eurodollar Borrowing into an ABR Borrowing, (b) not later than 10:30
a.m., New York City time, two Business Days prior to conversion or continuation,
to convert any ABR Borrowing into a Eurodollar Borrowing or to continue any
Eurodollar Borrowing as a Eurodollar Borrowing for an additional Interest Period
and (c) not later than 10:30 a.m., New York City time, two Business Days prior
to conversion, to convert the Interest Period with respect to any Eurodollar
Borrowing to another permissible Interest Period, subject in each case to the
following:
(i) each conversion or continuation shall be made pro rata among the
Lenders in accordance with the respective principal amounts of the Loans
comprising the converted or continued Borrowing;
(ii) each requested conversion or continuation shall be with respect
to all of the then outstanding Loans or with respect to a portion thereof
equal to $10,000,000 or a whole multiple of $5,000,000 in excess thereof;
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24
(iii) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the new
Loan of such Lender resulting from such conversion and reducing the Loan
(or portion thereof) of such Lender being converted by an equivalent
principal amount;
(iv) if any Eurodollar Borrowing is converted at a time other than the
end of the Interest Period applicable thereto, the Borrower shall pay, upon
demand, any amounts due to the Lenders pursuant to Section 2.14;
(v) unless each Lender otherwise agrees, any portion of a Borrowing
maturing or required to be repaid in less than one month from the date of
any conversion or continuation may not be converted into or continued as a
Eurodollar Borrowing;
(vi) any portion of a Eurodollar Borrowing that cannot be converted
into or continued as a Eurodollar Borrowing by reason of the immediately
preceding clause shall be automatically converted at the end of the
Interest Period in effect for such Borrowing into an ABR Borrowing;
(vii) no Interest Period may be selected for any Eurodollar Borrowing
that would end later than the Maturity Date;
(viii) no Borrowing may be converted into, or continued as, a
Eurodollar Borrowing when any Default has occurred and is continuing and
the Administrative Agent or the Required Lenders have determined that such
conversion or continuation is not appropriate (and, instead, any such
Borrowing will be converted into or remain as an ABR Borrowing on the last
day of the Interest Period applicable thereto); and
(ix) no Borrowing may be converted into, or continued as, a Eurodollar
Borrowing when any Event of Default has occurred and is continuing, unless
the Required Lenders have determined that such conversion or continuation
is appropriate (and, instead, any such Borrowing will be converted into or
remain as an ABR Borrowing on the last day of the Interest Period
applicable thereto).
Each notice pursuant to this Section 2.9 shall refer to this Agreement and
specify (i) whether the Borrowing is to be converted to or continued as a
Eurodollar Borrowing or an ABR Borrowing, (ii) if such notice requests a
conversion, the date of such conversion (which shall be a Business Day) and
(iii) if such Borrowing is to be converted to or continued as a Eurodollar
Borrowing, the Interest Period with respect thereto. If no Interest Period is
specified in any such notice with respect to any conversion to or continuation
as a Eurodollar Borrowing, the Borrower shall be deemed to have selected an
Interest Period of one months duration. The Administrative Agent shall advise
the Lenders of any notice given pursuant to this Section 2.9 and of each
Lender's portion of any converted or continued Borrowing. If the Borrower shall
not have given notice in accordance with this Section 2.9 to continue any
Borrowing into a subsequent Interest Period (and shall not otherwise have given
notice in accordance with this Section 2.9 to convert such Borrowing),
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25
such Borrowing shall, at the end of the Interest Period applicable thereto
(unless repaid pursuant to the terms hereof), automatically be continued into a
new Interest Period as a Eurodollar Borrowing having an Interest Period of one
months duration.
SECTION 2.10. Optional Prepayment. (a) The Borrower shall have the right at
any time and from time to time to prepay any Borrowing, in whole or in part,
upon at least two Business Days' prior irrevocable telephonic notice (promptly
confirmed in writing) to the Administrative Agent before 10:30 a.m., New York
City time; provided, however, that each partial prepayment shall be in an amount
that is an integral multiple of $1,000,000 and provided, further, that no
prepayment shall be permitted under this Section 2.10 if, after giving effect
thereto, the aggregate principal amount of the then outstanding Loans would be
less than $75,000,000 but greater than $0.
(b) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid and shall
commit the Borrower to prepay such Borrowing by the amount stated therein on the
date stated therein. All prepayments under this Section 2.10 shall be subject to
Section 2.14 but otherwise without premium or penalty. All prepayments under
this Section 2.10 shall be accompanied by accrued interest on the principal
amount being prepaid to but excluding the date of payment.
SECTION 2.11. Mandatory Prepayments. (a) The Borrower shall, if and to the
extent required pursuant to the Chase Credit Facility, apply 100% of the Net
Proceeds of any Asset Sale promptly upon its receipt thereof (or, if applicable,
promptly upon any amounts being deemed to constitute Net Proceeds as provided in
the definition of such term) to (i) prepay the term loans outstanding under the
Chase Credit Facility and/or (ii) prepay revolving credit loans outstanding
under the Chase Credit Facility provided that the commitment of the lenders
thereunder to lend revolving credit loans shall be permanently reduced to the
extent of such prepayment. To the extent not used in accordance with the
preceding sentence, the Borrower shall, or shall cause its Subsidiaries to,
prepay Borrowings with such Net Proceeds not later than the date which is one
Business Day after the date of receipt thereof.
(b) The Borrower shall apply 100% of the Net Proceeds of any Equity
Issuance promptly upon its receipt thereof (or, if applicable, promptly upon any
amounts being deemed to constitute Net Proceeds as provided in the definition of
such term) to prepay Borrowings with such Net Proceeds not later than the date
which is one Business Day after the date of receipt thereof.
(c) Anything in Section 2.1 1(a) or (b) to the contrary notwithstanding,
the Borrower shall not be required to make any prepayment pursuant to such
Sections to the extent that, after giving effect thereto, the aggregate
principal amount of the then outstanding Loans would be less than $75,000,000
but greater than $0, provided, however, that if at any time the aggregate amount
of prepayments pursuant to such Sections that shall have been prevented from
being made pursuant to the operation of the foregoing provisions of this
paragraph shall equal or exceed $75,000,000 then such prepayments shall be
required to be
<PAGE>
26
made at such time and, provided, further, that, until applied in accordance with
the foregoing proviso, all Net Proceeds otherwise required to prepay the Loans
and not applied to effect a prepayment pursuant to the operation of this
paragraph shall be held in a cash collateral account established by the
Administrative Agent the amounts on deposit in which shall be invested in
Permitted Investments designated by the Borrower (or, in the absence of such
designation, as selected by the Administrative Agent in its sole discretion)
subject to the right of the Required Lenders at any time to require that the
amounts on deposit in such cash collateral account be applied to make the
prepayments otherwise prevented by this paragraph.
(d) The Borrower shall deliver to the Administrative Agent (i) at the time
of each prepayment required under this Section 2.11, a certificate signed by a
Financial Of fleer of the Borrower setting forth in reasonable detail the
calculation of the amount of such prepayment and (ii) not later than the later
of (A) the date on which a Responsible Officer of the Borrower becomes aware
that such prepayment will be made and (B) the date that is three Business Days
prior to the date of such prepayment, a notice of such prepayment. Such
certificate shall also describe in reasonable detail the facts and circumstances
giving rise to the applicable prepayment event and a reasonably detailed
calculation of the Net Proceeds therefrom.
(e) All prepayments under this Section 2.11 shall be subject to Section
2.14 but otherwise without premium or penalty. All prepayments under this
Section 2.11 shall be accompanied by accrued interest on the principal amount
being prepaid to but excluding the date of payment.
SECTION 2.12. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision of this Agreement, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender of the
principal of or interest on any Eurodollar Loan held by such Lender or any Fees
or other amounts payable hereunder (other than changes in respect of taxes
imposed on the overall net income of such Lender by the jurisdiction in which
such Lender has its principal office or by any political subdivision or taxing
authority therein), or shall impose, modify or deem applicable any reserve,
special deposit or similar requirement against assets of, deposits with or for
the account of or credit extended by any Lender (except any such reserve
requirement that is fully reflected in the Adjusted LIBO Rate) or shall impose
on such Lender or the London interbank market any other condition affecting this
Agreement or any Eurodollar Loan held by such Lender, and the result of any of
the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan by an amount deemed by such Lender to be
material, then the Borrower shall pay to such Lender upon demand such additional
amount or amounts as shall compensate such Lender for such additional costs
incurred or reduction suffered.
(b) If any Lender shall determine that the adoption after the date of this
Agreement of any law, rule, regulation, agreement or guideline regarding capital
adequacy, or any change after the date hereof in any such law, rule, regulation,
agreement or guideline
<PAGE>
27
(whether such law, rule, regulation, agreement or guideline has been adopted) or
in the interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof, or compliance by any
Lender or any Lender's holding company with any request or directive regarding
capital adequacy (whether or not having the force of law) of any Governmental
Authority has or would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, as
a consequence of this Agreement or the Loans made by such Lender pursuant hereto
to a level below that which such Lender or such Lender's holding company could
have achieved but for such applicability, adoption, change or compliance (taking
into consideration such Lender's policies and the policies of such Lender's
holding company with respect to capital adequacy) by an amount deemed by such
Lender to be material, then from time to time the Borrower shall pay to such
Lender, as the case may be, such additional amount or amounts as shall
compensate such Lender or such Lender's holding company for any such reduction
suffered.
(c) A certificate of a Lender setting forth in reasonable detail (i) the
calculation of the amount or amounts necessary to compensate such Lender or its
holding company, as applicable, as specified in paragraph (a) or (b) above and
(ii) the facts and circumstances giving rise to such compensation, shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay such Lender the amount shown as due on any such certificate
delivered by it within 10 Business Days after its receipt of the same.
(d) Failure or delay on the part of any Lender to demand compensation for
any increased costs or reduction in amounts received or receivable or reduction
in return on capital shall not constitute a waiver of such Lender's right to
demand such compensation; provided, however, that the Lender may not demand
compensation under this Section 2.12 for any period commencing earlier than 60
days prior to such demand. The protection of this Section 2.12 shall be
available to each Lender regardless of any possible contention of the invalidity
or inapplicability of the law, rule, regulation, agreement, guideline or other
change or condition that shall have occurred or been imposed; provided, however,
that each Lender shall take reasonable actions (which shall not require such
Lender to incur an unreimbursed loss or unreimbursed cost or expense or
otherwise take any action precluded by legal or regulatory restrictions or
suffer any disadvantage or burden deemed by it to be significant) to avoid any
need to claim compensation under this Section 2.12 arising out of any reasonably
foreseeable change in circumstances.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.12 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
SECTION 2.13. Change in Legality. (a) Notwithstanding any other provision
of this Agreement, if after the date of this Agreement, any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or hold any
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28
Eurodollar Loan or to give effect to its obligations as contemplated hereby with
respect to any Eurodollar Loan, then, by written notice to the Borrower and to
the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans shall not thereafter
(for the duration of such unlawfulness) be made by such Lender hereunder
(or be continued for additional Interest Periods and ABR Loans will not
thereafter (for such duration) be converted into Eurodollar Loans),
whereupon any request for a Eurodollar Loan (or to convert an ABR Loan to a
Eurodollar Loan or to continue a Eurodollar Loan, for an additional
Interest Period) shall, as to such Lender only, be deemed a request for an
ABR Loan (or a request to continue an ABR Loan as such for an additional
Interest Period or to convert a Eurodollar Loan into an ABR Loan, as the
case may be), unless such declaration shall be subsequently withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar Loans
made by it be converted to ABR Loans, in which event all such Eurodollar
Loans shall be automatically converted to ABR Loans as of the effective
date of such notice as provided in paragraph (b) below (and Section 2.14
shall not apply to any such automatic conversion).
In the event any Lender shall exercise its rights under clause (i) or (ii)
above, all payments and prepayments of principal that would otherwise have been
applied to repay the Eurodollar Loans that would have been made by such Lender
or the converted Eurodollar Loans of such Lender shall instead be applied to
repay the ABR Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.13, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Loan made by such Lender, if
lawful, on the last day of the Interest Period currently applicable to such
Eurodollar Loan; in all other cases such notice shall be effective on the date
of receipt by the Borrower.
SECTION 2.14. Indemnity. The Borrower shall indemnify each Lender against
any loss or expense that such Lender may sustain or incur as a direct
consequence of (a) any event, other than a default by such Lender in the
performance of its obligations hereunder, which results in (i) such Lender
receiving or being deemed to receive any amount on account of the principal of
any Eurodollar Loan prior to the end of the Interest Period in effect therefor,
(ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of
the Interest Period with respect to any Eurodollar Loan, in each case other than
on the last day of the Interest Period in effect therefor, or (iii) any
Eurodollar Loan to be made by such Lender not being made after notice of such
Loan shall have been given by the Borrower hereunder (any of the events referred
to in this clause (a) being called a "Breakage Event") or (b) any default in the
making of any payment or prepayment required to be made hereunder. In the case
of any Breakage Event, such loss shall include an amount equal to the excess, as
reasonably determined by such Lender, of (i) its cost of obtaining funds for the
Eurodollar Loan that is the subject of such Breakage Event for the period from
the date of such Breakage Event to the last day of the Interest Period in effect
(or that would have been in effect) for such Loan over (ii) the amount of
interest likely to be realized by such Lender in
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29
redeploying the funds released or not utilized by reason of such Breakage Event
for such period. A certificate of any Lender setting forth in reasonable detail
(i) the calculation of any amount or amounts which such Lender is entitled to
receive pursuant to this Section 2.14 and (ii) the facts and circumstances
giving rise to such entitlement, shall be delivered to the Borrower (in the case
of a claim under clause (a) above, within 60 days of the applicable Breakage
Event) and shall be conclusive absent manifest error. Without prejudice to the
survival of any other agreement contained herein, the agreements and obligations
contained in this Section 2.14 shall survive the payment in full of the
principal of and interest on all Loans made hereunder.
SECTION 2.15. Pro Rata Treatment. Except as required under Section 2.13,
each Borrowing, each payment or prepayment of principal of any Borrowing, each
payment of interest on the Loans, and each refinancing of any Borrowing with,
conversion of any Borrowing to or continuation of any Borrowing as a Borrowing
of any Type shall be allocated pro rata among the Lenders in accordance with the
respective principal amounts of their outstanding Loans. In computing any
Lender's portion of any Borrowing to be made hereunder, the Administrative Agent
may, in its discretion, round each Lender's percentage of such Borrowing to the
next higher or lower whole dollar amount.
SECTION 2.16. Sharing of Setoffs. If any Lender shall, through the exercise
of a right of banker's lien, setoff or counterclaim against the Borrower, or
pursuant to a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, obtain payment (voluntary
or involuntary) in respect of any Loan as a result of which the unpaid principal
portion of its Loans shall be proportionately less than the unpaid principal
portion of the Loans of any other Lender, it shall be deemed simultaneously to
have purchased from such other Lender at face value, and shall promptly pay to
such other Lender the purchase price for, a participation in the Loans of such
other Lender, so that the aggregate unpaid principal amount of the Loans held by
each Lender shall be in the same proportion to the aggregate unpaid principal
amount of all Loans then outstanding as the principal amount of its Loans prior
to such exercise of banker's lien, setoff or counterclaim or other event was to
the principal amount of all Loans outstanding prior to such exercise of banker's
lien, setoff or counterclaim or other event; provided, however' that if any such
purchase or purchases or adjustments shall be made pursuant to this Section 2.16
and the payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or adjustments shall be rescinded to the extent of such recovery
and the purchase price or prices or adjustment restored without interest. The
Borrower expressly consents to the foregoing arrangements and agrees that any
Lender holding a participation in a Loan deemed to have been so purchased may
exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrower to such Lender by reason
thereof as fully as if such Lender had made a Loan directly to the Borrower in
the amount of such participation.
SECTION 2.17. Payments. (a) The Borrower shall make each payment (including
principal of or interest on any Borrowing or any Fees or other amounts)
hereunder and under any other Loan Document not later than 1:00 p.m., New York
City time, on the
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30
date when due in immediately available dollars, without setoff, defense or
counterclaim (but without prejudice, waiver or effect of estoppel with respect
to any defense or counterclaim). Each such payment shall be made to the
Administrative Agent at its offices at 1221 Avenue of the Americas, New York,
New York 10020.
(b) Whenever any payment (including principal of or interest on any
Borrowing, any Fees or any other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.18. Taxes. (a) Any and all payments by the Borrower hereunder and
under any other Loan Document shall be made, in accordance with Section 2.17,
free and clear of and without deduction for any and all current or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding (i) income taxes imposed on the net income of the
Administrative Agent or any Lender (or any transferee or assignee thereof,
including a participation holder (any such entity a "Transferee")) and (ii)
franchise taxes imposed on the net income of the Administrative Agent or any
Lender (or Transferee), in each case by the jurisdiction (A) under the laws of
which the Administrative Agent or any Lender (or Transferee) is organized or any
political subdivision thereof or (B) in which the applicable office of the
Administrative Agent or any Lender (or any Transferee) is located or any
political subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities, collectively or individually,
being called "Taxes"). If the Borrower shall be required to deduct any Taxes
from or in respect of any sum payable hereunder or under any other Loan Document
to the Administrative Agent or any Lender (or any Transferee), (i) the sum
payable shall be increased by the amount (an "additional amount") necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.18) the Administrative Agent or any
Lender (or Transferee), as the case may be, shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions and (iii) the Borrower shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.
(b) In addition, the Borrower agrees to bear and shall pay to the relevant
Governmental Authority in accordance with applicable law any current or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies (including mortgage recording taxes and similar fees) that arise
from any payment made hereunder or under any other Loan Document or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document ("Other Taxes").
(c) The Borrower shall indemnify the Administrative Agent or any Lender (or
Transferee) for the full amount of Taxes and Other Taxes paid by the
Administrative Agent or any Lender (or Transferee), as the case may be, and any
liability (including penalties, interest and expenses (including reasonable
attorney's fees and expenses)) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted by
the relevant Governmental Authority. A certificate as to the amount of such
<PAGE>
31
payment or liability prepared by the Administrative Agent or any Lender (or
Transferee), or the Administrative Agent on its behalf, and setting forth in
reasonable detail (i) the calculation of and (ii) the facts and circumstances
giving rise to such payment or liability, absent manifest error, shall be final,
conclusive and binding for all purposes. Such indemnification shall be made
within 30 days after the date the Administrative Agent or any Lender (or
Transferee), as the case may be, makes written demand therefor. No Lender (or
Transferee) may make any claim for indemnification more than 180 days after such
Lender (or Transferee) knows of the payment or liability with respect to which
such indemnification is to be sought (such 180 days to be reduced to 60 days if
at the time of such claim for indemnification such Lender (or Transferee) holds
Loans or participations therein.
(d) If the Administrative Agent or any Lender (or Transferee) receives a
refund in respect of any Taxes or Other Taxes as to which it has been
indemnified by the Borrower or with respect to which the Borrower has paid
additional amounts pursuant to this Section 2.18, it shall within 30 days from
the date of such receipt pay over such refund to the Borrower (but only to the
extent of indemnity payments made, or additional amounts paid, by the Borrower
under this Section 2.18 with respect to the Taxes or Other Taxes giving rise to
such refund), net of all out-of-pocket expenses of the Administrative Agent or
such Lender (or Transferee) and without interest (other than interest paid by
the relevant Governmental Authority with respect to such refund); provided,
however, that the Borrower, upon the request of the Administrative Agent or such
Lender (or Transferee), shall repay the amount paid over to the Borrower (plus
penalties, interest or other charges) to the Administrative Agent or such Lender
(or Transferee) in the event the Administrative Agent or such Lender (or
Transferee) is required to repay such refund to such Governmental Authority.
(e) As soon as practicable after the date of any payment of Taxes or Other
Taxes by the Borrower to the relevant Governmental Authority, the Borrower shall
deliver to the Administrative Agent, at its address referred to in Section 10.1,
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.18 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(g) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption
from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a
Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or
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32
reduced rate of, U.S. Federal withholding tax on payments by the Borrower under
this Agreement and the other Loan Documents. Such forms shall be delivered by
each Non-U.S. Lender on or before the date it becomes a party to this Agreement
(or, in the case of a Transferee that is a participation holder, on or before
the date such participation holder becomes a Transferee hereunder) and on or
before the date, if any, such Non-U.S. Lender changes its applicable office by
designating a different office (a "New Office"). In addition, each Non-U.S.
Lender shall deliver such forms promptly upon the obsolescence or invalidity of
any form previously delivered by such Non-U.S. Lender. Notwithstanding any other
provision of this paragraph (g), a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph (g) that such Non-U.S. Lender is not
legally able to deliver.
(h) The Borrower shall not be required to indemnify any Non-U.S. Lender or
to pay any additional amounts to any Non-U.S. Lender, in respect of United
States Federal withholding tax pursuant to paragraph (a) or (c) above to the
extent that (i) the obligation to withhold amounts with respect to United States
Federal withholding tax existed on the date such Non-U.S. Lender became a party
to this Agreement (or, in the case of a Transferee that is a participation
holder, on the date such participation holder became a Transferee hereunder) or,
with respect to payments to a New Office, the date such Non-U.S. Lender
designated such New Office with respect to a Loan; provided, however, that this
paragraph (h) shall not apply (x) to any Transferee or New Office that becomes a
Transferee or New Office as a result of an assignment, participation, transfer
or designation made at the request of the Borrower and (y) to the extent the
indemnity payment or additional amounts any Transferee, or any Lender (or
Transferee), acting through a New Office, would be entitled to receive (without
regard to this paragraph (h)) do not exceed the indemnity payment or additional
amounts that the Person making the assignment, participation or transfer to such
Transferee, or Lender (or Transferee) making the designation of such New Office,
would have been entitled to receive in the absence of such assignment,
participation, transfer or designation or (ii) the obligation to pay such
additional amounts would not have arisen but for a failure by such Non-U.S.
Lender to comply with the provisions of paragraph (g) above.
(i) Nothing contained in this Section 2.18 shall require any Lender (or any
Transferee) or the Administrative Agent to make available any of its tax returns
(or any other information that it deems to be confidential or proprietary).
SECTION 2.19. Assignment of Commitments under Certain Circumstances; Duty
To Mitigate. (a) In the event (i) any Lender delivers a certificate requesting
compensation pursuant to Section 2.12, (ii) any Lender delivers a notice
described in Section 2.13, (iii) the Borrower is required to pay any additional
amount to any Lender or any Governmental Authority on account of any Lender
pursuant to Section 2.18 or (iv) the Administrative Agent notifies the Borrower
of any Lender's failure to fund as provided in Section 2.2(d), the Borrower may,
at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to transfer and assign, without
recourse (in accordance with and subject to the restrictions contained in
Section 10.4), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such assigned obligations (which assignee may be
another Lender, if a Lender accepts such assignment); provided, however, that
(x) such assignment shall not conflict with any law, rule or regulation
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33
or order of any court or other Governmental Authority having jurisdiction, (y)
the Borrower or such assignee shall have paid to the affected Lender in
immediately available funds an amount equal to the sum of the principal of the
outstanding Loans of such Lender plus all other amounts (excluding interest and
Fees, which shall be paid when due to the assigning Lender under Sections 2.6
and 2.5, respectively) accrued for the account of such Lender hereunder
(including any amounts under Sections 2.12, 2.14 and 2.18) and (z) if prior to
any such transfer and assignment the circumstances or event that resulted in
such Lender's claim for compensation under Section 2.12 or notice under Section
2.13 or the amounts paid pursuant to Section 2.18, as the case may be, cease to
cause such Lender to suffer increased costs or reductions in amounts received or
receivable or reduction in return on capital, or cease to have the consequences
specified in Section 2.13, or cease to result in amounts being payable under
Section 2.18, as the case may be (including as a result of any action taken by
such Lender pursuant to paragraph (b) below), or if such Lender shall waive its
right to claim fiber compensation under Section 2.12 in respect of such
circumstances or event or shall withdraw its notice under Section 2.13 or shall
waive its right to further payments under Section 2.18 in respect of such
circumstances or event or shall fund as provided in Section 2.2(d), as the case
may be, then such Lender shall not thereafter be required to make any such
transfer and assignment hereunder.
(b) If (i) any Lender shall request compensation under Section 2.12, (ii)
any Lender delivers a notice described in Section 2.13 or (iii) the Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority on account of any Lender, pursuant to Section 2.18, then such Lender
shall use reasonable efforts (which shall not require such Lender to incur an
unreimbursable loss or unreimbursable cost or expense or otherwise take any
action inconsistent with its internal policies or legal or regulatory
restrictions or suffer any disadvantage or burden deemed by it in good faith to
be significant) (x) to file any certificate or document reasonably requested in
writing by the Borrower or (y) to assign its rights and delegate and transfer
its obligations hereunder to another of its offices, branches or affiliates, if
such filing or assignment would reduce its claims for compensation under Section
2.12 or enable it to withdraw its notice pursuant to Section 2.13 or would
reduce amounts payable pursuant to Section 2.18, as the case may be, in the
future. The Borrower shall pay all reasonable costs and expenses incurred by any
Lender in connection with any such filing or assignment, delegation and
transfer.
SECTION 2.20. Conversion Notes. On the Conversion Date: the Borrower shall
deliver to each Lender a Conversion Note payable to the order of such Lender in
a principal amount equal to 103.5% of the principal amount of the Loan then held
by such Lender; such Lender shall accept such Conversion Note in exchange for
any promissory note then held by such Lender as evidence of such Loan; and such
Loan shall thereafter be evidenced and governed by and be payable in accordance
with such Conversion Note and the Conversion Note Indenture; provided, however,
that the exchange of promissory notes provided for in this Section 2.20 shall
not occur unless on the Conversion Date the following conditions shall have been
satisfied:
(i) all accrued interest on all Loans shall have been paid in full in
cash;
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34
(ii) no Default or Event of Default shall have occurred and be
continuing, and no Default or Event of Default (as such terms are defined
in the Chase Credit Agreement) shall have occurred and be continuing;
(iii) such exchange would not violate any law or regulation or any
order or decree of any court or Governmental Body applicable to the
Borrower;
(iv) The Borrower and a trustee satisfactory to the Borrower and the
Administrative Agent shall have executed and delivered the Conversion Note
Indenture substantially in the form of Exhibit C hereto; and
(v) the Lenders shall have received (A) an opinion of counsel for the
Borrower as to the Conversion Notes and the Conversion Note Indenture, in
form and substance reasonably satisfactory to the Administrative Agent, and
(B) a certificate of the Borrower, signed by a Responsible Officer, as to
the names, officers and signatures of its officers executing the Conversion
Notes and the Conversion Note Indenture on such date.
The Conversion Notes (if any) issued pursuant to this Section 2.20 will
mature on the Maturity Date.
ARTICLE III
Representations and Warranties of the Borrower
The Borrower represents and warrants to the Administrative Agent and the
Lenders that:
SECTION 3.1. Organization; Powers. The Borrower and each Subsidiary (a) is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (b) has all requisite power and
authority to own its property and assets and to carry on its business as now
conducted and as proposed to be conducted, (c) is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required, except where the failure so to qualify could not reasonably be
expected to result in a Material Adverse Effect, and (d) has the corporate power
and authority to execute, deliver and perform its obligations under each of the
Loan Documents and each other agreement or instrument contemplated hereby to
which it is or will be a party.
SECTION 3.2. Authorization. The execution, delivery and performance by the
Borrower and each Subsidiary of this Agreement and each other Loan Document
(collectively, the "Transactions") (a) have been duly authorized by all
requisite corporate and, if required, stockholder action and (b) will not (i)
violate (A) any provision of law, statute, rule or regulation, or of the
certificate or articles of incorporation or other constitutive documents or
by-laws of the Borrower or any Subsidiary, (B) any order of any Governmental
Authority or
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35
(C) any provision of any indenture, agreement or other instrument to which the
Borrower or any Subsidiary is a party or by which any of them or any of their
property is or may be bound, (ii) be in conflict with, result in a breach of or
constitute (alone or with notice or lapse of time or both) a default under, or
give rise to any right to accelerate or to require the prepayment, repurchase or
redemption of any obligation under any such indenture, agreement or other
instrument or (iii) result in the creation or imposition of any Lien upon or
with respect to any property or assets now owned or hereafter acquired by the
Borrower or any Subsidiary, other than (in the case of clauses (b)(i)(C) and
(ii) above) for such matters that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.3. Enforceability. This Agreement has been duly executed and
delivered by the Borrower and constitutes, and each other Loan Document when
executed and delivered by the Borrower will constitute, a legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as enforceability thereof may be limited by
bankruptcy, insolvency or similar laws of general application affecting
creditors' rights.
SECTION 3.4. Governmental Approvals. No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority is
or will be required in connection with the Transactions, except for such as have
been made or obtained and are in full force and effect.
SECTION 3.5. Financial Statements. The Borrower has heretofore furnished to
the Lenders its consolidated balance sheets and statements of income,
shareholders' equity and cash flows (i) as of and for the fiscal year ended
December 30, 1995, audited by and accompanied by the opinion of BDO Seidman,
independent public accountants, and (ii) as of and for the fiscal quarter and
the portion of the fiscal year ended September 28, 1996, certified by a
Financial Officer. Such financial statements present fairly the financial
condition and results of operations of the Borrower and its consolidated
Subsidiaries as of such dates and for such periods. Such balance sheets and the
notes thereto disclose all material liabilities, direct or contingent, of the
Borrower and its consolidated Subsidiaries as of the dates thereof. Such
financial statements were prepared in accordance with GAAP applied on a
consistent basis, subject (in the case of the statements referred to in clause
(ii) above) to normal, year-end recurring adjustments.
SECTION 3.6. No Material Adverse Change. There has been no material adverse
change in the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrower and the Subsidiaries, taken as a whole, since
September 28, 1996.
SECTION 3.7. Title to Properties; Possession under Leases. (a) Each of the
Borrower and the Subsidiaries has good and marketable title to, or valid
leasehold interests in, all its material properties and assets. All such
material properties and assets are free and clear of Liens, other than Liens
expressly permitted by Section 6.2 granting to any Person any right to use,
occupy or enjoy such portion.
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36
(b) Each of the Borrower and the Subsidiaries has complied with all
obligations under all material leases to which it is a party, and all such
leases are in full force and effect. Each of the Borrower and the Subsidiaries
enjoys peaceful and undisturbed possession under all such material leases.
SECTION 3.8. Subsidiaries. Schedule 3.8 sets forth as of the date hereof a
list of the Subsidiaries and the percentage ownership interest of the Borrower
therein. The shares of capital stock or other ownership interests so indicated
on Schedule 3.8 are fully paid and non-assessable and are owned by the Borrower,
directly or indirectly, free and clear of all Liens except under the Chase
Credit Facility.
SECTION 3.9. Litigation; Compliance with Laws. (a) There are not any
actions, suits or proceedings at law or in equity or by or before any
Governmental Authority now pending or, to the knowledge of the Borrower,
threatened against or affecting any Loan Park or any business, property or
rights of any such Person (i) that involve any Loan Document or the Transactions
or (ii) as to which there is a likelihood of an adverse determination and that,
if adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect.
(b) None of the Borrower and the Subsidiaries or any of their respective
material properties or assets is in violation of, nor will the continued
operation of such material properties and assets as currently conducted violate,
any law, rule or regulation (including any Health Care Law, any Environmental
Law, any zoning or building ordinance, code or approval or any building permit)
or any restriction of record or agreements affecting any such properties or
assets, or is in default with respect to any judgment, writ, injunction, decree
or order of any Governmental Authority, other than, in each case, such
violations and defaults that, individually and in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. Agreements. (a) Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any corporate restriction
that has resulted or could reasonably be expected to result in a Material
Adverse Effect.
(b) Neither the Borrower nor any of the Subsidiaries is in default in any
manner under any provision of any indenture or other agreement or instrument
evidencing Indebtedness, the General Shareholders Agreement dated September 30,
1994, as amended, and the Continuing Shareholders Agreement dated September 30,
1994, or any other agreement or instrument to which it is a party or by which it
or any of its properties or assets are or may be bound, other than such defaults
that, individually and in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) Neither the Borrower nor any
Subsidiary is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of buying or carrying Margin Stock.
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37
(b) No part of the proceeds of any Loan will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, for any purpose
that entails a violation of, or that is inconsistent with, the provisions of the
Regulations of the Board, including, to the extent applicable, Regulation G. U
or X. Margin Stocks do not constitute 25% or more of the assets of the Borrower
and the Subsidiaries, taken as a whole.
(c) No Indebtedness of the Borrower or any Subsidiary (other than the
Obligations) is "directly or indirectly secured" (within the meaning of
Regulation U and Regulation G) by any Margin Stock.
SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.
Neither the Borrower nor any Subsidiary is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940,
(b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935 or (c) otherwise subject to any law,
rule or regulation that limits its ability to incur Indebtedness.
SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of the
Loans to prepay the loans under the Chase Credit Agreement.
SECTION 3.14. Tax Returns. Each of the Borrower and the Subsidiaries has
filed or caused to be filed all Federal, state, local and foreign tax returns or
materials required to have been filed by it and has paid or caused to be paid
all taxes due and payable by it and all assessments received by it, except taxes
that are being contested in good faith by appropriate proceedings and for which
the Borrower or such Subsidiary, as applicable, shall have set aside on its
books (in accordance with GAAP accounting requirements) adequate reserves.
SECTION 3.15. No Material Misstatements. None of any information, report,
financial statement, exhibit or schedule authored by, and furnished by or on
behalf of, the Borrower in writing to the Administrative Agent or any Lender in
connection with the negotiation of any Loan Document or included therein or
delivered pursuant thereto contains any material misstatement of fact or omits
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they are made not misleading; provided.
however that to the extent any such information, report, financial statement,
exhibit or schedule was based upon or constitutes a forecast or projection, the
Borrower represents only that (x) it acted in good faith and utilized reasonable
assumptions and due care in the preparation of such information, report,
financial statement, exhibit or schedule and (y) with respect to projections
delivered by the Borrower to the Administrative Agent on December____, 1996, as
of the date of this Agreement and as of the Closing Date, the Borrower believes
the assumptions underlying such projections are reasonable.
SECTION 3.16. Employee Benefit Plans. Each of the Borrower and the ERISA
Affiliates is in compliance in all respects with the applicable provisions of
ERISA and the Code and the regulations and published interpretations thereunder,
except for such failures to comply that, individually and in the aggregate,
could not reasonably be expected to result
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in a Material Adverse Effect. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in a Material Adverse Effect. As of the
date of this Agreement, none of the Plans is a "defined benefit plan" as defined
in Section 3(35) of ERISA or Section 414(1) of the Code. The present value of
all benefit liabilities under each Plan (based on those assumptions used for
purposes of Statement of Financial Accounting Standards No. 87) did not, as of
the last annual valuation date applicable thereto, exceed by more than
$15,000,000 the fair market value of the assets of such Plan, and the present
value of all benefit liabilities of all underfunded Plans (based on those
assumptions used for purposes of Statement of Financial Accounting Standards No.
87) did not, as of the last annual valuation dates applicable thereto, exceed by
more than $15,000,000 the fair market value of the assets of all such
underfunded Plans.
SECTION 3.17. Environmental Matters. (a) The properties owned or operated
by the Borrower and the Subsidiaries (the "Properties") do not contain any
Hazardous Materials in amounts or concentrations that constitute a violation of,
or could give rise to under, any Environmental Law, other than such violations
and liabilities that, individually and in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
(b) The Properties and all operations of the Borrower and the Subsidiaries
are in compliance, and in the last six years have been in compliance, with all
Environmental Laws, and all Environmental Permits have been obtained and are in
effect, other than such items that, individually and in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
(c) There have not been any Releases or threatened Releases at, from, under
or, to the knowledge of the Borrower, proximate to the Properties or otherwise
in connection with the operations of the Borrower or the Subsidiaries, which
Releases or threatened Releases, in the aggregate, could reasonably be expected
to result in a Material Adverse Effect.
(d) Neither the Borrower nor any Subsidiary has received any notice of an
Environmental Claim in connection with the Properties or the operations of the
Borrower or the Subsidiaries or with regard to any Person whose liabilities for
environmental matters the Borrower or the Subsidiaries has retained or assumed,
in whole or in part, contractually, or to the knowledge of the Borrower by
operation of law or otherwise, which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect, nor do the
Borrower or the Subsidiaries have any knowledge that any such notice is likely
to be received or is being threatened.
(e) Hazardous Materials have not been transported from the Properties, nor
have Hazardous Materials been generated, treated, stored or disposed of at, on
or under any Property in a manner that could reasonably be expected to give rise
to any material liability under any Environmental Law, nor has the Borrower or
Subsidiary retained or assumed any liability, contractually, or to the knowledge
of the Borrower by operation of law or otherwise,
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39
with respect to the generation, treatment, storage or disposal of Hazardous
Materials, which transportation, generation, treatment, storage or disposal, or
retained or assumed liabilities, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and
correct of all insurance maintained by the Borrower and the Subsidiaries as of
the date hereof and the Closing Date. As of each such date, such insurance is in
full force and effect and all premiums due have been paid. The Borrower and the
Subsidiaries have insurance in such amounts and covering such risks and
liabilities as are in accordance with normal industry practice.
SECTION 3.19. Solvency. (a) The fair salable value of the assets of the
Borrower and each Subsidiary exceeds the amount that will be required to be paid
on or in respect of the existing debts and other liabilities (including
contingent liabilities) of the Borrower or such Subsidiary as they mature.
(b) The assets of the Borrower and each Subsidiary do not constitute
unreasonably small capital for the Borrower or such Subsidiary to carry out its
business as now conducted and as proposed to be conducted, including the capital
needs of the Borrower or such Subsidiary, taking into account the particular
capital requirements of the business conducted by the Borrower and each
Subsidiary, and the projected capital requirements and capital availability
thereof.
(c) The Borrower and each Subsidiary do not intend to and shall not incur
debts beyond their respective ability to pay such debts as they mature taking
into account the timing and amounts of cash to be received by the Borrower and
such Subsidiary and of amounts to be payable on or in respect of obligations of
the Borrower and such Subsidiary. The cash flow of the Borrower and each
Subsidiary, after taking into account all anticipated uses of the cash of the
Borrower and each Subsidiary, will at all times be sufficient to pay all such
amounts on or in respect of debt of the Borrower or such Subsidiary when such
amounts are required to be paid.
(d) The representations made in this Section 3.19 with respect to any
Subsidiary that is a Guarantor are made after taking into consideration and
giving effect to the Indemnity, Contribution and Subrogation Agreement.
SECTION 3.20. Labor Matters. As of the date of this Agreement and the
Closing Date, there are no strikes, lockouts or slowdowns against the Borrower
or any Subsidiary pending or, to the knowledge of the Borrower, threatened. The
hours worked by and payments made to employees of the Borrower and the
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other applicable Federal, state, local or foreign law dealing with such matters.
All payments due from the Borrower or any Subsidiary, or for which any claim may
be made against the Borrower or any Subsidiary, on account of wages and employee
health and welfare insurance and other benefits, have been paid or accrued as a
liability on the books of the Borrower or such Subsidiary.
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40
SECTION 3.21. Capitalization of the Borrower. As of the date of this
Agreement, the authorized capital stock of the Borrower consists of 529,295
shares of common stock, par value $0.01 per share, of which 273,742 shares are
issued and outstanding. All such outstanding shares of stock are fully paid and
nonassessable.
SECTION 3.22. Shareholders Agreements. The Administrative Agent has
received a complete copy of the General Shareholders Agreement dated September
30, 1994 and the Continuing Shareholders Agreement dated September 30, 1994
(including all exhibits, schedules and disclosure letters referred to therein or
delivered pursuant thereto) and all amendments and waivers relating thereto and
other side letters or agreements affecting the terms thereof.
ARTICLE IV
Closing Conditions
The obligations of the Lenders to make Loans on the Closing Date are
subject to the satisfaction, on or before December 28, 1996, of the following
conditions:
SECTION 4.1. Proceedings Satisfactory. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated to occur
on the Closing Date and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Administrative Agent and its special
counsel, and the Administrative Agent and its special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request, including, without limitation:
(a) certified copies of the certificate or articles of incorporation (or
other comparable constituting document) of the Borrower and each Subsidiary,
with all amendments thereto to the Closing Date;
(b) certified copies of the by-laws (or other comparable constituting
document) of the Borrower and each Subsidiary, with all amendments thereto to
the Closing Date;
(c) certified copies of resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this Agreement,
the Loans and the other Loan Documents to which the Borrower is a party;
(d) certified copies of resolutions of the Board of Directors of each
Subsidiary of the Borrower authorizing the execution, delivery and performance
by such Subsidiary of the Loan Documents to which such Subsidiary is a party;
and
(e) certificates as to the incumbency and signatures of each of the
officers of the Borrower and each Subsidiary who shall execute this Agreement or
any other Loan Document on behalf of such respective party.
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41
SECTION 4.2. Opinions of Counsel to the Borrower and each Subsidiary. The
Administrative Agent shall have received from Proskauer Rose Goetz & Mendelsohn
LLP, counsel to the Borrower and each domestic Subsidiary in connection with the
Transactions, a favorable legal opinion, dated the Closing Date and addressed to
the Administrative Agent, covering the matters specified in Exhibit G.
SECTION 4.3. Representations and Warranties True, Etc.; Certificates. The
representations and warranties of the Borrower and each Subsidiary contained in
Section 3 and elsewhere in this Agreement and the other Loan Documents shall be
true on and as of the Closing Date with the same effect as if such
representations and warranties had been made on and as of the Closing Date after
giving effect to the Transactions. The Borrower shall have performed all
agreements on its part required to be performed under this Agreement on or prior
to the Closing Date, and there shall exist no Default or Event of Default on the
Closing Date after giving effect to the Transactions. The Borrower shall have
delivered to the Administrative Agent an Officer's Certificate, dated the
Closing Date, to the effect of the matters stated in the foregoing sentences of
this Section 4.3.
SECTION 4.4. Consents and Approvals. All necessary consents, approvals and
authorizations of, and declarations, registrations and filings with,
Governmental Authorities and nongovernmental Persons required in order to
consummate the Transactions shall have been obtained or made and shall be in
full force and effect.
SECTION 4.5. Amendment to Chase Credit Agreement. The Administrative Agent
shall have received a fully executed copy of an amendment to the Chase Credit
Agreement that shall amend the Chase Credit Agreement to permit the borrowing by
the Borrower of the Loans and the issuance of the Conversion Notes on the terms
and conditions of this Agreement, to permit, subject to the subordination
provisions set forth in Article VIII hereof, the payment of the principal of and
interest on the Loans and the Conversion Notes and the payment of the other
amounts provided for herein and to modify certain of the financial covenants
contained therein, and such amendment shall be in form and substance
satisfactory to the Administrative Agent.
SECTION 4.6. Guarantee. The Guarantee Agreement shall have been duly
executed by each Subsidiary, shall have been delivered to the Administrative
Agent and shall be in full force and effect; provided, however, that no Foreign
Subsidiary shall be required to execute the Guarantee Agreement.
SECTION 4.7. Conversion Notes Registration Rights Agreement. The Conversion
Notes Registration Rights Agreement shall have been duly executed by the
Borrower, shall have been delivered to the Administrative Agent and shall be in
full force and effect.
SECTION 4.8. Fees. The fees required to be paid on the Closing Date
pursuant to the Fee Letter shall be paid concurrently with the making of the
Loans on the Closing Date. The fees and expenses incurred by Simpson Thacher &
Bartlett and payable by the Borrower pursuant to Section 10.5 in connection with
the preparation of this Agreement
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42
and the other Loan Documents and the transactions contemplated hereby shall be
paid by the Borrower on the Closing Date upon presentation of its invoice.
SECTION 4.9. Indemnity Subrogation and Contribution Agreement. The
Indemnity, Subrogation and Contribution Agreement shall have been duly executed
by the Borrower and each Subsidiary, shall have been delivered to the
Administrative Agent and shall be in full force and effect.
ARTICLE V
Affirmative Covenants
The Borrower covenants and agrees with each Lender that so long as this
Agreement shall remain in effect and until the principal of and interest on the
Loans, all fees and all other expenses or amounts payable under any Loan
Document have been paid in full, unless the Required Lenders shall otherwise
consent in writing, the Borrower shall, and shall cause each Subsidiary to:
SECTION 5.1. Existence; Businesses and Properties. (a) Do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence, except as otherwise expressly permitted under Section 6.5.
(b) Do or cause to be done all things necessary to obtain, preserve, renew,
extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; comply with all applicable laws, rules,
regulations and decrees and orders of any Governmental Authority, whether now in
effect or hereafter enacted, except where the failure to comply could not
reasonably be expected to result in a Material Adverse Effect; and at all times
maintain and preserve all property material to the conduct of such business and
keep such property in good repair, working order and condition and from time to
time make, or cause to be made, all needful and proper repairs, renewals,
additions, improvements and replacements thereto necessary, in the Borrower's
reasonable judgment, in order that the business carried on in connection
therewith may be properly conducted at all times.
SECTION 5.2. Insurance. Keep its insurable properties adequately insured at
all times by financially sound and reputable insurers; and maintain such other
insurance, to such extent and against such risks, including fire and other risks
insured against by extended coverage, as is customary with companies in the same
or similar businesses operating in the same or similar locations.
SECTION 5.3. Obligations and Taxes. Pay its Indebtedness and pay or perform
its other material obligations in accordance with their terms and pay and
discharge when due all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise that, if
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43
unpaid, might give rise to a Lien upon such properties or any part thereof;
provided, however, that such payment and discharge shall not be required with
respect to any such obligation, tax, assessment, charge, levy or claim so long
as the validity, amount or entitlement thereof shall be contested in good faith
by appropriate proceedings and the Borrower shall have set aside on its books
adequate reserves with respect thereto in accordance with GAAP and such contest
operates to suspend enforcement of any related Lien.
SECTION 5.4. Financial Statements, Reports, etc. In the case of the
Borrower, furnish to the Administrative Agent:
(a) within 100 days after the end of each fiscal year, its
consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows showing the financial condition of the
Borrower and its consolidated Subsidiaries as of the close of such fiscal
year and the results of its operations and the operations of such
Subsidiaries during such year, all audited by BDO Seidman LLP or other
independent public accountants of recognized national standing and
accompanied by an opinion of such accountants (which shall not be qualified
in any material respect) to the effect that such consolidated financial
statements fairly present the financial condition and results of operations
of the Borrower and its consolidated Subsidiaries on a consolidated basis
in accordance with GAAP consistently applied;
(b) within 60 days after the end of each of the first three fiscal
quarters of each fiscal year, its consolidated balance sheet and related
statements of operations, stockholders' equity and cash flows showing the
financial condition of the Borrower and its consolidated Subsidiaries as of
the close of such fiscal quarter and the results of its operations and the
operations of such Subsidiaries during such fiscal quarter and the then
elapsed portion of the fiscal year, all certified by one of its Financial
Officers as fairly presenting the financial condition and results of
operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of the accounting firm (in the case
of delivery under clause (a) above) or Financial Officer (in the case of
delivery under clause (b) above) opining on or certifying such statements
(which certificate, when furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal interpretations)
certifying that, to the knowledge of the signer, no Event of Default or
Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto, and attaching
calculations showing compliance with Section 6.13 as of the end of such
fiscal period;
(d) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the SEC, or any Governmental Authority
succeeding to any or all of
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44
the functions of said Commission, or with any national securities exchange,
or distributed to its shareholders, as the case may be;
(e) as soon as available, and in any event no later than 100 days
after the end of each fiscal year, commencing with the fiscal year ending
December 28, 1996, forecasted financial projections for the Borrower
through the end of the then-current fiscal year (including a description of
the underlying assumptions and management's discussion of historical
results), all certified by a Financial Officer of the Borrower to be a good
faith estimate of the forecasted financial projections and results of
operations for the period through the then-current fiscal year; and
(f) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Borrower or any
Subsidiary, or compliance with the terms of any Loan Document, as the
Administrative Agent or any Lender may reasonably request.
SECTION 5.5. Litigation and Other Notices. Furnish to the Administrative
Agent and each Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) taken or proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any Person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any Governmental
Authority, against the Borrower or any Subsidiary thereof that could
reasonably be expected to result in a Material Adverse Effect; and
(c) any effect or impairment known to the Borrower that has resulted
in, or could reasonably be expected to result in, a Material Adverse
Effect.
SECTION 5.6. Employee Benefits. (a) Comply in all respects with the
applicable provisions of ERISA and the Code, except where the failure to comply
could not reasonably be expected to result in a Material Adverse Effect, and (b)
furnish to the Administrative Agent (i) as soon as possible after, and in any
event within 20 days after any Responsible Officer of the Borrower or any ERISA
Affiliate knows, any ERISA Event has occurred that, alone or together with any
other ERISA Events that have occurred could reasonably be expected to result in
liability of the Borrower in an aggregate amount exceeding $1,000,000, a
statement of a Financial Officer of the Borrower setting forth details as to
such ERISA Event and the action, if any, that the Borrower proposes to take with
respect thereto.
SECTION 5.7. Maintaining Records; Access to Properties and Inspections.
Keep proper books of record and account in which full, true and correct entries
in conformity with GAAP and all requirements of applicable law are made of all
material dealings and transactions in relation to its business. The Borrower
will, and will cause each Subsidiary to, permit any representatives designated
by the Administrative Agent or any Lender to visit and
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45
inspect the financial records and the properties of the Borrower or any
Subsidiary upon prior notice to a Financial Officer of the Borrower, at mutually
agreed times during normal business hours and as often as reasonably requested
and to make extracts from and copies of such financial records (such visits and
inspections to be coordinated, to the extent possible, through the
Administrative Agent). Permit any representatives designated by the
Administrative Agent or any Lender to discuss the affairs, finances and
condition of the Borrower or any Subsidiary with the officers thereof (all in a
manner reasonably calculated not to materially disrupt the normal business
operations and activities of the Borrower and the Subsidiaries) and independent
accountants therefor.
SECTION 5.8. Compliance with Environmental Laws. Comply, and cause all
lessees and other Persons occupying its Properties to comply, in all material
respects with all Environmental Laws and Environmental Permits applicable to its
operations and Properties; obtain and renew all material Environmental Permits
necessary for its operations and Properties; and conduct any Remedial Action in
accordance with Environmental Laws; provided, however, that neither the Borrower
nor any Subsidiary shall be required to undertake any Remedial Action to the
extent that its obligation to do so is being contested in good faith and by
proper proceedings and appropriate reserves are being maintained with respect to
such circumstances.
SECTION 5.9. Preparation of Environmental Reports. If a Default caused by
reason of a breach of Section 3.17 or 5.8 shall have occurred and be continuing,
at the written request of the Required Lenders, provide to the Lenders within 45
days after such request, at the expense of the Borrower, an environmental site
assessment report for the Properties which are the subject of such Default
prepared by an environmental consulting firm acceptable to the Administrative
Agent and indicating the presence or absence of Hazardous Materials and the
estimated cost of any compliance or Remedial Action required by Environmental
Laws in connection with such Properties.
SECTION 5.10. Further Assurances. Execute any and all further documents,
agreements and instruments, and take all further action that may be required
under applicable law, or that the Required Lenders or the Administrative Agent
may reasonably request, to effectuate the transactions contemplated by the Loan
Documents. The Borrower shall cause any subsequently acquired or organized
Subsidiary to became a party to the Guarantee Agreement and the Indemnity,
Subrogation and Contribution Agreement; provided, however, that no Foreign
Subsidiary shall be required to become a party to the Guarantee Agreement.
SECTION 5.11. Registration of Conversion Notes. Not later than 60 days
prior to the Conversion Date, authorize and file with the SEC under the
Securities Act a registration statement meeting the requirements of Section 2 of
the Conversion Notes Registration Rights Agreement and otherwise comply in all
respects with the requirements of such Agreement.
SECTION 5.12. Refinancing. Use its commercially reasonable best efforts to
effect prior to January 31, 1998 a public offering and/or a private placement of
an Equity Issuance and/or a sale of Indebtedness of the Borrower and/or any
Subsidiary the aggregate
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46
Net Proceeds of which, together with other available funds, shall be sufficient
to prepay in full the then outstanding Loans.
SECTION 5.13. Syndication of Loans. Assist the Lenders in completing a
syndication of the Loans, such assistance to include (a) assistance in the
preparation of a confidential information memorandum and other marketing
materials to be used in connection with the syndication, (b) the hosting, with
SocGen, of one or more meetings of prospective Lenders, (c) direct contact
between senior management and advisors of the Borrower and the proposed Lenders
and (d) the Borrower using commercially reasonable efforts to seek to ensure
that the syndication efforts benefit materially from the Borrower's existing
lending relationships. To assist the Lenders in their syndication efforts, the
Borrower agrees promptly upon the request of SocGen to prepare and provide to
SocGen all information with respect to the Borrower and the other transactions
contemplated hereby, including all financial information and projections, as
SocGen may reasonably request in connection with the syndication of the Loans.
ARTICLE VI
Negative Covenants
The Borrower covenants and agrees with each Lender that, so long as this
Agreement shall remain in effect and until the principal of and interest on the
Loans, all fees and all other expenses or amounts payable under any Loan
Document have been paid in full, unless the Required Lenders shall otherwise
consent in writing, the Borrower shall not, and shall not cause or permit any
Subsidiary to:
SECTION 6.1. Indebtedness. Incur, create, assume or permit to exist any
Indebtedness, except:
(a) Indebtedness in respect of this Agreement and the other Loan
Documents;
(b) Indebtedness incurred pursuant to the Chase Credit Facility in an
aggregate amount, at any one time outstanding, not to exceed the sum of (i)
$100,000,000 (to the extent pursuant to a revolving credit and/or letter of
credit facility) and (ii) the aggregate principal of the Indebtedness
outstanding on the date hereof under the Chase Credit Agreement as in
effect as of the date hereof (other than that described in clause (i)
above) less (in the case of the Indebtedness described in this clause (ii))
(x) an amount equal to that portion of the proceeds of the Loans that shall
be used to prepay the principal of such Indebtedness under the Chase Credit
Facility and (y) any other amounts paid subsequent to the date hereof on
account of such Indebtedness;
(c) in the case of any Subsidiary, Indebtedness owed to the Borrower
or any wholly owned Subsidiary that is a Guarantor, which Indebtedness is
evidenced by a note or notes pledged to secure the Indebtedness under the
Chase Credit Facility; and, in the case of
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47
the Borrower, Indebtedness owed to any Subsidiary, which Indebtedness is
subordinated to the Obligations and Senior Indebtedness on terms and
conditions approved in writing by the Administrative Agent;
(d) in the case of the Borrower, Indebtedness under Rate Protection
Agreements entered into in the ordinary course of business on terms and
with counterparties reasonably satisfactory to the Administrative Agent
(and any Lender and any lender under the Chase Credit Agreement is hereby
deemed to be satisfactory);
(e) accounts payable, rent obligations (other than Capital Lease
Obligations) and operating expenses incurred in the ordinary course of
business;
(f) purchase money Indebtedness incurred in the ordinary course of
business after the date of this Agreement (including financings through
industrial revenue and similar bonds) to finance capital expenditures;
provided, however, that such Indebtedness is incurred within 90 days after
the making of the capital expenditure so financed;
(g) in the case of the Borrower, Indebtedness issued as consideration
for the repurchase of stock or options, as permitted by Section 6.6(a)(ii),
not in excess of $5,000,000 aggregate principal amount outstanding at any
time;
(h) Indebtedness consisting of Guarantees of Indebtedness permitted
under clause (e) above; and
(i) other Indebtedness of the Borrower not in excess of $10,000,000
aggregate principal amount at any time outstanding, of which up to
$3,500,000 may be in the form of Capital Lease Obligations and the balance
shall be unsecured.
SECTION 6.2. Liens. Create, incur, assume or permit to exist any Lien on
any property or assets (including stock or other securities of any Person,
including any Subsidiary) now owned or hereafter acquired by it or on any income
or revenues or rights in respect of any thereof, except:
(a) any Lien on property or assets of the Borrower and the
Subsidiaries existing on the date of this Agreement and set forth in
Schedule 6.2; provided however, that such Lien shall secure only those
obligations that it secures on the date hereof;
(b) any Lien created under the Chase Credit Facility;
(c) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary; provided, however,
that (i) such Lien is not created in contemplation of or in connection with
such acquisition and (ii) such Lien does not apply to any other property or
assets of the Borrower or any Subsidiary;
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48
(d) any Lien for taxes, assessments or government charges not yet due
or that are being contested in compliance with Section 5.3;
(e) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business and securing
obligations that are not due and payable or that are being contested in
compliance with Section 5.3;
(f) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations;
(g) deposits to secure the performance of bids, trade contracts (other
than for Indebtedness), leases (other than Capital Lease Obligations),
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(h) zoning restrictions, easements, rights-of-way, restrictions on use
of real property and other similar encumbrances incurred in the ordinary
course of business that, in the aggregate, are not substantial in amount
and do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of the
Borrower or any Subsidiary;
(i) unpaid vendors' Liens, rights of reclamation or other like Liens
of sellers of inventory arising in the ordinary course of business and
securing obligations not past due;
(j) any purchase money security interest in fixed assets; provided,
however, that (i) such security interest only secures Indebtedness
permitted under Section 6.1(f), (ii) such security interest is created and
perfected substantially simultaneously with the incurrence of such
Indebtedness, (iii) such security interest applies only to fixed assets the
purchase of which is financed with such Indebtedness and (iv) the
Indebtedness secured thereby is not less than 75% nor more than 85% of the
fair market value of the fixed assets subject to such security interest
(measured at the date of incurrence of such security interest);
(k) any Lien represented by the interest of a lessor in property the
subject of a Capital Lease Obligation of the Borrower permitted by Section
6.1(i); and
(1) any Lien in favor of Bayer or any of its subsidiaries in respect
of securities of a Permitted Foreign Company (other than a Permitted
Foreign Company described in clause (c) of the definition thereof).
SECTION 6.3. Sale and Lease-Back Transactions. Enter into any Sale and
Lease-Back Transaction.
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49
SECTION 6.4. Investments Loans and Advances. Purchase, hold or acquire any
capital stock, evidences of indebtedness or other securities of, make or permit
to exist any loans or advances to, Guarantee any Indebtedness of, or make or
permit to exist any investment or any other interest in, any other Person,
except:
(a) investments by the Borrower existing on or subscribed to prior to
the date of this Agreement in the capital stock of the Subsidiaries;
(b) loans and advances to officers or employees of the Borrower or any
Subsidiary in the ordinary course of business not in excess of $1,500,000
in the aggregate at any time outstanding;
(c) investments in, or loans and advances to, wholly owned
Subsidiaries that are Guarantors or, in the case of an investment, that
shall become wholly owned Subsidiaries that are Guarantors following such
investment, and investments in, or loans and advances to, the Borrower
(provided that the Indebtedness of the Borrower created by such loans and
advances shall be subordinated in accordance with the requirements of
Section 6.1(c) hereof);
(d) Guarantees entered into in the ordinary course of business of
Indebtedness of wholly owned Subsidiaries that are Guarantors;
(e) Permitted Investments;
(f) investments existing on or subscribed to prior to the date of this
Agreement and set forth on Schedule 6.4;
(g) in the case of the Borrower and the Subsidiaries other than
Permitted Foreign Companies, investments in, and loans or advances to,
Permitted Foreign Companies in a net aggregate amount not to exceed
$10,000,000 in any fiscal year plus, commencing with fiscal year 1997, 50%
of the excess, if any, of (A) $10,000,000 over (B) the aggregate amount of
such investments, loans and advances made during the preceding fiscal year;
(h) in the case of the Borrower and the Subsidiaries other than
Permitted Foreign Companies, Guarantees of Indebtedness of Permitted
Foreign Companies; provided, however, that any payment on such a Guarantee
shall not be permitted under this clause (h) (but may be permitted under
clause (g) above or clause (j) below);
(i) in the case of Permitted Foreign Companies, any investment in, or
loan or advance to, or Guarantee of Indebtedness of, any Permitted Foreign
Company;
(j) other or additional investments, loans and advances in a net
aggregate amount not to exceed $10,000,000 at any time prior to the last
day of fiscal year 1997 and $15,000,000 thereafter; and
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50
(k) Guarantees under the Guarantee Agreement and the Guarantee
Agreement (as defined in the Chase Credit Agreement).
SECTION 6.5. Mergers, Consolidations and Sales of Assets. Merge into or
consolidate with any other Person, or permit any other Person to merge into or
consolidate with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or any substantial part of its
assets (whether now owned or hereafter acquired) or any capital stock of any
Subsidiary, except that (a) the Borrower and any Subsidiary may sell inventory
in the ordinary course of business, (b) if at the time thereof and immediately
after giving effect thereto no Event of Default or Default shall have occurred
and be continuing (i) any wholly owned Subsidiary may merge into the Borrower in
a transaction in which the Borrower is the surviving corporation and (ii) any
wholly owned Subsidiary may merge into or consolidate with any other Subsidiary
in a transaction in which the surviving entity is a wholly owned Subsidiary and
(c) if at the time thereof and immediately after giving effect thereto no Event
of Default or Default shall have occurred and be continuing, any Subsidiary may
dissolve or liquidate through a transfer of its assets to its shareholders.
SECTION 6.6. Dividends and Distributions; Restrictions on Ability of
Subsidiaries To Pay Dividends. (a) Declare or pay, directly or indirectly, any
dividend or make any other distribution (by reduction of capital or otherwise),
whether in cash, property, securities or a combination thereof, with respect to
any shares of its capital stock or directly or indirectly redeem, purchase,
retire or otherwise acquire for value (or permit any Subsidiary to purchase or
acquire) any shares of any class of its capital stock or set aside any amount
for any such purpose; provided, however, that (i) any Subsidiary may declare and
pay dividends or make other distributions to the Borrower or any wholly owned
Subsidiary that is a Guarantor, (ii) if at the time thereof and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing, the Borrower may repurchase stock or options from former directors,
former officers and former employees (or their legal representatives) in the
ordinary cause of business in accordance with any duly instituted stock option
plan and (iii) the Borrower may perform its obligations under the agreements
referred to in Section 6.7(d).
(b) Other than this Agreement and the Chase Credit Agreement, permit any
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
such Subsidiary to (i) pay any dividends or make any other distributions on its
capital stock or any other interest or (ii) make or repay any loans or advances
to the Borrower or the parent of such Subsidiary.
SECTION 6.7. Transactions with Affiliates. Sell or transfer any property or
assets to, or purchase or acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates, except that the
Borrower or any Subsidiary may engage in any of the foregoing transactions in
the ordinary course of business at prices and on teens and conditions not less
favorable to the Borrower or such Subsidiary than could be
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51
obtained on an arm's-length basis from unrelated third parties; provided,
however, that the foregoing shall not apply to:
(a) loans and advances permitted by Section 6.4(b);
(b) the formation of any Permitted Foreign Company;
(c) transactions between or among the Borrower and wholly owned
Subsidiaries that are Guarantors;
(d) transactions required by the General Shareholders Agreement dated
September 30, 1994, and the Continuing Shareholders Agreement dated
September 30, 1994, in each case as in effect on the date of this
Agreement; and
(e) the grant of stock options by the Borrower to its directors,
officers and employees in the ordinary course of business and the exercise
of such stock options.
SECTION 6.8. Business of Borrower and Subsidiaries. (a) Own, manage or
operate any business not principally engaged in a segment of the pharmaceutical
or healthcare industry or ancillary thereto.
(b) Make any change materially adverse to the Lenders in the nature of its
business as carried on at the date of this Agreement.
SECTION 6.9. Operating Leases. Permit the aggregate rental expense for the
Borrower and the Subsidiaries for any fiscal year, determined on a consolidated
basis in accordance with GAAP, to exceed $8,000,000.
SECTION 6.10. Amendments of Certain Agreements. Amend, waive, modify or
terminate any provisions of its constitutive documents or any agreement if the
effect of such amendment, waiver, modification or termination could reasonably
be expected to have a Material Adverse Effect.
SECTION 6.11. Fiscal Year. Change the end of its fiscal year; provided,
however, that approval from the Required Lenders for any such changes shall not
be unreasonably withheld.
SECTION 6.12. Payment on Other Indebtedness. Make any distribution, whether
in cash, property, securities or a combination thereof, other than scheduled
payments of principal and interest as and when due (to the extent not prohibited
by applicable subordination provisions), in respect of, or pay, or offer to
commit to pay, or directly or indirectly redeem, repurchase, retire or otherwise
acquire for consideration, or set apart any sum for the aforesaid purposes, any
Indebtedness (other than the Obligations and any Senior Indebtedness), except
for payments in the form of common stock of the Borrower.
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52
SECTION 6.13. Net Worth. Permit Net Worth at any time to be less than
$145,000,000.
ARTICLE VII
Events of Default
SECTION 7.1. Events of Default. In case of the happening of any of the
following events ("Events of Default"):
(a) any material representation or warranty made or deemed made
by the Borrower or any Subsidiary in any Loan Document or any
representation, warranty, statement or information contained in any
report, certificate, financial statement or other instrument authored
and furnished by the Borrower or any Subsidiary to the Administrative
Agent or any Lender in connection with or pursuant to any Loan
Document, shall prove to have been false or misleading in any material
respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any
Loan when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise;
(c) default shall be made in the payment of any Fee or any
interest on any Loan or any other amount (other than an amount
referred to in clause (b) above) due under any Loan Document, when and
as the same shall become due and payable, and such default shall
continue unremedied for a period of three Business Days;
(d) default shall be made in the due observance or performance by
the Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 5.1(a), 5.5 or 5.8 or in Article VI;
(e) default shall be made in the due observance or performance by
the Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in clause
(b), (c) or (d) above) and such default shall continue unremedied for
a period of 30 days after notice thereof from the Administrative Agent
or any Lender to the Borrower;
(f) the Borrower or any Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $5,000,000, when and
as the same shall become due and payable, or (ii) fail to observe or
perform any other term, covenant, condition or agreement contained in
any agreement or instrument evidencing or governing any such
Indebtedness if the effect of any failure referred to in this clause
(ii) is to cause such Indebtedness to become due prior to its stated
maturity;
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53
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Borrower or any
Subsidiary, or of a substantial part of the property or assets of the
Borrower or a Subsidiary, under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other Federal, state or
foreign bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Subsidiary or
for a substantial part of the property or assets of the Borrower or a
Subsidiary or (iii) the winding-up or liquidation of the Borrower or
any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering
any of the foregoing shall be entered;
(h) the Borrower or any Subsidiary shall (i) voluntarily commence
any proceeding or file any petition seeking relief under Title 11 of
the United States Code, as now constituted or hereafter amended, or
any other Federal, state or foreign bankruptcy, insolvency,
receivership or similar law, (ii) consent to the institution of, or
fail to contest in a timely and appropriate manner, any proceeding or
the filing of any petition described in clause (g) above, (iii) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Subsidiary or for a substantial part of the property or assets of the
Borrower or any Subsidiary, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors, (vi) become
unable, admit in writing its inability or fail generally to pay its
debts as they become due or (vii) take any action for the purpose of
effecting any of the foregoing;
(i) one or more judgments for the payment of money in an
aggregate amount in excess of $5,000,000 (net of amounts covered by
insurance) shall be rendered against the Borrower, any Subsidiary or
any combination thereof and the same shall remain undischarged for a
period of 30 consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment
creditor to levy upon assets or properties of the Borrower or any
Subsidiary to enforce any such judgment;
(j) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other such ERISA
Events that have occurred, could reasonably be expected to result in
liability of the Borrower and the ERISA Affiliates in an aggregate
amount exceeding $5,000,000;
(k) the Guarantee Agreement shall cease to be, or shall be
asserted by the Borrower or any Subsidiary not to be, a legal, valid
and binding obligation of (i) any Specified Guarantor or (ii) multiple
Guarantors that, taken together, would constitute a Specified
Guarantor;
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54
(l) there shall have occurred a Change in Control; or
(m) the conditions specified in Section 2.20 hereof to the
delivery and acceptance of the Conversion Notes on the Conversion Date
shall not be satisfied on the Conversion Date;
then, and in every such event (other than an event with respect to the Borrower
described in clause (g), (h) or (m) above), and at any time thereafter during
the continuance of such event, the Required Lenders may, by notice to the
Borrower, declare the unpaid principal amount of the Loans to be, and the same
shall forthwith become, due and payable, together with the interest accrued
thereon and all fees, costs, expenses, indemnities and other amounts payable
hereunder or under the other Loan Documents, (x) if none of the Senior
Indebtedness is outstanding, immediately, and (y) if any Senior Indebtedness is
outstanding under the Chase Credit Agreement, upon the first to occur of (I) the
acceleration of such Senior Indebtedness and (II) the fifth Business Day after
receipt by the Borrower and the administrative agent under the Chase Credit
Agreement of such written notice given hereunder, all without presentment,
demand, notice, protest or other requirements of any kind, all of which are
hereby expressly waived; and in any event with respect to the Borrower described
in paragraph (g), (h) or (m) above, the unpaid principal amount of the Loans
together with accrued interest thereon and all fees, costs, expenses,
indemnities and other amounts payable hereunder or under the Loan Documents,
shall automatically become due and payable, without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly waived by the
Borrower, anything contained herein or in any other Loan Document to the
contrary notwithstanding.
Notwithstanding the foregoing, in the event of a declaration of
acceleration in respect of the Loans because an Event of Default specified in
subsection (f)(ii) of this Section 7.1 shall have occurred and be continuing as
a result of an acceleration of other Indebtedness, such declaration of
acceleration of the Loans shall be automatically annulled if the holders of the
Indebtedness that is the subject of such acceleration have rescinded their
declaration of acceleration in respect of such Indebtedness, and written notice
of such rescission shall have been given to the Administrative Agent by the
Borrower and countersigned by the holders of the Indebtedness that is the
subject of such acceleration or a trustee, fiduciary or agent for such holders,
within 20 Business Days after such declaration of acceleration in respect of
such Indebtedness, and no other Event of Default has occurred during such 20
Business Day period which has not been cured or waived during such period.
ARTICLE VIII
Subordination
SECTION 8.1. Subordinated Indebtedness Subordinated to Senior Indebtedness.
Each of the Borrower and the Guarantors, for itself and its respective
successors and assigns, covenants and agrees, and each holder of any
Subordinated Indebtedness, by itS acceptance thereof, shall be deemed to have
agreed, that the payment of
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55
the Subordinated Indebtedness shall be subordinate and subject in right of
payment, to the extent and in the manner hereinafter set forth, to the prior
payment in full in cash of all Senior Indebtedness, and that each holder of
Senior Indebtedness whether now outstanding or hereafter created, incurred,
assumed or guaranteed shall be deemed to have acquired Senior Indebtedness in
reliance upon the provisions contained in this Article VIII.
SECTION 8.2. Subordinated Indebtedness Subordinated to Prior Pavment of All
Senior Indebtedness on Dissolution, Liquidation, Reorganization, Etc. Upon any
payment, distribution or other transfer of the assets of the Borrower or any
Guarantor (or any other payment, distribution or other transfer on behalf of the
Borrower or any Guarantor from any source) of any kind or character, whether
direct or indirect, by set-off or otherwise, and whether in cash, Property,
securities or otherwise, to creditors upon any dissolution, winding-up,
liquidation, reorganization, arrangement, composition, adjustment or
readjustment or similar proceeding of the Borrower or any Guarantor or their
respective securities or debt (whether voluntary or involuntary, or in
bankruptcy, insolvency, reorganization, liquidation or receivership proceedings,
or upon an assignment for the benefit of creditors, or any other marshalling of
the assets and liabilities of the Borrower or any Guarantor), then in such
event:
(a) the holders of Senior Indebtedness shall be entitled to
receive payment in full in cash of all Senior Indebtedness, before any
payment is made on account of or applied on the Subordinated
Indebtedness (other than payments of Reorganization Securities);
(b) any payment, distribution or other transfer of assets of the
Borrower or any Guarantor of any kind or character, whether direct or
indirect, by set-off or otherwise, and whether in cash, Property,
securities or otherwise (including, without limitation, Junior
Subordinated Payments, but excluding Reorganization Securities), to
which the holders of the Subordinated Indebtedness would be entitled
except for the provisions of this Article VIII, shall be paid or
delivered by any debtor, custodian, liquidating trustee, agent or
other Person making such payment or distribution, directly to the
holders of such Senior Indebtedness, or their representative or
representatives, ratably according to the aggregate amounts remaining
unpaid on account of such Senior Indebtedness held or represented by
each, for application to the payment of all such Senior Indebtedness
remaining unpaid, to the extent necessary to pay all such Senior
Indebtedness in full in cash after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness;
and
(c) in the event that, notwithstanding the foregoing provisions
of this Section 8.2, any payment, distribution or other transfer of
assets of the Borrower or such Guarantor (or any other payment,
distribution or transfer on behalf of the Borrower or such Guarantor
from any source) of any kind or character, whether direct or indirect,
by set-off or otherwise, and whether in cash, Property, securities or
otherwise (including, without limitation, Junior Subordinated
Payments, but excluding Reorganization Securities), shall be received
by any holder of Subordinated Indebtedness before all such Senior
Indebtedness is paid in full in cash, such payment or distribution
shall be held in trust for the benefit of, and shall immediately be
paid or delivered by such holder to, as the case may be, the holders
of such Senior Indebtedness remaining unpaid, or their representative
or representatives, for application to the payment of all such Senior
Indebtedness remaining unpaid, ratably
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56
according to the aggregate amounts remaining unpaid on account of such Senior
Indebtedness held or represented by each, to the extent necessary to pay all
such Senior Indebtedness in full after giving effect to any concurrent payment
or distribution to the holders of such Senior Indebtedness.
The Borrower shall give prompt notice to each holder of outstanding
Subordinated Indebtedness of any dissolution, winding-up, total or partial
liquidation, reorganization, composition, arrangement, adjustment or
readjustment of the Borrower or of any Guarantor or of their respective
securities.
Upon any distribution of assets of the Borrower or any Guarantor referred
to in this Article VIII, the holders of the Subordinated Indebtedness shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such bankruptcy, insolvency, reorganization, liquidation,
receivership or other proceeding is pending, or a certificate of the debtor,
custodian, liquidating trustee, agent or other Person making any distribution to
such holders, for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Indebtedness, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article VIII.
SECTION 8.3. No Payments With Respect to Subordinated Indebtedness in
Certain Circumstances.
(a) (i) No payment in respect of the Subordinated Indebtedness shall be
made by or on behalf of the Borrower or any Guarantor if, at the time of such
payment or immediately after giving effect thereto, each of the following three
conditions shall be satisfied:
(x) the Borrower and the Administrative Agent shall have received
written notice (each a "Payment Bar Notice") from any Person duly
acting as agent or representative of the holders of Senior
Indebtedness of the occurrence of an event of default pursuant to the
documents evidencing the Senior Indebtedness (a "Senior Event of
Default") (other than a default in the payment of any interest,
commitment fee or letter of credit fee on, or principal (including any
reimbursement obligation) of, any Senior Indebtedness after the
expiration of any applicable grace period (a "Payment Default")), and
(y) such Senior Event of Default shall not have been cured or
waived in accordance with the applicable provisions of the documents
evidencing the Senior Indebtedness, and
(z) not more than 180 days shall have elapsed after the date of
receipt by the Borrower of such Payment Bar Notice;
provided however, that not more than one Payment Bar Notice shall be given
during any period of 365 consecutive days; and provided, further, that no facts
or circumstances
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57
constituting a Senior Event of Default existing on the date any Payment Bar
Notice is given and as to which the administrative agent under the Chase Credit
Agreement has received notice may be used as a basis for any subsequent Payment
Bar Notice, unless such facts or circumstances have been cured or waived for a
period of not less than 90 consecutive days subsequent to the giving of the
initial Payment Bar Notice (it being acknowledged that any subsequent action or
breach that would give rise to a separate Senior Event of Default pursuant to
any provision under which a Senior Event of Default previously existed or was
continuing shall constitute a new Senior Event of Default for this purpose).
The Borrower and the Guarantors shall resume payments in respect of the
Subordinated Indebtedness prohibited under the foregoing provisions of this
Section 8.3(a)(i) (provided that such payments are not then prohibited under
another provision of this Agreement other than this Section 8.3(a)(i)), upon the
earlier to occur of (x) the cure or waiver of such Senior Event of Default in
accordance with the applicable provisions of the documents evidencing the Senior
Indebtedness or (y) the expiration of such period of 180 days.
(ii) No payment in respect of the Subordinated Indebtedness shall be
made by or on behalf of the Borrower or any Guarantor if, at the time of
such payment or immediately after giving effect thereto, each of the
following two conditions shall be satisfied:
(x) a Payment Default shall have occurred, and
(y) such Payment Default shall not have been cured or waived in
accordance with the applicable provisions of the documents evidencing the
Senior Indebtedness.
(b) Notwithstanding the above, following an acceleration of the maturity of
any Senior Indebtedness and as long as such acceleration shall continue
unrescinded and unannulled, such Senior Indebtedness shall first be paid in full
in cash, or provision for such payment shall be made in a manner satisfactory to
the holders of such Senior Indebtedness, before any payment is made on account
of or applied on the Subordinated Indebtedness.
(c) In the event that any payment of assets of the Borrower or any
Guarantor shall be received by any holder of Subordinated Indebtedness in
contravention of the foregoing provisions of this Section 8.3, such payment
shall be held in trust for the benefit of, and shall be immediately paid or
delivered by such holder to, as the case may be, the holders of such Senior
Indebtedness remaining unpaid, or their representative or representatives, for
application to the payment or prepayment of all such Senior Indebtedness
remaining unpaid, ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held or represented by each, to the extent
necessary to pay all such Senior Indebtedness in full in cash after giving
effect to any concurrent payment or provision therefor to the holders of such
Senior Indebtedness.
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(d) The Borrower shall give prompt written notice to each holder of
outstanding Subordinated Indebtedness of any Senior Event of Default in respect
of Senior Indebtedness referred to in subsection (a) of this Section 8.3 and of
any acceleration of the maturity of any Senior Indebtedness.
(e) The provisions of this Section 8.3 shall not be applicable in any case
in which the provisions of Section 8.2 are applicable.
SECTION 8.4. Holders of Subordinated Indebtedness to be Subrogated to
Rights of Holders of Senior Indebtedness. Subject to the payment in full in cash
of all Senior Indebtedness, the holders of Subordinated Indebtedness shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets of the Borrower or any Guarantor applicable
to the Senior Indebtedness until the Subordinated Indebtedness shall be paid in
full, and, for purposes of such subrogation, no payment or distribution to the
holders of the Senior Indebtedness of assets, whether in cash, Property or
securities, distributable to the holders of Senior Indebtedness under the
provisions hereof to which the holders of Subordinated Indebtedness would be
entitled except for the provisions of this Article VIII, and no payment pursuant
to the provisions of this Article VIII to the holders of Senior Indebtedness by
the holders of Subordinated Indebtedness shall, as between the Borrower and the
Guarantors, their creditors other than the holders of the Senior Indebtedness,
and the holders of the Subordinated Indebtedness, be deemed to be a payment by
the Borrower or any Guarantor to or on account of such Senior Indebtedness, it
being understood that the provisions of this Article VIII are, and are intended,
solely for the purpose of defining the relative rights of the holders of
Subordinated Indebtedness, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
SECTION 8.5. Obligations of the Borrower and the Guarantors Unconditional.
Nothing contained in this Article VIII or elsewhere in this Agreement is
intended to or shall impair, as between the Borrower and the Guarantors, and
their creditors other than the holders of Senior Indebtedness, the obligations
of the Borrower or any Guarantor to the holders of Subordinated Indebtedness to
pay any Subordinated Indebtedness as and when such Subordinated Indebtedness
shall become due and payable in accordance with its terms, or to affect the
relative rights of the holders of Subordinated Indebtedness and creditors of the
Borrower or any Guarantor other than the holders of Senior Indebtedness, nor
shall anything herein or therein prevent any holder of Subordinated Indebtedness
from exercising all remedies otherwise permitted by applicable law upon the
happening of an Event of Default under this Agreement subject to the rights, if
any, under this Article VIII of the holders of Senior Indebtedness in respect of
assets, whether in cash, Property or securities, paid or distributed by or on
behalf of the Borrower or any Guarantor and received upon the exercise of any
such remedy.
This Article VIII is intended to establish the relative rights of the
holders of the Subordinated Indebtedness, on the one hand, and the holders of
Senior Indebtedness, on the other hand, and shall not be deemed to affect the
obligations of the Borrower or the Guarantors to the holders of Subordinated
Indebtedness.
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SECTION 8.6. Holders of Subordinated Indebtedness Entitled to Assume
Payments Not Prohibited in Absence of Notice. No holder of Subordinated
Indebtedness shall at any time be charged with knowledge of the existence of any
facts which would prohibit the making of any payment to it, unless and until the
Administrative Agent, on behalf of such holder, shall have received written
notice thereof at its principal office from the Borrower or any holder of Senior
Indebtedness or from a duly authorized agent or representative of the holders of
Senior Indebtedness (who shall be the Administrative Agent under the Chase
Credit Agreement); and prior to the receipt of any such written notice by the
Administrative Agent, on behalf of the holder of the Subordinated Indebtedness,
each such holder of the Subordinated Indebtedness shall be entitled to assume
conclusively that no such facts exist.
Each holder of Subordinated Indebtedness shall be entitled to rely on the
delivery to it of a written notice by a Person representing himself to be a
holder of Senior Indebtedness or a duly authorized agent or representative of
the holders of Senior Indebtedness to establish that such notice has been given
by the holders of Senior Indebtedness or such duly authorized agent or
representative. In the event that such holder of Subordinated Indebtedness
determines in good faith that further evidence is required with respect to the
right of any holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article VIII, such holder of Subordinated
Indebtedness may request such Person to furnish evidence to the reasonable
satisfaction of such holder of Subordinated Indebtedness as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article VIII, and if such
evidence is not furnished such holder of Subordinated Indebtedness may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment; provided that, upon the written request of such
Person to such holder, such payment shall be made to the court having
jurisdiction over such judicial determination or to another Person mutually
satisfactory to such Person and such holder, as escrowee, to be held and
invested pending such judicial determination in accordance with such
instructions as shall be mutually satisfactory to such Person and such holder
and upon such judicial determination becoming final and nonappealable to be
distributed in accordance therewith to the Person entitled thereto.
SECTION 8.7. Effect of Failure to Pav Subordinated Indebtedness. The fact
that failure to make any payment on account of Subordinated Indebtedness is
prevented by reason of the operation of any provision of this Article VIII shall
not be construed as preventing the occurrence of an Event of Default under this
Agreement.
SECTION 8.8. Miscellaneous Subordination Provisions. (a) The subordination
provisions contained herein are solely for the benefit of the holders from time
to time of Senior Indebtedness and their representatives, assignees and
beneficiaries and may not be rescinded, cancelled, amended or modified in any
way. No holder of Subordinated Indebtedness shall subordinate any Subordinated
Indebtedness to any indebtedness or obligation of the Borrower or any Guarantor
other than Senior Indebtedness.
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(b) No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Borrower
or any Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any non-compliance by the Borrower or any Guarantor with the
terms, provisions and covenants of this Agreement, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.
(c) Without in any way limiting the generality of paragraph (b) of this
Section, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the holders of the Loans, without
incurring responsibility to the holders of the Loans and without impairing or
releasing the subordination provided in this Article VIII or the obligations
hereunder of the holders of the Loans to the holders of Senior Indebtedness, do
any one or more of the following: (1) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (3)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (4) exercise or refrain from exercising any rights against the
Borrower and any other Person.
(d) The holders of Senior Indebtedness (and/or their designated agents or
representatives) are authorized to demand specific performance of the
subordination provisions contained herein. Each holder of Subordinated
Indebtedness irrevocably waives any defense based on the adequacy of a remedy at
law which might be asserted as a bar to such remedy of specific performance and
any requirement for the securing or posting of any bond in connection with such
remedy.
(e) Each holder of Subordinated Indebtedness acknowledges and agrees that
the holders of Senior Indebtedness have relied upon and will continue to rely
upon the subordination provided for herein and hereby waives notice of or proof
of reliance hereon, demand for payment and notice of default.
(f) The subordination provisions of this Article VIII shall, to the fullest
extent permitted by law, continue to be effective or be reinstated, as the case
may be, if at any time payment and performance of the Senior Indebtedness is,
pursuant to applicable law, avoided, recovered, or rescinded or must otherwise
be restored or returned by any holder of Senior Indebtedness, whether as a
"voidable preference," "fraudulent conveyance," "fraudulent transfer," or
otherwise, all as though such payment or performance had not been made.
ARTICLE IX
The Administrative Agent
To expedite the transactions contemplated by this Agreement, SocGen is
hereby appointed to act as Administrative Agent on behalf of the Lenders. Each
of the Lenders and
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each assignee of any such Lender, hereby irrevocably authorizes the
Administrative Agent to take such actions on behalf of such Lender or assignee
and to exercise such powers as are specifically delegated to the Administrative
Agent by the terms and provisions hereof and of the other Loan Documents,
together with such actions and powers as are reasonably incidental thereto. The
Administrative Agent is hereby expressly authorized by the Lenders, without
hereby limiting any implied authority, (a) to receive on behalf of the Lenders
all payments of principal of and interest on the Loans and all other amounts due
to the Lenders hereunder, and promptly to distribute to each Lender its proper
share of each payment so received; (b) to give notice on behalf of each of the
Lenders to the Borrower of any Event of Default specified in this Agreement of
which the Administrative Agent has actual knowledge acquired in connection with
its agency hereunder; and (c) to distribute to each Lender copies of all
notices, financial statements and other materials delivered by the Borrower
pursuant to this Agreement as received by the Administrative Agent.
Neither the Administrative Agent nor any of its respective directors,
officers, employees or agents shall be liable as such for any action taken or
omitted by any of them except for its or his own gross negligence or wilful
misconduct, or be responsible for any statement, warranty or representation
herein or the contents of any document delivered in connection herewith, or be
required to ascertain or to make any inquiry concerning the performance or
observance by the Borrower or any other Loan Party of any of the terms,
conditions, covenants or agreements contained in any Loan Document. The
Administrative Agent shall not be responsible to the Lenders for the due
execution, genuineness, validity, enforceability or effectiveness of this
Agreement or any other Loan Documents, instruments or agreements. The
Administrative Agent shall in all cases be fully protected in acting, or
refraining from acting, in accordance with written instructions signed by the
Required Lenders and, except as otherwise specifically provided herein, such
instructions and any action or inaction pursuant thereto shall be binding on all
the Lenders. The Administrative Agent shall, in the absence of knowledge to the
contrary, be entitled to rely on any instrument or document believed by it in
good faith to be genuine and correct and to have been signed or sent by the
proper person or persons. Neither the Administrative Agent nor any of its
respective directors, officers, employees or agents shall have any
responsibility to the Borrower or any other Loan Party on account of the failure
of or delay in performance or breach by any Lender of any of its obligations
hereunder or to any Lender on account of the failure of or delay in performance
or breach by any other Lender or the Borrower or any other Loan Party of any of
their respective obligations hereunder or under any other Loan Document or in
connection herewith or therewith. The Administrative Agent may execute any and
all duties hereunder by or through agents or employees and shall be entitled to
rely upon the advice of legal counsel selected by it with respect to all matters
arising hereunder and shall not be liable for any action taken or suffered in
good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Administrative Agent shall not be
under any duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Required Lenders.
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Subject to the appointment and acceptance of a successor Administrative
Agent as provided below, the Administrative Agent may resign at any time by
notifying the Lenders and the Borrower. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor with the prior approval of
the Borrower (such approval not to be unreasonably withheld or delayed). If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative Agent
gives notice of its resignation, then the retiring Administrative Agent may, on
behalf of the Lenders, appoint a successor Administrative Agent which shall be a
bank with an office in New York, New York, having a combined capital and surplus
of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance
of any appointment as Administrative Agent hereunder by a successor bank, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 10.5 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Administrative Agent.
With respect to the Loans made by it hereunder, the Administrative Agent in
its individual capacity and not as Administrative Agent shall have the same
rights and powers as any other Lender and may exercise the same as though it
were not the Administrative Agent, and the Administrative Agent and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrower or any Subsidiary or other Affiliate thereof
as if it were not the Administrative Agent.
Each Lender agrees (a) to reimburse the Administrative Agent, on demand, in
the amount of its pro rata share (based on the principal amount of its Loan
outstanding on the date indemnification is sought) of any reasonable
out-of-pocket expenses incurred for the benefit of the Lenders by the
Administrative Agent, including counsel fees and compensation of agents and
employees paid for services rendered on behalf of the Lenders, that shall not
have been reimbursed by the Borrower and (b) to indemnify and hold harmless the
Administrative Agent and any of its directors, officers, employees or agents, on
demand, in the amount of such pro rata share, from and against any and all
liabilities, taxes, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever that
may be imposed on, incurred by or asserted against it in its capacity as
Administrative Agent or any of them in any way relating to or arising out of
this Agreement or any other Loan Document or any action taken or omitted by it
or any of them under this Agreement or any other Loan Document, to the extent
the same shall not have been reimbursed by the Borrower, provided, however, that
no Lender shall be liable to the Administrative Agent or any such other
indemnified person for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or wilful misconduct of the Administrative
Agent or any of its directors, officers, employees or agents. In the event the
Administrative Agent is subsequently reimbursed by any Loan Party for any such
expenses, liabilities, taxes, obligations, losses, damages, penalties,
judgments, costs or disbursements, the Administrative Agent shall reimburse each
Lender, pro rata, to the extent of any payment made by such Lender with respect
thereto under this paragraph.
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Each Lender acknowledges that it has, independently and without reliance
upon the Administrative Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it shall from time
to time deem appropriate, continue to make its own decisions in taking or not
taking action under or based upon this Agreement or any other Loan Document, any
related agreement or any document furnished hereunder or thereunder.
ARTICLE X
Miscellaneous
SECTION 10.1. Notices. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service,
mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 100 Campus Drive, Florham Park, NJ
07932, Attention of the Chief Financial Officer, Telecopy No. (201)
593-5580), with a copy to the General Counsel (Telecopy No. (201)
593-5820);
(b) if to the Administrative Agent, to Societe Generale, 1221 Avenue
of the Americas, New York, New York 10020, Attention of Maggie O'Donnell
(Telecopy No. (212) 278-7490), with a copy to Simpson Thacher & Bartlett,
at 425 Lexington Avenue, New York 10017, Attention of Gregory A. Weiss,
Esq. (Telecopy No. (212) 455-2502); and
(c) if to a Lender, to it at its address (or telecopy number) set
forth in Schedule 2.1 or in the Assignment and Acceptance pursuant to which
such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 10.1 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 10.1.
SECTION 10.2. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Loans, regardless of any investigation made by the Lenders or on their
behalf, and shall continue in full force and effect as long as the principal
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of or any accrued interest on any Loan or any Fee or any other amount payable
under this Agreement or any other Loan Document is outstanding and unpaid. The
provisions of Sections 2.14, 2.18 and 10.5 shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation made by or on behalf
of the Administrative Agent or any Lender.
SECTION 10.3. Binding Effect. This Agreement shall become effective when it
shall have been executed by the Borrower and the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective permitted successors and assigns.
SECTION 10.4. Successors and Assigns. (a) Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
permitted successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the Borrower, the Administrative Agent or the
Lenders that are contained in this Agreement shall bind and inure to the benefit
of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion of its
interests, rights and obligations under this Agreement (including all or a
portion of the Loans at the time owing to it); provided, however, that (i)
except in the case of an assignment to a Lender or an Affiliate of such Lender,
(x) the Borrower and the Administrative Agent must give their prior written
consent to such assignment (which consent shall not be unreasonably withheld),
(y) no assignment may be offered or made to any pharmaceutical company or to any
Affiliate of a pharmaceutical company and (z) the amount of the Loans of the
assigning Lender subject to each such assignment (determined as of the date the
Assignment and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000, (ii) the parties to
each such assignment shall execute and deliver to the Administrative Agent an
Assignment and Acceptance, with a copy thereof furnished to the Borrower,
together (except in the case of any assignment to an Affiliate of the assigning
Lender) with a processing and recordation fee of $3,500 and (iii) the assignee,
if it shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire. Upon acceptance and recording pursuant to
paragraph (e) below, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five Business
Days after the execution thereof, (A) the assignee thereunder shall be a party
hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Agreement and
(B) the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto but shall
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continue to be entitled to the benefits of Sections 2.14, 2.18 and 10.5, as well
as to any interest and Fees accrued for its account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the assignee thereunder shall be deemed to confirm to and
agree with each other and the other parties hereto as follows: (i) such
assigning Lender warrants that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim and that the
outstanding balances of its Loans, in each case without giving effect to
assignments thereof which have not become effective, are as set forth in such
Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any other
Loan Document or any other instrument or document furnished pursuant hereto, or
the financial condition of the Borrower or any Subsidiary or the performance or
observance by the Borrower or any Subsidiary of any of its obligations under
this Agreement, any other Loan Document or any other instrument or document
furnished pursuant hereto; (iii) such assignee represents and warrants that it
is legally authorized to enter into such Assignment and Acceptance and that
neither it nor any of its Affiliates is engaged in the pharmaceutical or
health-care industry; (iv) such assignee confirms that it has received a copy of
this Agreement, together with copies of the most recent financial statements
referred to in Section 3.5 or delivered pursuant to Section 5.4 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (v) such
assignee shall, independently and without reliance upon the Administrative
Agent, such assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (vi) such
assignee appoints and authorizes the Administrative Agent to take such action as
agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees that
it shall perform in accordance with their terms all the obligations which by the
terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices in The City of New York a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the principal amount
of the Loans owing to, each Lender pursuant to the terms hereof from time to
time (the "Register"). The entries in the Register shall be conclusive and the
Borrower, the Administrative Agent and the Lenders may treat each person whose
name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary.
(e) Upon its receipt of a duly completed Assignment and Acceptance executed
by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and
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recordation fee referred to in paragraph (b) above and, if required, the written
consent of the Borrower and the Administrative Agent to such assignment, the
Administrative Agent shall (i) accept such Assignment and Acceptance and (ii)
record the information contained therein in the Register. No assignment shall be
effective unless it has been recorded in the Register as provided in this
paragraph (e).
(f) Each Lender may without the consent of the Borrower or the
Administrative Agent sell participations to one or more banks or other entities
in all or a portion of its rights and obligations under this Agreement
(including all or a portion of the Loans owing to it); provided, however, that
(i) such Lender's obligations under this Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) each participating bank or other entity
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.14 and 2.18 to the same extent as if it were a Lender, but not in an
amount greater than that of the Lender from which it acquired its participation
(and any entitlement thereto of such participant shall reduce pro tanto the
right of such Lender to claim the benefit of such provisions), (iv) a
participation may not be offered or sold to any pharmaceutical company or to any
Affiliate of a pharmaceutical company and (v) the Borrower, the Administrative
Agent and the Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrower relating to the Loans and to approve any amendment,
modification or waiver of any provision of this Agreement (other than
amendments, modifications or waivers decreasing any fees payable hereunder or
the amount of principal of or the rate at which interest is payable on the Loans
or extending any scheduled principal payment date or date fixed for the payment
of interest on the Loans).
(g) Notwithstanding Section 10.16, any Lender or participant may, in
connection with any assignment or participation or proposed assignment or
participation pursuant to this Section 10.4, disclose to the assignee or
participant or proposed assignee or participant any information relating to the
Borrower furnished to such Lender by or on behalf of the Borrower; provided,
however, that, prior to any such disclosure of information designated by the
Borrower as confidential, each such assignee or participant or proposed assignee
or participant shall execute an agreement (a copy of which shall be given to the
Borrower) whereby such assignee or participant shall agree to preserve the
confidentiality of such confidential information on terms no less restrictive
than those applicable to the Lenders pursuant to Section 10.16.
(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement or any note issued in connection herewith to a Federal
Reserve Bank to secure extensions of credit by such Federal Reserve Bank to such
Lender; provided, however, that no such assignment shall release a Lender from
any of its obligations hereunder or substitute any such Bank for such Lender as
a party hereto. In order to facilitate such an assignment to a Federal Reserve
Bank, the Borrower shall, at the request of the assigning Lender, duly execute
and deliver to the assigning Lender a promissory note or notes evidencing the
Loans made to the Borrower by the assigning Lender hereunder (each of
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which promissory notes shall include a paragraph indicating that the obligations
evidenced thereby are subject to the provisions of Article VIII hereof).
(i) The Borrower shall not assign or delegate any of its rights or duties
hereunder without the prior wriden consent of the Administrative Agent and each
Lender, and any attempted assignment without such consent shall be null and
void.
SECTION 10.5. Expenses; Indemnity. (a) The Borrower shall pay all
reasonable out-of-pocket expenses reasonably incurred by the Administrative
Agent in connection with the syndication of the credit facilities provided for
herein and the preparation and administration of this Agreement and the other
Loan Documents or in connection with any amendments, modifications or waivers of
the provisions hereof or thereof (whether or not the transactions hereby or
thereby contemplated shall be consummated) or incurred during the continuance of
a Default by the Administrative Agent or any Lender in connection with the
enforcement or protection of its rights in connection with this Agreement and
the other Loan Documents or in connection with the Loans made hereunder,
including the reasonable fees, charges and disbursements of Simpson Thacher &
Bartlett, counsel for the Administrative Agent, and, in connection with any such
enforcement or protection, the reasonable fees, charges and disbursements of
such other special counsel for the Administrative Agent as the Administrative
Agent may deem necessary.
(b) The Borrower shall indemnify the Administrative Agent, each Lender,
each Affiliate of any of the foregoing persons and each of their respective
directors, officers, employees and agents (each such person being called an
"indemnitee") against, and hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including reasonable
counsel fees, charges and disbursements, incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as a result of (i) the
execution or delivery of this Agreement or any other Loan Document or any
agreement or instrument contemplated thereby, the performance by the parties
thereto of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby (excluding, in the
case of each Indemnitee other than SocGen and its Affiliates, legal expenses
incurred prior to the date of this Agreement), (ii) the use of the proceeds of
the Loans, (iii) any claim, litigation, investigation or proceeding relating to
any of the foregoing, whether or not any Indemnitee is a party thereto or (iv)
any actual or alleged presence or Release of Hazardous Materials on any property
owned or operated by the Borrower or any Subsidiary, or any Environmental Claim
related in any way to the Borrower or the Subsidiaries; provided, however, that
such indemnity shall not, as to any Indemnitee, be available to the extent that
such losses, claims, damages, liabilities or related expenses are determined by
a court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or wilful misconduct of such Indemnitee.
(c) The provisions of this Section 10.5 shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or
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any investigation made by or on behalf of the Administrative Agent or any
Lender. All amounts due under this Section 10.5 shall be payable on written
demand therefor.
SECTION 10.6. Rights of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any of and all the obligations of
the Borrower now or hereafter existing under this Agreement and other Loan
Documents held by such Lender, irrespective of whether or not such Lender shall
have made any demand under this Agreement or such other Loan Document and
although such obligations may be unmatured. The rights of each Lender under this
section are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have.
SECTION 10.7. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK.
SECTION 10.8. Waivers; Amendment. (a) No failure or delay of the
Administrative Agent or any Lender in exercising any power or right hereunder or
under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Administrative Agent and the Lenders hereunder and under the
other Loan Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of this
Agreement or any other Loan Document or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice or demand
on the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrower and the Required Lenders; provided, however, that no such
agreement shall (i) decrease the principal amount of, or extend the maturity of
or any scheduled principal payment date or date for the payment of any interest
on any Loan, or waive or excuse any such payment or any part thereof, or
decrease the rate of interest on any Loan, without the prior written consent of
each Lender directly affected thereby, (ii) amend or modify the provisions of
Section 2.14 or 10.4(i), the provisions of this Section 10.8 or the definition
of the term "Required Lenders" without the prior written consent of each Lender,
(iii) release any Specified Guarantor without the prior written consent of
Lenders having Loans at such time representing at least 80% of the sum of all
Loans outstanding at such time or (iv) amend, modify or otherwise affect the
rights or duties of the Administrative Agent hereunder or under any other Loan
Document without the prior written consent of the Administrative Agent.
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SECTION 10.9. Interest Rate Limitation. Notwithstanding anything herein to
the contrary, if at any time the interest rate applicable to any Loan, together
with all fees, charges and other amounts which are treated as interest on such
Loan under applicable law (collectively the "Charges"), shall exceed the maximum
lawful rate (the "Maximum Rate") which may be contracted for, charged, taken,
received or reserved by the Lender holding such Loan or participation in
accordance with applicable law, the rate of interest payable in respect of such
Loan, together with all Charges payable in respect thereof, shall be limited to
the Maximum Rate, and, to the extent lawful, the interest and Charges that would
have been payable in respect of such Loan but were not payable as a result of
the operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
SECTION 10.10. Entire Agreement. This Agreement, the Fee Letter and the
other Loan Documents constitute the entire contract between the parties relative
to the subject matter hereof. Any other previous agreement among the parties
with respect to the subject matter hereof is superseded by this Agreement and
the other Loan Documents. Nothing in this Agreement or in the other Loan
Documents, expressed or implied, is intended to confer upon any party other than
the parties hereto and thereto and holders of Senior Indebtedness with respect
to Article VIII any rights, remedies, obligations or liabilities under or by
reason of this Agreement or the other Loan Documents.
SECTION 10.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.11.
SECTION 10.12. Severability. In the event any one or more of the provisions
contained in this Agreement or in any other Loan Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
<PAGE>
70
SECTION 10.13. Counterparts. This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original but all of which when taken together shall constitute a
single contract, and shall become effective as provided in Section 10.3.
Delivery of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 10.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 10.15. Jurisdiction; Consent to Service of Process. (a) Each party
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each party hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each party hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement or the other Loan Documents against the
Borrower or its properties in the courts of any jurisdiction.
(b) Each party hereto hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party hereto irrevocably consents to service of process in the
manner provided for notices in Section 10.1. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 10.16. Confidentialiy. The Administrative Agent and each of the
Lenders agrees to keep confidential (and to use its best efforts to cause its
respective agents and representatives to keep confidential) the Information (as
defined below) and all copies thereof, extracts therefrom and analyses or other
materials based thereon, except that the Administrative Agent or any Lender
shall be permitted to disclose Information (a) to such of its respective
officers, directors, employees, agents, affiliates and representatives as need
to know such Information, (b) to the extent requested by any regulatory
authority, (c) to the extent otherwise required by applicable laws and
regulations or by any subpoena or similar
<PAGE>
71
legal process, upon prior notice thereof (unless prohibited by the terms of such
subpoena or process) to the Borrower in a manner reasonably calculated to afford
the Borrower an opportunity to seek a protective order or other injunctive
relief, (d) in connection with any suit, action or proceeding relating to the
enforcement or protection of its rights hereunder or under the other Loan
Documents or (e) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this Section 10.16 or (ii) becomes
available to the Administrative Agent or any Lender on a nonconfidential basis
from a source other than the Borrower. For the purposes of this Section 10.16,
"Information" shall mean all financial statements, certificates, reports,
agreements and information (including all analyses, compilations and studies
prepared by the Administrative Agent or any Lender based on any of the
foregoing) that are received from the Borrower and related to the Borrower, any
shareholder of the Borrower or any employee, customer or supplier of the
Borrower, other than any of the foregoing that were available to the
Administrative Agent or any Lender on a nonconfidential basis prior to its
disclosure thereto by the Borrower, and which are in the case of Information
provided after the date hereof, clearly identified at the time of delivery as
confidential. The provisions of this Section 10.16 shall remain operative and in
full force and effect regardless of the expiration and term of this Agreement.
<PAGE>
72
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SCHEIN PHARMACEUTICAL, INC.,
by /s/ Dariush Ashrafi
---------------------
Name:Dariush Ashrafi
Title:Executive Vice President &
Chief Financial Officer
SOCIETE GENERALE, NEW YORK
BRANCH, individually and as
Administrative Agent,
by /s/ Salvatore Galatioto
-----------------------
Name:Salvatore Galatioto
Title:First Vice President
<PAGE>
Schedule 1.1
CERTAIN PERMITTED HOLDERS
Pamela Joseph
Trusts established by Pamela Joseph (including trustee(s) thereunder)
Pamela Schein
Trusts established by Pamela Schein (including trustee(s) thereunder)
Trust established by the trustees under article fourth of the Will of Jacob M.
Schein for the benefit of Pamela Schein and her issue under trust agreement
dated September 29, 1994 (including trustee thereunder)
Marvin H. Schein
Trusts established by Marvin H. Schein (including trustee(s) thereunder)
Martin Sperber
Trusts established by Martin Sperber (including trustee(s) thereunder)
Stanley M. Bergman
Trusts established by Stanley M. Bergman (including trustee(s) thereunder)
Voting Trustee under Voting Trust Agreement dated September 30, 1994
<PAGE>
Schedule 2.1
COMMITMENTS
Name and Contact Person
Address of Lender and Teleconv Number Commitment
SOCIETE GENERALE Michelle Martin $100,000,000
1221 Avenue of the Americas (212) 278-7430
New York, NY 10020
<PAGE>
Schedule 3.8
Domestic Subsidiaries and percentage owned therein
<TABLE>
<CAPTION>
Name % of Ownership
---- --------------
<S> <C>
Schein Pharmaceutical International, Inc. 100.0%
Schein Pharmaceutical PA, Inc. 100.0%
Schein Pharmaceutical Service Company 100.0%
Steris Laboratories, Inc. 100.0%
Danbury Pharmacal, Inc. 100.0%
Danbury Pharmacal Puerto Rico, Inc.(1), 100.0%
Marsam Pharmaceuticals Inc. 100.0%
MIS,Inc.(2)
</TABLE>
(1) Shares held by Danbury Phammacal, Inc.
(2) Shares held by Marsam Pharmaceuticals, Inc.
<PAGE>
Schedule 3.18
INSURANCE
(ATTACHED)
<PAGE>
Morristown, NJ 07962-1966 SMarsh &
Telephone 201 285-4600 McLennan
SCHEIN PHARMACEUTICAL INC.
<TABLE>
<CAPTION>
Insurance Outline Schedule B As of Augugt 7, 1996
====================================================================================================================================
<S> <C> <C> <C> <C>
Coverage Company Policy Term Average
Number Annual
Cost
- ------------------------------------------------------------------------------------------------------------------------------------
EMPLOYERS' LIABILITY {WORKERS' COMPENSATION)
- --------------------------------------------
Limits:
$1,000,000 each accident
$1,000,000 policy limit
$1,000,000 each employee
Insurance Co. of the State of PA 1131802(AOS) 6/30/96-97
National Union Fire Ins. Co. 1131790 (OR, WI)
Insurance Co. of the State of PA 1131791 (CA)
GENERAL LIABILITY (EXCLUDING PRODUCTS)
- ---------------------------------------
Limits:
$ 1,000,000 BI/PD per occurrence
$ 1,000,000 per fire legal
$ 10,000 medical pay per person
$ 1,000,000 personal and advertising injury
$20, 000, 000 general aggregate limit (products/completed operations}
National Union Fire 1437699 (AOS) 6/30/96-97
Insurance Company
AUTOMOBILE LIABILITY
- -----------------------
Limits:
S1,000,000 combined single limit
S 10,000 medical pay per person
National Union Fire Ins. Co. 1438731 (AOS) 6/30/96-97
National Union Fire Ins. Co. 1438732 (TX)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
P.O. Box 1960
Morristown, NJ 07962-1966 Marsh &
telephone 201 285-4600 McLennan
SCHEIN PHARMACEUTICAL INC.
Insurance Outline Schedule B As of Augugt 7, 1996
====================================================================================================================================
Coverage Company Policy Term Average
Number Annual
. Cost
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRODUCTS LIABILITY
- ------------------
Limits:
$20,000,000 each occurrence and aggregate xs $500,000 SIR per occurrence $2,500,000 aggregate
Columbla Casualty Ins. Co. ADT000682 3/8/96-97
EXCESS LIABILITY (Products Only)
- -----------------
Limits:
$5,000,000 each lose and aggregate per form
Gerilng Konzern 509/DL064596 3/8/96-97
EXCESS LIABILITY (Excluding Products}
- -----------------
Limits:
$25,000,000 each occurrence and aggregate
National Union Fire BE9324061 6/30/96-98
Insurance Company
EXCESS LIABILITY (Including Products)
- -----------------
Limits:
$25,000,000 each occurrence and aggregate
excess of $25,000,000 (or Schedule B underlying limits lf greater}
X.L. Insurance Company XLUMB-01037 6/30/96-97
</TABLE>
<PAGE>
Marsh & McLennan, Incorporated Marsh &
44 Whippany Road McLennan
P.O. Box 1966
Morristown, NJ 07962-1966
Telephone 201 285-4600
<TABLE>
<CAPTION>
SCHEIN PHARMACEUTICAL INC. As of: November7,1996
Insurance Outline - Schedule of Property Lines of Coverage
====================================================================================================================================
Coverage Company Policy Number Term
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALL-RISK PROPERTY POLICY Industrial Risk Insurers #31-3-64722 6/30/96-97
- --------------------------
Insuring All Real & Personal
Property, includinq Boiler &
Machinery and Inland Transit
Territory: US & Canada
Blanket Policy Limit:
$1,097,580,000
ALL-RISK PROPERTY POLICY Puerto Rican-American #r4657073 6/30/96-97
- -------------------------- Insurance Company
Insuring All Real & Personal
Property, including Boiler &
Machinery and Inland Transit
Territory: Puerto Rico
Blanket Policy Limit:
$61,073,000
Subilmits Include:
- -------------------
$55,000,000 Annual Aggregate for Earthquake, except Zone 1
$35,000,000 Annual Aggregate for Earthquake in Puerto Rico
$ 1,OOO,OOO Annual Aggregate for Earthquake at Miscellaneous Unnamed Locations, outside of Zone 1
$ 6,000,000 Annual Aggregate for Earthquake at Santa Ana, CA location
$55,000, 000 Annual Aggregate for Flood, except Zone A
$35,000,000 Annual Aggregate for Flood in Puerto Rico
$20, 000,000 Annual Aggregate for Flood at Danbury, CT and at Miscellaneous Unnamed Locations, outside of Zone A
$1,000,000 Annual Aggregate for Flood at Newly Acquired Property in Zone A
</TABLE>
<PAGE>
Marsh & McLennan, Inocorporated Marsh &
44 Whippany Road McLennan
P.O. Box 1966
Morristown, NJ 07962-1966
Telephone 201 285-4600
<TABLE>
<CAPTION>
SCHEIN PHARMACEUTICAL INC. As of: November7,1996
Insurance Outline (Schedule B)
====================================================================================================================================
Coverage Company Policy Number Term
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Subilmits, cont'd:
- ------------------
$20,000,000 Contingent Business Interruption, except;
$50,000,000 Contingent Business Interruption for Abbott and Weat Co.
$13,000,000 Contingent Business Interruption for Foreign Suppliers
$10,000,000 Extra Expense at All Locations, except:
$ 5,000,000 at Florham Park, NJ & Cherry Hill locations
$ 500,000 at Miscellaneous Unnamed Locations
$10,000,000 Accounts Receivable
$l0,000,000 Off Premises Power
$ 5,000,000 Miscellaneous Unnamed Locations (unless otherwise stated)
$ 5,000,000 Fine Arts (Unscheduled)
$ 5,000,000 Transit
$ 5,000,000 EDP Media Regeneration
$ 5,000,000 Valuable Papers & Records
$ 5,000,000 Debris Removal (or 25% of Loss, whichever is Greater)
$ 5,000,000 Newly Acquired Property - HPR Locations
$ 2,500,000 Newly Acquired Property - Non HPR Locations
$ 1,000,000 Expediting Expense
$ 200,000 Exhibition, Exposition, Fair or Trade Shows
$ 250,000 Leasehold Interest
$ 25,000 Annual Aggregate for Pollution Clean-Up from Land or Water
365 Days Extended Period of Indemnity after Reconstruction
Deductibles:
- -----------
$ 25,000 Per Occurrence, except:
$ 25,000 For Transit
$ 10,000 For Boiler & Machinery Property Damage / 1 x ADV for Boiler & Machinery Time Element
</TABLE>
<PAGE>
Marsh & McLennan, Incorporated Marsh &
44 Whippany Road McLennan
P.O. Box 1966
Morristown, NJ 07962-1966
Telephone 201 285-4600
<TABLE>
<CAPTION>
SCHEIN PHARMACEUTICAL INC. As of: November7,1996
Insurance Outline (Schedule B)
====================================================================================================================================
Coverage Company Policy Number Term Premiums
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deductibles cont'ds
- -------------------
5% of 100% Property Damage Values, minimum of $125,000 for Earthquake within California, Nevada, Alaska and at
Miscellaneous Unnamed Locations
10 x Average Dally Value, minimum of $125,000 for Time Element caused by Quake in CA, NV, AK & Misc. Unnamed Locs.
2% of 100% Property Damage Values for Windstorm in Puerto Rico and at Miscellaneous Unnamed Locations
5 x Average Dally Value, maximum of $500,000 and minimum of $25,000 for Time Element caused by Windstorm
$ 250,000 For Earthquake In Puerto Rico (Combined PD & BI)
$ 250,000 For Flood In Zone A - Danbury, CT, Miscellaneous Unnamed/Newly Acquired Locations & CBI Locations
$ 100,000 For Flood in Zone B, a Miscellaneous Unnamed Locations & CBI Locations
24 Hour Waiting Period - Off Premises Power
ALL-RISK OCEAN CARGO POLICY Continental Insurance Co. #OC-242376 6/30/96 and
- ----------------------------
Insuring all waterborne cargo Continuous until Deposit
except that which lncepts as Cancelled (Adjusted
Inland Transit. upon Audit)
Territory: World-Wide
Policy Limits
$ 7,500,000 per steamer/veseel
$ 2,000,000 per aircraft
$ 1,0OO,OOO per any truck or trailer; domestic conveyance
$ 750,000 if stowed on deck
Deductible:
$ 1,500 per occurrence
CRF/Schein '96
</TABLE>
<PAGE>
Marsh & McLennan, Incorporated Marsh &
44 Whippany Road McLennan
P.O. Box 1966
Morristown, NJ 07962-1966
Telephone 201 285-4600
<TABLE>
<CAPTION>
SCHEIN PHARMACEUTICAL INC. As of November, 1996
Insurance Outline
====================================================================================================================================
Coverage Company Policy Term Average
Number Annual
Cost
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Crime Insurance [arrow]Federal Insurance Company 81338591-D CCG 6/30/96 - 6/30/99
Limit of Liability: $10,000,000
Deductible: $l00,000
Named Insured: Schein Pharmaceutical, Inc.and any subsidiary now
existing or hereafter created or sacquired
Insuring Agreements: Employee Dishonesty
Premises
Transit
Depositors Forgery
Computer Teft/Funds Transfer
Credit Card Forgery
Computer Theft of Merchandise Coverage
Money Orders & Counterfeit Currency
Directors & Officers
Liability - Run-off [arrow]National Union Fire Insurance
Company of Pittsburgh, Pa. (AIG) 443-74-19 9/30/94 - 9/30/2000
Limit of Liability: $10,000,000 (Extended Aggregate over the run-off period)
Retention: $5,000 each loss
$25,000 aggregate
$250,000 Corporate Reimbursement
Named Insured: Schein Pharmaceutical, Inc. (Schein Holdings, Inc.)
including Henry Schein, Inc.
</TABLE>
<PAGE>
Marsh & McLennan, Incorporated Marsh &
44 Whippany Road McLennan
P.O. Box 1966
Morristown, NJ 07962-1966
Telephone 201 285-4600
<TABLE>
<CAPTION>
SCHEIN PHARMACEUTICAL INC. As of November, 1996
Insurance Outline
====================================================================================================================================
Coverage Company Policy Term Average
Number Annual
Cost
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Excess Directors & Officers
Liability - Run-off [arrow]Federal Insurance Company 81274904-A 9/30/94 - 9/30/2OOO
Limit of Liability: $l0,000,000 (Extended Aggregate over the run-off period)
Retention: $10,005,000 each loss
$10,025,000 aggregate
$10,250,000 Corporate Reimbursement
Named Insured: Schein Pharmaceutical, Inc. (Schein Holdings, Inc.) .
including Henry Schein, Inc
Fiduciary Liability [arrow]Aetna Casualty & Surety Company 00l FF l01045482 BCM 6/30/96 - 6/30/93
Limit of Liability: $3,000,000 each loss
$3,000,000 aggregate each annual anniversary
Deductible: $O
Special Risk [arrow]Reliance Insurance Company NFK1394206 6/30/9S - 6/30/2000
This policy is of a confidential nature. If you should need details on this
policy, please contact James Meer, Vice President and Treasurer,
Schein Pharmaceutical, Inc. or Marsh & McLennan, Inc.
</TABLE>
<PAGE>
AON RISK SERVICES, INC. OF NEW YORK ~
PAGE 1 OF 1
<TABLE>
<CAPTION>
DATE: NOVEMBER 20, 1996
Schein Pharmaceutical, Inc.
100 Campus drive
SCHEDULE OF INSURANCE FOR: Florham Park. N1 07932
- ------------------------------------------------------------------------------------------------------------------------------------
COVERAGE AND LOCATION AMOUNT OR TERM COMPANY POLICY NUMBER COMMENTS
LIMIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Directors & Officers Liability and Company $10,000.000 9/30/96- National Union Fire 484 -03086 Primary Retention
Reimbursement, Employment Practices 9/30/97 Insurance Company (AIG) is $100,000
Insurance; Worldwide
Excess Directors & Officers Liability and $5,000,000 9/30/96- Continental Casualty (CNA) 132032273
Company Reimbursement, Employment Excess of 9/30/97
Practices Insurance; Worldwide $10,000,000
Excess Directors & Officers Liability and $5,000,000 9/30/97- Reliance Insurance Company
Company Reimbursement Employment Excess of 9/30/96 (Reliance National) NDA0132297-96
Practices Insurance; Worldwide $15,000,000
</TABLE>
<PAGE>
SCHDULE 6.2
EXISTING LIENS
SEE ATTACHED
<PAGE>
SCHEDULE 6.2
EXISTING LIENS
SCHEIN PHARMACEUTICAL, INC.
NEW JERSEY SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
04-19-94 SCHEIN PHARMACEUTICAL, NORTHERN TELECOM 1565399 EQUIPMENT
INC. FINANCE CORP.
- --------------------------------------------------------------------------------
05-12-94 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1570324 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-07-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1534353 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-07-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1534354 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-13-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1535000 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
01-14-94 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1550357 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-20-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1536204 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-20-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1536222 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
05-17-94 SCHEIN PHARMACEUTICAL, SHARP ELECTRONIC 1570900 EQUIPMENT
INC. CREDIT CO.
- --------------------------------------------------------------------------------
05-05-94 SCHEIN PHARMACEUTICAL, NEW YORK SYSTEMS 1569087 EQUIPMENT
INC. EXCHANGE
- --------------------------------------------------------------------------------
01-20-94 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1550717 EQUIPMENT
INC. FINANCE CORP.
- --------------------------------------------------------------------------------
06-05-95 SCHEIN BAYER NTFC CAPITAL 1637983 EQUIPMENT
PHARMACEUTICAL CORPORATION
SERVICES, INC.
- --------------------------------------------------------------------------------
05-30-95 SCHEIN PHARMACEUTICAL, PITNEY BOWES CREDIT 1637093 EQUIPMENT
INC. CORPORATION
- --------------------------------------------------------------------------------
06-14-93 SCHEIN PHARMACEUTICAL, NEW YORK SYSTEMS 1515052 EQUIPMENT
INC. EXCHANGE, INC.
- --------------------------------------------------------------------------------
01-20-94 SCHEIN PHARMACEUTICAL, NORTHERN TELECOM 1550718 EQUIPMENT
INC. FINANCE
CORPORATION
- --------------------------------------------------------------------------------
07-11-96 SCHEIN PHARMACEUTICAL, GE CAPITAL 1709018 EQUIPMENT
INC. COMPUTER LEASING
CORP.
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
2
SCHEDULE 6.2
EXISTIING LIENS
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
04-25-92 SCHEIN PHARMACEUTICAL, NEW YORK SYSTEMS 1694498 EQUIPMENT
INC. EXCHANGE, INC
- --------------------------------------------------------------------------------
09-11-96 SCHEIN PHARMACEUTICAL, BUSINESS CREDIT 1721039 EQUIPMENT
INC. LEASING
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 6.2
EXISTIING LIENS
SCHEIN PHARMACEUTICAL, INC
NEW YORK SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
01-10-94 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 005475 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
05-12-94 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 095810 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
01-07-93 SCHEIN PHARMACEUTICAL, SHARP FINANCIAL 003704 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
10-07-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 212040 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-15-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 217624 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-18-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 219058 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
01-13-93 SCHEIN PHARMACEUTICAL, IBM CREDIT 007755 EQUIPMENT
INC. CORPORATION
- --------------------------------------------------------------------------------
05-29-94 SCHEIN PHARMACEUTICAL, XEROX CORPORATION 104185 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
04-11-94 SCHEIN PHARMACEUTICAL, NORTHERN TELECOM 070276 EQUIPMENT
INC. FINANCE CORPORATION
- --------------------------------------------------------------------------------
05-23-94 SCHEIN PHARMACEUTICAL, XEROX CROP. 104185 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
11-27-95 SCHEIN PHARMACEUTICAL, IBM CREDIT CORP. 236269 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 6.2
EXISTIING LIENS
SCHEIN PHARMACEUTICAL, INC.
ARIZONA SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
02-25-91 SCHEIN PHARMACEUTICAL, VALLEY LEASING 654774 EQUIPMENT
INC. COMPANY
- --------------------------------------------------------------------------------
12-08-93 SCHEIN PHARMACEUTICAL, ZIONS CREDIT 654774 EQUIPMENT
INC. CORPORATION
- --------------------------------------------------------------------------------
10-12-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 761297 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
10-12-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 761562 EQUIPMENT
INC. FINANCING, INC.
- --------------------------------------------------------------------------------
04-11-94 SCHEIN PHARMACEUTICAL, NORTHERN TELECOM 782116 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
05-24-96 SCHEIN PHARMACEUTICAL, LINC QUANTUIM 899437 EQUIPMENT
INC. ANALYTICS, INC.
- --------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
SCHEDULE 6.2
EXISTIING LIENS
SCHEIN PHARMACEUTICAL, INC.
PUTNAM COUNTY, NEW YORK
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
10-12-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1993-850 EQUIPMENT
INC. FINANCING,INC.
- --------------------------------------------------------------------------------
04-13-94 SCHEIN PHARMACEUTICAL, NORTHERN TELECOM 1994-300 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
05-13-94 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1994-390 EQUIPMENT
INC. FINANCING, INC
- --------------------------------------------------------------------------------
10-93-93 SCHEIN PHARMACEUTICAL, CIT GROUP EQUIPMENT 1993-881 EQUIPMENT
INC. FINANCING, INC
- --------------------------------------------------------------------------------
08-11-94 SCHEIN PHARMACEUTICAL, XEROX CORP. 1994-679 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
12-06-95 SCHEIN PHARMACEUTICAL, IBM CREDIT CORP. 1995-1008 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
SCHEDULE 6.2
EXISTIING LIENS
SCHEIN PHARMACEUTICAL, INC.
MARICOPA COUNTY, ARIZONA
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
01-04-94 SCHEIN PHARMACEUTICAL, ZIONS CREDIT 94-0005530 EQUIPMENT
INC. CORPORATIOIN
- --------------------------------------------------------------------------------
</TABLE>
DANBURY PHARMACAL, INC
CONNECTICUT SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
01-22-86 DANBURY PHARMACAL, CITICORP INDUSTRIAL 631629 EQUIPMENT
INC. CREDIT
- --------------------------------------------------------------------------------
01-22-86 DANBURY PHARMACAL, CITICORP INDUSTRIAL 895542 EQUIPMENT
INC. CREDIT
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
SCHEDULE 6.2
EXISTING LIENS
DANBURY PHARMACAL, INC.
NEW YORK SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
09-25-90 DANBURY PHARMACAL, CITICORP INDUSTRIAL 206483 EQUIPMENT
INC. CREDIT
- --------------------------------------------------------------------------------
01-13-86 DANBURY PHARMACAL, CITICORP INDUSTRIAL 010995 EQUIPMENT
INC. CREDIT
- --------------------------------------------------------------------------------
04-12-93 DANBURY PHARMACAL, MINOLTA LEASING 078529 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
02-10-93 DANBURY PHARMACAL, CITICORP INDUSDTRIAL 031308 EQUIPMENT
INC. CREDIT
- --------------------------------------------------------------------------------
04-06-92 DANBURY PHARMACAL, NORTHERN TELECOM 069322 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
04-07-94 DANBURY PHARMACAL, MINOLTA LEASING 067628 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
03-01-94 DANBURY PHARMACAL, MINOLTA LEASING 039122 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
08-12-93 DANBURY PHARMACAL, TOKAI FINANCIAL 173461 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
SCHEDULE 6.2
EXISTING LIENS
DANBURY PHARMACAL, INC.
PUTNAM COUNTY
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
04-13-93 DANBURY PHARMACAL, MINOLTA LEASING 1993-268 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
02-18-92 DANBURY PHARMACAL, NORTHERN TELECOM 1992-133 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
05-03-94 DANBURY PHARMACAL, MINOLTA LEASING 1994-156 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
04-11-94 DANBURY PHARMACAL, MINOLTA LEASING 1994-286 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
08-13-93 DANBURY PHARMACAL, TOKAI FINANCIAL 1993-677 EQUIPMENT
INC. SERVICES
- --------------------------------------------------------------------------------
</TABLE>
STERIS LABORATORIES, INC.
ARIZONA SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
04-27-92 STERIS LABS, INC. EATON FINANCIAL CORP. 702835 EQUIPMENT
- --------------------------------------------------------------------------------
09-04-92 STERIS LABS, INC. EATON FINANCIAL CORP 717047 EQUIPMENT
- --------------------------------------------------------------------------------
05-11-94 STERIS LABS, INC. TOKAI FINANCIAL 785949 EQUIPMENT
SERVICES
- --------------------------------------------------------------------------------
10-05-94 STERIS LABS, INC. TOKAI FINANCIAL 804043 EQUIPMENT
SERVICES
- --------------------------------------------------------------------------------
01-06-95 STERIS LABS, INC. ADVANCED COPY 815161 EQUIPMENT
SYSTEMS, INC
- --------------------------------------------------------------------------------
03-29-95 STERIS LABS, INC. ADVANCED COPY 825394 EQUIPMENT
SYSTEMS, INC.
- --------------------------------------------------------------------------------
09-27-95 STERIS LABS, INC. ADVANCED COPY 848211 EQUIPMENT
SYSTEMS, INC.
================================================================================
</TABLE>
8
<PAGE>
SCHEDULE 6.2
EXISTING LIENS
MARSAM PHARMACEUTICALS, INC.
NEW JERSEY SECRETARY OF STATE
<TABLE>
<CAPTION>
DATE OF SECURED PARTY
FILING DEBTOR OR ASSIGNEE FILING# NATURE
================================================================================
<S> <C> <C> <C> <C>
03-01-95 MARSAM PHARMACEUTICALS, LIQUID CARBONIC CORP. 1621304 EQUIPMENT
INC.
- --------------------------------------------------------------------------------
09-29-95 MARSAM PHARMACEUTICALS, IBM CREDIT CORP. 1674940 EQUIPMENT
INC.
================================================================================
</TABLE>
9
<PAGE>
Schedule 6.4
EXISTING INVESTMENTS
<TABLE>
<CAPTION>
Nature of
Name Investment
---- ----------
<S> <C>
Bayfama de Columbia S.A.(2) Common Stock
Brovar S&P (Proprietary) Ltd., South Africa(1) Common Stock
Duramed Pharmaceuticals, Inc. Convertible Note
Elensys Care Services Inc. Conv. Pfd. Stk.
Ethical Generics Limited, UK(1) Common Stock
International Generics Co., Ltd. (Taiwan)(1) Common Stock
Ranbaxy Schein Pharma L.L.C.(1) L.L.C. Interest
Sabratek Corporation Common Stock & Warrants
Schein Bayer Pharmaceuticals Australia(2) Partnership
Schein Bayer Pharm. Svcs. Common Stock
Schein Pharmaceutical Canada, Inc.(1) Common Stock
Triomed (Proprietary) Limited, South Africa(1) Common Stock
Miscellaneous investments not exceeding $250,000 in aggregate.
</TABLE>
(1) Currently owned 50% by Schein Pharmaceutical, Inc. or one of its affiliates.
(2) Currently owned 30% by Schein Pharmaceutical, Inc. or one of its affiliates.
<PAGE>
(Letterhead of SocGen)
EXHIBIT A
to the Loan Agreement
SCHEIN PHARMACEUTICAL, INC.
ADMINISTRATIVE QUESTIONNAIRE
Please accurately complete the following information and return via FAX to the
attention of ____________________________ at SocGen as soon as possible.
FAX Number: 212-_____-_____
LEGAL NAME OF YOUR INSTITUTION TO APPEAR IN DOCUMENTATION:
________________________________________________________________________________
GENERAL INFORMATION - DOMESTIC LENDING OFFICE:
Institution Name:_______________________________________________________________
Street Address:_________________________________________________________________
City, State, Zip Code:__________________________________________________________
GENERAL INFORMATION - EURODOLLAR LENDING OFFICE:
Institution Name:_______________________________________________________________
Street Address:_________________________________________________________________
City, State, Zip Code:__________________________________________________________
CONTACTS/NOTIFICATION METHODS:
CREDIT CONTACTS:________________________________________________________________
Primary Contact:________________________________________________________________
Street Address:_________________________________________________________________
City, State, Zip Code:__________________________________________________________
Phone Number:___________________________________________________________________
FAX Number:_____________________________________________________________________
Backup Contact:_________________________________________________________________
Street Address:_________________________________________________________________
City, State, Zip Code:__________________________________________________________
Phone Number:___________________________________________________________________
FAX Number:_____________________________________________________________________
<PAGE>
TAX WITHHOLDING
__________________
Non Resident Alien ________________Y*____________________ N
* Form 4224 Enclosed
Tax ID Number__________________________________
CONTACTS/NOTIFICATION METHODS:
ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, INTEREST, FEES, ETC.
Contact:________________________________________________________________________
Street Address:_________________________________________________________________
City, State, Zip Code:__________________________________________________________
Phone Number:___________________________________________________________________
FAX Number:_____________________________________________________________________
PAYMENT INSTRUCTIONS:
Name of Bank where funds are to be transferred:
______________________________________________________________________
Routing Transit/ABA number of Bank where funds are to be transferred:
______________________________________________________________________
Name of Account, if applicable:
______________________________________________________________________
Account Number:_________________________________________________________________
Additional Information:_________________________________________________________
________________________________________________________________________________
It is very important that all of the above information is accurately filled in
and returned promptly. If there is someone other than yourself who should
receive this questionnaire, please notify me of their name and FAX number and we
will FAX them a copy of the questionnaire. If you have any questions, please
call me at 212-_____-_____.
<PAGE>
EXHIBIT B
to the Loan Agreement
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Senior Subordinated Loan Agreement dated as of
December 20, 1996 (as amended, restated, supplemented or otherwise modified from
time to time, the "Loan Agreement"), among Schein Pharmaceutical, Inc., the
Lenders listed from time to time party thereto (the "Lenders") and Societe
Generale, as Administrative Agent. Capitalized terms used herein but not defined
herein shall have the meanings assigned to such terms in the Loan Agreement.
1. The Assignor named below hereby sells and assigns, without recourse, to
the Assignee named below,(1) and the Assignee hereby purchases and assumes,
without recourse to the Assignor, from the Assignor, effective as of the
Effective Date set forth below (but not prior to registration of the information
contained herein in the Register pursuant to Section 10.4(d) of the Loan
Agreement), the interests set forth below (the "Assigned Interest") in the
Assignor's rights and obligations under the Loan Agreement and other Loan
Documents, including, without limitation, the amounts and percentages set forth
below of the Loans owing to the Assignor which are outstanding on the Effective
Date. Each of the Assignor and the Assignee hereby makes and agrees to be bound
by all the representations, warranties and agreements set forth in Section
10.4(c) of the Loan Agreement, a copy of which has been received by each such
party. From and after the Effective Date (x) the Assignee shall be a party to
and be bound by the provisions of the Loan Agreement and, to the extent of the
interests assigned by this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and under the Loan Documents and (y) the
Assignor shall, to the extent of the interests assigned by this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Loan Agreement.
2. This Assignment and Acceptance is being delivered to the Administrative
Agent together with (i) if the Assignee is organized under the laws of a
jurisdiction outside the United States, the forms specified in Section 2.18(g)
of the Loan Agreement, duly completed and executed by such Assignee, (ii) if the
Assignee is not already a Lender under the Loan Agreement, an Administrative
Questionnaire in the form of Exhibit A to the Loan Agreement and (iii) a
processing and recordation fee of [$3,500]. The Administrative Agent shall
record the information contained in this Assignment and Acceptance in the
Register pursuant to Section 10.4(d) of the Loan Agreement.
- ----------
(1)Assignee may not be a pharmaceutical company or any Affiliate of a
pharmaceutical company.
<PAGE>
2
3. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of
Assignment (may not be
fewer than 5 Business Days
after Date
of Assignment):
<PAGE>
3
<TABLE>
<CAPTION>
Percentage Assigned
of Loan (set forth
to at least 8
decimals), as a
Principal percentage of the
Amount Assigned 2/ Loans of all Lenders
------------------ --------------------
<S> <C>
$ %
</TABLE>
- ----------
2/ Not less than $5,000,000 or the entire remaining amount of such Loan.
<PAGE>
4
The terms set forth above are
hereby agreed to by:
__________________________,
as Assignor.
by
__________________________
Name:
Title:
__________________________,
as Assignee.
by
__________________________
Name:
Title:
Consented to by:
SOCIETE GENERALE, as
Administrative Agent
by
______________________________
Name:
Title:
SCHEIN PHARMACEUTICAL, INC.,
by
______________________________
Name:
Title:
<PAGE>
EXHIBIT C
to the Loan Agreement
================================================================================
SCHEIN PHARMACEUTICAL, INC.
THE GUARANTORS PARTY HERETO
AND
_______________________, Trustee
INDENTURE
Dated as of [January 31], 1998
----------
[$103,500,000]
SENIOR SUBORDINATED CONVERSION NOTES DUE 2003
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
ARTICLE I
<S> <C>
DEFINITIONS .............................. 1
SECTION 1.1 Certain Terms Defined ....................................... 1
ARTICLE II
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES ...................... 18
SECTION 2.1 Authentication and Delivery of Securities ................... 18
SECTION 2.2 Execution of Securities ..................................... 19
SECTION 2.3 Certificate of Authentication ............................... 19
SECTION 2.4 Form, Denomination and Date of Securities;
Payments of Interest ...................................... 19
SECTION 2.5 Registration, Transfer and Exchange ......................... 21
SECTION 2.6 Mutilated, Defaced, Destroyed, Lost and Stolen Securities ... 24
SECTION 2.7 Cancellation of Securities; Destruction Thereof ............. 25
SECTION 2.8 Temporary Securities; Global Securities ..................... 25
SECTION 2.9 Effective Registration ...................................... 27
ARTICLE III
COVENANTS OF THE COMPANY ....................... 27
SECTION 3.1 Payment of Principal and Interest ........................... 27
SECTION 3.2 Offices for Payments, etc ................................... 27
SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee .......... 27
SECTION 3.4 Paying Agents ............................................... 28
SECTION 3.5 Certificate to Trustee ...................................... 28
SECTION 3.6 Securityholders' Lists ...................................... 29
SECTION 3.7 Commission Reports .......................................... 29
SECTION 3.8 Limitation on Indebtedness .................................. 29
SECTION 3.9 Limitation on Restricted Payments ........................... 31
SECTION 3.10 Restrictions on Sales of Assets and Subsidiary Stock ........ 34
SECTION 3.11 Limitation on Restrictions on Distributions from
Restricted Subsidiaries ................................... 36
SECTION 3.12 Limitation on Sale of Capital Stock of
Restricted Subsidiaries ................................... 37
SECTION 3.13 Limitation on Liens ......................................... 37
SECTION 3.14 Limitations on Affiliate Transactions ....................... 39
SECTION 3.15 Change of Control ........................................... 39
SECTION 3.16 Limitation on Lines of Business ............................. 41
SECTION 3.17 Payments for Consent ........................................ 41
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 3.18 Waiver of Stay, Extension or Usury Laws ..................... 41
ARTICLE IV
DEFAULTS AND REMEDIES ........................ 41
SECTION 4.1 Event of Default Defined; Acceleration of Maturity .......... 41
SECTION 4.2 Acceleration ................................................ 44
SECTION 4.3 Other Remedies .............................................. 44
SECTION 4.4 Waiver of Past Defaults ..................................... 44
SECTION 4.5 Control by Majority ......................................... 45
SECTION 4.6 Limitation on Suits ......................................... 45
SECTION 4.7 Rights of Holders to Receive Payment ........................ 45
SECTION 4.8 Collection Suit by Trustee .................................. 45
SECTION 4.9 Trustee May File Proofs of Claim ............................ 46
SECTION 4.10 Priorities .................................................. 46
SECTION 4.11 Undertaking for Costs ....................................... 46
ARTICLE V
CONCERNING THE TRUSTEE ........................ 47
SECTION 5.1 Duties and Responsibilities of the Trustee; During Default;
Prior to Default ............................................ 47
SECTION 5.2 Certain Rights of the Trustee ............................... 48
SECTION 5.3 Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof ............... 49
SECTION 5.4 Trustee and Agents May Hold Securities; Collections, etc .... 49
SECTION 5.5 Moneys Held by Trustee ...................................... 49
SECTION 5.6 Compensation and Indemnification of Trustee and
Its Prior Claim ........................................... 49
SECTION 5.7 Right of Trustee to Rely on Officer's Certificate, Etc ...... 50
SECTION 5.8 Persons Eligible for Appointment as Trustee ................. 50
SECTION 5.9 Resignation and Removal; Appointment of Successor Trustee ... 50
SECTION 5.10 Acceptance of Appointment by Successor Trustee .............. 51
SECTION 5.11 Merger, Conversion, Consolidation or Succession to
Business of Trustee ....................................... 52
SECTION 5.12 Notice of Defaults .......................................... 52
SECTION 5.13 Reports by the Trustee ...................................... 53
ARTICLE VI
CONCERNING THE SECURITYHOLDERS .................... 53
SECTION 6.1 Evidence of Action Taken by Securityholders ................. 53
SECTION 6.2 Proof of Execution of Instruments and of Holding
of Securities; Record Date ................................ 53
SECTION 6.3 Holders to be Treated as Owners ............................. 53
SECTION 6.4 Securities Owned by Company Deemed Not Outstanding .......... 54
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.5 Right of Revocation of Action Taken ......................... 54
ARTICLE VII
AMENDMENTS .............................. 55
SECTION 7.1 Without Consent of Holders .................................. 55
SECTION 7.2 With Consent of Holders ..................................... 56
SECTION 7.3 Compliance with Trust Indenture Act ......................... 56
SECTION 7.4 Revocation and Effect of Consents and Waivers ............... 56
SECTION 7.5 Notation on or Exchange of Securities ....................... 57
SECTION 7.6 Trustee to Sign Amendments .................................. 57
ARTICLE VIII
MERGER AND CONSOLIDATION ....................... 57
SECTION 8.1 When Company May Merge, Etc.................................. 57
SECTION 8.2 Successor Corporation Substituted ........................... 58
ARTICLE IX
DISCHARGE OF INDENTURE; DEFEASANCE .................. 58
SECTION 9.1 Discharge of Liability on Securities: Defeasance ............ 58
SECTION 9.2 Conditions to Defeasance .................................... 59
SECTION 9.3 Application of Trust Money .................................. 61
SECTION 9.4 Repayment to Company ........................................ 61
SECTION 9.5 Indemnity for U.S. Government Obligations ................... 61
SECTION 9.6 Reinstatement ............................................... 61
ARTICLE X
SUBORDINATION ............................ 62
SECTION 10.1 Agreement to Subordinate .................................... 62
SECTION 10.2 Liquidation, Dissolution, Bankruptcy ........................ 62
SECTION 10.3 Default on Senior Indebtedness .............................. 62
SECTION 10.4 Acceleration of Payment of Securities ....................... 63
SECTION 10.5 When Distribution Must Be Paid Over ......................... 64
SECTION 10.6 Subrogation ................................................. 64
SECTION 10.7 Relative Rights ............................................. 64
SECTION 10.8 Subordination May Not Be Impaired by Company ................ 64
SECTION 10.9 Rights of Trustee and Paying Agent........................... 64
SECTION 10.10 Distribution or Notice to Representative .................... 65
SECTION 10.11 Article X Not To Prevent Events of Default or Limit
Right to Accelerate ....................................... 65
SECTION 10.12 Trust Moneys Not Subordinated ................................ 65
SECTION 10.13 Trustee Entitled to Rely ..................................... 65
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 10.14 Trustee to Effectuate Subordination ......................... 65
SECTION 10.15 Trustee Not Fiduciary for Holders of Senior Indebtedness .... 66
SECTION 10.16 Reliance by Holders of Senior Indebtedness on Subordination
Provisions ................................................ 66
SECTION 10.17 Miscellaneous Subordination Provisions ...................... 66
ARTICLE XI
SUBSIDIARY GUARANTEE ......................... 67
SECTION 11.1 Subsidiary Guarantee ........................................ 67
SECTION 11.2 Limitation on Liability ..................................... 69
SECTION 11.3 Successors and Assigns ...................................... 69
SECTION 11.4 No Waiver ................................................... 69
SECTION I 1.5 Modification ................................................ 69
SECTION 11.6 Release ..................................................... 69
ARTICLE XII
MISCELLANEOUS PROVISIONS ....................... 70
SECTION 12.1 Incorporators, Stockholders, Officers and Directors
of Company Exempt from Individual Liability ............... 70
SECTION 12.2 Provisions of Indenture for the Sole Benefit of
Parties and Securityholders ............................... 70
SECTION 12.3 Successors and Assigns of Company Bound by Indenture ........ 70
SECTION 12.4 Notices and Demands on Company, Trustee and Securityholders . 70
SECTION 12.5 Officers' Certificates and Opinions of Counsel;
Statements to Be Contained Therein ........................ 71
SECTION 12.6 Payments Due on Saturdays; Sundays and Holidays ............. 72
SECTION 12.7 Conflict of Any Provision of Indenture with Trust
Indenture Act ............................................. 72
SECTION 12.8 Counterparts ................................................ 72
SECTION 12.9 Effect of Headings .......................................... 72
ARTICLE XIII
REDEMPTION OF SECURITIES ....................... 72
SECTION 13.1 Right of Optional Redemption; Prices ........................ 72
SECTION 13.2 Applicability of Article .................................... 73
SECTION 13.3 Election to Redeem; Notice to Trustee ....................... 73
SECTION 13.4 Notice of Redemption; Partial Redemptions ................... 73
SECTION 13.5 Payment of Securities Called for Redemption ................. 74
SECTION 13.6 Exclusion of Certain Securities from Eligibility for
Selection for Redemption .................................. 75
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SCHEDULE 1.1 CERTAIN PERMITTED HOLDERS
SCHEDULE 1.2 CORPORATE TRUST OFFICE
SCHEDULE 1.3 DESIGNATED SUBSIDIARIES
EXHIBIT A - FORM OF INITIAL NOTE
EXHIBIT B - FORM OF CONVERSION NOTE
EXHIBIT C - FORM OF TRANSFEROR CERTIFICATE FOR TRANSFER FROM
RESTRICTED GLOBAL SECURITY OR RESTRICTED SECURITY
TO RESTRICTED SECURITY
EXHIBIT D - FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
EXHIBIT E - FORM OF LEGAL OPINION ON TRANSFER
EXHIBIT F - FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM
RESTRICTED SECURITY TO RESTRICTED GLOBAL SECURITY
EXHIBIT G - ASSIGNMENT FORM
</TABLE>
v
<PAGE>
THIS INDENTURE, dated as of _________, 199_ is entered into among Schein
Pharmaceutical, Inc., a Delaware corporation (the "Company"), the Guarantors
party hereto (the "Guarantors") and ____________________, a ___________
corporation (the "Trustee").(1)
WITNESSETH:
WHEREAS, the Company has duly authorized the issue of its Initial Senior
Subordinated Conversion Notes due 2003 (the "Initial Notes") and, when issued in
exchange for Initial Notes as provided in the Registration Rights Agreement (as
defined herein), the Company's Senior Subordinated Conversion Notes due 2003
(the "Conversion Notes" and together with the Initial Notes, the "Securities"),
and to provide, among other things, for the authentication, delivery and
administration thereof, the Company has duly authorized the execution and
delivery of this Indenture; and
WHEREAS, all things necessary to make the Securities, when executed by the
Company and authenticated and delivered by the Trustee as in this Indenture
provided, the valid, binding and legal obligations of the Company, and to
constitute these presents a valid indenture and agreement according to its
terms, have been done;
NOW, THEREFORE:
In consideration of the premises, the Company, the Guarantors and the
Trustee mutually covenant and agree for the equal and proportionate benefit of
the respective holders from time to time of the Securities as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Terms Defined. The following terms (except as otherwise
expressly provided or unless the context otherwise clearly requires) for all
purposes of this Indenture and of any indenture supplemental hereto shall have
the respective meanings specified in this Section. All other terms used in this
Indenture which are defined in the
- ----------
(1) This form of Indenture is drafted to accommodate the possibility that the
registration required pursuant to Section 5.11 of the Loan Agreement is not
completed by the Conversion Date, that the Conversion Notes (as defined in
the Loan Agreement) will be issued on the Conversion Date pursuant to a
Rule 144A private placement and that a registered exchange offer will be
completed as soon as practicable thereafter. If the registration required
pursuant to Section 5.11 of the Loan Agreement is completed by the
Conversion Date, the provisions in this Indenture relating to the "Initial
Notes", procedures required by Rule 144A and related provisions will be
deleted.
<PAGE>
2
Trust Indenture Act (as defined herein), or the definitions of which in the
Securities Act as (defined herein) are referred to in the Trust Indenture Act
(except as herein otherwise expressly provided or unless the context otherwise
clearly requires), shall have the meanings assigned to such terms in the Trust
Indenture Act and in the Securities Act as in force at the date of this
Indenture. All accounting terms used herein and not expressly defined shall have
the meanings given to them in accordance with GAAP (as defined herein). The
words "herein", "hereof" and "hereunder" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or other
subdivision. The terms defined in this Article include the plural as well as the
singular.
"Account" means any account (as that term is defined in Section 9-106 of
the Uniform Commercial Code as in effect from time to time in the State of New
York) of the Company or any of its Subsidiaries arising from the sale or lease
of goods or rendering of services.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Restricted Subsidiary or (ii) assumed by the Company
or a Restricted Subsidiary in connection with the acquisition of assets from
such Person. Acquired Indebtedness shall be deemed to be incurred on the date of
the related acquisition of assets from any Person or the date the acquired
Person becomes a Restricted Subsidiary.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business or (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; provided, however, that
in the case of clause (ii) such Person is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any Person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of Sections 3.9, 3.10 and 3.14, "Affiliate" shall also mean any
beneficial owner of (x) shares and (y) rights or warrants to purchase shares
(whether or not currently exercisable) representing in the aggregate 10% or more
of the total voting power (assuming the exercise of any such rights or warrants)
of the outstanding voting shares of Capital Stock of the Company on a fully
diluted basis and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Affiliate Transaction" has the meaning specified in Section 3.14(a).
"Agent Members" has the meaning specified in Section 2.4(c).
<PAGE>
3
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Restricted Subsidiary, (ii) a
disposition of inventory in the ordinary course of business, (iii) a disposition
of obsolete or worn out equipment or equipment that is no longer useful in the
conduct of the business of the Company and its Restricted Subsidiaries and that
is disposed of in each case in the ordinary course of business, (iv) a transfer
involving assets with a Fair Market Value not in excess of $5,000,000, (v) any
sale of equity interests in, or Indebtedness or other securities of, an
Unrestricted Subsidiary, (vi) a disposition of all or substantially all of the
assets of the Company in a manner permitted pursuant to Article VIII and (vii)
any exchange or assignment in the ordinary course of business with any Person
engaged in a Related Business of rights to manufacture and market drugs or other
pharmaceutical products.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to Preferred Stock multiplied by the
amount of such payment by (ii) the sum of all such payments.
"Bankruptcy Law" has the meaning specified in Section 4.1.
"Bayer" shall mean Bayer AG, a German corporation.
"Blockage Notice" has the meaning specified in Section 10.3.
"Board of Directors" means either the Board of Directors of the Company or
any committee of such Board of Directors duly authorized to act hereunder.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close.
"Capital Stock" means (i) any and all shares, interests, participations or
other equivalents of or interests in (however designated) corporate stock,
including, without limitation, shares of preferred or preference stock, (ii) all
partnership interests (whether general or limited) in any Person which is a
partnership, (iii) all membership interests or limited liability company
interests in any limited liability company, and (iv) all equity or ownership
interests in any Person of any other type.
"Capitalized Lease Obligations" means, without duplication, all monetary
obligations of the Company or any of its Restricted Subsidiaries under any
leasing or similar
<PAGE>
4
arrangement which, in accordance with GAAP, would be classified as capitalized
leases and, for purposes of this Indenture, the amount of such obligations shall
be the capitalized amount thereof, determined in accordance with GAAP, and the
stated maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Change of Control" means (i) any sale, lease or other transfer (other than
a bona fide pledge of assets to secure Indebtedness incurred in accordance with
the Indenture or under the Senior Credit Agreement) by the Company or any
Restricted Subsidiary of all or substantially all of the assets of the Company
to any Person as an entirety or substantially as an entirety in one transaction
or a series of related transactions; (ii) the Company consolidates or merges
with or into another Person pursuant to a transaction in which the outstanding
Voting Shares of the Company are changed into or exchanged for cash, securities
or other property, other than any such transaction where (a) the outstanding
Voting Shares of the Company are changed into or exchanged for Voting Shares
(other than Disqualified Stock) of the surviving corporation and (b) the holders
of the Voting Shares of the Company immediately prior to such transaction own,
directly or indirectly, not less than a majority of the Voting Shares of the
surviving corporation immediately after such transaction; (iii) a "person" or
"group" (within the meaning of Section 13(d) or 14(d)(2) of the Exchange Act),
other than a Permitted Holder or a group consisting solely of Permitted Holders,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act) of more than 35% of all Voting Shares of the Company then
outstanding; (iv) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or (v) the
shareholders of the Company shall approve any plan or proposal for the
liquidation or dissolution of the Company.
"Change of Control Offer" has the meaning set forth in Section 3.15.
"Change of Control Purchase Date" has the meaning specified in Section
3.15.
"Change of Control Purchase Price" has the meaning specified in Section
3.15.
"Code" means the Internal Revenue Code of 1986, as amended.
"covenant defeasance option" has the meaning specified in Section 9.1(b).
"Commission" means the Securities and Exchange Commission.
"Company" means Schein Pharmaceutical, Inc., a Delaware corporation, and,
subject to Article VIII, its successors and assigns.
<PAGE>
5
"Consolidated Cash Flow" for any period means the Consolidated Net Income
of the Company and its consolidated Restricted Subsidiaries for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense; plus (ii) Consolidated Interest Expense; plus
(iii) depreciation expense; plus (iv) amortization expense; plus (v) any other
non-cash expenses, in each case for such period.
"Consolidated Coverage Ratio," as of any date of determination, means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period
consisting of the most recent four consecutive fiscal quarters ending prior to
the date of such determination to (ii) Consolidated Interest Expense for such
period; provided, however, that (A) if the Company or any of its Restricted
Subsidiaries has incurred any Indebtedness since the beginning of such period
that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an incurrence of Indebtedness, or
both, Consolidated Cash Flow and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (B) if since the
beginning of such period the Company or any of its Restricted Subsidiaries shall
have made any Asset Disposition, Consolidated Cash Flow for such period shall be
reduced by an amount equal to the Consolidated Cash Flow (if positive)
attributable to the assets which are the subject of such Asset Disposition for
such period or increased by an amount equal to the Consolidated Cash Flow (if
negative) attributable thereto for such period, and Consolidated Interest
Expense for such period shall be reduced by an amount equal to the Consolidated
Interest Expense attributable to any Indebtedness of the Company or any of its
Restricted Subsidiaries repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Disposition for such period (or, if the Capital Stock
of any Restricted Subsidiary of the Company is sold, the Consolidated Interest
Expense for such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale), (C) if
since the beginning of such period the Company or any of its Restricted
Subsidiaries (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary of the Company (or any Person which becomes a Restricted
Subsidiary of the Company) or an acquisition of assets, including any Investment
in a Restricted Subsidiary of the Company or any acquisition of assets occurring
in connection with a transaction causing a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto (including the incurrence of
any Indebtedness) as if such investment or acquisition occurred on the first day
of such period, and (D) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary of the Company or was merged with or
into the Company or any Restricted Subsidiary of the Company since the beginning
of such period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to clause
(B) or (C) above if made by the Company or a Restricted Subsidiary of the
Company during such period, Consolidated Cash Flow and Consolidated Interest
Expense for such period shall be calculated after giving
<PAGE>
6
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness incurred in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries, plus, to the extent not
included in such interest expense and without duplication, (i) interest expense
attributable to Capitalized Lease Obligations, (ii) amortization of debt
discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and banker's acceptance financing, (vi)
interest actually paid by the Company or any such Restricted Subsidiary under
any Guarantee of Indebtedness or other obligation of any other Person, (vii) net
costs associated with Interest Rate Agreements (including amortization of fees),
and (viii) the product of (a) all Preferred Stock dividends in respect of all
Preferred Stock of Restricted Subsidiaries of the Company and Disqualified
Capital Stock of the Company held by Persons other than the Company or a
Restricted Subsidiary multiplied by (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of the Company, expressed as a decimal, in
each case, determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such Person is not a Restricted Subsidiary,
except that subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below); (ii) any net income (loss) of any
person acquired by the Company or a Restricted Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income (loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Restricted Subsidiary, directly
or indirectly, to the Company, except that subject to the limitations contained
in (iv) below, the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend
<PAGE>
7
(subject, in the case of a dividend that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause); (iv) any
gain or loss realized upon the sale or other disposition of any assets of the
Company or its consolidated Restricted Subsidiaries which are not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) any extraordinary gain or loss; (vi) the cumulative effect of a change in
accounting principles; and (vii) any loss resulting from a charge for acquired
in-process research and development expenses incurred in connection with the
acquisition of any other Person permitted hereunder.
"Conversion Notes" has the meaning specified in the Recitals.
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
administered, which office is, at the date as of which this Indenture is dated,
located at the address listed on Schedule 1.2.
"Credit Agent" means The Chase Manhattan Bank, in its capacity as
Administrative Agent for the lenders party to the Senior Credit Agreement, or
any successor or successors thereto.
"Custodian" has the meaning specified in Section 4.1.
"Default" means any event that is or, with the passage of time or the
giving of notice or both, would be an Event of Default.
"Depository" shall mean The Depository Trust Company, its nominees, and
their respective successors.
"Designated Indebtedness" means all obligations under or in respect of (i)
the Senior Credit Agreement and (ii) any other Senior Indebtedness which, at the
date of determination, has an aggregate principal amount outstanding of, or
under which, at the date of determination, the holders thereof are committed to
lend up to, at least $10,000,000 and is specifically designated by the Company
in the instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" for purposes of this Indenture.
"Designated Subsidiary" means, individually, any Subsidiary listed on
Schedule 1.3
"Disqualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person which by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable) or upon the happening
of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Capital Stock, or (iii) is redeemable at the option of the holder
thereof, in whole or in part, in each case on or prior to the first anniversary
of the final Stated Maturity of the Securities.
<PAGE>
8
"Effective Registration" means that the Company shall have (i) commenced a
Registered Exchange Offer for the Initial Notes pursuant to an effective
registration statement under the Securities Act or (ii) filed and caused to
become effective a Notes Shelf Registration under the Securities Act for the
sale of Securities by the Holders.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" means any event or condition specified as such in
Section 4.1 which shall have continued for the period of time, if any, therein
designated.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy as determined by the Board of Directors in good faith
and evidenced by a resolution of the Board of Directors.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in this Indenture shall be
computed in conformity with GAAP as in effect on the date of this Indenture.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of any other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obliges of such Indebtedness of the payment thereof or
to protect such obliges against loss in respect thereof (in whole or in part);
provided, however. that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor" means (i) each of the Company's Restricted Subsidiaries
existing on the date hereof and (ii) each other Person that executes a guarantee
of the obligations of the Company under the Securities and this Indenture from
time to time, and their respective successors and assigns; provided, however,
that "Guarantor" shall not include any Person that
<PAGE>
9
is released from its Guarantee of the obligations of the Company under the
Securities and this Indenture.
"Holder," "holder of Securities," "Securityholder" or other similar terms
means the registered holder of a Security.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of Indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (other than accounts payable to trade creditors arising in
the ordinary course of business), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services, (v) all Capitalized Lease
Obligations of such Person, (vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed by
such Person; provided, however, that the amount of Indebtedness of such Person
shall be the lesser of (A) the Fair Market Value of such asset at such date of
determination or (B) the amount of such Indebtedness of such other Persons,
(vii) all Indebtedness of other Persons to the extent Guaranteed by such Person,
(viii) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Capital Stock or,
with respect to any Restricted Subsidiary of the Company, any Preferred Stock
(but excluding, in each case, any accrued dividends), and (ix) to the extent not
otherwise included in this definition, obligations of such Person under Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and the liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Indenture" means this instrument as originally executed and delivered or,
if amended or supplemented as herein provided, as so amended or supplemented.
"Initial Notes" has the meaning specified in the Recitals.
"Institutional Accredited Investor" shall mean an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Differential" has the meaning specified in the definition of
"Reorganization Securities."
<PAGE>
10
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person.
"Issue Date" means the date on which the Securities are originally issued.
"legal defeasance option" has the meaning specified in Section 9.1(b).
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property, or any filing or recording of any
instrument or document in respect of the foregoing, to secure payment of a debt
or performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"Loan Agreement" means the Senior Subordinated Loan Agreement dated as of
December 20, 1996 among the Company, the financial institutions party thereto as
lenders and Societe Generale, as administrative agent.
"Loans" means the loans made to the Company pursuant to the Loan Agreement.
"Material Subsidiary" means (i) any Subsidiary of the Company which is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act (as such Regulation is in effect on the date
hereof) and (ii) any other Subsidiary of the Company which is material to the
business, earnings, prospects, assets or condition, financial or otherwise, of
the Company and its Subsidiaries taken as a whole.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred, and all federal, state, foreign and local taxes required to be paid or
accrued as a
<PAGE>
11
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
any Person owning a beneficial interest in assets subject to sale or minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition, and (iv) the deduction of appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary of the Company after such Asset
Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Non-Global Purchaser" has the meaning specified in Section 2.4(d).
"Note Obligations" has the meaning specified in Section 10.1.
"Notes Shelf Registration" shall have meaning given such term in the
Registration Rights Agreement.
"Offer" has the meaning specified in Section 3.10(a)(iii)(D).
"Offer Amount" has the meaning specified in Section 3.10(c)(ii).
"Offer Period" has the meaning specified in Section 3.10(c)(ii).
"Officer" means any senior executive officer, the chief financial officer,
the principal accounting officer, the Controller, the Treasurer, the Secretary
or the Assistant Secretary of the Company.
"Officer's Certificate" means a certificate signed by any senior executive
officer and by the chief financial officer, the principal accounting officer,
the Controller, the Treasurer or the Secretary or any Assistant Secretary of the
Company and delivered to the Trustee. Each such certificate shall comply with
Section 314 of the Trust Indenture Act and include the statements provided for
in Section 12.5.
"Opinion of Counsel" means an opinion in writing signed by legal counsel
who may be an employee of or counsel to the Company or who may be other counsel
satisfactory to the Trustee. Each such opinion shall comply with Section 314 of
the Trust Indenture Act and include the statements provided for in Section 12.5,
if and to the extent required hereby.
<PAGE>
12
"outstanding" when used with reference to Securities, shall, subject to the
provisions of Section 6.4, mean, as of any particular time, all Securities
authenticated and delivered by the Trustee under this Indenture, except:
(a) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or redemption of
which moneys in the necessary amount shall have been deposited in trust
with the Trustee or with any paying agent (other than the Company) or shall
have been set aside, segregated and held in trust by the Company (if the
Company shall act as its own paying agent), provided that if such
Securities are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been given as herein provided, or provision
satisfactory to the Trustee shall have been made for giving such notice;
and
(c) Securities in substitution for which other Securities shall have
been authenticated and delivered, or which shall have been paid, pursuant
to the terms of Section 2.6 (unless proof satisfactory to the Trustee is
presented that any of such Securities is held by a person in whose hands
such Security is a legal, valid and binding obligation of the Company).
"Payment Blockage Period" has the meaning specified in Section 10.3.
"Permitted Foreign Company" means (a) any corporation, business trust,
joint venture, association, company or partnership formed under the laws of a
country (or any political subdivision thereof) other than the United States,
engaged primarily in any segment of the pharmaceutical or health-care industry
or ancillary thereto and at least 50% of the equity interest of which is held,
directly or indirectly, by the Company and Bayer (Provided that, if applicable
local law would not permit 50% of the equity interest in such an entity to be
held by the Company and Bayer, such percentage may be as low as 49% if the
Company and Bayer otherwise Control the applicable entity), (b) any subsidiary
of a Permitted Foreign Company described in clause (a) above and (c) any wholly
owned foreign subsidiary the only material assets of which are securities of
Permitted Foreign Companies described in clause (a) above.
"Permitted Holders" means (a)(i) the Persons listed on Schedule l.l, (ii)
any individual forming part of the senior management of the Company on the date
of this Indenture, (iii) any trust for the benefit of any of the foregoing
and/or any member of their immediate families and (iv) the estate or personal
representative of any of the foregoing, (b) any employee benefit plan (or
related trust) for the benefit of the employees of the Company and its
Restricted Subsidiaries and (c) Bayer and any of its subsidiaries.
"Permitted Investment" means an Investment by the Company or any of its
Subsidiaries in (i) a Restricted Subsidiary of the Company or a Person which
will, upon making such Investment, become a Restricted Subsidiary; provided,
however. that the primary business of such Subsidiary is a Related Business;
(ii) another Person if as a result of such
<PAGE>
13
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the Company or a
Subsidiary of the Company; provided, however, that such Person's primary
business is a Related Business; (iii) Temporary Cash Investments; (iv)
receivables owing to the Company or any of its Subsidiaries, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; (v) payroll, travel and similar advances
to cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vi) loans or advances to employees (other than those
referred to in clause (xi) below) made in the ordinary course of business not in
excess of S2,500,000 outstanding at any time; (vii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any of its Subsidiaries or in satisfaction
of judgments or claims; (viii) Interest Rate Agreements which are entered into
by the Company for bona fide hedging purposes (as determined in good faith by
the Board of Directors or senior management of the Company) with respect to
Indebtedness of the Company incurred without violation of this Indenture or to
customary commercial transactions of the Company entered into in the ordinary
course of business; (ix) any Investment (other than a Temporary Cash Investment)
evidenced by securities or other assets received in connection with an Asset
Disposition pursuant to Section 3.10; (x) Investments, the payment for which
consists exclusively of Equity Interests (exclusive of Disqualified Capital
Stock) in the Company; or (xi) loans to employees made in connection with the
exercise by them of options to purchase shares of the common stock of the
Company, provided that the proceeds of such loans are used to purchase such
shares and that such loans are secured by a pledge of such shares so purchased.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security which is due or overdue or is to become
due at the relevant time.
"property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person under GAAP.
"Public Equity Offering" means an underwritten primary public offering for
the account of the Company of Capital Stock (or other voting shares or voting
interests) of the Company pursuant to an effective registration statement (other
than a registration statement on Form S-4, S-8 or any successor or similar
forms) under the Securities Act.
<PAGE>
14
"Purchase Date" has the meaning specified in Section 3.10(c).
"QIB" shall mean a "qualified institutional buyer" as defined in Rule 144A
under the Securities Act.
"record date" has the meaning specified in Section 2.4.
"Refinanced Indebtedness" has the meaning specified in Section 3.8(b)(xii).
"Refinancing Indebtedness" means Indebtedness issued in exchange for, or
the proceeds of which are used to extend, refinance, renew, replace or refund
any Indebtedness permitted to be incurred pursuant to Section 3.8.
"Registered Exchange Offer" shall have the meaning given such term in the
Registration Rights Agreement.
"Registration Rights Agreement" means the Conversion Notes Registration
Rights Agreement dated December 20, 1996, between the Company, the Guarantors
and Societe Generale with respect to the Securities.
"Related Business" means any segment of the pharmaceutical or health-care
industry or ancillary thereto.
"Reorganization Securities" means, with respect to any reorganization,
composition, arrangement, adjustment or readjustment of the Company or any
Guarantor or of their respective securities, securities of the Company or such
Guarantor as reorganized or readjusted that are subordinated, at least to the
same extent as the Securities, to the payment of all outstanding Senior
Indebtedness after giving effect to such plan of reorganization or readjustment;
provided, however, that (a) in the case of debt securities, (i) such securities
shall not provide for amortization (including sinking fund and mandatory
prepayment provisions) commencing prior to six months following the final
scheduled maturity of all Senior Indebtedness of the Company or such Guarantor
(as modified by such plan of reorganization or readjustment), as the case may
be, (ii) if the rate of interest on such securities is fixed, such rate of
interest shall not exceed the greater of (A) the rate of interest on the
Securities and (B) the sum of (x) the weighted average rate of interest on the
Indebtedness under the Senior Credit Agreement on the effective date of such
plan of reorganization or readjustment and (y) the difference (such difference,
the "Interest Differential") between the rate of interest on the Securities and
the weighted average rate of interest on Indebtedness under the Senior Credit
Agreement, in each case immediately prior to the commencement of such
reorganization, composition, arrangement, adjustment or readjustment, (iii) if
the rate of interest on such securities floats, such interest rate shall not
exceed at any time the sum of the weighted average interest rate on Indebtedness
under the Senior Credit Agreement at such time and the Interest Differential,
and (iv) such securities shall not have covenants or default provisions
materially more beneficial to the holders of the Securities or more restrictive
of the Borrower or the Guarantor than those in effect with respect to the
Securities on their issue date and (b) in the case of all securities (including
debt
<PAGE>
15
securities), the distribution of such securities was authorized by an order or
decree of a court of competent jurisdiction and such order gives effect to (and
states in such order or decree that effect has been given to) the subordination
of such securities to all Senior Indebtedness of the Company or such Guarantor
not paid in full in cash in connection with such reorganization; provided that
all such Senior Indebtedness is assumed by the reorganized corporation, and the
rights of the holders of any such Senior Indebtedness are not, without the
consent of such holders, altered by such reorganization, which consent shall be
deemed to have been given if the holders of such Senior Indebtedness,
individually or as a class, shall have approved such reorganization.
"Representative" for any issue of Indebtedness shall mean the Person acting
as agent, trustee or in a similar representative capacity for the holders of
such Indebtedness, provided that if, and for so long as, any issue of
Indebtedness lacks such a representative, then the Representative for such issue
of Indebtedness shall at all such times constitute the holders of a majority in
outstanding principal amount of the respective issue of Indebtedness.
"Restricted Global Security" has the meaning specified in Section 2.4(b).
"Restricted Payments" has the meaning specified in Section 3.9(a)(iv).
"Restricted Securities" has the meaning specified in Section 2.4(d).
"Restricted Securities Legend" has the meaning specified in Section 2.4.
"Restricted Subsidiary" shall mean any Subsidiary other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Security" or "Securities" means, the Conversion Notes.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Agreement" means, collectively, the Senior Credit Agreement,
dated as of September 5, 1995, by and among the Company, the lenders named
therein, and The Chase Manhattan Bank as Administrative Agent for the lenders,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, as such credit agreement and/or
related documents may be amended, restated, supplemented, renewed, replaced or
otherwise modified from time to time whether or not with the same agent or
lenders and irrespective of any changes in the terms and conditions thereof.
Without limiting the generality of the foregoing, the term "Senior Credit
Agreement" shall include any amendment, amendment and restatement, renewal,
extension, restructuring, supplement or modification to the Senior Credit
Agreement and all refundings, refinancing
<PAGE>
16
and replacements of any facility provided for therein, including any agreement
or agreements, (i) extending the maturity of any Indebtedness incurred
thereunder or contemplated thereby, (ii) adding or deleting borrowers or
guarantors thereunder, or (iii) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder to the extent permitted this
Indenture.
"Senior Indebtedness" means (a) the principal of, premium (if any) and
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company regardless of whether
an allowed claim in such proceeding) on, and fees and other amounts owing in
respect of, the Senior Credit Agreement and other Indebtedness of the Company or
a Guarantor which is permitted under this Indenture and whether outstanding on
the Issue Date or thereafter issued, unless, in the instrument creating or
evidencing the same or pursuant to which it is outstanding, it is provided that
the obligations of the Company or such Guarantor in respect of such Indebtedness
are not superior in right of payment to the Securities and (b) all obligations
of the Company and the Guarantors under Interest Rate Agreements payable to any
lender or agent party to the Senior Credit Agreement or any Affiliate of such
lender or agent (including, without limitation, all obligations of the
Guarantors incurred pursuant to guarantees of the indebtedness and other
obligations referred to in clauses (a) and (b) above now or hereafter executed);
provided, however, that Senior Indebtedness will not include (i) any obligation
of the Company or any Guarantor to any Subsidiary of the Company or the Company
or (ii) any Senior Subordinated Indebtedness or Subordinated Indebtedness.
"Senior Subordinated Indebtedness" means the Securities and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Securities in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company that is not Senior Indebtedness.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred) that is subordinate or
junior in right of payment to the Securities pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person, or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of the Company.
<PAGE>
17
"Subsidiary Guarantee" has the meaning specified in Section 11.1.
"Successor Company" has the meaning specified in Section 8.1(i).
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency or
instrumentality thereof or obligations Guaranteed by the United States of
America or any agency or instrumentality thereof, (ii) Investments in time
deposit accounts, certificates of deposit and money market deposits maturing
within 180 days of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States of America, any
state thereof or any foreign country recognized by the United States of America
having capital, surplus and undivided profits aggregating in excess of
$500,000,000 (or the foreign currency equivalent thereof) and whose long-term
debt, or whose parent holding company's long-term debt, is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act), (iii) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with a bank meeting the qualifications described in clause (ii) above, or (iv)
Investments in commercial paper, maturing not more than 180 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-l" (or higher) according
to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard
Poor's Ratings Group.
"Trust Indenture Act" means the Trust Indenture Act as in force at the date
as of which this Indenture was originally executed, except until qualification
of this Indenture under the Trust Indenture Act, then as of the date of such
qualification, and except to the extent that any subsequent amendment of the
Trust Indenture Act shall apply retroactively to this Indenture.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Trustee" means the entity identified as "Trustee" in the first paragraph
hereof and, subject to the provisions of Article V, shall also include any
successor trustee.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Unrestricted Subsidiary" means (i) the Designated Subsidiaries and (ii)
any Subsidiary (other than a Subsidiary which would constitute a Material
Subsidiary) that at the time of determination shall have been designated an
Unrestricted Subsidiary by the Board of
<PAGE>
18
Directors of the Company in the manner provided below and which remains so
designated at the time of determination. The Board of Directors of the Company
may, by a Board resolution delivered to the Trustee, designate any Restricted
Subsidiary of the Company (other than a Material Subsidiary) (including any
newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted
Subsidiary unless such Restricted Subsidiary owns any Capital Stock of, or holds
any Lien on any property of, the Company or any Restricted Subsidiary, and
provided no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation. The Board of Directors
of the Company may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company, provided that (i) no Default or Event of Default
shall have occurred and be continuing at the time of or after giving effect to
such designation and (ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such designation would, if incurred
at such time, have been permitted to be incurred for all purposes of this
Indenture. Any designation by the Board of Directors of the Company pursuant to
this Indenture shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board resolutions giving effect to such designation and an
Officer's Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Shares" of a Person means all classes of Capital Stock of such
Person then outstanding and normally entitled to vote in the election of
directors or managers.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Capital Stock, as the case may be, at any date, the number of
years obtained by dividing (a) the sum of the products obtained by multiplying
(x) the amount of each then remaining installment, sinking fund, serial maturity
or other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (b) the then outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness or Disqualified Capital Stock, as the case may
be.
ARTICLE II
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES.
SECTION 2.1 Authentication and Delivery of Securities Upon the execution
and delivery of this Indenture, or from time to time thereafter, Securities in
an aggregate principal amount not to exceed $103,500,000 (except as otherwise
provided in Section 2.6) may be executed by the Company and delivered to the
Trustee for authentication, and the Trustee shall thereupon authenticate and
deliver said Securities to or upon the written order of the Company, signed by
both (a) any senior executive officer of the Company and (b) by its chief
financial officer, principal accounting officer, Controller, Treasurer or any
Assistant Treasurer or its Secretary or any Assistant Secretary without any
further action by the Company.
<PAGE>
19
SECTION 2.2 Execution of Securities. The Securities shall be signed on
behalf of the Company by both (a) any senior executive officer of the Company
and (b)by its chief financial officer, principal accounting officer, Controller,
Treasurer or any Assistant Treasurer or its Secretary or any Assistant
Secretary, under its corporate seal. Such signatures may be the manual or
facsimile signatures of the present or any future such officers. The corporate
seal of the Company may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted or otherwise reproduced on the Securities and may,
but need not, be attested. Typographical and other minor errors or defects in
any such reproduction of the seal or any such signature shall not affect the
validity or enforceability of any Security which has been duly authenticated and
delivered by the Trustee.
In case any officer of the Company who shall have signed any of the
Securities shall cease to be such officer before the Security so signed shall be
authenticated and delivered by the Trustee or disposed of by the Company, such
Security nevertheless may be authenticated and delivered or disposed of as
though the person who signed such Security had not ceased to be such officer of
the Company; and any Security may be signed on behalf of the Company by such
persons as, at the actual date of the execution of such Security, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Indenture any such person was not such officer.
SECTION 2.3 Certificate of Authentication. Only such Securities as shall
bear thereon a certificate of authentication substantially in the form
hereinbefore recited, executed by the Trustee by manual signature of one of its
authorized officers, shall be entitled to the benefits of this Indenture or be
valid or obligatory for any purpose. Such certificate by the Trustee upon any
Security executed by the Company shall be conclusive evidence that the Security
so authenticated has been duly authenticated and delivered hereunder and that
the holder is entitled to the benefits of this Indenture.
SECTION 2.4 Form, Denomination and Date of Securities; Payments of
Interest. (a) The Initial Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto, and the Conversion Notes
and the Trustee's certificate of authentication shall be in substantially the
form of Exhibit B hereto, each of which is part of this Indenture. The
Securities shall be numbered, lettered, or otherwise distinguished in such
manner or in accordance with such plans as the officers of the Company executing
the same may determine with the approval of the Trustee. Any of the Securities
may be issued with appropriate insertions, omissions, substitutions and
variations, and may have imprinted or otherwise reproduced thereon such legend
or legends, not inconsistent with the provisions of this Indenture, as may be
required to comply with any law or with any rules or regulations pursuant
thereto, or with the rules of any securities market in which the Securities are
admitted to trading, or to conform to general usage. All Securities shall be
otherwise substantially identical expect as to denomination and as provided
herein.
Each Security shall be dated the date of its authentication, shall bear
interest from the applicable date, and shall be payable on the dates specified
on the face of the form of Security recited above.
<PAGE>
20
The Person in whose name any Security is registered at the close of
business on any record date with respect to any interest payment date shall be
entitled to receive the interest, if any, payable on such interest payment date
notwithstanding any transfer or exchange of such Security subsequent to the
record date and prior to such interest payment date, except if and to the extent
that the Company shall default in the payment of the interest due on such
interest payment date, in which case such defaulted interest shall be paid to
the Persons in whose names outstanding Securities are registered at the close of
business on a subsequent record date (which shall be not less than five business
days prior to the date of payment of such defaulted interest) established by
notice given by mail by or on behalf of the Company to the holders of Securities
not less than 15 days preceding such subsequent record date. The term "record
date" as used with respect to any interest payment date (except a date for
payment of defaulted interest) shall mean if such interest payment date is the
first day of a calendar month, the fifteenth day of the next preceding calendar
month and shall mean, if such interest payment date is the fifteenth day of a
calendar month, the first day of such calendar month, whether or not such record
date is a business day.
(b)The Initial Notes are being offered and sold by the Company pursuant to
the Loan Agreement. The Initial Notes offered and sold to QIBs in reliance on
Rule 144A, except as provided in Section 2.4(d) hereof, shall be issued
initially in the form of one or more permanent global Securities in definitive,
fully registered form without interest coupons with the Global Securities Legend
and Restricted Securities Legend set forth in the form of Initial Notes (the
"Restricted Global Security") deposited with the Trustee, at the Corporate Trust
Office, as custodian for and registered in the name of the Depository or a
nominee of the Depository, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount of the
Restricted Global Security may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depository or its nominee
as hereinafter provided.
(c) This Section 2.4(c) shall apply only to the Restricted Global Security
deposited with or on behalf of the Depository.
Members of, or participants in, the Depository (the "Agent Members") shall
have no rights under this Indenture with respect to any Restricted Global
Security held on their behalf by the Depository or under the Restricted Global
Security, and the Depository may be treated by the Company, the Trustee, and any
agent of the Company or the Trustee as the absolute owner of the Restricted
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee, or any agent of the
Company or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Security.
(d) Except as provided in this Section 2.4(d) and Section 2.8, owners of
beneficial interests in the Restricted Global Security will not be entitled to
receive physical delivery of certificated Initial Notes. Purchasers of Initial
Notes who are not QIBs or QIBs who elect to receive certificated Initial Notes
instead of holding their interest through the
<PAGE>
21
Restricted Global Security (collectively, the "Non-Global Purchasers") will
receive certificated Initial Notes bearing the Restricted Securities Legend (the
"Restricted Securities"); provided, however, that upon transfer to a QIB of any
such certificated Initial Notes initially issued to a Non-Global Purchaser, such
certificated Initial Notes will, unless the transferee requests otherwise or the
Restricted Global Security has previously been exchanged in whole for Restricted
Securities, be exchanged for an interest in the Restricted Global Security
pursuant to the provisions of Section 2.5. Restricted Securities will bear the
Restricted Securities Legend unless removed in accordance with Section 2.5.
Upon the occurrence of an Effective Registration involving a Notes Shelf
Registration, all requirements with respect to the Restricted Global Security
and legends on Initial Notes will cease to apply, and certificated Initial Notes
without the Restricted Securities Legend will be available to the Holders. Upon
the occurrence of an Effective Registration involving the Registered Exchange
Offer, all requirements with respect to the Restricted Global Security will
cease to apply and certificated Initial Notes with the "Restricted Securities
Legend" will be available to Holders that do not exchange their Initial Notes
for Conversion Notes, and certificated Conversion Notes without any legends will
be available to Holders that exchange their Initial Notes for Conversion Notes.
All certificated Securities shall be issuable in denominations of $1,000
principal amount and any integral multiple thereof.
SECTION 2.5 Registration, Transfer and Exchange. (a) The Company will keep
at each office or agency to be maintained for the purpose as provided in Section
3.2 a register or registers in which, subject to such reasonable regulations as
it may prescribe, it will register, and will register the transfer of,
Securities as in this Article provided. Such register shall be in written form
in the English language or in any other form capable of being converted into
such form within a reasonable time. At all reasonable times such register or
registers shall be open for inspection by the Trustee.
Upon due presentation for registration of transfer of any Security at each
such office or agency, the Company shall execute and the Trustee shall
authenticate and deliver in the name of the transferee or transferees a new
Security or Securities in authorized denominations for a like aggregate
principal amount.
Any Security or Securities may be exchanged for a Security or Securities in
other authorized denominations, in an equal aggregate principal amount.
Securities to be exchanged shall be surrendered at each office or agency to be
maintained by the Company for the purpose as provided in Section 3.2. and the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor the Security or Securities which the Securityholder making the exchange
shall be entitled to receive, bearing numbers not contemporaneously outstanding.
All Securities presented for registration of transfer, exchange, redemption
or payment shall (if so required by the Company or the Trustee) be duly endorsed
by, or be accompanied by a written instrument or instruments of transfer in form
satisfactory to the
<PAGE>
22
Company and the Trustee duly executed by, the holder or his attorney duly
authorized in writing.
The Company may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any exchange or
registration of transfer of Securities. No service charge shall be made for any
such transaction.
The Trustee shall not be required to exchange or register a transfer of (a)
any Securities for a period of 15 days next preceding the first mailing of
notice of redemption of Securities to be redeemed or (b) any Securities
selected, called or being called for redemption except, in the case of any
Security where public notice has been given that such Security is to be redeemed
in part, the portion thereof not so to be redeemed.
All Securities issued upon any transfer or exchange of Securities shall be
valid obligations of the Company, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
(b) Notwithstanding any provision to the contrary herein, so long as the
Restricted Global Security remains outstanding and is held by or on behalf of
the Depository, transfers of the Restricted Global Security, in whole or in
part, shall only be made in accordance with Section 2.4(d) and this Section 2.5
as set forth below.
(i) Subject to clauses (ii) through (iv) below, transfers of the
Restricted Global Security shall be limited to transfers of the Restricted
Global Security in whole, but not in part, to nominees of the Depository or
to a successor of the Depository or such successor's nominee.
(ii) Restricted Global Security to Restricted Security. If a holder of
a beneficial interest in the Restricted Global Security deposited with the
Depository wishes at any time to transfer its interest therein to a Person
who wishes to take delivery thereof in the form of a Restricted Security,
such holder may, subject to the rules and procedures of the Depository,
cause the exchange of such interest for one or more Restricted Securities
of any authorized denomination or denominations and of the same aggregate
principal amount. Upon receipt by the Trustee at its Corporate Trust Office
of (l) instructions from the Depository directing the Trustee to
authenticate and deliver one or more Restricted Securities of the same
aggregate principal amount as the beneficial interest in the Restricted
Global Security to be exchanged, such instructions to contain the name or
names of the designated transferee or transferees, the authorized
denomination or denominations of the Restricted Securities to be so issued
and appropriate delivery instructions, (2) a certificate in the form of
Exhibit C attached hereto given by the holder of such beneficial interest
and stating that the Person transferring such interest in the Restricted
Global Security reasonably believes that the Person acquiring the
Restricted Securities for which such interest is being exchanged is an
Institutional Accredited Investor and is acquiring such Restricted
Securities for its own account or for one or more accounts as to which
<PAGE>
23
the transferee exercises sole investment discretion, (3) a certificate in
the form of Exhibit D attached hereto given by the Person acquiring the
Restricted Securities for which such interest is being exchanged, to the
effect set forth therein, and (4) an opinion of counsel to the holder of
such beneficial interest in the form of Exhibit E attached hereto, to the
effect set forth therein, then the Trustee will instruct the Depository to
reduce the Restricted Global Security by the aggregate principal amount of
the beneficial interest therein to be exchanged, and concurrently with such
reduction the Company shall execute, and the Trustee shall authenticate and
deliver, one or more Restricted Securities of the same aggregate principal
amount, in accordance with the instructions referred to above.
(iii) Restricted Securitv to Restricted Global Security. If a holder
of a Restricted Security wishes at any time to transfer such Restricted
Security to a Person who wishes to take delivery thereof in the form of an
interest in the Restricted Global Security, such holder may, subject to the
rules and procedures of the Depository, cause the exchange of such
Restricted Security for an equivalent beneficial interest in the Restricted
Global Security. Upon receipt by the Trustee at its Corporate Trust Office
of (1) such Restricted Security, duly endorsed as provided herein, (2)
instructions from such holder directing the Trustee to credit or cause to
be credited a beneficial interest in the Restricted Global Security equal
to the principal amount of the Restricted Security to be exchanged, such
instructions to contain information regarding the participant account with
the Depository to be credited with such interest, and (3) a certificate in
the form of Exhibit F attached hereto, then the Trustee shall cancel or
cause to be cancelled such Restricted Security and shall instruct the
Depository to credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Restricted
Global Security equal to the principal amount of the Restricted Security so
cancelled.
(iv) Restricted Securitv to Restricted Security. If a holder of a
Restricted Security wishes at any time to transfer such Restricted Security
to a Person who wishes to take delivery thereof in the form of a Restricted
Security, such holder may, subject to the restrictions on transfer set
forth herein and in such Restricted Security, cause the exchange of such
Restricted Securities for one or more Restricted Securities of any
authorized denomination or denominations and of the same aggregate
principal amount. Upon receipt by the Trustee at its Corporate Trust Office
of (1) such Restricted Security, duly endorsed as provided herein, (2)
instructions from such holder directing the Trustee to authenticate and
deliver one or more Restricted Securities of the same aggregate principal
amount as the Restricted Security to be exchanged, such instructions to
contain the name or names of the designated transferee or transferees, the
authorized denomination or denominations of the Restricted Securities to be
so issued and appropriate delivery instructions, (3) a certificate from the
holder of the Restricted Security to be exchanged in the form of Exhibit C
attached hereto (in the event that the transfer is being made to an
Institutional Accredited Investor otherwise than pursuant to Rule 144A),
(4) a certificate in the form of Exhibit D attached hereto (in the event
the transfer is being made to an Institutional Accredited Investor
otherwise than pursuant to Rule 144A) given by the
<PAGE>
24
Person acquiring the Restricted Securities for which such interest is being
exchanged, to the effect set forth therein, and (5) an opinion of counsel
to the transferor of such Restricted Security in the form of Exhibit E
hereto, to the effect set forth therein, then the Trustee shall cancel or
cause to be cancelled such Restricted Security and, concurrently therewith,
the Company shall execute, and the Trustee shall authenticate and deliver,
one or more Restricted Securities of the same aggregate principal amount,
in accordance with the instructions referred to above.
(v) Other Exchanges. In the event that the Restricted Global Security
is exchanged pursuant to Section 2.8 for Securities in definitive
registered form without interest coupons, prior to an Effective
Registration such Initial Notes may be exchanged for one another only in
accordance with those procedures that are substantially consistent with the
provisions of clauses (i) through (iv) above (including the certification
requirements thereof intended to insure that such transfers comply with the
Securities Act) and which may be from time to time adopted by the Company
and the Trustee.
If Initial Notes are issued upon the transfer, exchange or replacement of
Initial Notes bearing the Restricted Securities Legend, or if a request is made
to remove such Restricted Securities Legend on Initial Notes, the Initial Notes
so issued shall bear the Restricted Securities Legend, or the Restricted
Securities Legend shall not be removed, as the case may be, unless (i) there is
delivered to the Company such satisfactory evidence, which may include an
opinion of counsel licensed to practice law in the State of New York, as may be
reasonably required by the Company that neither the legend nor the restrictions
on transfer set forth therein are required to ensure that transfers thereof
comply with the provisions of the Securities Act or, with respect to Restricted
Securities, that such Initial Notes are not "restricted" within the meaning of
Rule 144 under the Securities Act or (ii) there is an Effective Registration
involving the Notes Shelf Registration with respect to the Initial Notes then in
effect or the Initial Note as to which the Restricted Securities Legend is
sought to be removed has been disposed of in accordance with the Notes Shelf
Registration. Upon (i) provision of such satisfactory evidence or (ii)
notification by the Company to the Trustee of an Effective Registration with
respect to the Initial Notes, the Trustee, at the direction of the Company,
shall authenticate and deliver Initial Notes that do not bear the Restricted
Securities Legend.
SECTION 2.6 Mutilated, Defaced, Destroyed, Lost and Stolen Securities. In
case any temporary or definitive Security shall become mutilated, defaced or be
apparently destroyed, lost or stolen, the Company in its discretion may execute,
and upon the written request of any officer of the Company, the Trustee shall
authenticate and deliver, a new Security, bearing a number not contemporaneously
outstanding, in exchange and substitution for the mutilated or defaced Security,
or in lieu of and substitution for the Security so apparently destroyed, lost or
stolen. In every case the applicant for a substitute Security shall furnish to
the Company and to the Trustee and any agent of the Company or the Trustee such
security or indemnity as may be required by them to indemnify and defend and to
save each of them harmless and, in every case of destruction, loss or theft
evidence to their satisfaction of the apparent destruction, loss or theft of
such Security and of the ownership thereof.
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25
Upon the issuance of any substitute Security, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Trustee) connected therewith. In case any Security which has
matured or is about to mature, or has been called for redemption in full, shall
become mutilated or defaced or be apparently destroyed, lost or stolen, the
Company may, instead of issuing a substitute Security, pay or authorize the
payment of the same (without surrender thereof except in the case of a mutilated
or defaced Security), if the applicant for such payment shall furnish to the
Company and to the Trustee and any agent of the Company or the Trustee such
security or indemnity as any of them may require to save each of them harmless
from all risks, however remote, and, in every case of apparent destruction, loss
or theft, the applicant shall also furnish to the Company and the Trustee and
any agent of the Company or the Trustee evidence to their satisfaction of the
apparent destruction, loss or theft of such Security and of the ownership
thereof.
Every substitute Security issued pursuant to the provisions of this Section
by virtue of the fact that any Security is apparently destroyed, lost or stolen
shall constitute an additional contractual obligation of the Company, whether or
not the apparently destroyed, lost or stolen Security shall be at any time
enforceable by anyone and shall be entitled to all the benefits of (but shall be
subject to all the limitations of rights set forth in) this Indenture equally
and proportionately with any and all other Securities duly authenticated and
delivered hereunder. All Securities shall be held and owned upon the express
condition that, to the extent permitted by law, the foregoing provisions are
exclusive with respect to the replacement or payment of mutilated, defaced, or
apparently destroyed, lost or stolen Securities and shall preclude any and all
other rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement or payment of
negotiable instruments or other securities without their surrender.
SECTION 2.7 Cancellation of Securities; Destruction Thereof. All Securities
surrendered for payment, redemption, registration of transfer or exchange, if
surrendered to the Company or any agent of the Company or the Trustee, shall be
delivered to the Trustee for cancellation or, if surrendered to the Trustee,
shall be cancelled by it; and no Securities shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Indenture. The
Trustee shall deliver cancelled Securities held by it to the Company. If the
Company shall acquire any of the Securities, such acquisition shall not operate
as a redemption or satisfaction of the indebtedness represented by such
Securities unless and until the same are delivered to the Trustee for
cancellation.
SECTION 2.8 Temporary Securities; Global Securities. Pending the
preparation of definitive Securities, the Company may execute and the Trustee
shall authenticate and deliver temporary Securities (printed, lithographed,
typewritten or otherwise reproduced, in each case in form satisfactory to the
Trustee). Temporary Securities shall be issuable as registered Securities
without coupons, of any authorized denomination, and substantially in the form
of the definitive Securities but with such omissions, insertions and variations
as may be appropriate for temporary Securities, all as may be determined by the
Company with the concurrence of the Trustee. Temporary Securities may contain
such
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26
reference to any provisions of this Indenture as may be appropriate. Every
temporary Security shall be executed by the Company and be authenticated by the
Trustee upon the same conditions and in substantially the same manner, and with
like effect, as the definitive Securities. Without unreasonable delay, the
Company shall execute and shall furnish definitive Securities and thereupon
temporary Securities may be surrendered in exchange therefor without charge at
each office or agency to be maintained by the Company for the purpose pursuant
to Section 3.2, and the Trustee shall authenticate and deliver in exchange for
such temporary Securities a like aggregate principal amount of definitive
Securities of authorized denominations. Until so exchanged the temporary
Securities shall be entitled to the same benefits under this Indenture as
definitive Securities.
The Restricted Global Security deposited with the Depository pursuant to
Section 2.4 shall be transferred to the beneficial owners thereof only if such
transfer complies with Section 2.5(b) of this Indenture and (i) the Depository
notifies the Company that it is unwilling or unable to continue as Depository
for the Restricted Global Security or if at any time such Depository ceases to
be a "clearing agency" registered under the Exchange Act and a successor
depositary is not appointed by the Company within 90 days of such notice, (ii)
the Company executes and delivers to the Trustee an Officer's Certificate
stating that such Global Restricted Security shall be exchangeable, or (iii) an
Event of Default has occurred and is continuing with respect to the Securities.
Any Restricted Global Security that is transferable to the beneficial
owners thereof pursuant to this Section 2.8 shall be surrendered by the
Depository to the Trustee at its Corporate Trust Office, to be so transferred,
in whole or from time to time in part, without charge, and the Trustee shall
authenticate and deliver, upon such transfer of each portion of such Restricted
Global Security, an equal aggregate principal amount of Restricted Securities of
authorized denominations. Any portion of the Restricted Global Security
transferred pursuant to this Section 2.8 shall be executed, authenticated and
delivered only in denominations of $1,000 and any integral multiple thereof and
registered in such names as the Depository shall direct. Any Initial Note
delivered in exchange for an interest in the Restricted Global Security shall,
except as otherwise provided by Section 2.5, bear the Restricted Securities
Legend.
Subject to the foregoing provisions of this Section 2.8, the registered
Holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
In the event of the occurrence of either of the events specified in the
second paragraph of this Section 2.8, the Company will promptly make available
to the Trustee a reasonable supply of certificated Securities in definitive,
fully registered form without interest coupons.
SECTION 2.9 Effective Registration. In the event the Company has an
Effective Registration, the Company shall notify the Trustee thereof within two
Business Days after the effective date of such Effective Registration. If the
Effective Registration involves a
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27
Notes Shelf Registration, the Company shall promptly cause to be delivered to
the Trustee certificates for Initial Notes without legends and the Trustee shall
authenticate and deliver certificated Initial Notes without legends to Holders
presenting their certificated Initial Notes for exchange or to Holders of
interests in the Restricted Global Security in the names and denominations
specified by the Depository or to transferees of Initial Notes covered by the
Notes Shelf Registration. If the Effective Registration is with respect to a
Registered Exchange Offer for the Initial Notes, the Trustee shall notify the
Holders of receipt of such notice and, after receipt of a written order of the
Company (signed as specified in Section 2.1) for the authentication and delivery
of Conversion Notes and a properly completed letter of transmittal or other
requested documents from a Holder as specified in the exchange offer documents,
shall exchange such Holder's Initial Notes for Conversion Notes upon the terms
set forth in the exchange offer documents.
ARTICLE III
COVENANTS OF THE COMPANY
SECTION 3.1 Payment of Principal and Interest. The Company covenants and
agrees that it will duly and punctually pay or cause to be paid the principal
of, and interest on, each of the Securities at the place or places, at the
respective times and in the manner provided in the Securities. Each installment
of interest on the Securities may be paid by mailing checks for such interest
payable to or upon the written order of the holders of Securities entitled
thereto as they shall appear on the registry books of the Company.
SECTION 3.2 Offices for Payments. etc. So long as any of the Securities
remain outstanding, the Company will maintain in the City of New York the
following: (a) an office or agency where the Securities may be presented for
payment, (b) an office or agency where the Securities may be presented for
registration of transfer and for exchange as in this Indenture provided and (c)
an office or agency where notices and demands to or upon the Company in respect
of the Securities or of this Indenture may be served. The Company will give to
the Trustee written notice of the location of any such office or agency and of
any change of location thereof. The Company hereby initially designates the
Corporate Trust Office of the Trustee or such other location as the Company may
designate upon notice from the Trustee, as the office or agency for each such
purpose. In case the Company shall fail to maintain any such office or agency or
shall fail to give such notice of the location or of any change in the location
thereof, presentations and demands may be made and notices may be served at the
Corporate Trust Office.
SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 5.9, a Trustee, so that there
shall at all times be a Trustee hereunder.
SECTION 3.4 Paving Agents. The paying agent will initially be the Trustee.
Whenever the Company shall appoint a paying agent other than the Trustee, it
will cause such
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28
paying agent to execute and deliver to the Trustee an instrument in which such
agent shall agree with the Trustee, subject to the provisions of this Section:
(a) that it will hold all sums received by it as such agent for the
payment of the principal of or interest on the Securities (whether such
sums have been paid to it by the Company or by any other obligor on the
Securities) in trust for the benefit of the holders of the Securities or of
the Trustee,
(b) that it will give the Trustee notice of any failure by the Company
(or by any other obligor on the Securities) to make any payment of the
principal of or interest on the Securities when the same shall be due and
payable, and
(c) pay any such sums so held in trust by it to the Trustee upon the
Trustee's written request at any time during the continuance of the failure
referred to in clause (b) above.
The Company will, prior to each due date of the principal of or interest on
the Securities, deposit with the paying agent a sum sufficient to pay such
principal or interest, and (unless such paying agent is the Trustee) the Company
will promptly notify the Trustee of any failure to take such action.
If the Company shall act as its own paying agent, it will, on or before
each due date of the principal of or interest on the Securities, set aside,
segregate and hold in trust for the benefit of the holders of the Securities a
sum sufficient to pay such principal or interest so becoming due. The Company
will promptly notify the Trustee of any failure to take such action.
Anything in this Section to the contrary notwithstanding, the Company may
at any time, for the purpose of obtaining a satisfaction and discharge of this
Indenture or for any other reason, pay or cause to be paid to the Trustee all
sums held in trust by the Company or any paying agent hereunder, as required by
this Section, such sums to be held by the Trustee upon the trusts herein
contained. Upon such payment to the Trustee, the relevant paying agent, if any,
shall be released from any liability with respect to such sums.
Anything in this Section to the contrary notwithstanding, the agreement to
hold sums in trust as provided in this Section are subject to the provisions of
Sections 9.4 and 9.6.
SECTION 3.5 Certificate to Trustee. The Company will furnish to the
Trustee, on or before 120 days after the end of each fiscal year of the Company
ending after the date hereof, an Officer's Certificate from the principal
executive, financial or accounting officer of the Company as to his or her
knowledge of the Company's compliance with all conditions and covenants under
this Indenture (such compliance to be determined without regard to any period of
grace or requirement of notice provided under this Indenture).
SECTION 3.6 Securityholders' Lists. If and so long as the Trustee shall not
be the Security registrar, the Company will furnish or cause to be furnished to
the Trustee a
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29
list in such form as the Trustee may reasonably require of the names and
addresses of the holders of the Securities pursuant to Section 312 of the Trust
Indenture Act (a) semiannually not more than 15 days after each record date for
the payment of semiannual interest on the Securities, as hereinabove specified,
as of such record date and (b) at such other times as the Trustee may request in
writing, within 30 days after receipt by the Company of any such request as of a
date not more than 15 days prior to the time such information is furnished.
SECTION 3.7 Commission Reports. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, so long as any Securities are outstanding, the Company will furnish to the
Trustee and the holders of Securities (i) within 45 days after the end of each
of the first three fiscal quarters of each fiscal year and 90 days of the end of
each fiscal year all quarterly and annual financial information, as the case may
be, that would be required to be contained in a filing with the Commission on
Forms 10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request.
Furthermore, for so long as any of the Securities remain outstanding, the
Company shall make available to any prospective purchaser of the Securities or
beneficial owner of the Securities, in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
SECTION 3.8 Limitation on Indebtedness. (a) The Company shall not, and
shall not permit any of its Restricted Subsidiaries to, incur any Indebtedness;
provided, however, that the Company may incur Indebtedness (including through
the issuance of Disqualified Capital Stock) if on the date of such incurrence
the Consolidated Coverage Ratio would be greater than (i) 2.50: 1, if such
Indebtedness is incurred prior to the expiration of 24 months after the Issue
Date and (ii) 3.00: 1, if such Indebtedness is incurred on or subsequent to the
expiration of 24 months after the Issue Date.
(b) Notwithstanding Section 3.8(a), the Company and its Restricted
Subsidiaries may incur Indebtedness to the extent set forth below:
(i) the incurrence by the Company of Indebtedness under the Senior
Credit Agreement and the issuance of letters of credit thereunder (with
letters of credit being deemed to have a principal amount equal to the face
amount thereof) up to an aggregate principal amount of $250,000,000
outstanding at any one time, less principal repayments of term loans and
permanent commitment reductions with respect to revolving loans and letters
of credit under the Senior Credit Agreement made after the Issuance Date
with the Net Cash Proceeds of Asset Dispositions, if any;
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(ii) Indebtedness (x) of the Company to any Restricted Subsidiary and
(y) of any Restricted Subsidiary to the Company or any other Restricted
Subsidiary;
(iii) Indebtedness of the Company represented by the Securities;
(iv) any Indebtedness of the Company (other than the Indebtedness
described in clauses (i) and (ii) above) outstanding on the date of this
Indenture;
(v) Indebtedness represented by the Guarantees of the Securities and
Guarantees of Indebtedness incurred pursuant to clause (i) above;
(vi) Indebtedness of the Company or any Restricted Subsidiary under
Interest Rate Agreements that are entered into by the Company or such
Restricted Subsidiary for bona fide hedging purposes (as determined in good
faith by the Board of Directors or senior management of the Company or such
Restricted Subsidiary) with respect to Indebtedness of the Company or such
Restricted Subsidiary incurred without violation of this Indenture or with
respect to customary commercial transactions of the Company or such
Restricted Subsidiary entered into in the ordinary course of business;
(vii) Indebtedness (including Capitalized Lease Obligations) incurred
by the Company or any Restricted Subsidiary to finance the purchase, lease
or improvement of property (real or personal) or equipment (whether through
the direct purchase of assets or the Capital Stock of any Person owning
such assets) in an aggregate principal amount which, when aggregated with
the principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (vii), does not exceed $25,000,000;
(viii) Indebtedness incurred by the Company or any Restricted
Subsidiary constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, that upon the
drawing of such letters of credit or the incurrence of such Indebtedness,
such obligations are reimbursed within 30 days following such incurrence;
(ix) Acquired Indebtedness; provided, however, that such Indebtedness
is not incurred in contemplation of such acquisition or merger; and
provided, further that the Company would have been able to incur such
Indebtedness at the time of the incurrence thereof pursuant to clause (a)
above, determined on a pro forma basis as if such transaction had occurred
at the beginning of such four-quarter period and such Indebtedness and the
operating results of such merged or acquired entity had been included for
all purposes in such pro forma calculation as if such entity had been a
Restricted Subsidiary at the beginning of such four-quarter period;
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31
(x) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(xi) additional indebtedness in an aggregate amount not to exceed
$10,000,000 at any one time outstanding; and
(xii) Refinancing Indebtedness; provided, however, that (A) the
principal amount of such Refinancing Indebtedness shall not exceed the
principal or accreted amount (in the case of any Indebtedness issued with
original issue discount, as such) of Indebtedness so extended, refinanced,
renewed, replaced, substituted or refunded (the "Refinanced Indebtedness"),
(B) the Refinancing Indebtedness shall have a Weighted Average Life to
Maturity of not less than the stated maturity of the Refinanced
Indebtedness, and (C) the Refinancing Indebtedness shall rank in right of
payment relative to the Securities on terms at least as favorable to the
holders of Securities as those contained in the documentation governing the
Refinanced Indebtedness.
(c) Notwithstanding any other provision of this Section 3.8, neither the
Company nor any Restricted Subsidiary shall incur any Indebtedness (i) pursuant
to Section 3.8(b), if the proceeds thereof are used, directly or indirectly, to
repay, prepay, redeem, defease, retire, refund or refinance any Subordinated
Indebtedness unless such Indebtedness shall be subordinated to the Securities to
at least the same extent as such Subordinated Indebtedness or (ii) pursuant to
Section 3.8(a) or Section 3.8(b) if such Indebtedness is subordinate or junior
in ranking in any respect to any Senior Indebtedness unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness.
(d) The Company shall not incur any Secured Indebtedness that is not Senior
Indebtedness unless contemporaneously therewith effective provision is made to
secure the Securities equally and ratably with such Secured Indebtedness for so
long as such Secured Indebtedness is secured by a Lien.
SECTION 3.9 Limitation on Restricted Payments. (a) The Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of its Capital Stock (other than dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to
acquire such Capital Stock and other than dividends and distributions paid
by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary),
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of the Capital Stock of the Company or
any Restricted Subsidiary or options, warrants or other rights to acquire
such Capital Stock,
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(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to the relevant scheduled
principal payment, sinking fund or maturity, any Subordinated Indebtedness,
or
(iv) make any Investment in any Person, including, without limitation,
any Unrestricted Subsidiary (other than a Permitted Investment)
(the foregoing actions described in clauses (i) through (iv) above being
hereinafter collectively referred to as "Restricted Payments") unless after
giving effect to the proposed Restricted Payment, (A) no Default or Event of
Default shall have occurred and be continuing and such Restricted Payment shall
not cause or constitute a Default or an Event of Default; (B) immediately before
and immediately after giving effect to such transaction on a pro forma basis,
the Company could incur at least $1.00 of additional Indebtedness pursuant to
Section 3.8(a); and (C) the aggregate amount of all such Restricted Payments
(the amount of any such Restricted Payment, if other than cash, to be determined
in good faith by the Board of Directors of the Company, whose determination
shall be conclusive and evidenced by a resolution of the Board of Directors)
declared or made after the Issue Date (including such Restricted Payment) does
not exceed the sum of:
(1) 50% of the aggregate cumulative Consolidated Net Income (or, if
such aggregate cumulative Consolidated Net Income shall be a loss, minus
100% of such loss) of the Company accrued on a cumulative basis during the
period (taken as one accounting period) from the fiscal quarter that first
begins after the Issue Date to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available at the
time of such Restricted Payment;
(2) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from the issuance or sale (other than to any of its
Subsidiaries) of its shares of Capital Stock (other than Disqualified
Capital Stock) or any options, warrants or rights to purchase such shares
of Capital Stock (other than Disqualified Capital Stock) or other cash
contributions to its capital (excluding amounts used pursuant to clauses
(ii) or (iii) of Section 3.9(b));
(3) the aggregate Net Cash Proceeds received after the Issue Date by
the Company (other than from any of its Subsidiaries) upon the exercise of
any options, warrants or rights to purchase shares of Capital Stock (other
than Disqualified Capital Stock) of the Company;
(4) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from Indebtedness of the Company or Disqualified Capital Stock
of the Company that has been converted into or exchanged for Capital Stock
(other than Disqualified Capital Stock) of the Company or options, warrants
or rights to acquire such Capital Stock, to the extent such Indebtedness of
the Company or Disqualified Capital Stock of the Company was originally
incurred
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or issued for cash, plus the aggregate Net Cash Proceeds received by the
Company at the time of such conversion or exchange;
(5) to the extent not included in Consolidated Net Income, the net
reduction (received by the Company or any Restricted Subsidiary in cash) in
Investments (other than Permitted Investments) made by the Company and the
Restricted Subsidiaries since the Issue Date, not to exceed, in the case of
any Investments in any Person, the amount of Investments (other than
Permitted Investments) made by the Company and the Restricted Subsidiaries
in such Person since the Issue Date.
(b) Notwithstanding Section 3.9(a) and in the case of clauses (v) and (vi)
below, so long as there is no Default or Event of Default continuing, the
following actions shall not be prohibited:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would be
permitted by the provisions of Section 3.9(a) (such payment being deemed to
have been paid on such date of declaration for purposes of the calculation
required by this Section 3.9);
(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or warrants,
options or other rights to acquire such stock in exchange for, or out of
the Net Cash Proceeds of a substantially concurrent issue and sale (other
than to a Subsidiary) for cash of, any Capital Stock (other than
Disqualified Capital Stock) of the Company or warrants, options or other
rights to acquire such Capital Stock;
(iii) any repurchase, redemption, defeasance, retirement, refinancing
or acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for, or out of the net proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) for cash of, any
Capital Stock (other than Disqualified Capital Stock) of the Company or
warrants, options or other rights to acquire such Capital Stock;
(iv) the repurchase, redemption, defeasance, retirement or other
acquisition for value or payment of principal of any Subordinated
Indebtedness through the issuance of Refinancing Indebtedness;
(v) investments in, and loans or advances to, Permitted Foreign
Companies in a net aggregate amount not to exceed $10,000,000 in any fiscal
year, provided. however, that, to the extent that the net aggregate amount
of such investments, loans and advances in any fiscal year is less than
$10,000,000, 50% of such difference may be carried forward and added to the
$10,000,000 permitted amount for the subsequent fiscal year; and
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(vi) Investments in other Persons (including, without limitation,
Unrestricted Subsidiaries) having an aggregate fair market value, taken
together with all other Investments made pursuant to this paragraph (vi)
that are at that time outstanding, not to exceed $15,000,000 at the time of
such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes
in value).
The actions described in clauses (i) and (vi) of this Section 3.9(b) shall be
Restricted Payments that shall be permitted to be made in accordance with this
Section 3.9(b) but shall reduce the amount that would otherwise be available for
Restricted Payments under Section 3.9(a)(C) (provided that any dividend paid
pursuant to clause (i) of this Section 3.9(b) shall reduce the amount that would
otherwise be available under Section 3.9(a)(C) when declared, but not also when
paid pursuant to such clause (i)) and the actions described in clauses (ii),
(iii), (iv) and (v) of this Section 3.9(b) shall be permitted to be taken in
accordance with this Section 3.9 and shall not reduce the amount that would
otherwise be available for Restricted Payments under Section 3.9(a)(C).
SECTION 3.10 Restrictions on Sales of Assets and Subsidiary Stock. (a) The
Company shall not, and shall not permit any Restricted Subsidiary to, make any
Asset Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the Fair Market Value of the shares
or assets that are the subject matter of such Asset Disposition, (ii) at least
80% of the consideration therefor received by the Company or such Restricted
Subsidiary is in the form of cash; and (iii) an amount equal to 100% of the Net
Available Cash from such Asset Disposition is applied by the Company (or such
Restricted Subsidiary, as the case may be) (A) first, to the extent the Company
elects (or is required by the terms of any Senior Indebtedness or any
Indebtedness (other than Preferred Stock) of a Restricted Subsidiary), to
prepay, repay or purchase such Senior Indebtedness or such Indebtedness (other
than Preferred Stock) of a Restricted Subsidiary (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company) within 180 days
after the later of the date of such Asset Disposition or the receipt of such Net
Available Cash, (B) second, to the extent of the balance of Net Available Cash
after application in accordance with clause (A), to the extent the Company
elects, to secure letter of credit obligations to the extent such related
letters of credit have not been drawn upon or returned undrawn; (C) third, to
the extent of the balance of Net Available Cash after application in accordance
with clauses (A) and (B), to the extent the Company or such Restricted
Subsidiary elects, within one year from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash, to reinvest in Additional
Assets; and (D) fourth, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C), to make an offer
(the "Offer") to purchase Securities pursuant and subject to the conditions of
this Indenture to the holders of the Securities at a purchase price of 100% of
the principal amount thereof plus accrued and unpaid interest to the purchase
date; provided, however, that, in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) or (B) above, the Company or
such Restricted Subsidiary shall retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount
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35
equal to the principal amount so prepaid, repaid or purchased. The Company shall
not be required to make an offer for Securities pursuant to this Section 3.10 if
the Net Available Cash available therefor (aver application of the proceeds as
provided in clauses (A), (B) and (C)) is less than $15,000,000 (which lesser
amount shall be carried forward for purposes of determining whether an offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
For the purposes of Section 3.10(a)(ii), the following will be deemed to be
cash: (x) the assumption of Indebtedness (other than Disqualified Capital Stock)
of the Company or any Restricted Subsidiary and the release of the Company or
such Restricted Subsidiary from all liability on such Indebtedness in connection
with such Asset Disposition and (y) securities received by the Company or any
Restricted Subsidiary of the Company from the transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Securities pursuant to clause (iii)(D) of Section 3.10(a), the Company will be
required to purchase Securities tendered pursuant to an offer by the Company for
the Securities at a purchase price of 100% of their principal amount plus
accrued interest to the purchase date in accordance with the procedures
(including prorating in the event of oversubscription) set forth in Section
3.10(c).
(c) (i) Promptly, and in any event within 10 days after the Company is
required to make an Offer, the Company shall deliver to the Trustee and send, by
first class mail to each Holder, a written notice stating that the Holder may
elect to have his or her Securities purchased by the Company either in whole or
in part (subject to prorating as hereinafter described in the event the Offer is
oversubscribed) in integral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice shall specify a purchase date not less
than 30 days nor more than 60 days after the date of such notice (the "Purchase
Date").
(ii) Not later than the date upon which such written notice of an
Offer is delivered to the Trustee and the Holders, the Company shall
deliver to the Trustee an Officers' Certificate setting forth (A) the
amount of the Offer (the "Offer Amount"), (B) the allocation of the Net
Available Cash from the Asset Dispositions as a result of which such Offer
is being made and (C) the compliance of such allocation with the provisions
of Section 3.10(a). Upon the expiration of the period (the "Offer Period")
for which the Offer remains open, the Company shall deliver to the Trustee
for cancellation the Securities or portions thereof which have been
properly tendered to and are to be accepted by the Company. The Trustee
shall, on the Purchase Date, mail or deliver payment to each tendering
Holder in the amount of the purchase price of the Securities tendered by
such Holder to the extent such funds are available to the Trustee.
(iii) Holders electing to have a Security purchased will be required
to surrender the Security, with an appropriate form duly completed, to the
Company at
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36
the address specified in the notice prior to the expiration of the Offer
Period. Each Holder will be entitled to withdraw its election if the
Trustee or the Company receives, not later than one Business Day prior to
the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter from such Holder setting forth the name of such
Holder, the principal amount of the Security or Securities which were
delivered for purchase by such Holder and a statement that such Holder is
withdrawing its election to have such Security or Securities purchased. If
at the expiration of the Offer Period the aggregate principal amount of
Securities surrendered by Holders exceeds the Offer Amount, the Company
shall select the Securities to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples thereof, shall
be purchased). Holders whose Securities are purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion
of the Securities surrendered.
(d) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other securities laws or
regulations in connection with the repurchase of Securities pursuant to this
Section 3.10.
To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section 3.10, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under this Indenture by virtue thereof.
SECTION 3.11 Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company or any Restricted Subsidiary,
(b) to make any loans or advances to the Company or any Restricted Subsidiary or
(c) to transfer any of its property or assets to the Company or any Restricted
Subsidiary, except: (i) any encumbrance or restriction pursuant to an agreement
in effect at or entered into on the Issue Date; (ii) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness incurred by such Restricted Subsidiary on or prior
to the date on which such Restricted Subsidiary was acquired by the Company
(other than Indebtedness incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company) and outstanding
on such date; (iii) any encumbrance or restriction pursuant to an agreement
effecting a refinancing of Indebtedness incurred pursuant to an agreement
referred to in clause (i) or (ii) of this Section 3.11 or contained in any
amendment to an agreement referred to in clause (i) or (ii) of this Section 3.1
1; provided, however, that the encumbrances and restrictions with respect to
such Restricted Subsidiary contained in any such refinancing agreement or
amendment are no less favorable in any material respect to the holders of the
Securities than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such agreements; and (iv)
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37
in the case of Section 3.11(c), any encumbrance or restriction (A) that
restricts in a customary manner the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or contract or similar
property or asset that is the subject of such encumbrance or restriction, (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by this Indenture, or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; provided that,
in each case, such encumbrance or restriction relates to, and restricts dealings
with, only the property or asset that is the subject of such encumbrance or
restriction; and provided further, that such encumbrance or restriction does not
prohibit, limit or otherwise restrict the making or payment of any dividend or
other distribution to the Company or any Restricted Subsidiary; (v) any
restriction with respect to a Restricted Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
the Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; and (vi) any restrictions on cash or other deposits or
net worth imposed by customers under contracts entered into in the ordinary
course of business.
SECTION 3.12 Limitation on Sale of Capital Stock of Restricted
Subsidiaries. The Company (i) shall not, and shall not permit any Restricted
Subsidiary to, transfer, convey, sell or otherwise dispose of any Capital Stock
of any Restricted Subsidiary to any Person (other than to the Company or a
Restricted Subsidiary) and (ii) shall not permit any Restricted Subsidiary to
issue any of its Capital Stock to any Person other than to the Company or a
Restricted Subsidiary; provided, however, that this Section 3.12 shall not
prohibit the transfer, conveyance, sale or other disposition of all of the
Capital Stock of a Restricted Subsidiary if the net cash proceeds from such
transfer, conveyance, sale or other disposition are applied in accordance with
Section 3.10; and, provided, further, that this Section 3.12 shall not prohibit
the transfer, conveyance, sale or other disposition of less than all of the
Capital Stock of a Restricted Subsidiary or the issuance by any Restricted
Subsidiary of any of its Capital Stock to any Person as long as (A) the net cash
proceeds from such transfer, conveyance, sale or other disposition or issuance
are applied in accordance with Section 3.10, (B) immediately after giving effect
to such transaction, no Event of Default shall have occurred and be continuing,
(C) immediately after giving pro forma effect to such transaction, as if such
transaction had occurred at the beginning of the applicable four-quarter period,
the Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Coverage Ratio test as set forth in
Section 3.8(a) and (D) immediately after giving effect to such transaction, such
Restricted Subsidiary remains a Restricted Subsidiary of the Company.
SECTION 3.13 Limitation on Liens. The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, incur, assume or
suffer to exist any Lien of any kind upon any of its property or assets
(including any shares of Capital Stock or Indebtedness of any Restricted
Subsidiary), whether owned on the Issue Date or acquired after the Issue Date,
or any income or profits therefrom, except if the Securities (or the Guarantee
of the Securities, in the case of Liens on properties or assets of any
Guarantor) and all other
<PAGE>
38
amounts due under this Indenture are directly secured equally and ratably with
(or prior to in the case of Liens with respect to Subordinated Indebtedness) the
obligation or liability secured by such Lien, excluding, however, from the
operation of the foregoing any of the following:
(a) any Lien existing as of the Issue Date;
(b) any Lien arising by reason of (i) any judgment, decree or order of any
court, so long as such Lien is in existence less than 30 days after the entry
thereof or adequately bonded or the payment of such judgment, decree or order is
covered (subject to a customary deductible) by insurance maintained with
responsible insurance companies; (ii) taxes, assessments or other governmental
charges that are not yet delinquent or are being contested in good faith; (iii)
security for payment of workers' compensation or other insurance; (iv) good
faith deposits in connection with tenders, leases or contracts (other than
contracts for the payment of borrowed money); (v) zoning restrictions,
easements, licenses, reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of title (and with
respect to leasehold interests, mortgages, obligations, liens and other
encumbrances incurred, created, assumed or permitted to exist and arising by,
through or under a landlord or owner of the leased property, with or without
consent of the lessee), none of which materially impairs the use of any property
or assets material to the operation of the business of the Company or any
Restricted Subsidiary or the value of such property or assets for the purpose of
such business; (vi) deposits to secure public or statutory obligations, or in
lieu of surety or appeal bonds with respect to matters not yet finally
determined and being contested in good faith by negotiations or by appropriate
proceedings that suspend the collection thereof; or (vii) operation of law in
favor of mechanics, materialmen, laborers, employees or suppliers, incurred in
the ordinary course of business for sums that are not yet delinquent or are
being contested in good faith by negotiations or by appropriate proceedings that
suspend the collection thereof;
(c) any Lien now or hereafter existing on property or assets of the Company
or any Guarantor securing Senior Indebtedness of such Person;
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or a Restricted Subsidiary; provided that any such
Lien extends only to the assets that were subject to such Lien securing such
Acquired Indebtedness prior to the related acquisition;
(e) leases or subleases granted by the Company or any of its Subsidiaries
to any other Person in the ordinary course of business;
(f) Liens in the nature of trustees' Liens granted pursuant to any
indenture governing any indebtedness permitted by Section 3.8, in each case in
favor of the trustee under such indenture and securing only obligations to pay
any compensation to such trustee, to reimburse its expenses and to indemnify it
under the terms thereof; and
<PAGE>
39
(g)any extension, renewal, refinancing or replacement, in whole or in part,
of any Lien described in the foregoing clauses (a) through (f) so long as the
amount of property or assets subject to such Lien is not increased thereby.
SECTION 3.14 Limitations on Affiliate Transactions. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
enter into or conduct any transaction (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate of
the Company (an "Affiliate Transaction") unless: (i) the terms of such Affiliate
Transaction are no less favorable to the Company or such Restricted Subsidiary,
as the case may be, than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an Affiliate;
(ii) in the event such Affiliate Transaction involves an aggregate amount in
excess of $1,000,000 (unless such Affiliate Transaction constitutes an agreement
with Bayer or its Affiliate relating to an investment by the Company and an
investment by Bayer or its Affiliate in a Permitted Foreign Company in which
case the requirements of this clause shall be applicable only if the amount
being invested by the Company exceeds $10,000,000), the terms of such
transaction have been approved by a majority of the members of the Board of
Directors of the Company and by a majority of the disinterested members of such
Board, if any (and such majority or majorities, as the case may be, determines
that such Affiliate Transaction satisfies the criteria in (i) above) and (iii)
in the event such Affiliate Transaction involves an aggregate amount in excess
of $15,000,000 (unless such Affiliate Transaction constitutes an agreement with
Bayer or its Affiliate relating to an investment by the Company and an
investment by Bayer or its Affiliate in a Permitted Foreign Company in which
case the requirements of this clause shall be applicable only if the amount
being invested by the Company exceeds $25,000,000), the Company has received a
written opinion from an independent investment banking firm of nationally
recognized standing that such Affiliate Transaction is fair to the Company or
such Restricted Subsidiary, as the case may be, from a financial point of view.
(b) The provisions of Section 3.14(a) will not prohibit (i) any Restricted
Payment permitted to be paid or made pursuant to Section 3.9, (ii) the
performance of the Company's or a Restricted Subsidiary's obligations under any
employment contract, stock option, collective bargaining agreement, employee
benefit plan, related trust agreement or any other similar arrangement
heretofore or hereafter entered into in the ordinary course of business, (iii)
payment of compensation to employees, officers, directors or consultants in the
ordinary course of business, (iv) maintenance in the ordinary course of business
of benefit programs or arrangements for employees, officers or directors,
including vacation plans, health and life insurance plans, deferred compensation
plans, and retirement or savings plans and similar plans, (v) any transaction
between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries, (vi) any agreement in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby, (vii) transactions required of
the Company or any Restricted Subsidiary under, or contemplated by, the General
Shareholders Agreement dated September 30, 1994, and the Continuing Shareholders
Agreement dated September 30, 1994, in each case as in effect on the date of
this Indenture or (viii) any agreement entered into in the ordinary course of
business between the Company and a person who constitutes an Affiliate solely by
reason of such person being an officer or director of the Company which
agreement provides for the repurchase by the Company, upon or following
<PAGE>
40
the termination of such person's employment or directorship with the Company, of
shares of Capital Stock of the Company owned by such person.
SECTION 3.15 Chance of Control. (a) If a Change of Control shall occur at
any time, then each holder of Securities shall have the right to require that
the Company purchase such holder's Securities in whole or in part in any
integral multiple of $1,000, for a cash purchase price (the "Change of Control
Purchase Price") equal to 101% of the principal amount of such Securities, plus
accrued and unpaid interest, if any, on such Securities to the date of purchase
(the "Change of Control Purchase Date"), pursuant to an offer (the "Change of
Control Offer"), made in conformity with the procedures set forth in Sections
3.15(b), (c) and (d).
(b) Within 15 days following any Change of Control, the Company shall
notify the Trustee thereof and give written notice of such Change of Control to
each holder of Securities by first-class mail, postage prepaid, at his address
appearing in the security register, stating:
(i) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Securities, in whole
or in part, at the Change of Control Purchase Price;
(ii) the Change of Control Purchase Price and the Change of Control
Purchase Date, which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed, or such later date
as is necessary to comply with requirements under the Exchange Act;
(iii) that any Security not tendered for purchase will continue to
accrue interest;
(iv) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Securities accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date; and
(v) the procedures that a Holder must follow to accept a Change of
Control Offer or to withdraw such acceptance.
(c) Holders electing to have Securities purchased will be required to
surrender such Securities, together with the execution form provided for on
Exhibit G duly executed, to the Company at the address specified in the notice
at least 10 Business Days prior to the Change of Control Purchase Date. Holders
will be entitled to withdraw their election if the Company receives, not later
than three Business Days prior to the Change of Control Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Securities delivered for purchase by the Holder as to
which his election is to be withdrawn and a statement that such Holder is
withdrawing his election to have such Securities purchased. Holders whose
Securities are purchased only in part will be
<PAGE>
41
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.
(d) The Company will comply with any applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with a Change of Control Offer. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this Section, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section by virtue thereof.
(e) The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions in
effect on the Issue Date with respect to Indebtedness outstanding on the Issue
Date and refinancings thereof and customary default provisions) that would
materially impair the ability of the Company to make a Change of Control Offer
to purchase the Securities or, if such Change of Control Offer is made, to pay
for the Securities tendered for purchase.
SECTION 3.16 Limitation on Lines of Business. The Company shall not, and
shall not permit its Restricted Subsidiaries to, engage in any business other
than those engaged in on the date of this Indenture and any other segment of the
pharmaceutical or health-care industry or ancillary thereto.
SECTION 3.17 Payments for Consent. Neither the Company nor any Subsidiary
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of the Securities
for or as an inducement to any consent, waiver or amendment of any terms or
provisions of the Securities unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Securities who so consent, waive or
agree in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
SECTION 3.18 Waiver of Stay, Extension or Usury Laws. The Company covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, plead, or in any manner whatsoever claim, and will resist any and all
efforts to be compelled to take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
Company from paying all or any portion of the principal of or interest on the
Securities as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance of this
Indenture; and (to the extent that it may lawfully do so) the Company hereby
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
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42
ARTICLE IV
DEFAULTS AND REMEDIES
SECTION 4.1 Event of Default Defined; Acceleration of Maturity. An "Event
of Default" occurs if:
(a) the Company defaults in any payment of interest on any Security when
the same becomes due and payable, whether or not such payment shall be
prohibited by Article X, and such default continues for a period of 30 days;
(b) the Company defaults in the payment of the principal of any Security
when the same becomes due and payable at its Stated Maturity, upon optional
redemption, upon required repurchase, upon declaration or otherwise, whether or
not such payment shall be prohibited by Article X;
(c) the Company fails to comply with Section 8. 1;
(d) the Company fails to comply with Section 3.7, 3.8, 3.9, 3.10, 3.11,
3.12, 3.13, 3.14, 3.15 or 3.16 (in each case other than a failure to repurchase
Securities when required pursuant to Section 3.10 or 3.15, which failure shall
constitute an Event of Default under Section 4.1(b)) and such failure continues
for 30 days after the notice specified below;
(e) the Company fails to comply with any covenant, condition or agreement
in this Indenture or the Securities (other than those referred to in clauses
(a), (b), (c) and (d) above) and such failure continues for 30 days after the
notice specified below;
(f) Indebtedness of the Company or any Restricted Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated by the
holders thereof because of a default and the total amount of such unpaid or
accelerated Indebtedness exceeds $10,000,000 or its foreign currency equivalent
at the time;
(g) the Company or a Material Subsidiary pursuant to or within the meaning
of any Bankruptcy Law:
(i) commences a voluntary case;
(ii) consents to the entry of an order for relief against it in an
involuntary case;
(iii) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(iv) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to insolvency;
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43
(h) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company or any Material Subsidiary in an
involuntary case;
(ii) appoints a Custodian of the Company or any Material Subsidiary or
for any substantial part of its property; or
(iii) orders the winding up or liquidation of the Company or any
Material Subsidiary;
or any similar relief is granted under any foreign laws and the order, decree or
relief remains unstayed and in effect for 60 days;
(i) any judgment or decree for the payment of money in excess of
$10,000,000 or its foreign currency equivalent at the time (to the extent not
covered by insurance) is entered against the Company or any Material Subsidiary
and is not discharged and either (A) an enforcement proceeding has been
commenced by any creditor upon such judgment or decree and is not promptly
stayed or (B) there is a period of 60 days following the entry of such judgment
or decree during which such judgment or decree is not discharged or the
execution thereof stayed; or
(j) the failure of any Subsidiary Guarantee to be in full force and effect
(except as contemplated by the terms thereof) or the denial or disaffirmation by
any Subsidiary Guarantor of its obligations hereunder or any Subsidiary
Guarantee if such failure is not cured, or such denial or disaffirmation is not
rescinded or revoked, within 10 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
Notwithstanding the foregoing, a Default under Section 4.1(d) or Section
4.1(e) will not constitute an Event of Default until the Trustee or the Holders
of at least 25% in principal amount of the outstanding Securities notify the
Company in writing of the Default and the Company does not cure such Default
within the time specified in said Section 4.1(d) or (e) after receipt of such
notice. Such notice must specify the Default, demand that it be remedied, and
state that such notice is a "Notice of Default."
An Event of Default specified in Section 4.1(f) and all consequences
thereof (including without limitation, any acceleration or resulting payment
default) shall be annulled,
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44
waived and rescinded, automatically and without any action by the Trustee or the
Holders of the Securities, if within 20 days after the occurrence of such Event
of Default, (i) the holders of the Indebtedness to which such Event of Default
relates have rescinded or waived the acceleration, notice or action (as the case
may be) giving rise to such Event of Default or (ii) the default that is the
basis for such Event of Default has been cured.
The Company shall deliver to the Trustee: (i) within 5 days after the
occurrence thereof, written notice in the form of an Officer's Certificate of
any Event of Default under clause (f) and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause (d),
(e) or (i), its status and what action the Company is taking or proposes to take
with respect thereto and (ii) within 120 days after the end of each fiscal year,
written notice in the form of an Officer's Certificate indicating whether the
Officers signing such Officer's Certificate had actual knowledge of any Default
that occurred during such previous fiscal year.
SECTION 4.2 Acceleration. If an Event of Default (other than an Event of
Default specified in Section 4.1(g) or (h) with respect to the Company) occurs
and is continuing, the Trustee, by notice to the Company, or the Holders of at
least 25% in outstanding principal amount of the Securities, by notice to the
Company and the Trustee, may declare the principal of, and accrued and unpaid
interest on, all the Securities to be due and payable. Upon such a declaration,
such principal and interest shall be due and payable (i) if no Indebtedness is
outstanding under the Senior Credit Agreement, immediately, and (ii) if any
Indebtedness is outstanding under the Senior Credit Agreement, upon the first to
occur of (x) the acceleration of any such Indebtedness or (y) the fifth Business
Day after receipt by the Company and the Credit Agent of such written notice of
acceleration. If an Event of Default specified in Section 4.1(g) or (h) with
respect to the Company occurs and is continuing, the principal of, and accrued
and unpaid interest on, all the Securities shall into facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. The Holders of a majority in principal amount of the
Securities, by notice to the Trustee, may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or Event of
Default or impair any right consequent thereto.
SECTION 4.3 Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. No remedy shall be deemed
exclusive of any other remedy and all available remedies shall be cumulative.
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SECTION 4.4 Waiver of Past Defaults. The Holders of a majority in
outstanding principal amount of the Securities, by notice to the Trustee, may
waive an existing Default or Event of Default and its consequences except (i) a
Default or Event of Default in the payment of the principal of or interest on a
Security or (ii) a Default or Event of Default in respect of a provision that
under Section 7.2 cannot be amended without the consent of each Holder affected.
When a Default or Event of Default is waived, it is deemed cured, but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any consequent right.
SECTION 4.5 Control by Majority. The Holders of a majority in outstanding
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 5.1, that the Trustee determines is unduly prejudicial to the
rights of other Holders (it being understood that, subject to Section 5.1, the
Trustee shall have no duty to ascertain whether or not such actions or
forbearances are unduly prejudicial to such Holders) or would subject the
Trustee to personal liability; provided, however, that the Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking or refraining from taking any such action hereunder,
the Trustee shall be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by its taking or refraining
from taking such action.
SECTION 4.6 Limitation on Suits. A Holder may not pursue any remedy with
respect to this Indenture or the Securities unless:
(a) the Holder gives to the Trustee written notice stating that an Event of
Default is continuing;
(b) the Holders of at least 25% in outstanding principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(c) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(e) the Holders of a majority in principal amount of the Securities do not
give the Trustee a direction inconsistent with the request during such 60-day
period.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
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SECTION 4.7 Rights of Holders to Receive Payment. Notwithstanding any other
provision of this Indenture, the right of any Holder to receive payment of the
principal of and interest on the Securities held by such Holder on or after the
respective due dates expressed in the Securities, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 4.8 Collection Suit by Trustee. If an Event of Default specified in
Section 4.1(a) or (b) occurs and is continuing, the Trustee may recover judgment
in its own name and as trustee of an express trust against the Company for the
whole amount then due and owing (together with interest on any unpaid interest
to the extent lawful) and the amounts provided for in Section 5.6.
SECTION 4.9 Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and the Holders allowed in any
judicial proceedings relative to the Company, its Subsidiaries or their
respective creditors or properties and, unless prohibited by law or applicable
regulations, may vote on behalf of the Holders in any election of a trustee in
bankruptcy or other Person performing similar functions, and any Custodian in
any such judicial proceeding is hereby authorized by each Holder to make
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 5.6.
SECTION 4.10 Priorities. If the Trustee collects any money or property
pursuant to this Article IV, it shall pay out the money or property in the
following order:
FIRST: Costs and expenses of collection, including all sums paid or
advanced by the Trustee hereunder and the reasonable compensation, expenses
and disbursements of the Trustee, its agents, and counsel and all other
amounts due to the Trustee under Section 5.6;
SECOND: To holders of Senior Indebtedness to the extent required by
Article X;
THIRD: To Holders for amounts due and unpaid on the Securities for
principal and interest, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal
and interest, respectively; and
FOURTH: To the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 4.10. At least 15 days before such record date,
the Company shall mail to each Holder and the Trustee a notice that states the
record date, the payment date and the amount to be paid.
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47
SECTION 4.11 Undertaking for Costs. In any suit for the enforcement of any
right or remedy under this Indenture or in any suit against the Trustee for any
action taken or omitted by it as Trustee, a court in its discretion may require
the filing by any party litigant in the suit of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section 4.11 does not apply to a suit by the Trustee, a
suit by a Holder pursuant to Section 4.7 or a suit by Holders of more than 10%
in outstanding principal amount of the Securities.
ARTICLE V
CONCERNING THE TRUSTEE
SECTION 5.1 Duties and Responsibilities of the Trustee; During Default;
Prior to Default. The Trustee, prior to the occurrence of an Event of Default
and after the curing or waiving of all Events of Default that may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture. In case an Event of Default has occurred that has not
been cured or waived, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs. The Trustee shall not be charged with
knowledge of the existence of an Event of Default, other than with respect to a
payment default, unless and until the Trustee has actual knowledge of such Event
of Default or the Trustee shall have received notice thereof in writing from the
Company or from the holders of a majority in principal amount of the Securities.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own wilful misconduct, except that
(a) prior to the occurrence of an Event of Default and after the curing or
waiving of all such Events of Default that may have occurred:
(i) the duties and obligations of the Trustee shall be determined
solely by the express provisions of this Indenture, and the Trustee shall
not be liable except for the performance of such duties and obligations as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such statements,
certificates or opinions that are specifically required by any proving
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hereof to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made in good
faith by a responsible officer or responsible officers of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(c) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of the
holders of not less than a majority in principal amount of the Securities at the
time outstanding relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there shall be reasonable ground for believing that the
repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.
This Section 5.1 is in furtherance of and subject to Sections 315 and 316
of the Trust Indenture Act.
SECTION 5.2 Certain Rights of the Trustee. In furtherance of and subject to
the Trust Indenture Act, and subject to Section 5.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officer's Certificate or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture, note, coupon, security or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company mentioned herein
shall be sufficiently evidenced by an Officer's Certificate (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Trustee by a copy
thereof certified by the secretary or an assistant secretary of the Company;
(c) the Trustee may consult with counsel and any advice or Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by it hereunder in good faith
and in reliance on such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the trusts
or powers vested in it by this Indenture at the request, order or direction of
any of the Securityholders pursuant to the provisions of this Indenture, unless
such Securityholders shall
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have offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted by it
in good faith and believed by it to be authorized or within the discretion,
rights or powers conferred upon it by this Indenture;
(f) prior to the occurrence of an Event of Default hereunder and after the
curing or waiving of all Events of Default, the Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, approval, appraisal, bond, debenture, note, coupon, security, or other
paper or document unless requested in writing to do so by the holders of not
less than a majority in aggregate principal amount of the Securities then
outstanding; provided that, if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of this
Indenture, the Trustee may require reasonable indemnity against such costs,
expenses or liabilities as a condition to proceeding; the reasonable expenses of
every such examination shall be paid by the Company or, if paid by the Trustee
or any predecessor trustee, shall be repaid by the Company upon demand; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys not regularly in its employ and the Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder.
SECTION 5.3 Trustee Not Responsible for Recitals, Disposition of Securities
or Application of Proceeds Thereof. The recitals contained herein and in the
Securities, except the Trustee's certificates of authentication, shall be taken
as the statements of the Company, and the Trustee assumes no responsibility for
the correctness of the same. The Trustee makes no representation as to the
validity or sufficiency of this Indenture or of the Securities. The Trustee
shall not be accountable for the use or application by the Company of any of the
Securities or of the proceeds thereof.
SECTION 5.4 Trustee and Agents May Hold Securities, Collections, etc. The
Trustee or any agent of the Company or the Trustee, in its individual or any
other capacity, may become the owner or pledgee of Securities with the same
rights it would have if it were not the Trustee or such agent and may otherwise
deal with the Company and receive, collect, hold and retain collections from the
Company with the same rights it would have if it were not the Trustee or such
agent.
SECTION 5.5 Moneys Held By Trustee. Subject to the provisions of Section
9.6, all moneys received by the Trustee shall, until used or applied as herein
provided, be held in trust for the purposes for which they were received, but
need not be segregated from other funds except to the extent required by
mandatory provisions of law. Neither the Trustee
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nor any agent of the Company or the Trustee shall be under any liability for
interest on any moneys received by it hereunder.
SECTION 5.6 Compensation and Indemnification of Trustee and Its Prior
Claim. The Company covenants and agrees to pay to the Trustee from time to time,
and the Trustee shall be entitled to, reasonable compensation as agreed to by
the Company and the Trustee (which shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust), and the Company
covenants and agrees to pay or reimburse the Trustee and each predecessor
trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of it in accordance with any of the provisions
of this Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all agents and other persons not regularly
in its employ) except any such expense, disbursement or advance as may arise
from its negligence or bad faith. The Company also covenants to indemnify the
Trustee and each predecessor trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
Indenture or the trusts hereunder and its duties hereunder, including the costs
and expenses of enforcing this Indenture against the Company (including this
Section 5.6) and of defending itself against or investigating any claim (whether
asserted by a Holder or the Company) of liability in the premises. The
obligations of the Company under this Section to compensate and indemnify the
Trustee and each predecessor trustee and to pay or reimburse the Trustee and
each predecessor trustee for expenses, disbursements and advances shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. Such additional indebtedness shall be a senior
claim to that of the Securities upon all property and funds held or collected by
the Trustee as such, except funds held in trust for the benefit of the holders
of particular Securities, and the Securities are hereby subordinated to such
senior claim.
SECTION 5.7 Right of Trustee to Rely on Officer's Certificate, Etc. Subject
to Sections 5.1 and 5.2, whenever in the administration of the trusts of this
Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed to be conclusively proved and established by an
Officer's Certificate delivered to the Trustee, and such certificate, in the
absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by it under the
provisions of this Indenture upon the faith thereof.
SECTION 5.8 Persons Eligible for Appointment as Trustee. The Trustee
hereunder shall at all times be a corporation having a combined capital and
surplus of at least $50,000,000, and which is eligible in accordance with the
provisions of Section 310(a) of the Trust Indenture Act. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of a Federal, State or District of Columbia supervising or
examining authority, then for the purposes of this Section, the combined capital
and
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51
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
SECTION 5.9 Resignation and Removal; Appointment of Successor Trustee. (a)
The Trustee may at any time resign by giving written notice of resignation to
the Company and by mailing notice thereof by first-class mail to holders of
Securities at their last addresses as they shall appear on the Security
register. Upon receiving such notice of resignation, the Company shall promptly
appoint a successor trustee by written instrument in duplicate, executed by
authority of the Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor trustee. If no
successor trustee shall have been so appointed and have accepted appointment
within 30 days after the mailing of such notice of resignation, the resigning
trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee, or any Securityholder who has been a bona fide holder of a
Security or Securities for at least six months may, on behalf of himself and all
others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper, prescribe and appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of Section
310(b) of the Trust Indenture Act, after written request therefor by the
Company or by any Securityholder who has been a bona fide holder of a
Security or Securities for at least six months; or
(ii) the Trustee shall cease to be eligible in accordance with the
provisions of Section 5.8 and shall fail to resign after written request
therefor by the Company or by any such Securityholder; or
(iii) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver or liquidator of the
Trustee or of its property shall be appointed, or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation;
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors of the Company, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee, or,
subject to Section 315(e) of the Trust Indenture Act, any Securityholder who has
been a bona fide holder of a Security or Securities for at least six months may
on behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, remove the Trustee and appoint a successor
trustee.
(c) The holders of a majority in aggregate principal amount of the
Securities at the time outstanding may at any time remove the Trustee and
appoint a successor trustee by
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52
delivering to the Trustee so removed, to the successor trustee so appointed and
to the Company the evidence provided for in Section 6.1 of the action in that
regard taken by the Securityholder.
(d) Any resignation or removal of the Trustee and any appointment of a
successor trustee pursuant to any of the provisions of this Section 5.9 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 5.l0.
SECTION 5.10 Acceptance of Appointment by Successor Trustee. Any successor
trustee appointed as provided in Section 5.9 shall execute and deliver to the
Company and to its predecessor trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become vested with all rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as trustee herein; but, nevertheless, on the written request of the
Company or of the successor trustee, upon payment of its charges then unpaid,
the trustee ceasing to act shall, subject to Section 9.6, pay over to the
successor trustee all moneys at the time held by it hereunder and shall execute
and deliver an instrument transferring to such successor trustee all such
rights, powers, duties and obligations. Upon request of any such successor
trustee, the Company shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers. Any trustee ceasing to act shall, nevertheless, retain a
prior claim upon all property or funds held or collected by such trustee to
secure any amounts then due it pursuant to the provisions of Section 5.6.
Upon acceptance of appointment by a successor trustee as provided in this
Section 5.10, the Company shall mail notice thereof by first-class mail to the
holders of Securities at their last addresses as they shall appear in the
Security register. If the acceptance of appointment is substantially
contemporaneous with the resignation, then the notice called for by the
preceding sentence may be combined with the notice called for by Section 5.9. If
the Company fails to mail such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Company.
SECTION 5.11 Merger, Conversion, Consolidation or Succession to Business of
Trustee. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided that such corporation shall be
eligible under the provisions of Section 5.8, without the execution or filing of
any paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any
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53
predecessor trustee and deliver such Securities so authenticated; and, in case
at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor trustee; and in all
such cases such certificate shall have the full force which it is anywhere in
the Securities or in this Indenture; provided that the certificate of the
Trustee shall have provided that the right to adopt the certificate of
authentication of any predecessor trustee or to authenticate Securities in the
name of any predecessor trustee shall apply only to its successor or successors
by merger, conversion or consolidation.
SECTION 5.12 Notice of Defaults. If a Default or Event of Default occurs
and is continuing and if a Trust Officer has actual knowledge thereof, the
Trustee shall mail to each Holder notice of the Default or Event of Default
within 90 days after it occurs. Except in the case of a Default or Event of
Default in payment of principal of, or interest on, any Security (including
payments pursuant to the optional redemption or required repurchase provisions
of such Security, if any), the Trustee may withhold the notice if and so long as
its board of directors, the Executive Committee of its board of directors or a
committee of its Trust Officers in good faith determines that withholding the
notice is in the interests of Securityholders.
SECTION 5.13 Reports by the Trustee. The Trustee shall transmit to the
Holders all reports required under Section 313(a) of the Trust Indenture Act.
ARTICLE VI
CONCERNING THE SECURITYHOLDERS
SECTION 6.1 Evidence of Action Taken by Securityholders. Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given or taken by Securityholders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Securityholders in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee. Proof of execution of any instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture and (subject to
Sections 5.1 and 5.2) conclusive in favor of the Trustee and the Company, if
made in the manner provided in this Article.
SECTION 6.2 Proof of Execution of Instruments and of Holding of Securities;
Record Date. Subject to Sections 5.1 and 5.2, the execution of any instrument by
a Securityholder or his agent or proxy may be proved in accordance with such
reasonable rules and regulations as may be prescribed by the Trustee or in such
manner as shall be satisfactory to the Trustee. The holding of Securities shall
be proved by the Security register or by a certificate of the registrar thereof.
The Company may set a record date for purposes of determining the identity of
holders of Securities entitled to vote or consent to any action referred to in
Section 6.1, which record date may be set at any time or from time to time by
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notice to the Trustee, for any date or dates (in the case of any adjournment or
resolicitation) not more than 60 days nor less than five days prior to the
proposed date of such vote or consent, and thereafter, notwithstanding any other
provisions hereof, only holders of Securities of record on such record date
shall be entitled to so vote or give such consent or to withdraw such vote or
consent.
SECTION 6.3 Holders to be Treated as Owners. The Company, the Trustee and
any agents of the Company or the Trustee may deem and treat the person in whose
name any Security shall be registered upon the Security register as the absolute
owner of such Security (whether or not such Security shall be overdue and
notwithstanding any notation of ownership or other writing thereon) for the
purpose of receiving payment of or on account of the principal of and, subject
to the provisions of this Indenture, interest on such Security and for all other
purposes; and neither the Company nor the Trustee nor any agent of the Company
or the Trustee shall be affected by any notice to the contrary; provided,
however, that the Depository, or its nominee, shall be deemed the owner of the
Restricted Global Security, and owners of beneficial interests in the Restricted
Global Security will not be considered the owners of any Securities. All such
payments so made to any such person, or upon his order, shall be valid, and, to
the extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Security.
SECTION 6.4 Securities Owned by Company Deemed Not Outstanding. In
determining whether the holders of the requisite aggregate principal amount of
Securities have concurred in any direction, consent or waiver under this
Indenture, Securities which are owned by the Company or any other obligor on the
Securities or by any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or any other obligor
on the Securities shall be disregarded and deemed not to be outstanding for the
purpose of any such determination, except that for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, consent
or waiver only Securities which the Trustee knows are so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company or any other obligor on the Securities.
In case of a dispute as to such right, the advice of counsel shall be full
protection in respect of any decision made by the Trustee in accordance with
such advice. Upon request of the Trustee, the Company shall furnish to the
Trustee promptly an Officer's Certificate listing and identifying all
Securities, if any, known by the Company to be owned or held by or for the
account of any of the above-described persons; and, subject to Sections 5.1 and
5.2, the Trustee shall be entitled to accept such Officer's Certificate as
conclusive evidence of the facts therein set forth and of the fact that all
Securities not listed therein are outstanding for the purpose of any such
determination.
SECTION 6.5 Right of Revocation of Action Taken. At any time prior to (but
not after) the evidencing to the Trustee, as provided in Section 6.1, of the
taking of any action by the holders of the percentage in aggregate principal
amount of the Securities
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55
specified in this Indenture in connection with such action, any holder of a
Security the serial number of which is shown by the evidence to be included
among the serial numbers of the Securities the holders of which have consented
to such action may, by filing written notice at the Corporate Trust Office and
upon proof of holding as provided in this Article, revoke such action so far as
concerns such Security. Except as aforesaid, any such action taken by the holder
of any Security shall be conclusive and binding upon such holder and upon all
future holders and owners of such Security and of any Securities issued in
exchange or substitution therefor, irrespective of whether or not any notation
in regard thereto is made upon any such Security. Any action taken by the
holders of the percentage in aggregate principal amount of the Securities
specified in this Indenture in connection with such action shall be conclusively
binding upon the Company, the Trustee and the holders of all the Securities.
ARTICLE VII
AMENDMENTS
SECTION 7.1 Without Consent of Holders. The Company and the Trustee may
amend this Indenture or the Securities without notice to or consent of any
Holder:
(a) to cure any ambiguity, omission, defect or inconsistency;
(b) to comply with Article VIII;
(c) to provide for uncertificated Securities in addition to or in place of
certificated Securities; provided, however, that the uncertificated Securities
are issued in registered form for purposes of Section 163(f) of the Code or in a
manner such that the uncertificated Securities are described in Section
163(f)(2)(B) of the Code;
(d) to make any change in Article X that would limit or terminate the
benefits available to any holder of Senior Indebtedness (or Representatives
therefor) under Article X;
(e) to add Guarantees with respect to the Securities or to secure the
Securities;
(f) to add to the covenants of the Company for the benefit of the Holders
or to surrender any right or power herein conferred upon the Company;
(g) to comply with any requirements of the Commission in connection with
qualifying this Indenture under the Trust Indenture Act;
(h) to make any change that does not adversely affect the rights of any
Holder; or
(i) to provide for the issuance of the Conversion Notes, which will have
terms substantially identical in all material respects to the Initial Notes
(except that the transfer restrictions contained in the Initial Notes will be
modified or eliminated, as appropriate), and
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56
which will be treated, together with any outstanding Initial Notes, as a single
issue of securities.
An amendment under this Section 7.1 may not make any change that adversely
affects the rights under Article X of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or any group or
representative thereof authorized to give a consent) consent to such change.
After an amendment under this Section 7.1 becomes effective, the Company
shall mail to each Holder a notice briefly describing such amendment. The
failure to give such notice to all Holders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section 7.1.
SECTION 7.2 With Consent of Holders. The Company and the Trustee may amend
this Indenture or the Securities without notice to any Holder but with the
written consent of the Holders of at least a majority in principal amount of the
Securities. However, without the consent of each Holder affected, an amendment
may not:
(a) reduce the amount of Securities whose Holders must consent to an
amendment;
(b) reduce the rate of or extend the time for payment of interest on any
Security;
(c) reduce the principal of or extend the Stated Maturity of any Security
(d) reduce the premium payable upon the redemption or repurchase of any
Security or change the time at which any Security may or shall be redeemed or
repurchased in accordance with this Indenture;
(e) make any Security payable in money other than that stated in the
Security;
(f) modify or affect in any manner adverse to the Holders, the terms and
conditions of the obligation of the Company for the due and punctual payment of
the principal of or interest on Securities; or
(g) make any change in Section 4.4 or 4.7 or the second sentence of this
Section 7.2.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent approves the substance thereof.
An amendment under this Section 7.2 may not make any change that adversely
affects the rights under Article X of any holder of Senior Indebtedness then
outstanding
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unless the holders of such Senior Indebtedness (or any group or representative
thereof authorized to give a consent) consent to such change.
After an amendment under this Section 7.2 becomes effective, the Company
shall mail to Holders a notice briefly describing such amendment. The failure to
give such notice to all Holders, or any defect therein, shall not impair or
affect the validity of an amendment under this Section 7.2.
SECTION 7.3 Compliance with Trust Indenture Act. Every amendment to this
Indenture or the Securities shall comply with the Trust Indenture Act as then in
effect.
SECTION 7.4 Revocation and Effect of Consents and Waivers. A consent to an
amendment or a waiver by a Holder of a Security shall bind the Holder and every
subsequent Holder of that Security or portion of the Security that evidences the
same debt as the consenting Holder's Security, even if notation of the consent
or waiver is not made on the Security. However, any such Holder or subsequent
Holder may revoke the consent or waiver as to such Holder's Security or portion
of Security if the Trustee receives the notice of revocation before the date the
amendment or waiver becomes effective. After an amendment or waiver becomes
effective, it shall bind every Holder.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to give their consent or take any
other action described above or required or permitted to be taken pursuant to
this Indenture. If a record date is fixed, then notwithstanding the immediately
preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
give such consent or to revoke any consent previously given or to take any such
action, whether or not such Persons continue to be Holders after such record
date. No such consent shall become valid or effective more than 120 days after
such record date.
SECTION 7.5 Notation on or Exchange of Securities. If an amendment changes
the terms of a Security, the Trustee may require the Holder of the Security to
deliver it to the Trustee. The Trustee may place an appropriate notation on the
Security regarding the changed terms and return it to the Holder. Alternatively,
if the Company or the Trustee so determines, the Company in exchange for the
Security shall issue and the Trustee shall authenticate a new Security that
reflects the changed terms. Failure to make the appropriate notation or to issue
a new Security shall not affect the validity of such amendment.
SECTION 7.6 Trustee to Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article VII if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.1) shall be fully protected in relying
upon, an Officer's Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
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ARTICLE VIII
MERGER AND CONSOLIDATION
SECTION 8.1 When Company May Merge, Etc. The Company shall not consolidate
with or merge with or into, or convey, transfer or lease all or substantially
all its assets to, any Person, unless: (i) the resulting, surviving or
transferee Person (the "Successor Company") shall be a Person organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia and the Successor Company (if not the Company) shall
expressly assume, by an indenture supplemental to this Indenture, executed and
delivered to the Trustee, in form reasonably satisfactory to the Trustee, all
the obligations of the Company under the Securities and this Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been incurred by
such Successor Company or such Restricted Subsidiary at the time of such
transaction), no Event of Default shall have occurred and be continuing; (iii)
immediately after giving pro forma effect to such transaction, as if such
transaction had occurred at the beginning of the applicable four-quarter period,
the Successor Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Coverage Ratio test set forth in
Section 3.8(a); and (iv) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
SECTION 8.2 Successor Corporation Substituted. The Successor Company shall
be the successor of the Company and shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture, but
the predecessor Company in the case of a conveyance, transfer or lease shall not
be released from the obligation to pay the principal of and interest on the
Securities.
Such Successor Company may cause to be signed, and may issue either in its
own name or in the name of the Company prior to such succession any or all of
the Securities issuable hereunder which theretofore shall not have been signed
by the Company and delivered to the Trustee; and, upon the order of such
successor corporation, instead of the Company, and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver any Securities which previously shall have been
signed and delivered by the officers of the Company to the Trustee for
authentication, and any Securities which such successor corporation thereafter
shall cause to be signed and delivered to the Trustee for that purpose. All of
the Securities so issued shall in all respects have the same legal rank and
benefit under this Indenture as the Securities theretofore or thereafter issued
in accordance with the terms of this Indenture as though all of such Securities
had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance such
changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
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In the event of any such sale or conveyance (other than a conveyance by way
of lease) the Company or any Successor Company which shall theretofore have
become such in the manner described in this Article shall be discharged from all
obligations and covenants under this Indenture and the Securities and may be
liquidated and dissolved.
ARTICLE IX
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.1 Discharge of Liability on Securities; Defeasance. (a) When (i)
the Company delivers to the Trustee all outstanding Securities (other than
Securities replaced pursuant to Section 2.6) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article XIII and the
Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Securities (other than Securities
replaced pursuant to Section 2.6), including interest thereon to maturity or
such redemption date, and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Section
9.1(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
(accompanied by an Officers' Certificate and an Opinion of Counsel stating that
all conditions precedent specified herein relating to the satisfaction and
discharge of this Indenture have been complied with) and at the cost and expense
of the Company.
(b) Subject to Sections 9.1(c) and 9.2, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture and
all obligations of the Subsidiary Guarantors under the Subsidiary Guarantee and
this Indenture ("legal defeasance option") or (ii) its obligations under
Sections 3.5, 3.7 through 3.18, 8.1(iii) and 8.1(iv) and the operation of
Sections 4.1(d), 4.1(e), 4.1(f), 4.1(g) (but only with respect to a Material
Subsidiary), 4.1(h) (but only with respect to a Material Subsidiary) and 4.1(i)
("covenant defeasance option"); provided, however, no deposit under this Article
IX shall be effective to terminate the obligations of the Company under the
Securities or this Indenture prior to 123 days following any such deposit. The
Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Sections 4.1(d), (e),
(f), (g) (but only with respect to a Material Subsidiary), 4.1(h) (but only with
respect to a Material Subsidiary) and 4.1(i) or because of the failure of the
Company to comply with Section 8.1(iii) and Section 8.1 (iv).
Upon satisfaction of the conditions set forth herein and upon request of
the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
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(c) Notwithstanding the provisions of Sections 9.1(a) and (b), the
Company's obligations in Article II, Sections 5.6, 5.9, 9.4, 9.5 and 9.6 shall
survive until the Securities have been paid in full. Thereafter, the Company's
obligations in Sections 5.6, 9.4 and 9.5 shall survive.
SECTION 9.2 Conditions to Defeasance. The Company may exercise its legal
defeasance option or its covenant defeasance option only if:
(a) the Company irrevocably deposits in trust with the Trustee money or
U.S. Government Obligations for the payment of principal of and interest on the
Securities to maturity or redemption, as the case may be;
(b) the Company delivers to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing their opinion that the
payments of principal and interest when due and without reinvestment of the
deposited U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all the Securities to
maturity or redemption, as the case may be;
(c) no Event of Default shall have occurred or be continuing on the date of
such deposit and 123 days pass after the deposit is made and during the 123-day
period no Default specified in Section 4.1(g) or 4.1(h) with respect to the
Company occurs which is continuing at the end of such period;
(d) the deposit does not constitute a default under any other agreement
binding on the Company and is not prohibited by Article X;
(e) the Company delivers to the Trustee an Opinion of Counsel to the effect
that the trust resulting from the deposit does not constitute, or is qualified
as, a regulated investment company under the Investment Company Act of 1940;
(f) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling, or (B) since the date hereof there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders will not recognize
income, gain or loss for Federal income tax purposes as a result of such
defeasance and will be subject to Federal income tax purposes on the same
amounts, in the same manner and at the same times as would have been the case if
such legal defeasance had not occurred;
(g) in the case of the covenant defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the Holders
will not recognize income, gain or loss for Federal income tax purposes as a
result of such covenant defeasance and will be subject to Federal income tax on
the same amounts, in the same
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manner and at the same times as would have been the case if such covenant
defeasance had not occurred;
(h) The Holders shall have a perfected security interest under applicable
law in the cash or U.S. Government Obligations deposited pursuant to Section
9.2(a);
(i) The Company shall have delivered to the Trustee an Opinion of Counsel,
in form and substance reasonably satisfactory to the Trustee, to the effect
that, after the passage of 123 days following the deposit, the trust funds will
not be subject to any applicable bankruptcy, insolvency, reorganization or
similar law affecting creditors' rights generally;
(j) such defeasance shall not cause the Trustee to have a conflicting
interest with respect to any securities of the Company; and
(k) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to the defeasance
and discharge of the Securities and this Indenture as contemplated by this
Article IX have been complied with.
Before or after a deposit, the Company may make arrangements satisfactory
to the Trustee for the redemption of Securities at a future date in accordance
with Article III.
SECTION 9.3 Application of Trust Money. The Trustee shall hold in trust
money or U.S. Government Obligations deposited with it pursuant to this Article
IX. It shall apply the deposited money and the money from U.S. Government
Obligations through the paying agent and in accordance with this Indenture to
the payment of principal of and interest on the Securities. Money and securities
so held in trust are not subject to Article X.
SECTION 9.4 Repayment to Company. The Trustee and the paying agent shall
promptly turn over to the Company upon request any excess money or securities
held by them upon payment of all the obligations under this Indenture.
Subject to any applicable abandoned property law, the Trustee and the
paying agent shall pay to the Company upon request any money held by them for
the payment of principal of or interest on the Securities that remains unclaimed
for two years, and, thereafter, Holders entitled to the money must look to the
Company for payment as general creditors.
SECTION 9.5 Indemnity for U.S. Government Obligations. The Company shall
pay and shall indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against deposited U.S. Government Obligations or the principal
and interest received on such U.S. Government Obligations.
SECTION 9.6 Reinstatement. If the Trustee or paying agent is unable to
apply any money or U.S. Government Obligations in accordance with this Article
IX by reason of any legal proceeding or by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the
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obligations of the Company and the Subsidiary Guarantors under this Indenture
and the Securities shall be revived and reinstated as though no deposit had
occurred pursuant to this Article IX until such time as the Trustee or paying
agent is permitted to apply all such money or U.S. Government Obligations in
accordance with this Article IX; provided, however, that, if the Company has
made any payment of interest on or principal of any Securities because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money or U.S.
Government Obligations held by the Trustee or paying agent.
ARTICLE X
SUBORDINATION.
SECTION 10.1 Agreement to Subordinate. The Company agrees, and each
Securityholder by accepting a Security agrees, that the payment of the principal
of and interest on the Securities, the payment of all other obligations relating
to the Securities (including prepayment premiums, liquidated damages, fees,
costs, expenses, indemnities and rescission or damage claims) and the payment of
any obligation in respect of any Guarantee of obligations relating to the
Securities (all of the foregoing being collectively referred to as the "Note
Obligations") are subordinate in right of payment, to the extent and in the
manner provided in this Article X, to the prior payment in full of all Senior
Indebtedness and that the subordination is for the benefit of and enforceable by
the holders of Senior Indebtedness. The Securities shall in all respects rank
pari passu with all other Senior Subordinated Indebtedness of the Company, and
only Indebtedness of the Company that is Senior Indebtedness shall rank senior
to the Securities in accordance with the provisions set forth herein. All
provisions of this Article X shall be subject to Section 10.12. For purposes of
this Article X, "payment in full" means payment in cash.
SECTION 10.2 Liquidation, Dissolution, Bankruptcy. Upon any payment,
distribution or other transfer of the assets of the Company or any Guarantor (or
any other payment, distribution or other transfer on behalf of the Company or
any Guarantor from any source) of any kind or character, whether direct or
indirect, by set-off or otherwise, or whether in cash, property or securities
(other than Reorganization Securities) upon any dissolution, winding up, total
or partial liquidation or reorganization of the Company or any Guarantor
(whether voluntary or involuntary, including in bankruptcy, insolvency or
receivership proceedings or upon any assignment for the benefit of creditors or
any other marshalling of the Company's or any Guarantor's assets and
liabilities):
(a) holders of Senior Indebtedness shall be entitled to receive
payment in full of all Senior Indebtedness before Securityholders shall be
entitled to receive any payment or any distribution of cash, securities or
other property with respect to the Note Obligations (other than
Reorganization Securities); and
(b) until the Senior Indebtedness is paid in full, any payment,
distribution or other transfer of assets of the Company or any Guarantor of
any kind or character,
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63
whether direct or indirect, by set-off or otherwise, and whether in cash,
securities or property (other than Reorganization Securities), to which
Securityholders would be entitled but for this Article X shall be made to
holders of Senior Indebtedness as their interests may appear.
SECTION 10.3 Default on Senior Indebtedness. The Company may not, and will
not permit any Guarantor to, make any payment, distribution or other transfer of
the assets of the Company or such Guarantor (or any other payment, distribution
or other transfer on behalf of the Company or any Guarantor from any source) of
any kind, or character, whether direct or indirect, by set-off or otherwise, and
whether in cash, property or securities (other than Reorganization Securities)
in respect of the Note Obligations, or make any deposit pursuant to Section 9.1
and may not, directly or indirectly, repurchase, redeem or otherwise retire any
Securities, whether pursuant to the terms of the Securities or upon acceleration
or otherwise (collectively, "pay the Securities") if (i) all or any portion of
the principal (including any reimbursement obligation) of, premium, if any, or
interest, commitment fee or letter of credit fee on or relating to, any
Designated Senior Indebtedness is not paid when due or (ii) any other default on
Designated Senior Indebtedness occurs and the maturity of such Designated Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
(x) the default has been cured or waived and any such acceleration has been
rescinded or (y) such Designated Senior Indebtedness has been paid in full;
provided, however, that the Company may pay the Securities without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representatives of all Designated Senior Indebtedness with
respect to which either of the events set forth in clause (i) or (ii) of the
immediately preceding sentence has occurred and is continuing. During the
continuance of any default (other than a default described in clause (i) or (ii)
of the preceding sentence) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, neither the
Company nor any other Person may pay the Securities for a period (a "Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written notice (a "Blockage Notice") of such default from the
Representative of any Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing,
or (iii) by repayment in full of such Designated Senior Indebtedness); provided'
however, that so long as there shall remain outstanding any Senior Indebtedness
under the Senior Credit Agreement, a Blockage Notice may be given only by the
Credit Agent unless otherwise agreed to in writing by the lenders named therein.
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first sentence of this section),
the Company may resume payments on the Securities after such Payment Blockage
Period. Not more than one Blockage Notice may be given in any consecutive
360-day period, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period.
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64
SECTION 10.4 Acceleration of Payment of Securities. If payment of the
Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of the Designated Senior Indebtedness
(or their Representatives) of the acceleration. If any Designated Senior
Indebtedness is outstanding, neither the Company nor any other Person may pay
the Securities until five Business Days after the Representatives of all
Designated Senior Indebtedness receive notice of such acceleration and,
thereafter, may pay the Securities only if such payments are otherwise permitted
pursuant to this Article X at such time.
SECTION 10.5 When Distribution Must Be Paid Over. If a distribution is made
to Securityholders that, because of this Article X, should not have been made to
them, the Securityholders who receive the distribution shall hold it in trust
for holders of Senior Indebtedness and pay it over to them as their interests
may appear.
SECTION 10.6 Subrogation. After all Senior Indebtedness is paid in full and
until the Securities are paid in full, Securityholders shall be subrogated to
the rights of holders of Senior Indebtedness to receive distributions applicable
to Senior Indebtedness. A distribution made under this Article X to holders of
Senior Indebtedness which otherwise would have been made to Securityholders is
not, as between the Company and Securityholders, a payment by the Company on
Senior Indebtedness.
SECTION 10.7 Relative Rights. This Article X defines the relative rights of
Securityholders and holders of Senior Indebtedness. Nothing in this Indenture
shall:
(1) impair, as between the Company and Securityholders, the obligation
of the Company, which is absolute and unconditional, to pay principal of
and interest on the Securities in accordance with their terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights hereunder of
holders of Senior Indebtedness to receive any payment, distribution or
transfer otherwise payable to Securityholders.
SECTION 10.8 Subordination May Not Be Impaired By Company. No right of any
holder of Senior Indebtedness to enforce the subordination of the Indebtedness
evidenced by the Securities shall be impaired by any act or failure to act by
the Company or by its failure to comply with this Indenture.
SECTION 10.9 Rights of Trustee and Paying Agent. Notwithstanding Section
10.3, the Trustee or paying agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice that payments may not be made under this Article X. The Company,
the registrar, if any, the paying agent, a Representative or a holder of
Designated Senior Indebtedness may give such notice; provided, however, that, if
an issue
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65
of Designated Senior Indebtedness has a Representative, only the Representative
may give such notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article X with respect to any Senior Indebtedness which may at any time be held
by it, to the same extent as any other holder of Senior Indebtedness; and,
nothing in Article V shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article X shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 5.6.
SECTION 10.10 Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative (if
any).
SECTION 10.11 Article X Not To Prevent Events of Default or Limit Right to
Accelerate. The failure to make a payment pursuant to the Securities by reason
of any provision in this Article X shall not be construed as preventing the
occurrence of a Default. Nothing in this Article X shall have any effect on the
right of the Securityholders or the Trustee to accelerate the maturity of the
Securities.
SECTION 10.12 Trust Moneys Not Subordinated. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust in accordance with Article IX by the
Trustee for the payment of principal of and interest on the Securities shall not
be subordinated to the prior payment of any Senior Indebtedness or subject to
the restrictions set forth in this Article X, and none of the Securityholders
shall be obligated to pay over any such amount to the Company or any holder of
Senior Indebtedness of the Company or any other creditor of the Company.
SECTION 10.13 Trustee Entitled to Rely. Upon any payment or distribution
pursuant to this Article X, the Trustee and the Securityholders shall be
entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 10.2
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Indebtedness and
other Indebtedness of the Company or any Guarantor, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article X. In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Indebtedness to participate in any payment
or distribution pursuant to this Article X, the Trustee may request such Person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and other
facts pertinent to the rights of such Person under this Article X, and, if such
evidence is not furnished, the
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Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment. The provisions of Sections
5.1 and 5.2 shall be applicable to all actions or omissions of actions by the
Trustee pursuant to this Article X.
SECTION 10.14 Trustee to Effectuate Subordination. Each Securityholder by
accepting a Security authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination between the Securityholders and the holders of Senior Indebtedness
as provided in this Article X and appoints the Trustee as attorney-in-fact for
any and all such purposes.
SECTION 10.15 Trustee Not Fiduciary for Holders of Senior Indebtedness. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness and shall not be liable to any such holders if it shall mistakenly,
in the absence of gross negligence or willful misconduct, pay over or distribute
to Securityholders or the Company or any other Person, money or assets to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article X
or otherwise.
SECTION 10.16 Reliance by Holders of Senior Indebtedness on Subordination
Provisions. Each Securityholder by accepting a Security acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
issuance of the Securities, to acquire and continue to hold, or to continue to
hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be
deemed conclusively to have relied on such subordination provisions in acquiring
and continuing to hold, or in continuing to hold, such Senior Indebtedness.
SECTION 10.17 Miscellaneous Subordination Provisions. (a) The subordination
provisions contained herein are solely for the benefit of the holders from time
to time of Senior Indebtedness and their representatives, assignees and
beneficiaries and may not be rescinded, cancelled, amended or modified in any
way other than any amendment or modification that would not adversely affect the
rights of any holder of Senior Indebtedness. No holder of Subordinated
Indebtedness shall subordinate any Subordinated Indebtedness to any indebtedness
or obligation of the Company or any Guarantor other than Senior Indebtedness.
(b) No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or any Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any non-compliance by the Company or any Guarantor with the terms,
provisions and covenants of this Indenture, regardless of any knowledge thereof
any such holder may have or be otherwise charged with.
(c) Without in any way limiting the generality of Section 10.17(b), the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the holders of the Securities, without incurring
responsibility to the holders of the Securities and without impairing or
releasing the subordination provided in this Article X or
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the obligations hereunder of the holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
(d) The subordination provisions of this Article X shall, to the fullest
extent permitted by law, continue to be effective or be reinstated, as the case
may be, if at any time payment and performance of the Senior Indebtedness is,
pursuant to applicable law, avoided, recovered, or rescinded or must otherwise
be restored or returned by any holder of Senior Indebtedness, whether as a
"violable preference," "fraudulent conveyance, "fraudulent transfer," or
otherwise, all as though such payment or performance had not been made.
(e) If, upon any proceeding referred to in Section 10.2, the Trustee does
not file a claim in such proceeding prior to ten Business Days before the
expiration of the time to file such claim, the holders of the Senior
Indebtedness or their agent may file such claim on behalf of the holders of the
Securities.
ARTICLE XI
SUBSIDIARY GUARANTEE
SECTION 11.1 Subsidiary Guarantee. Each Guarantor hereby unconditionally
and irrevocably guarantees (each a "Subsidiary Guarantee") on a senior
subordinated basis to each Holder and to the Trustee and its successors and
assigns all obligations of the Company under this Indenture and the Securities.
The Guarantor further agrees that the obligations of the Company may be extended
or renewed, in whole or in part, without notice or further assent from such
Guarantor, and that such Guarantor will remain bound under this Article XI
notwithstanding any extension or renewal of any such obligation.
Each Guarantor waives presentation to, demand of, payment from and protest
to the Company of any of the Company's obligations and also waives notice of
protest for nonpayment. Each Guarantor waives notice of any default under the
Securities or the Company's obligations. The obligations of any Guarantor
hereunder shall not be affected by (a) the failure of any Holder or the Trustee
to assert any claim or demand or to enforce any right or remedy against the
Company or any other Person under this Indenture, the Securities or any other
agreement or otherwise; (b) any extension or renewal of any thereof; (c) any
rescission, waiver, amendment or modification of any of the terms or provisions
of this Indenture, the Securities or any other agreement; (d) the release of any
security held by any Holder or the trustee for the obligations of the Company or
any of them; (e) the failure of any Holder or Trustee to exercise any right or
remedy against any other guarantor of the obligations of the Company; or (fl any
change in the ownership of such Guarantor.
<PAGE>
68
Each Guarantor further agrees that its Subsidiary Guarantee constitutes a
guarantee of payment, performance and compliance when due (and not a guarantee
of collection) and waives any right to require that any resort be had by any
Holder or the Trustee to any security held for payment of the obligations of the
Company.
Each Guarantor's Subsidiary Guarantee is, to the extent and manner set
forth in Article X, subordinated in right of payment to the prior payment in
full of all Senior Indebtedness of such Guarantor and each such Guarantor's
Subsidiary Guarantee is made subject to such provisions of this Indenture. For
purposes of this Section 11.1, "payment in full," as used with respect to Senior
Indebtedness means the receipt of cash.
The obligations of each Guarantor hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, including any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense of set-off, counterclaim, recoupment or termination
whatsoever or by reason of the invalidity, illegality or unenforceability of the
obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor herein shall not be discharged or impaired or
otherwise affected by the failure of any Holder or the Trustee to assert any
claim or demand or to enforce any remedy under this Indenture, the Securities or
any other agreement, by any waiver or modification of any thereof, by any
default, failure or delay, willful or otherwise, in the performance of the
obligations, or by any other act or thing or omission or delay to do any other
act or thing which may or might in any manner or to any extent vary the risk of
such Guarantor or would otherwise operate as a discharge of such Guarantor as a
matter of law or equity.
Each Guarantor further agrees that its Subsidiary Guarantee shall continue
to be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of principal of or interest on any obligation is rescinded or
must otherwise be restored by any Holder or the Trustee upon the bankruptcy or
reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other right
that any Holder or the Trustee has at law or in equity against any Guarantor by
virtue hereof, upon the failure of the Company to pay the principal of or
interest on any of the Securities when and as the same shall become due, whether
at maturity, by acceleration, by redemption or otherwise, or to perform or
comply with any other monetary obligation of the Company under this Indenture or
the Securities, each Guarantor hereby promises to and will, upon receipt of
written demand by the Trustee, but subject to Article X forthwith pay, or cause
to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of
(i) the unpaid principal amount of such obligations, (ii) accrued and unpaid
interest on such obligations (but only to the extent not prohibited by law) and
(iii) all other monetary obligations of the Company to the Holders and the
Trustee.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all such obligations. Each Guarantor further
agrees that, as between it, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the obligations
<PAGE>
69
guaranteed hereby may be accelerated as provided in Article IV for the purposes
of such Guarantor's Subsidiary Guarantee, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article IV, such obligations (whether or not due
and payable) shall forthwith become due and payable by the Guarantor for the
purposes of this Section.
Each Guarantor also agrees to pay any and all costs and expenses (including
reasonable counsels' fees and expenses) incurred by the Trustee or any Holder in
enforcing any rights under this section with respect to such Guarantor.
SECTION 11.2 Limitation on Liability. Any term or provision of this
Indenture to the contrary notwithstanding, the maximum, aggregate amount of the
obligations guaranteed hereunder by any Guarantor shall not exceed the maximum
amount that can, after giving effect to all other contingent and fixed
liabilities of such Guarantor be hereby guaranteed without rendering this
Indenture, as it relates to such Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
SECTION 11.3 Successors and Assigns. This Article XI shall be binding upon
each Guarantor and its respective successors and assigns and shall enure to the
benefit of the successors and assigns of the Trustee and the Holders and, in the
event of any transfer or assignment of rights by any Holder or the Trustee, the
rights and privileges conferred upon that party in this Indenture and in the
Securities shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions of this Indenture.
SECTION 11.4 No Waiver. Neither a failure nor a delay on the part of either
the Trustee or the Holders in exercising any right, power or privilege under
this Article XI shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The rights, remedies and benefits of the trustee and the Holders
herein expressly specified are cumulative and not exclusive of any other rights,
remedies or benefits which either may have under this Article XI at law, in
equity, by statute or otherwise.
SECTION 11.5 Modification. No modification, amendment or waiver of any
provision of this Article XI, nor the consent to any departure by any Guarantor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Trustee, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No notice to
or demand on any Guarantor in any case shall entitle such Guarantor to any other
or further notice or demand in the same, similar or other circumstance.
SECTION 11.6 Release. If at any time shares of the Capital Stock of any
Guarantor shall be sold in a transaction the Net Cash Proceeds of which are
applied in accordance with the provisions of Section 3.12 which results in such
Guarantor no longer constituting a Subsidiary, the Trustee is hereby authorized
and directed to execute and deliver
<PAGE>
70
a release of such Guarantor from its obligations and liabilities under this
Article XI upon receipt by the Trustee of reasonable evidence of compliance with
the requirements of this Section 11.6.
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.1 Incorporators, Officers and Directors of Company Exempt from
Individual Liability. No recourse under or upon any obligation, covenant or
agreement contained in this Indenture, or in any Security, or because of any
indebtedness evidenced thereby, shall be had against any incorporator, as such
or against any past, present or future stockholder, officer or director, as
such, of the Company or of any successor, either directly or through the Company
or any successor, under any rule of law, statute or constitutional provision or
by the enforcement of any assessment or by any legal or equitable proceeding or
otherwise, all such liability being expressly waived and released by the
acceptance of the Securities by the holders thereof and as part of the
consideration for the issue of the Securities.
SECTION 12.2 Provisions of Indenture for the Sole Benefit of Parties and
Securityholders. Nothing in this Indenture or in the Securities, expressed or
implied, shall give or be construed to give to any person, firm or corporation,
other than the parties hereto and their successors and the holders of the
Securities, any legal or equitable right, remedy or claim under this Indenture
or under any covenant or provision herein contained, all such covenants and
provisions being for the sole benefit of the parties hereto and their successors
and of the holders of the Securities, except that the provisions of Article X
hereof are included herein for the benefit of the holders of Senior
Indebtedness.
SECTION 12.3 Successors and Assigns of Company Bound by Indenture. All the
covenants, stipulations, promises and agreements in this Indenture contained by
or in behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 12.4 Notices and Demands on Company, Trustee and Securityholders.
Any notice or demand which by any provision of this Indenture is required or
permitted to be given or served by the Trustee or by the holders of Securities
to or on the Company may be given or served by being deposited postage prepaid,
first-class mail (except as otherwise specifically provided herein) addressed
(until another address of the Company is filed by the Company with the Trustee)
to Schein Pharmaceutical, Inc., 100 Campus Drive, Florham Park, NJ 07932, Chief
Financial Officer with a copy to the General Counsel. Any notice, direction,
request or demand by the Company or any Securityholder to or upon the Trustee
shall be deemed to have been sufficiently given or made, for all purposes, if
given or made at the Corporate Trust Office.
Where this Indenture provides for notice to Holders, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed,
<PAGE>
71
first-class postage prepaid, to each Holder entitled thereto, at his last
address as it appears in the Security register. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in regular mail
service, it shall be impracticable to mail notice to the Company and
Securityholders when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.
SECTION 12.5 Officers' Certificates and Opinions of Counsel; Statements to
Be Contained Therein. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or demand, no additional
certificate or opinion need be furnished.
Each certificate or opinion provided for in this Indenture and delivered to
the Trustee with respect to compliance with a condition or covenant provided for
in this Indenture shall include (a) a statement that the person making such
certificate or opinion has read such covenant or condition, (b) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with and (d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of
or representations by counsel, unless such officer knows that the certificate or
opinion or representations with respect to the matters upon which his
certificate, statement or opinion may be based as aforesaid are erroneous, or in
the exercise of reasonable care should know that the same are erroneous. Any
certificate, statement or opinion of counsel may be based, insofar as it relates
to factual matters and information in the possession of the Company, upon the
certificate, statement or opinion of or representations by an officer or
officers of the Company, unless such counsel knows that the certificate,
statement or opinion or representations with respect to
<PAGE>
72
the matters upon which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable care should know that
the same are erroneous.
Any certificate, statement or opinion of an officer of the Company or of
counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Company, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm of public accountants
filed with the Trustee shall contain a statement that such firm is independent.
SECTION 12.6 Payments Due on Saturdays; Sundays and Holidays. If the date
of maturity of interest on or principal of the Securities or the date fixed for
redemption of any Security shall not be a Business Day, then payment of interest
or principal need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest shall accrue for the
period after such date.
SECTION 12.7 Conflict of Any Provision of Indenture with Trust Indenture
Act. If and to the extent that any provision of this Indenture limits, qualifies
or conflicts with another provision included in this Indenture by operation of
Sections 310 to 317, inclusive, of the Trust Indenture Act (an "incorporated
provisions), such incorporated provision shall control.
SECTION 12.8 APPLICABLE LAW. THIS INDENTURE AND EACH SECURITY SHALL BE
DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL
PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 12.8 Counterparts. This Indenture may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
SECTION 12.9 Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
<PAGE>
73
ARTICLE XIII
REDEMPTION OF SECURITIES
SECTION 13.1 Right of Optional Redemption; Prices. At any time or from time
to time prior to the date which is two years after the Issue Date the Company
may redeem Securities having a principal amount of up to 35% of the original
aggregate principal amount of the Securities within 60 days following one or
more Public Equity Offerings with the net proceeds of such offerings at a
redemption price equal to 110.0% of the principal amount thereof, together with
the accrued and unpaid interest, if any, to the date of redemption (subject to
the right of holders of record on relevant record dates to receive interest due
on relevant interest payment dates); provided that immediately after giving
effect to each such redemption, at least 65% of the original aggregate principal
amount of the Securities remains outstanding.
SECTION 13.2 Applicability of Article. Redemption of Securities at the
election of the Company or otherwise, as permitted or required by any provision
of this Indenture, shall be made in accordance with such provision and this
Article.
SECTION 13.3 Election to Redeem; Notice to Trustee. The election of the
Company to redeem any Securities pursuant to Section 13.1 shall be evidenced by
a resolution of the Board of Directors. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
redemption date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such redemption date and of
the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 13.4(e).
SECTION 13.4 Notice of Redemption; Partial Redemptions. (a) Notice of
redemption to the holders of Securities to be redeemed as a whole or in part
shall be given by mailing notice of such redemption by first class mail, postage
prepaid, at least 30 days and not more than 60 days prior to the date fixed for
redemption to such holders of Securities at their last addresses as they shall
appear upon the registry books. Any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the holder receives the notice. Failure to give notice by mail, or any defect in
the notice to the holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
(b) The notice of redemption to each such holder shall specify the
principal amount of each Security held by such holder to be redeemed, the date
fixed for redemption, the redemption price, the place or places of payment, that
payment will be made upon presentation and surrender of such Securities, that
such redemption is pursuant to the mandatory or optional sinking fund, or both
if such be the case, that interest accrued to the date fixed for redemption will
be paid as specified in said notice and that on and after said date interest
thereon or on the portions thereof to be redeemed will cease to accrue. In case
any Security is to be redeemed in part only the notice of redemption shall state
the portion of
<PAGE>
74
the principal amount thereof to be redeemed and shall state that on and after
the date fixed for redemption, upon surrender of such Security, a new Security
or Securities in principal amount equal to the unredeemed portion thereof will
be issued.
(c) The notice of redemption of Securities to be redeemed at the option of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
(d) At least one business day prior to the redemption date specified in the
notice of redemption given as provided in this Section, the Company will deposit
with the Trustee or with one or more paying agents (or, if the Company is acting
as its own paying agent, set aside, segregate and hold in trust as provided in
Section 3.4) an amount of money sufficient to redeem on the redemption date all
the Securities so called for redemption at the appropriate redemption price,
together with accrued interest to the date fixed for redemption. If less than
all the outstanding Securities are to be redeemed the Company will deliver to
the Trustee at least 60 days prior to the date fixed for redemption an Officers'
Certificate stating the aggregate principal amount of Securities to be redeemed.
(e) The Trustee shall select the Securities or portions thereof, either pro
rata or by such method as the Trustee shall deem fair and appropriate,
securities to be redeemed in whole or in part. Securities may be redeemed in
part in multiples of $1,000 only. The Trustee shall, upon the request of the
Company, promptly notify the Company in writing of the Securities selected for
redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed. For all purposes of this Indenture,
unless the context otherwise requires, all provisions relating to the redemption
of Securities shall relate, in the case of any Security redeemed or to be
redeemed only in part, to the portion of the principal amount of such Security
which has been or is to be redeemed.
SECTION 13.5 Payment of Securities Called for Redemption. (a) If notice of
redemption has been given as above provided, the Securities or portions of
Securities specified in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable redemption price, together
with interest accrued to the date fixed for redemption, and on and after said
date (unless the Company shall default in the payment of such Securities at the
redemption price, together with interest accrued to said date) interest on the
Securities or portions of Securities so called for redemption shall cease to
accrue and, except as provided in Sections 5.5 and 9.6, such Securities shall
cease from and after the date fixed for redemption to be entitled to any benefit
or security under this Indenture, and the holders thereof shall have no right in
respect of such Securities except the right to receive the redemption price
thereof and unpaid interest to the date fixed for redemption. On presentation
and surrender of such Securities at a place of payment specified in said notice,
said Securities or the specified portions thereof shall be paid and redeemed by
the Company at the applicable redemption price, together with interest accrued
thereon to the date fixed for redemption; provided that any semi-annual payment
of interest becoming due on the date fixed for redemption shall be payable to
the holders of such Securities registered as such on the relevant record date
subject to the terms and provisions of Section 2.4.
<PAGE>
75
(b) If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate borne
by the Security.
(c) Upon presentation of any Security redeemed in part only, the Company
shall execute and the Trustee shall authenticate and deliver to or on the order
of the holder thereof, at the expense of the Company, a new Security or
Securities, of authorized denominations, in principal amount equal to the
unredeemed portion of the Security so presented.
SECTION 13.6 Exclusion of Certain Securities from Eligibility for Selection
for Redemption. Securities shall be excluded from eligibility for selection for
redemption if they are identified by registration and certificate number in a
written statement signed by an authorized officer of the Company and delivered
to the Trustee at least 40 days prior to the last date on which notice of
redemption may be given as being owned of record and beneficially by, and not
pledged or hypothecated by either (a) the Company or (b) an entity specifically
identified in such written statement directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company.
<PAGE>
76
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date and year first above mentioned.
SCHEIN PHARMACEUTICAL, INC.
By:________________________
Title:
[list each Subsidiary]
By:________________________
Name:
Title:
___________________________
as Trustee
By:________________________
Name:
Title:
<PAGE>
77
STATE OF___________)
) :ss
COUNTY OF__________)
On the ____ day of January, 1998 before me personally came
_________________to me known, who, being by me duly sworn, did depose and say
that he is Chief Financial Officer of Schein Pharmaceutical, Inc., a Delaware
corporation; and that he signed his name thereto on behalf of such corporation.
___________________________________
Notary Public in and for The
State of New Jersey
Name:______________________________
My Commission Expires:
___________________________________
<PAGE>
EXHIBIT A
[FORM OF FACE OF INITIAL NOTE]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT) (AN "ACCREDITED INSTITUTION") OR (C) IT IS NOT A U.S. PERSON AND
IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION AND (2) AGREES THAT IT
WILL NOT, WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY,
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO SCHEIN PHARMACEUTICAL,
INC. (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, (C) TO AN ACCREDITED INSTITUTION THAT, PRIOR TO
SUCH TRANSFER, FURNISHES (OR
<PAGE>
HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT. IN CONNECTION WITH ANY TRANSFER OF THIS
SECURITY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE HEREOF, IF THE PROPOSED
TRANSFEREE IS AN ACCREDITED INSTITUTION, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT.
CUSIP NO.
No. $
SCHEIN PHARMACEUTICAL, INC.
Senior Subordinated Conversion Notes due 20__
Schein Pharmaceutical, Inc., a Delaware corporation (the "Company"), for
value received hereby promises to pay to or registered assigns the principal sum
of ___________ Dollars on [five years from the date of issue], in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest at
a rate per annum equal to the greatest of (i) the Treasury Rate (as defined
below) on the date of issuance of this Security plus 6.00% and (ii) the Bear
Stearns High Yield Single B Index Rate on the date of issuance of this Security
plus 1.75%; for purposes hereof, the "Treasury Rate" means (x) the rate borne by
direct obligations of the United States maturing on the fifth anniversary of the
date of issuance of this Security or (y) if there are no such obligations, the
rate determined by linear interpolation between the rates borne by the two
direct obligations of the United States maturing closest to, but straddling the
fifth anniversary of the date of issuance of this Security, in each case as
published by the Board of Governors.
The Company shall pay interest semiannually on February 1 and August 1, of
each year, commencing with August 1, 199_. Interest on the Securities will
accrue from the most recent interest payment date to which interest on the
Securities has been paid or duly provided for, or if no interest has been paid
or duly provided for on the Securities, from [date of issue], until payment of
said principal sum has been made or duly provided for. Notwithstanding the
foregoing, if the date hereof is after January 15 or July 15, as the case
A-2
<PAGE>
may be, and before the following February 1 or August 1, this Security shall
bear interest from such February 1 or August 1; provided that if the Company
shall default in the payment of interest due on such February 1 or August 1,
then this Security shall bear interest from the next preceding February 1 or
August 1 to which interest on the Securities has been paid or duly provided for,
or, if no interest has been paid or duly provided for on the Securities since
the original issue date of this Security. The interest so payable on any
February 1 or August 1 will, except as otherwise provided in the Indenture
referred to on the reverse hereof, be paid to the person in whose name this
Security is registered at the close of business on the January 15 or July 15
preceding such February 1 or August 1, whether or not such day is a business
day; provided that interest may be paid, at the option of the Company, by
mailing a check therefor payable to the registered holder entitled thereto at
his last address as it appears on the Security register.
Interest on this Security will be calculated on the basis of a 360-day
year, consisting of twelve 30-day months.
Reference is made to the further provisions set forth on the reverse
hereof. Such further provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Security shall not be valid or obligatory until the certificate of
authentication hereon shall have been duly signed by the Trustee acting under
the Indenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
SCHEIN PHARMACEUTICAL, INC.
[Seal]
By:________________________________
________________________________
A-3
<PAGE>
[FORM OF REVERSE OF INITIAL NOTE]
SCHEIN PHARMACEUTICAL, INC.
Senior Subordinated Conversion Notes due 2003
This Security is one of a duly authorized issue of debt securities of the
Company, limited to the aggregate principal amount of $103,500,000 (except as
otherwise provided in the Indenture mentioned below), issued or to be issued
pursuant to an Indenture dated as of ________________ , 199_ (the "Indenture"),
duly executed and delivered by the Company and the Guarantors to the Trustee
(herein called the "Trustee"). The terms of the Securities include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as in effect on the date of the Indenture (the "Trust
Indenture Act"). Capitalized terms used herein and not defined have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms
and Securityholders are referred to the Indenture and the Trust Indenture Act
for a statement of those terms. The terms of the Indenture shall govern any
inconsistencies between the Indenture and the Securities.
This Security is one of the Initial Notes referred to in the Indenture. The
Securities include the Initial Notes and the Conversion Notes issued in exchange
for the Initial Notes pursuant to the Indenture and the Registration Rights
Agreement. The Initial Notes and the Conversion Notes are treated as a single
class of securities under the Indenture.
Each Guarantor (on a senior subordinated basis) has jointly and severally
guaranteed, pursuant to Article XI of the Indenture, the due and punctual
payment of the principal of, premium (if any) and interest on the Securities and
all other amounts payable by the Company under the Indenture and the Securities
when and as the same shall be due and payable, whether at maturity, by
acceleration or otherwise, according to the terms of the Securities and the
Indenture.
The Securities are subordinated to Senior Indebtedness. To the extent
provided in the Indenture, Senior Indebtedness must be paid before the
Securities may be paid. The Company, the Guarantors and each Securityholder by
accepting a Security agree to the subordination provisions contained in Article
X of the Indenture and authorize the Trustee to give them effect and appoint the
Trustee as attorney-in-fact for such purpose.
The Securities will bear interest at the rate per annum set forth on the
face of this Security.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all the Securities may be declared
due and payable, in the manner and with the effect, and subject to the
conditions, provided in the Indenture. The Indenture provides that in certain
events such declaration and its consequences may be waived by the holders of a
majority in aggregate principal amount of the Securities then outstanding and
that, prior to any such declaration, such holders may waive any past default
under the Indenture and its consequences except a default in the payment of
principal of or premium, if any, or interest on any of the Securities. Any such
consent or waiver by the holder of this
A-4
<PAGE>
Security (unless revoked as provided in the Indenture) shall be conclusive and
binding upon such holder and upon all future holders and owners of this Security
and any Security which may be issued in exchange or substitution herefor,
whether or not any notation thereof is made upon this Security or such other
Securities.
Subject to certain exceptions set forth in the Indenture, the Indenture or
the Securities may be amended with the written consent of the Holders of at
least a majority in outstanding principal amount of the Securities; provided
that no such amendment shall (a) reduce the amount of Securities whose Holders
must consent to an amendment; (b) reduce the rate of or extend the time for
payment of interest on any Security; (c) reduce the principal of or extend the
Stated Maturity of any Security; (d) reduce the premium payable upon the
redemption or repurchase of any Security or change the time at which any
Security may or shall be redeemed or repurchased in accordance with this
Indenture; (e) make any Security payable in money other than that stated in the
Security; (f) modify or affect in any manner adverse to the Holders the terms
and conditions of the obligation of the Company for the due and punctual payment
of the principal of or interest on Securities; or (g) make any change in Section
4.4 or 4.7 of the Indenture or the second sentence of Section 7.2 of the
Indenture, without the consent of each holder of Securities affected by such
amendment.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligations of the Company or the
Guarantors, which are absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Security at the place, times, and rate,
and in the currency, herein prescribed.
The Securities are issuable only as registered Securities without coupons
in denominations of $1,000 and any multiple of $1,000.
The Securities may be exchanged for a like aggregate principal amount of
Securities of other authorized denominations in accordance with and subject to
the limitations provided in the Indenture.
Upon due presentment for registration of transfer of this Security, a new
Security or Securities of authorized denominations, for a like aggregate
principal amount, will be issued to the transferee as provided in the Indenture.
No service charge shall be made for any such transfer, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto.
At any time or from time to time prior to the date which is two years after
the Issue Date the Company may redeem Securities having a principal amount of up
to 35% of the original aggregate principal amount of the Securities within 60
days following one or more Public Equity Offerings with the net proceeds of such
offerings at a redemption price equal to 110.0% of the principal amount thereof,
together with the accrued and unpaid interest, if any, to the date of redemption
(subject to the right of Holders of record on relevant record dates to receive
interest due on relevant interest payment dates); provided that immediately
after giving effect to each such redemption, at least 65% of the original
aggregate principal amount of the Securities remains outstanding.
A-5
<PAGE>
Subject to payment by the Company of a sum sufficient to pay the amount due
on redemption, interest on this Security (or portion hereof if this Security is
redeemed in part) shall cease to accrue upon the date duly fixed for redemption
of this Security (or portion hereof if this Security is redeemed in part).
The election of the Company to redeem any Securities pursuant to Section
13.1 of the Indenture shall be evidenced by a resolution of the Board of
Directors. In case of any redemption at the election of the Company, the Company
shall, at least 60 days prior to the redemption date fixed by the Company
(unless a shorter notice shall be satisfactory to the Trustee), notify the
Trustee of such redemption date and of the principal amount of Securities to be
redeemed and shall deliver to the Trustee such documentation and records as
shall enable the Trustee to select the Securities to be redeemed pursuant to
Section 13.4(e) of the Indenture.
In the event of a Change of Control, the Company will make a Change of
Control Offer to purchase all of the Securities outstanding at a price equal to
101% of the principal amount of the Securities to be repurchased plus accrued
and unpaid interest thereon to the date of purchase, pursuant to an offer made
in conformity with the procedures set forth in Section 3.15 of the Indenture.
In the event of certain Asset Dispositions, subject to certain conditions,
the Company will make an Offer to purchase an aggregate principal amount of
Securities outstanding equal to the amount of Net Available Cash at a price
equal to 100% of the principal amount of the Securities to be repurchased plus
accrued and unpaid interest thereon to the date of purchase.
The Company, the Trustee, and any authorized agent of the Company or the
Trustee may deem and treat the registered Holder hereof as the absolute owner of
this Security (whether or not this Security shall be overdue and notwithstanding
any notation of ownership or other writing hereon made by anyone other than the
Company or the Trustee or any authorized agent of the Company or the Trustee),
for the purpose of receiving payment of, or on account of, the principal hereof
and premium, if any, and, subject to the provisions on the face hereof, interest
hereon and for all other purposes, and neither the Company nor the Trustee nor
any authorized agent of the Company or the Trustee shall be affected by any
notice to the contrary. So long as the Depository, or its nominee, is the
registered holder of the Restricted Global Security for the Initial Notes, the
Depository, or its nominee, will be considered the absolute owner of the Initial
Notes represented by the Restricted Global Security for all purposes under the
Indenture and this Security. Owners of beneficial interests in the Restricted
Global Security will not be considered the owners or Holders of any Securities.
The Securities are subject to defeasance as described in the Indenture.
No recourse shall be had for the payment of the principal of and premium,
if any, or the interest on this Security, for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture or any
indenture supplemental thereto, against any incorporator, shareholder, officer
or director, as such, past, present or future, of
A-6
<PAGE>
the Company or of any successor corporation, either directly or through the
Company or any successor corporation, whether by virtue of any constitution,
statute or rule of law or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
A-7
<PAGE>
[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEES]
Each Guarantor has unconditionally and irrevocably guaranteed, to the
extent set forth in the Indenture and subject to the provisions in the
Indenture, on a senior subordinated basis to each Holder and to the Trustee and
its successors and assigns all obligations of the Company under this Indenture
and the Securities. Each Guarantor has further agreed that the obligations of
the Company may be extended or renewed, in whole or in part, without notice or
further assent from such Guarantor, and that such Guarantor will remain bound
under Article XI of the Indenture notwithstanding any extension or renewal of
any such obligation.
The obligations of the Guarantors to the holders of Securities and to the
Trustee pursuant to the Subsidiary Guarantees and the Indenture are expressly
set forth in Article XI of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Subsidiary Guarantees.
[LIST OF SUBSIDIARIES]
By:_______________________________
Name:
Title:
Attest:
By:________________________
Name:
Title:
A-8
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned Indenture.
Dated:
___________________________________
as Trustee
By:________________________________
Authorized Signatory
A-9
<PAGE>
[ASSIGNMENT FORM]
For value received____________________________________________________
hereby sells, assigns and transfers unto
____________________________________________________________
____________________________________________________________
Please insert social security or other identifying number of
assignee
Please print or typewrite name and address including zip code of
assignee:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
the within Security and does hereby irrevocably constitute and appoint
_____________________________________ Attorney to transfer the Security on the
books of the Company with full power of substitution in the premises.
Date:____________ Your Signature:_____________________________________
(Sign exactly as name appears
on the other side of this Security)
A-10
<PAGE>
EXHIBIT B
[FORM OF FACE OF CONVERSION NOTE]
CUSIP NO.
No. $
SCHEIN PHARMACEUTICAL, INC.
Senior Subordinated Conversion Notes due 20__
Schein Pharmaceutical, Inc., a Delaware corporation (the "Company"), for
value received hereby promises to pay to or registered assigns the principal sum
of Dollars on [five years from the date of issue], in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest at
a rate per annum equal to the greatest of (i) the Treasury Rate (as defined
below) on the date of issuance of this Security plus 6.00% and (ii) the Bear
Stearns High Yield Single B Index Rate on the date of issuance of this Security
plus 1.75%; for purposes hereof, the "Treasury Rate" means (x) the rate borne by
direct obligations of the United States maturing on the fifth anniversary of the
date of issuance of this Security or (y) if there are no such obligations, the
rate determined by linear interpolation between the rates borne by the two
direct obligations of the United States maturing closest to, but straddling the
fifth anniversary of the date of issuance of this Security, in each case as
published by the Board of Governors of the Federal Reserve System.
The Company shall pay interest semiannually on February 1 and August 1, of
each year, commencing with August 1, 199_. Interest on the Securities will
accrue from the most recent interest payment date to which interest on the
Securities has been paid or duly provided for, or if no interest has been paid
or duly provided for on the Securities, from [date of issue], until payment of
said principal sum has been made or duly provided for. Notwithstanding the
foregoing, if the date hereof is after January 15 or July 15, as the case may
be, and before the following February 1 or August 1, this Security shall bear
interest from such February 1 or August 1; provided that if the Company shall
default in the payment of interest due on such February 1 or August 1, then this
Security shall bear interest from the next preceding February l or August 1 to
which interest on the Securities has been paid or duly provided for, or, if no
interest has been paid or duly provided for on the Securities since the original
issue date of this Security. The interest so payable on any February l or August
1 will, except as otherwise provided in the Indenture referred to on the reverse
hereof, be paid to the person in whose name this Security is registered at the
close of business on the January 15 or July 15 preceding such February 1 or
August 1, whether or not such day is a business day; provided that interest may
be paid, at the option of the Company, by mailing a check therefor payable to
the registered holder entitled thereto at his last address as it appears on the
Security register.
B-1
<PAGE>
Interest on this Security will be calculated on the basis of a 360-day
year, consisting of twelve 30-day months.
Reference is made to the further provisions set forth on the reverse
hereof. Such further provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Security shall not be valid or obligatory until the certificate of
authentication hereon shall have been duly signed by the Trustee acting under
the Indenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
SCHEIN PHARMACEUTICAL, INC.
[Seal]
By:________________________________
___________________________________
B-2
<PAGE>
[FORM OF REVERSE OF CONVERSION NOTE]
SCHEIN PHARMACEUTICAL, INC.
___% Senior Subordinated Conversion Notes due 2003
This Security is one of a duly authorized issue of debt securities of the
Company, limited to the aggregate principal amount of $103,500,000 (except as
otherwise provided in the Indenture mentioned below), issued or to be issued
pursuant to an Indenture dated as of ______, 199_ (the "Indenture"), duly
executed and delivered by the Company and the Guarantors to ____________,
Trustee (herein called the "Trustee"). The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as in effect on the date of the Indenture (the
"Trust Indenture Act"). Capitalized terms used herein and not defined have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms and Securityholders are referred to the Indenture and the Trust
Indenture Act for a statement of those terms. The terms of the Indenture shall
govern any inconsistencies between the Indenture and the Securities.
This Security is one of the Conversion Notes referred to in the Indenture.
Each Guarantor (on a senior subordinated basis) has jointly and severally
guaranteed, pursuant to Article XI of the Indenture, the due and punctual
payment of the principal of, premium (if any) and interest on the Securities and
all other amounts payable by the Company under the Indenture and the Securities
when and as the same shall be due and payable, whether at maturity, by
acceleration or otherwise, according to the terms of the Securities and the
Indenture.
The Securities are subordinated to Senior Indebtedness. To the extent
provided in the Indenture, Senior Indebtedness must be paid before the
Securities may be paid. The Company, the Guarantors and each Securityholder by
accepting a Security agree to the subordination provisions contained in Article
X of the Indenture and authorize the Trustee to give them effect and appoint the
Trustee as attorney-in-fact for such purpose.
The Securities will bear interest at the rate per annum set forth on the
face of this Security.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all the Securities may be declared
due and payable, in the manner and with the effect, and subject to the
conditions, provided in the Indenture. The Indenture provides that in certain
events such declaration and its consequences may be waived by the holders of a
majority in aggregate principal amount of the Securities then outstanding and
that, prior to any such declaration, such holders may waive any past default
under the Indenture and its consequences except a default in the payment of
principal of or premium, if any, or interest on any of the Securities. Any such
consent or waiver by the holder of this
B-3
<PAGE>
Security (unless revoked as provided in the Indenture) shall be conclusive and
binding upon such holder and upon all future holders and owners of this Security
and any Security which may be issued in exchange or substitution herefor,
whether or not any notation thereof is made upon this Security or such other
Securities.
Subject to certain exceptions set forth in the Indenture, the Indenture or
the Securities may be amended with the written consent of the Holders of at
least a majority in outstanding principal amount of the Securities; provided
that no such amendment shall (a) reduce the amount of Securities whose Holders
must consent to an amendment; (b) reduce the rate of or extend the time for
payment of interest on any Security; (c) reduce the principal of or extend the
Stated Maturity of any Security; (d) reduce the premium payable upon the
redemption or repurchase of any Security or change the time at which any
Security may or shall be redeemed or repurchased in accordance with this
Indenture; (e) make any Security payable in money other than that stated in the
Security; (f) modify or affect in any manner adverse to the Holders the terms
and conditions of the obligation of the Company for the due and punctual payment
of the principal of or interest on Securities; or (g) make any change in Section
4.4 or 4.7 of the Indenture or the second sentence of Section 7.2 of the
Indenture, without the consent of each holder of Securities affected by such
amendment.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligations of the Company or the
Guarantors, which are absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Security at the place, times, and rate,
and in the currency, herein prescribed.
The Securities are issuable only as registered Securities without coupons
in denominations of $1,000 and any multiple of $1,000.
The Securities may be exchanged for a like aggregate principal amount of
Securities of other authorized denominations in accordance with and subject to
the limitations provided in the Indenture.
Upon due presentment for registration of transfer of this Security, a new
Security or Securities of authorized denominations, for a like aggregate
principal amount, will be issued to the transferee as provided in the Indenture.
No service charge shall be made for any such transfer, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto.
At any time or from time to time prior to the date which is two years from
the Issue Date the Company may redeem Securities having a principal amount of up
to 35% of the original aggregate principal amount of the Securities within 60
days following one or more Public Equity Offerings with the net proceeds of such
offerings at a redemption price equal to 110.0% of the principal amount thereof,
together with the accrued and unpaid interest, if any, to the date of redemption
(subject to the right of holders of record on relevant record dates to receive
interest due on relevant interest payment dates); provided that
B-4
<PAGE>
immediately after giving effect to each such redemption, at least 65% of the
original aggregate principal amount of the Securities remains outstanding.
Subject to payment by the Company of a sum sufficient to pay the amount due
on redemption, interest on this Security (or portion hereof if this Security is
redeemed in part) shall cease to accrue upon the date duly fixed for redemption
of this Security (or portion hereof if this Security is redeemed in part).
The election of the Company to redeem any Securities pursuant to Section
13.1 of the Indenture shall be evidenced by a resolution of the Board of
Directors. In case of any redemption at the election of the Company, the Company
shall, at least 60 days prior to the redemption date fixed by the Company
(unless a shorter notice shall be satisfactory to the Trustee), notify the
Trustee of such redemption date and of the principal amount of Securities to be
redeemed and shall deliver to the Trustee such documentation and records as
shall enable the Trustee to select the Securities to be redeemed pursuant to
Section 13.4(e) of the Indenture.
In the event of a Change of Control, the Company will make a Change of
Control Offer to purchase all of the Securities outstanding at a price equal to
101% of the principal amount of the Securities to be repurchased plus accrued
and unpaid interest thereon to the date of purchase, pursuant to an offer made
in conformity with the procedures set forth in Section 3.15 of the Indenture.
In the event of certain Asset Dispositions, subject to certain conditions,
the Company will make an Offer to purchase an aggregate principal amount of
Securities outstanding equal to the amount of Net Available Cash at a price
equal to 100% of the principal amount of the Securities to be repurchased plus
accrued and unpaid interest thereon to the date of purchase.
The Company, the Trustee, and any authorized agent of the Company or the
Trustee may deem and treat the registered Holder hereof as the absolute owner of
this Security (whether or not this Security shall be overdue and notwithstanding
any notation of ownership or other writing hereon made by anyone other than the
Company or the Trustee or any authorized agent of the Company or the Trustee),
for the purpose of receiving payment of, or on account of, the principal hereof
and premium, if any, and, subject to the provisions on the face hereof, interest
hereon and for all other purposes, and neither the Company nor the Trustee nor
any authorized agent of the Company or the Trustee shall be affected by any
notice to the contrary.
The Securities are subject to defeasance as described in the Indenture.
No recourse shall be had for the payment of the principal of and premium,
if any, or the interest on this Security, for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture or any
indenture supplemental thereto,
B-5
<PAGE>
against any incorporator, shareholder, officer or director, as such, past,
present or future, of the Company or of any successor corporation, either
directly or through the Company or any successor corporation, whether by virtue
of any constitution, statute or rule of law or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.
B-6
<PAGE>
[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEES]
Each Guarantor has unconditionally and irrevocably guaranteed, to the
extent set forth in the Indenture and subject to the provisions in the
Indenture, on a senior subordinated basis to each Holder and to the Trustee and
its successors and assigns all obligations of the Company under this Indenture
and the Securities. Each Guarantor has further agreed that the obligations of
the Company may be extended or renewed, in whole or in part, without notice or
further assent from such Guarantor, and that such Guarantor will remain bound
under Article XI of the Indenture notwithstanding any extension or renewal of
any such obligation.
The obligations of the Guarantors to the holders of Securities and to the
Trustee pursuant to the Subsidiary Guarantees and the Indenture are expressly
set forth in Article XI of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Subsidiary Guarantees.
[list of subsidiary guarantors]
By:________________________________
Name:
Title:
Attest:
By:_________________________
Name:
Title:
B-7
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned Indenture.
Dated:
___________________________________
as Trustee
By:________________________________
Authorized Signatory
B-8
<PAGE>
[ASSIGNMENT FORM]
For value received____________________________________________________
hereby sells, assigns and transfers unto
____________________________________________________________
____________________________________________________________
Please insert social security or other identifying number of
assignee
Please print or typewrite name and address including zip code of
assignee:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
the within Security and does hereby irrevocably constitute and appoint
_____________________________________ Attorney to transfer the Security on the
books of the Company with full power of substitution in the premises.
Date:____________ Your Signature:_____________________________________
(Sign exactly as name appears
on the other side of this Security)
<PAGE>
EXHIBIT C
FORM OF TRANSFEROR CERTIFICATE FOR
TRANSFER FROM RESTRICTED GLOBAL SECURITY OR
RESTRICTED SECURITY TO RESTRICTED SECURITY
(Transfers Pursuant to ss. 2.5(b)(ii)
or ss. 2.5(b)(iv) of the Indenture)
_____,.199_
[Trustee]
[Address]
Re: Schein Pharmaceutical, Inc.
Senior Subordinated Conversion
Notes due 2003 (the "Securities")
Reference is hereby made to the Indenture dated as of _________, 199_ (the
"Indenture") among Schein Pharmaceutical, Inc., the Guarantors and
___________________, as Trustee. Capitalized terms used but not defined herein
shall have the meanings given them in the Indenture.
This letter relates to $ ___________ aggregate principal amount of
Securities which are held [in the form of the Restricted Global Security (CUSIP
No.______) with the Depository]** in the name of [name of transferor] (the
"Transferor") to effect the transfer of the Securities.
In connection with such request, and in respect of such Securities, the
Transferor does hereby certify that such Securities are being transferred in
accordance with (i) the transfer restrictions set forth in the Securities, (ii)
to a transferee that the Transferor reasonably believes (a) is an Institutional
Accredited Investor and is acquiring Securities for
- ----------
** Insert and modify, if appropriate.
<PAGE>
its own account or for one or more accounts as to which the transferee exercises
sole investment discretion and (b) is not a pharmaceutical company or an
Affiliate of a pharmaceutical company, and (iii) and in accordance with
applicable securities laws of any state of the United States or any other
jurisdiction.
[Name of Transferor]
By:________________________________
Name:______________________________
Title:_____________________________
Dated:
cc: Schein Pharmaceutical, Inc.
C-2
<PAGE>
EXHIBIT D
FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
(Transfers Pursuant to ss. 2.5(b)(ii)
and ss. 2.5(b)(iv) of the Indenture)
_______,. 199_
[Trustee]
[Address]
Re: Schein Pharmaceutical, Inc.
Senior Subordinated Conversion
Notes due 2003 (the "Securities")
Reference is hereby made to the Indenture dated as of ____________ __, 199_
(the "Indenture") among Schein Pharmaceutical, Inc., the Guarantors and
________________________, as Trustee. Capitalized terms used but not defined
herein shall have the meanings given them in the Indenture.
This letter relates to $ ________ aggregate principal amount of Securities
which are held [in the form of the Global Security (CUSIP No. ) with the
Depository]* in the name of [name of transferor] (the "Transferor") to effect
the transfer of the Securities to the undersigned.
In connection with such request, and in respect of such Securities, we
confirm that:
1. We understand that the offer and sale of the Securities have not been
registered under the Securities Act, and that the Securities may not be offered
or sold within the United States or to or for the account or benefit of U.S.
persons, except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities, we will do so only (A) to the
Company or any subsidiary thereof, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined therein), (C) to
an institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a domestic broker-dealer)
to the Trustee (as defined in the Indenture relating to the Securities) a signed
letter containing certain representations and agreements relating to
- ----------
* Insert and modify, if appropriate.
D-1
<PAGE>
the restrictions on transfer of the Securities (the form of which letter can be
obtained from the Trustee), (D) outside the United States in accordance with
Regulation S under the Securities Act (if available), (E) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act (if
available), or (F) pursuant to an effective registration statement under the
Securities Act.
2. We understand that, on any proposed resale of Securities, we will be
required to furnish to the Trustee and the Company such certification, legal
opinions and other information as the Trustee and the Company may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions.
3. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be.
4. We are a corporation, partnership or other entity or person having such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Securities, and we are
(or any account for which we are purchasing is) an Institutional Accredited
Investor, able to bear the economic risk of investment in the Securities.
5. We are acquiring the Securities for our own account (or for accounts as
to which we exercise sole investment discretion and have authority to make, and
do make, the statements contained in this letter) and not with a view to any
distribution of the Securities, subject, nevertheless, to the understanding that
the disposition of our property shall at all times be and remain within our
control.
6. We understand that (a) the Securities will be delivered to us in
registered form only and that the certificate delivered to us in respect of the
Securities will bear a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY
ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), OR (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
D-2
<PAGE>
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED
INSTITUTION"), OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION AND (2) AGREES THAT IT WILL NOT, WITHIN
THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, RESELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO SCHEIN PHARMACEUTICAL, INC.
(THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN
ACCREDITED INSTITUTION THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT. IN CONNECTION WITH ANY TRANSFER OF THIS
SECURITY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE HEREOF, IF THE
PROPOSED TRANSFEREE IS AN ACCREDITED INSTITUTION, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT.
and (b) such certificates will be reissued without the foregoing legend
only in the event of a disposition of the Securities in accordance with the
provisions of Section 2.5 of the Indenture.
7. We agree that we will give to each person to whom we transfer Securities
notice of any restrictions on transfer of Securities.
8. We acknowledge that the Trustee will not be required to accept for
registration of transfer any Securities acquired by us, except upon presentation
of
D-3
<PAGE>
evidence satisfactory to the Company and the Trustee that the restrictions set
forth herein have been complied with.
9. We acknowledge that the Company, the Trustee and others will rely upon
the truth and accuracy of the foregoing acknowledgments, representations or
agreements and agree that if any of the acknowledgments, representations or
agreements deemed to have been made by our purchase of Notes are no longer
accurate, we shall promptly notify the Company and the Trustee.
The Company and the Trustee are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
[Name of Purchaser]
By:________________________________
Name:______________________________
Title:_____________________________
Dated:
cc: Schein Pharmaceutical, Inc.
D-4
<PAGE>
EXHIBIT E
FORM OF LEGAL OPINION ON TRANSFER
_________, 199[ ]
[Trustee]
[Address]
Re: Schein Pharmaceutical, Inc.
Senior Subordinated Conversion
Notes due 2003
Ladies and Gentlemen:
This opinion is being furnished to you in connection with the sale by
__________ (the "Transferor") to __________ (the "Purchaser") of $___________
aggregate principal amount of __________ Senior Subordinated Conversion Notes
due 2003 of Schein Pharmaceutical, Inc. (the "Securities").
We have examined such documents and records as we have deemed appropriate.
In our examination of the foregoing, we have assumed the authenticity of all
documents, the genuineness of all signatures and the due authorization,
execution and delivery of the aforementioned by each of the parties thereto. We
have further assumed the accuracy of the representations contained in the
documents set forth above made by the parties executing such documents. We have
also assumed that the sale of the Securities to the Transferor was exempt from
the registration and prospectus delivery requirements of the Securities Act of
1933, as amended (the "Securities Act").
Based on the foregoing, we are of the opinion that the sale to the
Purchaser of the Securities does not require registration of such Securities
under the Securities Act.
Very truly yours,
E-1
<PAGE>
EXHIBIT F
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM RESTRICTED SECURITY TO RESTRICTED GLOBAL SECURITY
(Transfers Pursuant to ss. 2.5(b)(iii) of the Indenture)
[Trustee]
[Address]
Re: Schein Pharmaceutical, Inc.
Senior Subordinated Conversion
Notes due 2003 (the "Securities")
Reference is hereby made to the Indenture dated as of ___________ __, 199_
(the "Indenture") among Schein Pharmaceutical, Inc., the Guarantors and
___________________, as Trustee. Capitalized terms used but not defined herein
shall have the meanings given them in the Indenture.
This letter relates to $ ____________ aggregate principal amount of
Securities which are held in the name of [name of transferor] (the "Transferor")
to effect the transfer of the Securities in exchange for an equivalent
beneficial interest in the Restricted Global Security.
In connection with such request, and in respect of such Securities, the
Transferor does hereby certify that such Securities are being transferred in
accordance with (i) the transfer restrictions set forth in the Securities and
(ii) Rule 144A under the Securities Act to a transferee that the Transferor
reasonably believes is purchasing the Securities for its own account or an
account with respect to which the transferee and any such account is a Qualified
Institutional Buyer in a transaction meeting the requirements of Rule 144A and
in accordance with any applicable securities law of any state of the United
States.
[Name of Transferor]
By:___________________________
Name:_________________________
Title:________________________
Dated:
cc: Schein Pharmaceutical, Inc.
F-1
<PAGE>
EXHIBIT G
[ASSIGNMENT FORM]
For value received____________________________________________________
hereby sells, assigns and transfers unto
____________________________________________________________
____________________________________________________________
Please insert social security or other identifying number of
assignee
Please print or typewrite name and address including zip code of
assignee:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
the within Security and does hereby irrevocably constitute and appoint
_____________________________________ Attorney to transfer the Security on the
books of the Company with full power of substitution in the premises.
Date:____________ Your Signature:_____________________________________
(Sign exactly as name appears
on the other side of this Security)
G-1
<PAGE>
SCHEDULE 1.1
PERMITTED HOLDERS
G-2
<PAGE>
SCHEDULE 1.2
CORPORATE TRUST OFFICE
G-3
<PAGE>
SCHEDULE 1.3
DESIGNATED SUBSIDIARIES
G-4
<PAGE>
Exhibit D
to the Loan Agreement
Conversion Notes Registration Rights Agreement
SCHEIN PHARMACEUTICAL, INC.
and
SOCIETE GENERALE
Dated as of December 20, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Securities Subject to This Agreement ................................ 1
(a) Definitions ..................................................... 1
(b) Registrable Securities .......................................... 2
2. Registration ........................................................ 2
(a) Conversion Notes Shelf Registration ............................. 2
(b) Registered Exchange Offer. ...................................... 4
3. Alternative Conversion Notes Shelf Registration ..................... 6
4. Holdback Agreements ................................................. 8
(a) Restrictions on Public Sale by Holder of Registrable Securities . 8
(b) Restrictions on Public Sale by the Borrower and Others .......... 8
5. Registration Procedures ............................................. 9
6. Registration Expenses ............................................... 14
7. Indemnification; Contribution ....................................... 15
(a) Indemnification by the Borrower ................................. 15
(b) Indemnification by Holder of Registrable Securities ............. 16
(c) Conduct of Indemnification Proceedings .......................... 17
(d) Contribution .................................................... 19
8. Additional Interest Under Certain Circumstances; Remedies. .......... 21
9. Participation in Underwritten Registrations ......................... 22
10. Rule 144 ............................................................ 23
11. Miscellaneous ....................................................... 23
(a) No Inconsistent Agreements ...................................... 23
(b) Remedies ........................................................ 23
(c) Amendments and Waivers .......................................... 24
(d) Notices ......................................................... 24
(e) Successors and Assigns .......................................... 25
(f) Headings ........................................................ 25
(g) Governing Law ................................................... 25
(h) Severability .................................................... 25
(i) Entire Agreement ................................................ 25
</TABLE>
i
<PAGE>
CONVERSION NOTES REGISTRATION RIGHTS AGREEMENT
This Conversion Notes Registration Rights Agreement (the "Agreement") dated
as of December 20, 1996, is made and entered into by Schein Pharmaceutical,
Inc., a Delaware corporation (together with its successors and assigns, the
"Borrower"), for the benefit of the holders of up to $103,500,000 in principal
amount of Senior Subordinated Conversion Notes (the "Conversion Notes") which
may be issued in connection with certain loans (the "Loans"), which shall be
made to the Borrower pursuant to the Senior Subordinated Loan Agreement (the
"Loan Agreement"), dated as of the date hereof, by and among the Borrower, the
financial institutions party thereto (the "Lenders") and Societe Generate, as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"). Holders of the Loans and the Conversion Notes, once issued, whether
they are original Lenders of the Loans or original holders of the Conversion
Notes or transferees of such Lenders or original holders, are herein referred to
collectively as the "Holders" and individually as a "Holder." To induce the
Lenders to make the Loans, the Borrower has agreed to provide, as set forth in
this Agreement, registration rights with respect to the Conversion Notes.
Capitalized terms used herein without definition shall have the meanings set
forth in the Loan Agreement.
1. Securities Subject to This Agreement
(a) Definitions.
"Broker-Dealer" means a broker or dealer registered under the Exchange Act.
"Conversion Date" means the date of issuance of the Conversion Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute.
"Holder" means a holder of a Loan or a Registrable Security.
<PAGE>
2
"Registrable Securities" means the Conversion Notes.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement.
"Underwriter" means a securities dealer that purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
(b) Registrable Securities. Any Registrable Security will cease to be a
Registrable Security when (i) a registration statement covering such Registrable
Security has been declared effective by the Securities and Exchange Commission
(the "Commission") and it has been disposed of pursuant to such effective
registration statement or (ii) it is sold under circumstances in which all of
the applicable conditions of Rule 144 (or any similar provisions then in force)
under the Securities Act are met.
2. Registration.
(a) Conversion Notes Shelf Registration. (i) The Borrower shall, not later
than December 1, 1997 (60 days prior to the issuance of the Conversion Notes),
prepare and file with the Commission and thereafter shall use commercially
reasonable efforts to cause to be declared effective no later than the
Conversion Date a registration statement on an appropriate form under the
Securities Act relating to the offer and sale of the Conversion Notes by the
Holders thereof from time to time in accordance with the methods of distribution
set forth in such registration statement and Rule 415 under the Securities Act
("Conversion Notes Shelf Registration").
<PAGE>
3
(ii) The Borrower agrees to use commercially reasonable efforts to keep the
registration statement relating to the Conversion Notes Shelf Registration
continuously effective in order to permit the prospectus included therein to be
usable by the Holders of the Conversion Notes for a period of three years from
the Conversion Date or such shorter period that will terminate when all the
Conversion Notes covered by the registration statement have been sold pursuant
to such registration statement; provided that the Borrower shall be deemed not
to have used commercially reasonable efforts to keep the registration statement
effective during the requisite period if it voluntarily takes any action that
would result in Holders of Conversion Notes covered thereby not being able to
offer and sell such Conversion Notes during that period, unless (A) such action
is required by applicable law, rule, regulation or policy, or (B) in the
judgement of the Board of Directors of the Borrower, there is a reasonable
likelihood that the failure to take such voluntary action would adversely affect
any existing or prospective material business situation, transaction, or
negotiation or otherwise materially and adversely affect the Borrower and the
taking of such voluntary action does not cause any such registration statement
not to be effective, or delay the filing of any registration statement, for more
than 90 days. Any such period during which the Borrower fails to keep the
registration statement effective and usable for offers and sales of Conversion
Notes is referred to as a "Suspension Period." A Suspension Period shall
commence on and include the date that the Borrower gives notice that the
registration statement is no longer effective or the prospectus included therein
is no longer usable for offers and sales of Conversion Notes and shall end on
the date when each Selling Holder either receives the copies of the supplemented
or amended prospectus contemplated by Section 5(b) hereof or is advised in
writing by the Borrower that use of the prospectus may be resumed. If one or
more
<PAGE>
4
Suspension Periods occur, the three-year time period referenced above shall be
extended by the number of days included in each such Suspension Period.
(b) Registered Exchange Offer. (i) In the event that the Conversion Notes
Shelf Registration is not declared effective pursuant to Section 2(a) above on
or before the Conversion Date, the Borrower shall take such actions as are
necessary or appropriate to permit the Holders of the Conversion Notes to effect
a sale thereof in compliance with Rule 144A under the Securities Act as soon as
practicable after the Conversion Date. In addition, the Borrower shall prepare
and, within 45 days after the Conversion Date, file with the Commission a
registration statement on an appropriate form under the Securities Act with
respect to a proposed offer (the "Registered Exchange Offer") to the Holders of
the Conversion Notes to issue and deliver to such Holders, in exchange for the
Conversion Notes, a like principal amount of debt securities of the Borrower
identical in all material respects to the Conversion Notes (the "Registered
Conversion Notes"), shall use commercially reasonable efforts to cause such
registration statement to become effective under the Securities Act as soon as
practical after filing and in any event no later than 120 days after the
Conversion Date and, upon the effectiveness of that registration statement,
shall commence the Registered Exchange Offer and shall cause the same to remain
open for such period of time (but no longer than 30 days after the commencement
of the Registered Exchange Offer), and to be conducted in accordance with such
procedures, as may be required by the applicable provisions of the Exchange Act,
it being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange such Conversion Notes for Registered Conversion Notes
(assuming that such Holder is not an Affiliate of the Borrower, acquires the
Registered Conversion Notes in the ordinary course of such Holder's business and
has no arrangements
<PAGE>
5
with any person to participate in the distribution of the Registered Conversion
Notes) to trade such Registered Conversion Notes from and after their receipt
without any limitations or restrictions under the Securities Act or the Exchange
Act and without material restrictions under the securities laws of a substantial
proportion of the several states of the United States.
(ii) The Borrower shall indicate in a "Plan of Distribution" section
contained in the final prospectus constituting a part of the registration
statement relating to the Registered Exchange Offer that any Broker-Dealer who
holds Conversion Notes that were acquired for its own account as a result of
market-making activities or other trading activities (other than Conversion
Notes acquired directly from the Borrower), may exchange such Conversion Notes
for Registered Conversion Notes pursuant to the Registered Exchange Offer.
However, such Broker-Dealer may be deemed an "underwriter" within the meaning of
the Exchange Act and, therefore, must deliver a prospectus meeting the
requirements of the Exchange Act in connection with any resales of the
Registered Conversion Notes received by it in the Registered Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the final prospectus contained in the registration statement
relating to the Registered Exchange Offer. Such "Plan of Distribution" section
also shall state that the delivery by a Broker-Dealer of the final prospectus
relating to the Registered Exchange Offer in connection with resales of
Registered Conversion Notes shall not be deemed an admission by such
Broker-Dealer that it is an "underwriter" within the meaning of the Exchange
Act, and shall contain all other information with respect to the resales of the
Registered Conversion Notes by Broker-Dealers that the Commission may require in
connection therewith, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Registered Conversion Notes held by any
such
<PAGE>
6
Broker-Dealer except to the extent required by the Commission as a result of a
change in law, rule, regulation or policy after the date of this Agreement.
(iii) In connection with such Registered Exchange Offer and the offer and
sale of Registered Conversion Notes by Broker-Dealers as contemplated above, the
Borrower shall take such other and further action, including making appropriate
filings under state securities laws and delivering such number of final
prospectuses relating to the Registered Exchange Offer as any Broker-Dealer
proposing to deliver the same in connection with its resales of Registered
Conversion Notes may reasonably request, as may be necessary to realize the
foregoing objectives. The Borrower shall cause the registration statement
relating to the Registered Exchange Offer to remain continuously effective for a
period of at least 20 Business Days (or longer if required by applicable law)
from the date on which such registration statement is first declared effective,
and shall supplement or amend the prospectus contained therein to the extent
necessary to permit such prospectus (as supplemented or amended) to be delivered
by Broker-Dealers in connection with their resales of Registered Conversion
Notes as aforesaid.
3. Alternative Conversion Notes Shelf Registration. If, because of any
change in currently prevailing interpretations of the Commission's staff, the
Borrower is not permitted to effect a Registered Exchange Offer, as contemplated
by Section 2(b) hereof, the following provisions shall apply:
(a) The Borrower shall promptly file with the Commission and thereafter
shall use commercially reasonable efforts to cause to be declared effective no
later than 120 days after the issuance of the Conversion Notes a registration
statement on an appropriate form under the Securities Act relating to the offer
and sale of the Conversion Notes by the
<PAGE>
7
Holders thereof from time to time in accordance with the methods of distribution
set forth in such registration statement and Rule 415 under the Securities Act
("Alternative Conversion Notes Shelf Registration"). The Borrower will use
commercially reasonable efforts to cause the Alternative Conversion Notes Shelf
Registration to become effective on or prior to the later of (x) the 120th day
after the Conversion Date or (y) the 45th day after the publication of the
change in law or interpretation.
(b) The Borrower agrees to use commercially reasonable efforts to keep the
registration statement relating to the Alternative Conversion Notes Shelf
Registration continuously effective in order to permit the prospectus included
therein to be usable by the Holders of the Conversion Notes for a period of
three years from the Conversion Date or such shorter period that will terminate
when all the Conversion Notes covered by the registration statement have been
sold pursuant to such registration statement; provided that the Borrower shall
be deemed not to have used commercially reasonable efforts to keep the
registration statement effective during the requisite period if it voluntarily
takes any action that would result in Holders of Conversion Notes covered
thereby not being able to offer and sell such Conversion Notes during that
period, unless (A) such action is required by applicable law, rule, regulation
or policy, or (B) in the judgement of the Board of Directors of the Borrower,
there is a reasonable likelihood that the failure to take such voluntary action
would adversely affect any existing or prospective material business situation,
transaction, or negotiation or otherwise materially and adversely affect the
Borrower and the taking of such voluntary action does not cause any such
registration statement not to be effective, or delay the filing of any
registration statement, for more than 90 days. A Suspension Period, as defined
above, shall commence on and include the date that the Borrower gives notice
that
<PAGE>
8
the registration statement is no longer effective or the prospectus included
therein is no longer usable for offers and sales of Conversion Notes and shall
end on the date when each Selling Holder either receives the copies of the
supplemented or amended prospectus contemplated by Section 5(b) hereof or is
advised in writing by the Borrower that use of the prospectus may be resumed. If
one or more Suspension Periods occur, the three-year time period referenced
above shall be extended by the number of days included in each such Suspension
Period.
4. Holdback Agreements.
(a) Restrictions on Public Sale by Holder of Registrable Securities. Each
Holder whose securities are included in a registration statement hereunder
agrees not to effect any public sale or distribution of the issue being
registered or a similar security of the Borrower or any securities convertible
into or exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 under the Securities Act, during the 14 days prior to, and
during the 90-day period beginning on, the effective date of such registration
statement (except as part of such registration), if and to the extent requested
by the Borrower in the case of a non-underwritten public offering or if and to
the extent requested by the managing Underwriter or Underwriters in the case of
an underwritten public offering.
(b) Restrictions on Public Sale by the Borrower and Others. The Borrower
and its Affiliates agree (i) not to effect any public sale or distribution of
any securities similar to the Registrable Securities (except as part of such
registration statement), during the 14 days prior to, and during the 90-day
period beginning on, the effective date of any such registration statement filed
pursuant to Section 2 or 3 hereof; and (ii) that any agreement entered into
after the date of the Agreement pursuant to which the Borrower issues or agrees
to issue any privately placed securities similar to the Registrable Securities
shall contain a provision under
<PAGE>
9
which holders of such securities agree not to effect any public sale or
distribution of any such securities during the periods described in (i) above,
in each case including a sale pursuant to Rule 144 under the Securities Act
(except as part of any such registration, if permitted).
5. Registration Procedures.
In connection with any Conversion Notes Shelf Registration or any
Registered Exchange Offer or Alternative Conversion Notes Shelf Registration,
the Borrower shall use commercially reasonable efforts to:
(a) prepare and file with the Commission a registration statement on
any form for which the Borrower then qualifies or which counsel for the
Borrower shall deem appropriate and which form shall be available for the
sale of the Registered Conversion Notes or Registrable Securities, as the
case may be, to be registered thereunder in accordance with the intended
method of distribution thereof, and use commercially reasonable efforts to
cause such filed registration statement to become effective and qualify an
indenture relating to the Conversion Notes or the Registered Conversion
Notes, as the case may be, substantially in the form of Exhibit C to the
Loan Agreement (with such appropriate modifications as may be necessary to
reflect the registration of the Conversion Notes pursuant to Sections 2(a)
or 2(b)) under the Trust Indenture Act of 1939, as amended; provided (i)
that before filing a registration statement or prospectus or any amendments
or supplements thereto, the Borrower will furnish to one counsel selected
by the Holders who hold, or will hold, as the case may be, a majority in
principal amount of the Registrable Securities to be covered by such
registration statement or exchanged pursuant to the Registered Exchange
Offer, as the case may be, copies of all such documents proposed to be
filed, which documents will be subject
<PAGE>
10
to the review of such counsel, and (ii) that after the filing of the
registration statement, the Borrower will promptly notify each Holder of
any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered;
(b) furnish to each Holder, prior to filing the registration
statement, if requested, copies of such registration statement as proposed
to be filed, and thereafter furnish to such Holder such number of copies of
such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such
other documents as such Holder may reasonably request in connection with
the Registered Exchange Offer or in order to facilitate the disposition of
the Registrable Securities owned by such Holder, as the case may be;
(c) use commercially reasonable efforts to register or qualify such
Registered Conversion Notes or Registrable Securities, as the case may be,
under such other securities or blue sky laws of such jurisdictions in the
United States as may be required in connection with the Registered Exchange
Offer or as any Selling Holder or managing Underwriter reasonably (in light
of the intended plan of distribution) requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable
such Selling Holder or managing Underwriter to consummate the disposition
in such jurisdictions of the Registrable Securities owned by such Selling
Holder; provided that the Borrower will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise
be required to qualify but for this paragraph (c), (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction;
<PAGE>
11
(d) use commercially reasonable efforts to cause such Registered
Conversion Notes or Registrable Securities, as the case may be, to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of
the Borrower or its Subsidiaries in connection with the Registered Exchange
Offer or to enable the Selling Holder or Selling Holders thereof to
consummate the disposition of such Registrable Securities;
(e) notify each Holder of such Registrable Securities that is named as
a Selling Holder in any registration statement filed pursuant to this
Agreement, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the occurrence of an event requiring
the preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances in which
they were made, not misleading and promptly make available to each such
Holder any such supplement or amendment;
(f) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such
Registrable Securities;
(g) make available for inspection, during normal business hours and on
reasonable prior notice, by any Selling Holder of such Registrable
Securities, any Underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other
professional retained by any such Selling Holder or Underwriter
(collectively, the "Inspectors") all financial and other records, pertinent
corporate documents
<PAGE>
12
and properties of the Borrower and its Subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Borrower's and the
Subsidiaries' officers, directors and employees to supply all information
reasonably requested to any such Inspectors in connection with such due
diligence. The Borrower may require the Inspector to agree that Records
which the Borrower determines, in good faith, to be confidential and any
Records which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission of a material fact
in such registration statement or (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction. Each Selling Holder of such Registrable Securities agrees,
and shall cause the Inspectors to agree, that information obtained by it as
a result of such inspections shall be deemed confidential and shall not be
used by it for any purpose whatsoever, other than the exercise of its due
diligence responsibility. Without limiting generality of the preceding
sentence, each Selling Holder of such Registrable Securities agrees, and
shall cause the Inspectors to agree, that information obtained by it as a
result of such inspections shall not be used by it as the basis for any
market transactions in the securities of the Borrower or its Affiliates
unless and until such information is made generally available to the
public. Each Selling Holder of such Registrable Securities further agrees,
and shall cause the Inspectors to agree, that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction,
give notice to the Borrower and allow the Borrower, at its expense, to
undertake appropriate action to prevent disclosure of the Records deemed
confidential;
<PAGE>
13
(h) in the event such sale is pursuant to an underwritten offering,
use commercially reasonable efforts to obtain a comfort letter or comfort
letters from the Borrower's independent public accountants in customary
form and covering matters of the type customarily covered by comfort
letters as the managing Underwriter reasonably requests;
(i) use commercially reasonable efforts to obtain an opinion or
opinions from counsel for the Borrower in customary form; and
j) otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the Commission.
Notwithstanding any other provision of this Agreement, the Borrower may
delay the filing of any registration statement for up to 90 days if (i) the
Borrower would, in the opinion of its counsel, be required to disclose in such
registration statement information not otherwise then required by law to be
publicly disclosed and (ii) in the judgment of the Board of Directors of the
Borrower, there is a reasonable likelihood that such disclosure, or any other
action to be taken in connection with any registration statement, would
adversely affect any existing or prospective material business situation,
transaction, or negotiation or otherwise materially and adversely affect the
Borrower.
The Borrower may require each Selling Holder of Registrable Securities to
promptly furnish in writing to the Borrower such information regarding the
distribution of the Registrable Securities as it may from time to time
reasonably request and such other information as may be legally required or
reasonably requested in connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Borrower of the happening of any event of the kind described in Section 5(e)
hereof, such Selling
<PAGE>
14
Holder will forthwith discontinue disposition of Registrable Securities pursuant
to the registration statement covering such Registrable Securities until such
Selling Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 5(e) hereof, and, if so directed by the Borrower such
Selling Holder will deliver to the Borrower all copies, other than permanent
file copies then in such Selling Holder's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of such
notice.
6. Registration Expenses.
In connection with any registration statement required to be filed pursuant
to Section 2 or 3 hereunder, the Borrower shall pay the following registration
expenses (the "Registration Expenses"): (i) all registration and filing fees,
(ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registered Conversion Notes or Registrable Securities, as
the case may be), (iii) printing expenses, (iv) internal Borrower expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (v) the fees and expenses
incurred in connection with any listing of the Registered Conversion Notes or
Registrable Securities, as the case may be, (vi) fees and disbursements of
counsel for the Borrower and customary fees and expenses for independent
certified public accountants retained by the Borrower (including the expenses of
any comfort letters or costs associated with the delivery by independent
certified public accountants of a comfort letter or comfort letters requested
pursuant to Section 5(h) hereof), (vii) the fees and expenses of any special
experts retained by the Borrower in connection with such registration, and
(viii) reasonable fees and expenses of one counsel (who shall be
<PAGE>
15
selected by Holders of a majority of the Registrable Securities and who shall be
reasonably acceptable to the Borrower) for the Holders incurred in connection
with the registration hereunder. The Borrower shall not have any obligation to
pay any underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities (including, without limitation, fees and expenses of any
qualified independent Underwriter that may be required under the rules of the
National Association of Securities Dealers), or, except as otherwise provided in
clause (viii) above, any out-of-pocket expenses of the Holders (or any agents
who manage their accounts) or fees and disbursements of any counsel for any
Underwriter in any underwritten offering.
7. Indemnification; Contribution.
(a) Indemnification by the Borrower. The Borrower agrees to indemnify and
hold harmless each Selling Holder of Registrable Securities, its officers,
directors, representatives and agents and each person, if any, who controls such
Selling Holder within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Borrower by such Selling Holder or on
such Selling
<PAGE>
16
Holder's behalf expressly for use therein; and provided that with respect to any
untrue statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, the indemnity agreement contained in this paragraph
shall not apply to the extent that any such loss, claim, damage, liability or
expense results from the fact that a current copy of the prospectus was not sent
or given to the person asserting any such loss, claim, damage, liability or
expense at or prior to the written confirmation of the sale of the Registrable
Securities concerned to such person if it is determined that the provision of
such person with a current copy of the prospectus would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The Borrower also
agrees to indemnify, as applicable, (i) the Broker-Dealers who hold Registrable
Securities acquired for their own accounts pursuant to the Registered Exchange
Offer and their officers, directors and each person who controls such
Broker-Dealers, and (ii) the Underwriters of the Registrable Securities and
their officers, directors and each person who controls such Underwriters, on
substantially the same basis as that of the indemnification of the Selling
Holders provided in this Section 7 if such Broker-Dealers and Underwriters agree
in writing to indemnify and contribute to the Borrower on substantially the same
basis as the Selling Holders indemnify and contribute to the Borrower pursuant
to this Section 7.
(b) Indemnification by Holder of Registrable Securities. Each Selling
Holder whose Registrable Securities are included in a registration pursuant
hereto, shall be deemed to have agreed to indemnify and hold harmless the
Borrower, its directors and officers and each person, if any, who controls the
Borrower within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of
<PAGE>
17
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
provided that the provisions of this paragraph shall apply only insofar as
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing by such Selling Holder or on such Selling
Holder's behalf expressly for use in any registration statement or prospectus
relating to the Registrable Securities, or any amendment or supplement thereto,
or any preliminary prospectus. In case any action or proceeding shall be brought
against the Borrower, or its directors or officers, or any such controlling
person, in respect of which indemnity may be sought against such Selling Holder,
such Selling Holder shall have the rights and duties given to the Borrower, and
the Borrower or its directors or officers or such controlling person shall have
the rights and duties given to such Selling Holder, by the preceding paragraph.
(c) Conduct of Indemnification Proceedings. Promptly after receipt of
notice of the commencement of any action or proceeding (including any
governmental investigation) brought or asserted against any person entitled to
indemnification under clause (a) or (b) above (an "Indemnified Party") in
respect of which indemnity may be sought from any party who has agreed to
provide such indemnification (an "Indemnifying Party"), if a claim in respect
thereof is to be made against an Indemnifying Party under such clause, the
Indemnified Party shall notify the Indemnifying Party in writing of the
commencement
<PAGE>
18
thereof; provided, that the omission so to notify the Indemnifying Party shall
not relieve it from any liability which it may have under this Section 7 except
to the extent it has been materially prejudiced by such omission; provided,
further, that the omission so to notify the Indemnifying Party shall not relieve
it from any liability which it may have to an Indemnified Party otherwise than
under this Section 7. The Indemnifying Party shall be entitled to assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such Indemnified Party, and shall assume the payment of all expenses indemnified
hereunder. Such Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such separate counsel shall be at the expense of such
Indemnified Party unless (i) the Indemnifying Party has agreed to pay such fees
and expenses or (ii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Party and the
Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that there is a conflict of interest on the part of counsel employed by
the Indemnifying Party to represent such Indemnified Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such action
or proceeding on behalf of such Indemnified Party; it being understood, however,
that the Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
of circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for all
such Indemnified Parties, which firm shall be designated in writing by
<PAGE>
19
such Indemnified Parties). The Indemnifying Party shall not be liable for any
settlement of any such action or proceeding effected without its written
consent, which shall not be unreasonably withheld, but if settled with its
written consent, or if there be a final judgment for the plaintiff in any such
action or proceeding, the Indemnifying Party shall indemnify and hold harmless
such Indemnified Parties from and against any loss or liability (to the extent
stated above) by reason of such settlement or judgment.
(d) Contribution. If the indemnification provided for in this Section 7 is
due in accordance with the terms hereof but is held to be unavailable to the
Indemnified Parties in respect of any losses, claims, damages, liabilities or
judgments referred to herein (collectively, "losses"), then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses (i) as between the Borrower and the Selling Holders on the one
hand and the Underwriters or Broker-Dealers, as the case may be, on the other,
in such proportion as is appropriate to reflect the relative benefits received
by the Borrower and the Selling Holders on the one hand and the Underwriters or
Broker Dealers, as the case may be on the other from the offering of the
Registrable Securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Borrower and the Selling Holders on
the one hand and of the Underwriters or Broker Dealers, as the case may be, on
the other in connection with the statements or omissions which resulted in such
losses, as well as any other relevant equitable considerations and (ii) as
between the Borrower on the one hand and each Selling Holder on the other, in
such proportion as is appropriate to reflect the relative fault of the Borrower
and of each Selling Holder in connection with such statements or omissions, as
well as any other
<PAGE>
20
relevant equitable considerations. The relative benefits received by the
Borrower and the Selling Holders on the one hand and the Underwriters or
Broker-Dealers, as the case may be, on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Borrower and the Selling Holders bear to the total underwriting discounts and
commissions received by the Underwriters or Broker-Dealers, as the case may be,
in each case as set forth in the table on the cover page of the prospectus. The
relative fault of the Borrower and the Selling Holders on the one hand and of
the Underwriters or Broker-Dealers, as the case may be, on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Borrower and the Selling
Holders or by the Underwriters or Broker-Dealers, as the case may be. The
relative fault of the Borrower on the one hand and of each Selling Holder on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Borrower and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters or Broker-Dealers, as the case may be,
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages, liabilities or
<PAGE>
21
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim and for which it is entitled to be
indemnified hereunder. Notwithstanding the provisions of this Section 7(d), no
Underwriter or Broker-Dealer, as the case may be, shall be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
or Broker-Dealer, as the case may be, has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission, and no Selling Holder shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities of such Selling Holder were offered to the public exceeds the amount
of any damages which such Selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 31(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
8. Additional Interest Under Certain Circumstances; Remedies.
(a) In the event that the Conversion Notes Shelf Registration is not
declared effective pursuant to Section 2(a) above on or before the Conversion
Date, and (i) (A) the Registered Exchange Offer registration statement is not
filed on or prior to the 45th day following the Conversion Date, (B) the
Registered Exchange Offer registration statement is not declared effective on or
prior to the 120th day following the Conversion Date or (C) the
<PAGE>
22
Registered Exchange Offer is not consummated on or prior to the 150th day
following the Conversion Date or (ii) changes in law or the applicable
interpretation of the Commission staff do not permit the Issuers to effect the
Registered Exchange Offer and (A) an Alternative Conversion Notes Shelf
Registration with respect to the Securities is not promptly filed pursuant to
Section 3(a) hereof, or (B) is not declared effective under the Securities Act
on or prior to the later of (x) the 120th day after the Conversion Date and (y)
the 45th day after the publication of the change in law or interpretation, the
interest rate borne by the Conversion Notes shall be increased by one-half of
one percent per annum following, in the case of clause (i) (A) such 45 day
period, or in the case of clauses (i)(B) or (i)(C), such 120- or 150-day period,
as the case may be or, in the case of clause (ii), such 45- or 120-day period,
as applicable. The aggregate amount of such increase from the original interest
rate pursuant to these provisions will in no event exceed one-half of one
percent per annum. Such increase will cease to be effective on the date of
filing of the Registered Exchange Offer registration statement, effectiveness of
the Registered Exchange Offer registration statement, consummation of the
Registered Exchange Offer or the effectiveness of an Alternative Conversion
Notes Shelf Registration, as the case may be.
(b) Any amounts of additional interest due pursuant to the paragraph above
will be payable in cash, on the same original interest payment dates as the
Securities. The amount of additional interest will be determined by multiplying
the applicable additional interest rate by the principal amount of the affected
Securities of such Holders, multiplied by a fraction, the numerator of which is
the number of days such additional interest rate was applicable during such
period (determined on the basis of a 360-day year comprised of twelve
<PAGE>
23
30-day month and, in the case of a partial month, the actual number of days
elapsed), and the denominator of which is 360.
9. Participation in Underwritten Registrations.
No person may participate in any underwritten registration hereunder unless
such person (a) agrees to sell such person's securities on the basis provided in
any underwriting arrangements approved by the persons entitled hereunder to
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and this
Agreement.
10. Rule 144.
To the extent it is otherwise required to do so, the Borrower covenants
that it will file any reports required to be filed by it under the Securities
Act and the Exchange Act so as to enable Holders to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any Holder, the Borrower will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
11. Miscellaneous.
(a) No Inconsistent Agreements. The Borrower will not hereafter enter into
and is not presently a party to any agreement with respect to its securities
which conflicts with the rights granted to the Holders of Registrable Securities
in this Agreement.
<PAGE>
24
(b) Remedies. Each Holder of Registrable Securities, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Borrower agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate. Any breach of this Agreement shall not
cause a Default or Event of Default under the Notes.
(c) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Borrower has obtained the written consent of Holders holding a
majority in principal amount of the Registrable Securities then outstanding
affected by such amendment, modification, supplement, waiver or departure, which
pursuant to the terms of the Loan Agreement may vote on waivers or amendments.
(d) Notices. All notices and other communications provided for or permitted
hereunder shall be in writing and personally delivered or sent by registered or
certified first-class mail or by telecopy:
(i) if to a Holder at its last registered address, and with a copy to
be sent to each additional address, given by such Holder to the Borrower or
the trustee under the Indenture, as the case may be, in writing; and
(ii) if to Borrower at:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
<PAGE>
25
Attention: Chief Financial Officer
Telecopy No.: (201) 593-5580
with a copy to: General Counsel
Telecopy No.: (201) 593-5820
or to such other address as any Holder or the Borrower may give notice of
pursuant hereto.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; or three Business Days
after being deposited in the mail, postage prepaid, if mailed; or when received,
if telecopied.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties hereto,
including any person to whom Registrable Securities are transferred.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
contracts made and to be performed wholly within that State without regard to
the principles thereof regarding conflict of laws.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
<PAGE>
26
(i) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein with respect to such subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
<PAGE>
27
IN WITNESS WHEREOF, the undersigned has duly executed this Agreement for
the benefit of the Lenders and Holders, as of the date first above written.
SCHEIN PHARMACEUTICAL, INC.
By: _______________________
Name:
Title:
Acknowledged:
SOCIETE GENERALE, as administrative agent
By: _____________________________________
Name:
Title:
<PAGE>
EXHIBIT E
to the Loan Agreement
SUBORDINATED GUARANTEE AGREEMENT dated as of December
20, 1996, between each Subsidiary from time to time party
hereto (each such Subsidiary individually, a "Guarantor" and
collectively, the "Guarantors"), and SOCIETE GENERALE, as
administrative agent (in such capacity, the "Administrative
Agent") for the Lenders (as defined in the Loan Agreement
referred to below).
Reference is made to the Senior Subordinated Loan Agreement dated as of
December 20, 1996 (as amended, restated, supplemented, modified or waived from
time to time, the "Loan Agreement"), among Schein Pharmaceutical, Inc., a
Delaware corporation (the "Borrower"), the financial institutions party thereto
as lenders (the "Lenders"), and Societe Generate, as administrative agent (in
such capacity, the "Administrative Agent").
The Lenders have agreed to make Loans to the Borrower pursuant to, and upon
the terms and subject to the conditions specified in, the Loan Agreement. The
obligations of the Lenders to make Loans are conditioned on, among other things,
the execution and delivery by the Subsidiary Guarantors of a guarantee agreement
in the form hereof. Capitalized terms used herein and not defined herein shall
have the meanings assigned to such terms in the Loan Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. Subject to Section 6(b) hereof, each Guarantor
unconditionally guarantees, jointly with the other Guarantors and severally, as
a primary obligor and not merely as a surety, the due and punctual payment of
the Obligations. Each Guarantor further agrees that the Obligations may be
extended or renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee notwithstanding any
extension or renewal of any Obligation.
SECTION 2. Obligations Not Waived. To the fullest extent permitted by
applicable law, each Guarantor waives presentment to, demand of payment from and
protest to the Borrower or any other guarantor of any of the Obligations, and
also waives notice of acceptance of its guarantee and notice of protest for
nonpayment. To the fullest extent permitted by applicable law, the obligations
of each Guarantor hereunder shall not be affected by (a) the failure of the
Administrative Agent or any other Lender to assert any claim or demand or to
exercise or enforce any right or remedy against the Borrower or any other
guarantor under the provisions of this Agreement, any Loan Document or
otherwise; (b) any rescission, waiver, amendment or modification of, or any
release from any of the terms or provisions of this
<PAGE>
2
Agreement, any other Loan Document, any guarantee or any other agreement,
including with respect to any other Subsidiary Guarantor under this Agreement;
(c) the release of any security held by the Administrative Agent or any other
Lender for the Obligations; or (d) the failure to perfect any security interest
in, or the release of, any of the security held by or on behalf of the
Administrative Agent.
SECTION 3. Guarantee of Payment. Each Guarantor agrees that its guarantee
constitutes a guarantee of payment when due and not of collection, and waives
any right to require that any resort be had by the Administrative Agent or any
other Lender to collateral security, if any, held for payment of the Obligations
or to any balance of any deposit account or credit on the books of the
Administrative Agent or any other Lender in favor of the Borrower or any other
Person.
SECTION 4. No Discharge or Diminishment of Guarantee. Except as provided in
Section 6(b) hereof, the obligations of each Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason
(other than the indefeasible payment in full in cash of the Obligations),
including any claim of waiver, release, surrender, alteration or compromise of
any of the Obligations, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Obligations or otherwise. Without limiting
the generality of the foregoing, the obligations of each Guarantor hereunder
shall not be discharged or impaired or otherwise affected by the failure of the
Administrative Agent or any other Lender to assert any claim or demand or to
enforce any remedy under the Loan Agreement, any other Loan Document, any other
guarantee or any other agreement, by any waiver or modification of any provision
of any thereof, by any default, failure or delay, wilful or otherwise, in the
performance of the Obligations, or by any other act or omission that may or
might in any manner or to any extent vary the risk of any Guarantor or that
would otherwise operate as a discharge of any Subsidiary Guarantor as a matter
of law or equity (other than the indefeasible payment in full in cash of all the
Obligations).
SECTION 5. Defenses of Borrower Waived. To the extent permitted by
applicable law, each of the Guarantors waives any defense based on or arising
out of any defense of the Borrower or the unenforceability of the Obligations or
any part thereof from any cause, or the cessation from any cause of the
liability of the Borrower, other than final and indefeasible payment in full in
cash of the Obligations.
SECTION 6. Subordination. (a) In furtherance of the foregoing and not in
limitation of any other right that the Administrative Agent or any other Lender
has at law or in equity against any Guarantor by virtue hereof, and subject to
Section 6(b) hereof, upon the failure of the Borrower to pay any Obligation when
and as the same shall become due, whether at maturity, by acceleration, after
notice of prepayment or otherwise, each Guarantor hereby promises to and will,
upon receipt of written demand by the Administrative Agent, forthwith pay, or
cause to be paid, to the
<PAGE>
3
Administrative Agent or such other Lender as is designated thereby in cash the
amount of such unpaid Obligations. Upon payment by any Guarantor of any sums to
the Administrative Agent or any Lender as provided above, all rights of such
Guarantor against the Borrower arising as a result thereof by way of right of
subrogation, contribution, reimbursement, indemnity or otherwise, shall in all
respects be subordinate and junior in right of payments to the prior
indefeasible payment in full in cash of the Obligations. In addition, any
indebtedness of the Borrower now or hereafter held by any Guarantor is hereby
subordinated in right of payment to the Obligations (it being agreed that this
Section 6 shall not prohibit the repayment of such indebtedness so long as no
Default or Event of Default shall have occurred and be continuing, or result
therefrom). If any amount shall be paid to any Guarantor on account of (i) such
subrogation, contribution, reimbursement, indemnity or similar right or (ii) any
such indebtedness of the Borrower, such amount shall be held in trust for the
benefit of the Lenders and shall forthwith be paid to the Administrative Agent
to be credited against the payment of the Obligations, whether matured or
unmatured, in accordance with the terms of the Loan Documents.
(b) Anything to the contrary herein notwithstanding, this Agreement is
subject to the subordination provisions of Article VIII of the Loan Agreement
which are incorporated herein by reference as if fully set forth herein,
treating the obligations of the Guarantors hereunder and the Obligations
guaranteed hereby, for all purposes, as Subordinated Indebtedness which is
subordinated to the Senior Indebtedness as provided in such Article.
SECTION 7. Information. Each Guarantor assumes all responsibility for being
and keeping itself informed of the Borrower's financial condition and assets,
and of all other circumstances bearing upon the risk of nonpayment of the
Obligations and the nature, scope and extent of the risks that such Guarantor
assumes and incurs hereunder, and agrees that none of the Administrative Agent
or the other Lenders will have any duty to advise any Guarantor of information
known to it or any of them regarding such circumstances or risks.
SECTION 8. Representations and Warranties. Each Guarantor represents and
warrants as to itself that all representations and warranties relating to it
contained in the Loan Agreement are true and correct.
SECTION 9. Termination. (a) The guarantees made hereunder shall terminate
when all the Obligations have been indefeasibly paid in full and shall continue
to be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of any Obligation is rescinded or must otherwise be restored
by any Lender or any Guarantor upon the bankruptcy or reorganization of the
Borrower, any Guarantor or otherwise.
<PAGE>
4
(b) If at any time shares of the capital stock of any Guarantor shall be
sold in a transaction the Net Cash Proceeds of which are applied in accordance
with the provisions of Section 2.11 of the Loan Agreement which results in such
Guarantor no longer constituting a Subsidiary, the Agent is hereby authorized
and directed to execute and deliver a release of such Guarantor from its
obligations and liabilities under this Guarantee upon receipt by the Agent of
reasonable evidence of compliance with the requirements of this paragraph.
SECTION 10. Binding Agreement; Assignments. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the Guarantors that are contained in this
Agreement shall bind and inure to the benefit of each party hereto and their
respective successors and assigns. This Agreement shall become effective as to
any Guarantor when a counterpart hereof executed on behalf of such Guarantor
shall have been delivered to the Administrative Agent and a counterpart hereof
shall have been executed on behalf of the Administrative Agent, and thereafter
shall be binding upon such Guarantor and the Administrative Agent and their
respective successors and assigns, and shall inure to the benefit of such
Guarantor, the Administrative Agent and the other Lenders, and their respective
successors and assigns, except that no Guarantor shall have the right to assign
its rights or obligations hereunder or any interest herein (and any such
attempted assignment shall be void), except as expressly contemplated by this
Agreement or the other Loan Documents.
SECTION 11. Waivers: Amendment. (a) No failure or delay of the
Administrative Agent in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Administrative Agent
hereunder and of the other Lenders under the other Loan Documents are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provisions of this Agreement or consent to any departure by any
Guarantor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Guarantor in any case shall entitle such Guarantor to
any other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Guarantors and the Administrative Agent, with the prior written consent of the
Required Lenders (except as otherwise provided in the Loan Agreement).
<PAGE>
5
SECTION 12. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 13. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 10.1 of the Loan Agreement. All
communications and notices hereunder to each Guarantor shall be given to it at
its address set forth below, or on Annex I hereto, with a copy to the Borrower.
SECTION 14. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by the Guarantors herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Administrative Agent and the other Lenders and
shall survive the making by the Lenders of the Loans, regardless of any
investigation made by the Lenders or on their behalf, and shall continue in full
force and effect as long as the principal of or any accrued interest on any Loan
or any fee or other amount payable under the Loan Agreement or any other Loan
Document is outstanding and unpaid and as long as the Commitments have not been
terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 15. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one contract, and shall become effective as
provided in Section 11.
SECTION 16. Rules of Interpretation. The rules of interpretation specified
in Section 1.2 of the Loan Agreement shall be applicable to this Agreement.
SECTION 17. Jurisdiction; Consent to Service of Process. (a) The
Administrative Agent and each Guarantor hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or Federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or
<PAGE>
6
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent or any other Lender may otherwise have to bring any action
or proceeding relating to this Agreement or the other Loan Documents against any
Guarantor or its properties in the courts of any jurisdiction.
(b) The Administrative Agent and each Guarantor hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
the other Loan Documents in any New York State or Federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of process
in the manner provided for notices in Section 13. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 18. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 19. Additional Guarantors. Subject to Section 5.10 of the Loan
Agreement, each Subsidiary (other than Foreign Subsidiaries) that was not in
existence or not such a Subsidiary, on the date of the Loan Agreement is
required to enter into this Guarantee Agreement as a Guarantor upon becoming a
Subsidiary. Upon execution and delivery, after the date hereof, by the
Administrative Agent and
<PAGE>
7
such a Subsidiary of an instrument in the form of Annex 1, such Subsidiary shall
become a Guarantor hereunder with the same force and effect as if originally
named as a Guarantor herein. The execution and delivery of any instrument adding
an additional Guarantor as a party to this Agreement shall not require the
consent of any Guarantor hereunder. The rights and obligations of each Guarantor
hereunder shall remain in full force and effect notwithstanding the addition of
any new Guarantor as a party to this Agreement.
SECTION 20. Right of Setoff. If an Event of Default shall have occurred and
be continuing and the Administrative Agent shall have declared, or the Required
Lenders shall have requested the Administrative Agent to declare, the Loans
immediately due and payable pursuant to Article VII of the Loan Agreement, each
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law but in all cases, subject to the subordination
provisions of Article VIII of the Loan Agreement and Section 6(b) hereof, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other Indebtedness at any time owing
by such Lender or any Affiliate thereof to or for the credit or the account of
any Guarantor against any of and all the obligations of any Guarantor now or
hereafter existing under this Agreement and any other Loan Documents to which
such Guarantor is a party, held by such Lender, irrespective of whether or not
such Lender shall have made any demand under the Loan Agreement or any such
other Loan Document and although such obligations may be unmatured. The rights
of each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) that such Lender may have.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
SCHEIN PHARMACEUTICAL,
INTERNATIONAL, INC.,
by
_______________________
Name:
Title:
SCHEIN PHARMACEUTICAL PA, INC.,
by
_______________________
Name:
Title:
SCHEIN PHARMACEUTICAL SERVICE
COMPANY, INC.,
by
_______________________
Name:
Title:
STERIS LABORATORIES, INC.,
by
_______________________
Name:
Title:
<PAGE>
9
MARSAM PHARMACEUTICALS INC.,
by
_______________________
Name:
Title:
DANBURY PHARMACAL, INC.,
by
_______________________
Name:
Title:
DANBURY PHARMACAL PUERTO
RICO, INC.,
by
_______________________
Name:
Title:
SOCIETE GENERALE, as Administrative
Agent,
by
_______________________
Name:
Title:
<PAGE>
Annex 1 to
the Guarantor Agreement
SUPPLEMENT NO. ____ dated as of _______ to the Subordinated
Guarantee Agreement dated as of December 20, 1996, (as the
same may be amended, restated, supplemented, modified or
waived from time to time, the "Guarantee Agreement"),
between each Subsidiary listed on the signature pages
thereof (individually, a "Guarantor" and collectively, the
"Guarantors"); and SOCIETE GENERALE, as administrative agent
(the Administrative Agent") for the Lenders (as defined in
the Loan Agreement referred to below).
A. Reference is made to the Senior Subordinated Loan Agreement dated as of
December 20, 1996 (as amended, restated, supplemented, modified or waived from
time to time, the "Loan Agreement"), among the Borrower, the financial
institutions party thereto (the "Lenders") and Societe Generale, as
administrative agent (in such capacity, the "Administrative Agent").
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Guarantee Agreement and the Loan
Agreement.
C. The Subsidiaries have entered into the Guarantee Agreement in order to
induce the Lenders to make Loans. Pursuant to Section 5.10 of the Loan
Agreement, each Subsidiary (other than any Foreign Subsidiary) that was not in
existence or not such a Subsidiary or was a subsidiary of the Company on the
date of the Loan Agreement is required to enter into the Guarantee Agreement as
a Guarantor upon becoming a Subsidiary. Section 19 of the Guarantee Agreement
provides that additional Subsidiaries may become Guarantors under the Guarantee
Agreement by execution and delivery of an instrument in the form of this
Supplement. The undersigned Subsidiary (the "New Guarantor") is executing this
Supplement in accordance with the requirements of the Loan Agreement to become a
Guarantor under the Guarantee Agreement as consideration for Loans previously
made.
Accordingly, the Administrative Agent and the New Guarantor agree as
follows:
SECTION 1. In accordance with Section 19 of the Guarantee Agreement, the
New Guarantor by its signature below becomes a Guarantor under the Guarantee
Agreement with the same force and effect as if originally named therein as a
Guarantor and the New Guarantor hereby agrees (a) to all the terms and
provisions of the Guarantor Agreement applicable to it as a Guarantor thereunder
and (b) represents and warrants that the representations and warranties made by
it as a Guarantor thereunder are true and correct on and as of the date hereof,
except to the
<PAGE>
2
extent such representations and warranties speak as of an earlier date. Each
reference to a "Guarantor" in the Guarantee Agreement shall be deemed to include
the New Guarantor. The Guarantee Agreement, as supplemented hereby, is hereby
incorporated herein by reference.
SECTION 2. The New Guarantor represents and warrants to the Administrative
Agent and the other Lenders that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
SECTION 3. This Supplement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument. This Supplement shall become
effective when the Administrative Agent shall have received counterparts of this
Supplement that, when taken together, bear the signatures of the New Guarantor
and the Administrative Agent.
SECTION 4. The New Guarantor hereby represents and warrants that set forth
under its signature hereto is the true and correct location of the chief
executive office of the New Guarantor.
SECTION 5. Except as expressly supplemented hereby, the Guarantee Agreement
shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Guarantee Agreement shall not in any way be affected or
impaired. The parties hereto shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 8. All communications and notices hereunder shall be in writing and
given as provided in Section 13 of the Guarantee Agreement. All
<PAGE>
3
communications and notices hereunder to the New Guarantor shall be given to it
at the address set forth under its signature hereto, with a copy to the
Borrower.
SECTION 9. The New Guarantor agrees to reimburse the Administrative Agent
for its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Administrative Agent.
SECTION 10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
<PAGE>
4
IN WITNESS WHEREOF, the New Guarantor and the Administrative Agent have
duly executed this Supplement to the Guarantee Agreement as of the day and year
first above written.
[NAME OF NEW GUARANTOR],
by
______________________________
Name:
Title:
Address: _____________________
_____________________
_____________________
SOCIETE GENERALE, as
Administrative Agent,
by
______________________________
Name:
Title:
<PAGE>
EXHIBIT F
to the Loan Agreement
INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT dated
as of December 20, 1996, among SCHEIN PHARMACEUTICAL, INC.,
a Delaware corporation (the "Borrower"), each Subsidiary
from time to time party hereto (individually, a "Guarantor"
and collectively the "Guarantors"), and SOCIETE GENERALE, as
administrative agent (in such capacity, the "Administrative
Agent") for the Lenders (as defined in the Loan Agreement
referred to below).
Reference is made to (a) the Loan Agreement dated as of December 20, 1996
(as amended, restated, supplemented, modified or waived from time to time, the
"Loan Agreement"), among the Borrower, the financial institutions party thereto
as lenders (the "Lenders") and Societe Generale, as administrative agent (in
such capacity, the "Administrative Agent") and (b) the Subordinated Guarantee
Agreement dated as of December 20, 1996 (as amended, restated, supplemented,
modified or waived from time to time, the "Guarantee Agreement") among the
Guarantors and the Administrative Agent.
The Lenders have agreed to make Loans to the Borrower, pursuant to, and
upon the terms and subject to the conditions specified in, the Loan Agreement.
The Guarantors have guaranteed such Loans and the other Obligations pursuant to
the Guarantee Agreement (for purposes of this Agreement, the "Guarantees"). The
obligations of the Lenders to make Loans are conditioned on, among other things,
the execution and delivery by the Borrower and the Guarantors of an agreement in
the form hereof. Capitalized terms used herein and not defined herein shall have
the meanings assigned to such terms in the Loan Agreement.
Accordingly, the Borrower, each Guarantor and the Administrative Agent
agree as follows:
SECTION 1. Indemnity and Subrogation. In addition to all such rights of
indemnity and subrogation that the Guarantors may have under applicable law (but
subject to Section 3), the Borrower agrees that in the event a payment shall be
made by any Guarantor under the Guarantee Agreement, the Borrower shall
indemnify such Guarantor for the full amount of such payment and such Guarantor
shall be subrogated to the rights of the Person to whom such payment shall have
been made to the extent of such payment.
SECTION 2. Contribution and Subrogation. Each Guarantor (a "Contributing
Guarantor") agrees (subject to Section 3) that, in the event a payment shall be
made by any other Guarantor under the Guarantee Agreement and such other
Guarantor (the "Claiming Guarantor") shall not have been indemnified by the
Borrower as provided in Section 1, the Contributing Guarantor shall indemnify
the
<PAGE>
2
Claiming Guarantor in an amount equal to the amount of such payment multiplied
by a fraction of which the numerator shall be the net worth (without taking into
account any Obligations) of the Contributing Guarantor on the date hereof (or,
if later, the date such Contributing Guarantor became a party hereto) and the
denominator shall be the aggregate net worth (without taking into account any
Obligations) of all the Guarantors on the date hereof plus the net worth of any
Guarantor becoming a party hereto pursuant to Section 14 on the date such
Guarantor so became a party hereto. Any Contributing Guarantor making any
payment to a Claiming Guarantor pursuant to this Section 2 shall be subrogated
to the rights of such Claiming Guarantor under Section 1 to the extent of such
payment.
SECTION 3. Subordination. Notwithstanding any provision of this Agreement
to the contrary, all rights of the Guarantors under Sections 1 and 2 and all
other rights of indemnity, contribution or subrogation under applicable law or
otherwise shall be fully subordinated to and shall not be exercised prior to the
indefeasible payment in full of the Obligations. No failure on the part of the
Borrower or any Guarantor to make the payments required by Sections 1 and 2 (or
any other payments required under applicable law or otherwise) shall in any
respect limit the obligations and liabilities of any Guarantor with respect to
any Guarantee, and each Guarantor shall remain liable for the full amount of the
obligations of such Guarantor under each such Guarantee.
SECTION 4. Termination. This Agreement shall survive and be in full force
and effect so long as any Obligation is outstanding and has not been
indefeasibly paid in full in cash and shall continue to be effective or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any Obligation is rescinded or must otherwise be restored by any Lender or any
Guarantor upon the bankruptcy or reorganization of the Borrower, any Guarantor
or otherwise.
SECTION 5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. No Waiver. No failure on the part of the Administrative Agent or
any Guarantor to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy by the Administrative Agent
or any Guarantor preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. All remedies hereunder are cumulative and
are not exclusive of any other remedies provided by law. None of the
Administrative Agent and the Guarantors shall be deemed to have waived any
rights hereunder unless such waiver shall be in writing and signed by such
parties.
<PAGE>
3
SECTION 7. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 13 of the Guarantee Agreement and
addressed as specified in such Section 13.
SECTION 8. Binding Agreement; Assignments etc. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the parties that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns. Neither the Borrower nor any of the Guarantors may assign or transfer
any of its rights or obligations hereunder (and any such attempted assignment or
transfer shall be void) without the prior written consent of the Required
Lenders.
SECTION 9. Survival of Agreement; Severability. (a) All covenants and
agreements made by the Borrower and each Guarantor herein and in the
certificates or other instruments prepared or delivered in connection with this
Agreement or the other Loan Documents shall be considered to have been relied
upon by the Administrative Agent, the other Lenders and each Guarantor and shall
survive the making by the Lenders of the Loans and shall continue in full force
and effect as long as the principal of or any accrued interest on any Loans or
any other fee or amount payable under the Loan Agreement or this Agreement or,
without duplication of the foregoing, under any of the other Loan Documents is
outstanding and unpaid and as long as the Commitments have not been terminated.
(b) In case any one or more of the provisions contained in this Agreement
should be held invalid, illegal or unenforceable in any respect, no party hereto
shall be required to comply with such provision for so long as such provision is
held to be invalid, illegal or unenforceable, but the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument. This Agreement shall be
effective with respect to any Guarantor when a counterpart bearing the signature
of such Guarantor shall have been delivered to and executed by the
Administrative Agent.
SECTION 11. Rules of Interpretation. The rules of interpretation specified
in Section 1.2 of the Loan Agreement shall be applicable to this Agreement.
<PAGE>
4
SECTION 12. Jurisdiction; Consent to Service of Process. (a) The
Administrative Agent, the Borrower and each Guarantor hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or Federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Each of the parties hereto agrees that it
will not institute or seek to institute any action or proceeding arising out of
or relating to this Agreement (other than an action or proceeding seeking
enforcement of a judgment) in any forum other than a New York State court or
Federal court of the United States of America sitting in New York City.
(b) The Administrative Agent, the Borrower and each Guarantor hereby
irrevocably and unconditionally waive, to the fullest extent it may legally and
effectively do so, any objection it may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to this
Agreement in any New York State or Federal court of the United States of America
sitting in New York. Each of the parties hereto hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of process
in the manner provided for notices in Section 7. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 13. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
<PAGE>
5
SECTION 14. Additional Guarantors. Pursuant to Section 5.10 of the Loan
Agreement each Subsidiary (other than Foreign Subsidiaries) that was not in
existence or not such a Subsidiary on the date of the Loan Agreement is required
to enter into the Guarantee Agreement as a Guarantor upon becoming a Subsidiary.
Upon execution and delivery, after the date hereof, by the Administrative Agent
and such a Subsidiary of an instrument in the form of Annex 1, such Subsidiary
shall become a Guarantor hereunder with the same force and effect as if
originally named as a Guarantor hereunder. The execution and delivery of any
instrument adding an additional Guarantor as a party to this Agreement shall not
require the consent of any Guarantor hereunder or the Borrower. The rights and
obligations of each Guarantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Guarantor as a party to this Agreement.
SECTION 15. Amendment. Neither this Agreement nor any provision hereof may
be waived, amended or modified except pursuant to a written agreement entered
into between the Guarantor and the Administrative Agent, with the prior written
consent of the Required Lenders (except as otherwise provided in the Loan
Agreement).
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first appearing above.
SCHEIN PHARMACEUTICAL, INC.,
by
_______________________
Name:
Title:
SCHEIN PHARMACEUTICAL
INTERNATIONAL, INC.,
by
_______________________
Name:
Title:
SCHEIN PHARMACEUTICAL PA, INC.,
by
_______________________
Name:
Title:
SCHEIN PHARMACEUTICAL SERVICE
COMPANY, INC.,
by
_______________________
Name:
Title:
<PAGE>
7
STERIS LABORATORIES, INC.,
by
_______________________
Name:
Title:
MARSAM PHARMACEUTICALS INC.,
by
_______________________
Name:
Title:
DANBURY PHARMACAL, INC.,
by
_______________________
Name:
Title:
DANBURY PHARMACAL PUERTO
RICO, INC.,
by
_______________________
Name:
Title:
SOCIETE GENERALE, as Administrative
Agent,
by
_______________________
Name:
Title:
<PAGE>
Annex 1 to
the Indemnity, Subrogation
and Contribution Agreement
SUPPLEMENT NO. ____ dated as of __________ to the
Indemnity, Subrogation and Contribution Agreement dated as
of December 20, 1996, (as the same may be amended, restated,
supplemented, modified or waived from time to time, the
"Indemnity, Subrogation and Contribution Agreement"), among
SCHEIN PHARMACEUTICAL, a Delaware corporation (the
"Borrower"); each Subsidiary listed on the signature pages
thereof (the "Guarantors"); and SOCIETE GENERALE, as
administrative agent (in such capacity, the "Administrative
Agent") for the Lenders (as defined in the Loan Agreement).
A. Reference is made to the Senior Subordinated Loan Agreement dated as of
December 20, 1996 (as amended, restated, supplemented, modified or waived from
time to time, the "Loan Agreement"), among the Borrower, the financial
institutions party thereto (the "Lenders") and Societe Generale, as
administrative agent (in such capacity, the "Administrative Agent").
B. Capitalized terms used herein and not otherwise defined herein shall
heave the meanings assigned to such terms in the Indemnity, Subrogation and
Contribution Agreement and the Loan Agreement.
C. The Borrower and the Subsidiaries have entered into the Indemnity,
Subrogation and Contribution Agreement in order to induce the Lenders to make
Loans. Pursuant to Section 5.10 of the Loan Agreement, each Subsidiary (other
than any Foreign Subsidiary) that was not in existence or not such a Subsidiary
or was a subsidiary of the Company on the date of the Loan Agreement is required
to enter into the Indemnity, Subrogation and Contribution Agreement as a
Guarantor upon becoming a Subsidiary. Section 14 of the Indemnity, Subrogation
and Contribution Agreement provides that additional Subsidiaries may become
Guarantors under the Indemnity, Subrogation and Contribution Agreement by
execution and delivery of an instrument in the form of this Supplement. The
undersigned Subsidiary (the "New Guarantor") is executing this Supplement in
accordance with the requirements of the Loan Agreement to become a Guarantor
under the Indemnity, Subrogation and Contribution Agreement as consideration for
Loans previously made.
Accordingly, the Administrative Agent and the New Guarantor agree as
follows:
SECTION 1. In accordance with Section 14 of the Indemnity, Subrogation and
Contribution Agreement, the New Guarantor by its signature below becomes a
Guarantor under the Indemnity, Subrogation and Contribution Agreement with the
same force and effect as if originally named therein as a Guarantor and the
<PAGE>
2
New Guarantor hereby agrees (a) to all the terms and provisions of the
Indemnity, Subrogation and Contribution Agreement applicable to it as a
Guarantor thereunder and (b) represents and warrants that the representations
and warranties made by it as a Guarantor thereunder are true and correct on and
as of the date hereof, except to the extent such representations and warranties
speak as of an earlier date. Each reference to a "Guarantor" in the Indemnity,
Subrogation and Contribution Agreement shall be deemed to include the New
Guarantor. The Indemnity, Subrogation and Contribution Agreement, as
supplemented hereby, is hereby incorporated herein by reference.
SECTION 2. The New Guarantor represents and warrants to the Administrative
Agent and the other Lenders that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
SECTION 3. This Supplement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument. This Supplement shall become
effective when the Administrative Agent shall have received counterparts of this
Supplement that, when taken together, bear the signatures of the New Guarantor
and the Administrative Agent.
SECTION 4. The New Guarantor hereby represents and warrants that set forth
under its signature hereto is the true and correct location of the chief
executive office of the New Guarantor.
SECTION 5. Except as expressly supplemented hereby, the Indemnity,
Subrogation and Contribution Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Indemnity, Subrogation and Contribution Agreement shall not in
any way be affected or impaired. The parties hereto shall endeavor in good-faith
negotiations to replace the invalid,
<PAGE>
3
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 8. All communications and notices hereunder shall be in writing and
given as provided in Section 7 of the Indemnity, Subrogation and Contribution
Agreement. All communications and notices hereunder to the New Guarantor shall
be given to it at the address set forth under its signature hereto, with a copy
to the Borrower.
SECTION 9. The New Guarantor agrees to reimburse the Administrative Agent
for its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Administrative Agent.
SECTION 10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
<PAGE>
4
IN WITNESS WHEREOF, the New Guarantor and the Administrative Agent have
duly executed this Supplement to the Indemnity, Subrogation and Contribution
Agreement as of the day and year first above written.
[NAME OF NEW GUARANTOR],
by
______________________________
Name:
Title:
Address: _____________________
_____________________
_____________________
SOCIETE GENERALE, as
Administrative Agent,
by
______________________________
Name:
Title:
<PAGE>
DRAFT - 12/20/96
EXHIBIT G
to the Loan Agreement
December __, 1996
To Societe Generale, as Administrative Agent
To the Lenders under the Loan Agreement
referred to below
Ladies and Gentlemen:
We have acted as special New York counsel to Schein Pharmaceutical, Inc., a
Delaware corporation (the "Borrower"), and the subsidiaries of the Borrower
listed on Annex 1 attached hereto (the "Subsidiaries" and, together with the
Borrower, the "Obligors") in connection with the preparation, execution and
delivery of the Senior Subordinated Loan Agreement dated as of December ___,
1996 (the "Loan Agreement") among the Borrower, the Lenders from time to time
party thereto, and Societe Generale as administrative agent (in such capacity,
the "Administrative Agent"), providing for, among other things, the making of
loans by the Lenders in an aggregate principal amount of $100,000,000. This
opinion is being delivered to you at the request of the Obligors pursuant to
Section 4.2 of the Loan Agreement. All capitalized terms used but not defined in
this opinion have the respective meanings given them in the Loan Agreement.
For purposes of this opinion, we have examined the following documents each
dated the date hereof (collectively the "Loan Documents"):
(a) the Loan Agreement;
(b) the Guarantee Agreement;
(c) the Conversion Note Registration Rights Agreement; and
<PAGE>
(d) the Indemnity, Subrogation and Contribution Agreement.
In giving this opinion, we have assumed, with your permission, the
genuineness of all signatures, the legal capacity of natural persons and the
authenticity of all documents we have examined. As to questions of fact relevant
to this opinion, with your permission and without any independent investigation
or verification, we have relied upon, and assumed the accuracy of, the
representations and warranties of each party in the Loan Documents and have
relied upon certificates of officers of the Obligors (each a "Fact Certificate")
and written statements of certain public officials. We also have assumed, with
your permission and without any independent verification, compliance by each
party to the Loan Documents with its agreements in the respective Loan
Documents, and that each Loan Document constitutes the legal, valid and binding
obligation of each party to it (other than the Obligors) and is enforceable
against each such party in accordance with its terms. In addition, we have
assumed, with your permission and without any independent verification, that:
(i) the execution, delivery and performance of each of its obligations
under the Loan Documents does not and will not conflict with, violate,
breach or constitute a default under, or require any consent under, (A) any
law, rule or regulation to which the Obligors are subject (other than those
as to which we express our opinion in paragraph 6(a) below), (B) any order,
writ, injunction or decree of any court or governmental authority or any
arbitral award (other than those as to which we express our opinion in
paragraph 6(b) below) or (C) any agreement or instrument to which the
Obligors or their properties are subject (other than those as to which we
express our opinion in paragraph 6(c) below); and
(ii) no approval, authorization or other action by, or filing with,
any court or governmental authority (other than those as to which we
express our opinion in paragraph 7 below) is required to authorize or is
required in connection with the execution, delivery or performance by the
Obligors of the Loan Documents or the transactions contemplated by the Loan
Documents.
Based upon and subject to the foregoing and the comments and qualifications
set forth below, we are of the opinion that:
2
<PAGE>
actual knowledge of any actions, suits or proceedings at law or in equity or by
or before any Governmental Authority now pending or threatened against or
affecting any of the Obligors or any business, property or rights of any such
person (a) that involve any Loan Documents or (b) as to which there is a
likelihood of an adverse determination and that, if adversely determined, could
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect.
9. Neither the Borrower nor any Subsidiary is an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
10. Neither the Borrower nor any Subsidiary is a "holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
The opinions expressed herein are subject to the following qualifications
and comments:
(a) The enforceability of each Loan Document against each Obligor that is a
party to it may be limited by bankruptcy, insolvency, fraudulent conveyance,
fraudulent transfer, reorganization, moratorium and other similar laws relating
to or affecting creditors' rights generally and by general equitable principles
(regardless of whether enforcement is sought in equity or at law), including,
without limitation, principles regarding good faith and fair dealing. In
addition, we express no opinion as to the enforceability of (i) provisions that
purport to establish evidentiary standards, (ii) provisions exculpating a party
from, or indemnifying a party for (or entitling a party to contribution in a
case involving), its own gross negligence, willful misconduct or violation of
securities or other laws, (iii) provisions relating to the availability of
specific remedies or relief, or the release or waiver of any remedies or rights
or time periods in which claims are required to be asserted, (iv) provisions
that allow cumulative remedies or (v) provisions relating to the discharge of
defenses or disclaimers, liability limitations or limitations of the obligations
of any Lender or the Administrative Agent or an Obligor under any of the Loan
Documents.
(b) Insofar as the opinion in paragraph 5 relates to the Guarantee
Agreement, we have with your permission assumed the adequacy of the
consideration that supports the Guarantee Agreement and the solvency and
adequacy of capital of each of the Subsidiaries.
(c) We express no opinion as to (i) the effect of the law of any
jurisdiction in which the Administrative
4
<PAGE>
Agent or any Lender is located (other than the State of New York) that limits
the interest, fees or other charges that may be imposed under the Loan
Documents, (ii) section 10.6 of the Loan Agreement, and any similar provisions
in the other Loan Documents, insofar as such provision authorizes the set-off
and application of any deposits or other funds at any time held, and any other
indebtedness at any time owing, by a party to and for the account of any of the
other parties, (iii) any provision that any Lender purchasing a participation
from another Lender may exercise set-off or similar rights with respect to that
participation, (iv) section 10.15 of the Loan Agreement and any similar
provisions in the other Loan Documents, insofar as such provisions relate to the
subject matter jurisdiction of any State or Federal court in New York, New York
to adjudicate any controversy relating to the Loan Documents and (v) any laws or
other matters administered by or subject to the jurisdiction of the United
States Food and Drug Administration or similar state or foreign Governmental
Authorities.
This opinion is addressed to you and is solely for your benefit and only in
connection with the transactions contemplated by the Loan Documents. This
opinion is limited to the federal law of the United States, the Delaware General
Corporation Law and the law of the State of New York, and we express no opinion
as to the law of any other jurisdiction.
This opinion may not be relied upon by any person for any purpose other
than in connection with the transactions contemplated by the Loan Agreement
without, in each instance, our prior written consent.
Very truly yours,
5
<PAGE>
ANNEX 1
SUBSIDIARIES
Schein Pharmaceutical International, Inc.
Schein Pharmaceutical PA, Inc.
Schein Pharmaceutical Service Company
Steris Laboratories, Inc.
Danbury Pharmacal, Inc.
Danbury Pharmacal Puerto Rico, Inc.*
Marsam Pharmaceuticals, Inc.
* - Shares held by Danbury Pharmacal, Inc.
<PAGE>
EXHIBIT 4.4
- --------------------------------------------------------------------------------
SCHEIN PHARMACEUTICAL, INC.
THE GUARANTORS PARTY HERETO
AND
THE BANK OF NEW YORK, as Trustee
INDENTURE
Dated as of December 24, 1997
--------------------
$100,000,000
SENIOR FLOATING RATE NOTES DUE 2004
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS............................ 1
-----------
SECTION 1.1 Certain Terms Defined............................... 1
---------------------
ARTICLE II
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES..................... 16
--------------------------
SECTION 2.1 Authentication and Delivery of Securities........... 16
-----------------------------------------
SECTION 2.2 Execution of Securities............................. 17
-----------------------
SECTION 2.3 Certificate of Authentication....................... 17
-----------------------------
SECTION 2.4 Form, Denomination and Date of Securities; Payments
---------------------------------------------------
of Interest................................................ 17
-----------
SECTION 2.5 Registration, Transfer and Exchange................. 19
-----------------------------------
SECTION 2.6 Mutilated, Defaced, Destroyed, Lost and Stolen
-----------------------------------------------
Securities................................................. 22
----------
SECTION 2.7 Cancellation of Securities; Destruction Thereof..... 23
-----------------------------------------------
SECTION 2.8 Temporary Securities; Global Securities............. 23
---------------------------------------
SECTION 2.9 Effective Registration.............................. 25
----------------------
SECTION 2.10 CUSIP Numbers...................................... 25
-------------
ARTICLE III
COVENANTS OF THE COMPANY...................... 25
------------------------
SECTION 3.1 Payment of Principal and Interest................... 25
---------------------------------
SECTION 3.2 Offices for Payments, etc........................... 25
-------------------------
SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee.. 26
--------------------------------------------------
SECTION 3.4 Paying Agents....................................... 26
-------------
SECTION 3.5 Certificate to Trustee.............................. 27
----------------------
SECTION 3.6 Securityholders' Lists.............................. 27
----------------------
SECTION 3.7 Commission Reports.................................. 27
------------------
SECTION 3.8 Limitation on Indebtedness.......................... 28
--------------------------
SECTION 3.9 Limitation on Restricted Payments................... 30
---------------------------------
SECTION 3.10 Limitation on Sales of Assets and Subsidiary Stock. 32
--------------------------------------------------
SECTION 3.11 Limitation on Restrictions on Distributions from
-------------------------------------------------
Restricted Subsidiaries.................................... 35
-----------------------
SECTION 3.12 Limitation on Sale of Capital Stock of Restricted
--------------------------------------------------
Subsidiaries............................................... 35
------------
SECTION 3.13 Limitation on Liens................................ 36
-------------------
SECTION 3.14 Limitations on Affiliate Transactions.............. 37
-------------------------------------
SECTION 3.15 Change of Control.................................. 38
-----------------
SECTION 3.16 Limitation on Lines of Business.................... 39
-------------------------------
SECTION 3.17 Limitation on Sale and Leaseback Transactions....... 40
---------------------------------------------
i
<PAGE>
SECTION 3.18 Payments for Consent............................... 40
--------------------
SECTION 3.19 Waiver of Stay, Extension or Usury Laws............ 40
---------------------------------------
ARTICLE IV
DEFAULTS AND REMEDIES....................... 40
---------------------
SECTION 4.1 Event of Default Defined; Acceleration of Maturity.. 40
--------------------------------------------------
SECTION 4.2 Acceleration........................................ 42
------------
SECTION 4.3 Other Remedies...................................... 43
--------------
SECTION 4.4 Waiver of Past Defaults............................. 43
-----------------------
SECTION 4.5 Control by Majority................................. 43
-------------------
SECTION 4.6 Limitation on Suits................................. 44
-------------------
SECTION 4.7 Rights of Holders to Receive Payment................ 44
------------------------------------
SECTION 4.8 Collection Suit by Trustee.......................... 44
--------------------------
SECTION 4.9 Trustee May File Proofs of Claim.................... 44
--------------------------------
SECTION 4.10 Priorities......................................... 45
----------
SECTION 4.11 Undertaking for Costs.............................. 45
---------------------
ARTICLE V
CONCERNING THE TRUSTEE....................... 45
----------------------
SECTION 5.1 Duties and Responsibilities of the Trustee; During
---------------------------------------------------
Default; Prior to Default.................................. 45
-------------------------
SECTION 5.2 Certain Rights of the Trustee....................... 47
-----------------------------
SECTION 5.3 Trustee Not Responsible for Recitals, Disposition of
----------------------------------------------------
Securities or Application of Proceeds Thereof.............. 48
---------------------------------------------
SECTION 5.4 Trustee and Agents May Hold Securities; Collections,
----------------------------------------------------
etc........................................................ 48
---
SECTION 5.5 Moneys Held by Trustee.............................. 48
----------------------
SECTION 5.6 Compensation and Indemnification of Trustee and Its
---------------------------------------------------
Prior Claim................................................ 48
-----------
SECTION 5.7 Right of Trustee to Rely on Officer's Certificate,
--------------------------------------------------
Etc........................................................ 49
--
SECTION 5.8 Persons Eligible for Appointment as Trustee......... 49
-------------------------------------------
SECTION 5.9 Resignation and Removal; Appointment of Successor
-------------------------------------------------
Trustee.................................................... 49
-------
SECTION 5.10 Acceptance of Appointment by Successor Trustee..... 50
----------------------------------------------
SECTION 5.11 Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business of Trustee........................................ 51
-------------------
SECTION 5.12 Notice of Defaults................................. 51
------------------
SECTION 5.13 Reports by the Trustee............................. 51
----------------------
ARTICLE VI
CONCERNING THE SECURITYHOLDERS................... 52
------------------------------
SECTION 6.1 Evidence of Action Taken by Securityholders......... 52
-------------------------------------------
SECTION 6.2 Proof of Execution of Instruments and of Holding of
----------------------------------------------------
Securities; Record Date.................................... 52
-----------------------
ii
<PAGE>
SECTION 6.3 Holders to be Treated as Owners..................... 52
-------------------------------
SECTION 6.4 Securities Owned by Company Deemed Not Outstanding.. 53
--------------------------------------------------
SECTION 6.5 Right of Revocation of Action Taken................. 53
-----------------------------------
ARTICLE VII
AMENDMENTS............................. 53
----------
SECTION 7.1 Without Consent of Holders.......................... 53
--------------------------
SECTION 7.2 With Consent of Holders............................. 54
-----------------------
SECTION 7.3 Compliance with Trust Indenture Act................. 55
-----------------------------------
SECTION 7.4 Revocation and Effect of Consents and Waivers....... 55
---------------------------------------------
SECTION 7.5 Notation on or Exchange of Securities............... 55
-------------------------------------
SECTION 7.6 Trustee to Sign Amendments.......................... 56
--------------------------
ARTICLE VIII
MERGER AND CONSOLIDATION...................... 56
------------------------
SECTION 8.1 When Company May Merge, Etc......................... 56
----------------------------
SECTION 8.2 Successor Corporation Substituted................... 56
---------------------------------
ARTICLE IX
DISCHARGE OF INDENTURE; DEFEASANCE................. 57
----------------------------------
SECTION 9.1 Discharge of Liability on Securities: Defeasance.... 57
------------------------------------------------
SECTION 9.2 Conditions to Defeasance............................ 58
------------------------
SECTION 9.3 Application of Trust Money.......................... 59
--------------------------
SECTION 9.4 Repayment to Company................................ 59
--------------------
SECTION 9.5 Indemnity for U.S. Government Obligations........... 60
-----------------------------------------
SECTION 9.6 Reinstatement....................................... 60
-------------
ARTICLE X
SUBSIDIARY GUARANTEE........................ 60
--------------------
SECTION 10.1 Subsidiary Guarantee............................... 60
--------------------
SECTION 10.2 Limitation on Liability............................ 62
-----------------------
SECTION 10.3 Successors and Assigns............................. 62
----------------------
SECTION 10.4 No Waiver.......................................... 63
---------
SECTION 10.5 Modification....................................... 63
------------
SECTION 10.6 Release............................................ 63
-------
ARTICLE XI
iii
<PAGE>
MISCELLANEOUS PROVISIONS...................... 63
------------------------
SECTION 11.1 Incorporators, Stockholders, Officers and Directors
---------------------------------------------------
of Company Exempt from Individual Liability................ 63
-------------------------------------------
SECTION 11.2 Provisions of Indenture for the Sole Benefit of
-----------------------------------------------
Parties and Securityholders................................ 63
---------------------------
SECTION 11.3 Successors and Assigns of Company Bound by
------------------------------------------
Indenture.................................................. 64
---------
SECTION 11.4 Notices and Demands on Company, Trustee and
-------------------------------------------
Securityholders............................................ 64
---------------
SECTION 11.5 Officers' Certificates and Opinions of Counsel;
-----------------------------------------------
Statements to Be Contained Therein......................... 64
----------------------------------
SECTION 11.6 Payments Due on Saturdays; Sundays and Holidays.... 65
-----------------------------------------------
SECTION 11.7 Conflict of Any Provision of Indenture with Trust
-------------------------------------------------
Indenture Act.............................................. 65
-------------
SECTION 11.9 Counterparts....................................... 66
------------
SECTION 11.10 Effect of Headings................................ 66
------------------
ARTICLE XII
REDEMPTION OF SECURITIES...................... 66
------------------------
SECTION 12.1 Right of Optional Redemption; Prices............... 66
------------------------------------
SECTION 12.2 Applicability of Article........................... 66
------------------------
SECTION 12.3 Election to Redeem; Notice to Trustee.............. 66
-------------------------------------
SECTION 12.4 Notice of Redemption; Partial Redemptions.......... 66
-----------------------------------------
SECTION 12.5 Payment of Securities Called for Redemption........ 68
-------------------------------------------
SECTION 12.6 Exclusion of Certain Securities from Eligibility for
----------------------------------------------------
Selection for Redemption................................... 68
------------------------
SCHEDULES AND EXHIBITS
SCHEDULE 1.1 CERTAIN PERMITTED HOLDERS
SCHEDULE 1.2 CORPORATE TRUST OFFICE
EXHIBIT A - FORM OF INITIAL NOTE
EXHIBIT B - FORM OF EXCHANGE NOTE
EXHIBIT C - FORM OF TRANSFEROR CERTIFICATE FOR TRANSFER FROM RESTRICTED
GLOBAL SECURITY OR RESTRICTED SECURITY TO RESTRICTED SECURITY
EXHIBIT D - FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
EXHIBIT E - FORM OF LEGAL OPINION ON TRANSFER
EXHIBIT F - FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM RESTRICTED
SECURITY TO RESTRICTED GLOBAL SECURITY
iv
<PAGE>
THIS INDENTURE, dated as of December 24, 1997 is entered into among
Schein Pharmaceutical, Inc., a Delaware corporation (the "Company"), the
Guarantors party hereto (the "Guarantors") and The Bank of New York, a New York
banking corporation (the "Trustee").
W I T N E S E T H :
-----------------
WHEREAS, the Company has duly authorized the issue of its Initial
Senior Floating Rate Notes due 2004 (the "Initial Notes") and, when issued in
exchange for Initial Notes as provided in the Registration Rights Agreement (as
defined herein), the Company's Senior Floating Rate Notes due 2004 (the
"Exchange Notes" and together with the Initial Notes, the "Securities"), and to
provide, among other things, for the authentication, delivery and administration
thereof, the Company has duly authorized the execution and delivery of this
Indenture; and
WHEREAS, all things necessary to make the Securities, when executed by
the Company and authenticated and delivered by the Trustee as in this Indenture
provided, the valid, binding and legal obligations of the Company, and to
constitute these presents a valid indenture and agreement according to its
terms, have been done;
NOW, THEREFORE:
In consideration of the premises, the Company, the Guarantors and the
Trustee mutually covenant and agree for the equal and proportionate benefit of
the respective holders from time to time of the Securities as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1 Certain Terms Defined. The following terms (except as
---------------------
otherwise expressly provided or unless the context otherwise clearly requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section. All other terms
used in this Indenture which are defined in the Trust Indenture Act (as defined
herein), or the definitions of which in the Securities Act as (defined herein)
are referred to in the Trust Indenture Act (except as herein otherwise expressly
provided or unless the context otherwise clearly requires), shall have the
meanings assigned to such terms in the Trust Indenture Act and in the Securities
Act as in force at the date of this Indenture. All accounting terms used herein
and not expressly defined shall have the meanings given to them in accordance
with GAAP (as defined herein). The words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision. The terms defined in this
Article include the plural as well as the singular.
<PAGE>
2
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at
---------------------
the time such Person becomes a Restricted Subsidiary or (ii) assumed by the
Company or a Restricted Subsidiary in connection with the acquisition of assets
from such Person. Acquired Indebtedness shall be deemed to be incurred on the
date of the related acquisition of assets from any Person or the date the
acquired Person becomes a Restricted Subsidiary.
"Additional Assets" means (i) any property or assets (other than
-----------------
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business or (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; provided, however, that
-------- -------
in the case of clause (ii) such Person is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means (i) any other Person,
---------
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person or (ii) any Person who is a director
or officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of
any Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of Section 3.14, "Affiliate" shall also mean any beneficial owner of
(x) shares and (y) rights or warrants to purchase shares (whether or not
currently exercisable) representing in the aggregate 10% or more of the total
voting power (assuming the exercise of any such rights or warrants) of the
outstanding voting shares of Capital Stock of the Company on a fully diluted
basis and any Person who would be an Affiliate of any such beneficial owner
pursuant to the first sentence hereof.
"Affiliate Transaction" has the meaning specified in Section 3.14(a).
---------------------
"Agent Members" has the meaning specified in Section 2.4(c).
-------------
"Asset Disposition" means any sale, lease, transfer, issuance or other
-----------------
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Restricted Subsidiary, (ii) a
disposition of inventory in the ordinary course of business, (iii) a disposition
of obsolete or worn out equipment or equipment that is no longer useful in the
conduct of the business of the Company and its Restricted Subsidiaries and that
is disposed of in each case in the ordinary course of business, (iv) a transfer
involving assets with a Fair Market Value not in excess of $5,000,000, (v) any
sale of equity interests in, or Indebtedness or other securities of, an
Unrestricted Subsidiary, (vi) a disposition of all or substantially all of the
assets of the Company in a manner permitted pursuant to Article VIII and (vii)
any
<PAGE>
3
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.
"Bankruptcy Law" has the meaning specified in Section 4.1.
--------------
"Bayer AG" shall mean Bayer AG, a German corporation, and its
--------
subsidiaries.
"Board of Directors" means either the Board of Directors of the
------------------
Company or any committee of such Board of Directors duly authorized to act
hereunder.
"Business Day" means a day other than a Saturday, Sunday or other day
------------
on which commercial banks in New York City are authorized or required by law to
close.
"Capital Stock" means (i) any and all shares, interests,
-------------
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock, (ii) all partnership interests (whether general or limited) in
any Person which is a partnership, (iii) all membership interests or limited
liability company interests in any limited liability company, and (iv) all
equity or ownership interests in any Person of any other type.
"Capitalized Lease Obligations" means, without duplication, all
-----------------------------
monetary obligations of the Company or any of its Restricted Subsidiaries under
any leasing or similar arrangement which, in accordance with GAAP, would be
classified as capitalized leases and, for purposes of this Indenture, the amount
of such obligations shall be the capitalized amount thereof, determined in
accordance with GAAP, and the stated maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Change of Control" means (i) any sale, lease or other transfer (other
-----------------
than a bona fide pledge of assets to secure Indebtedness incurred in accordance
with the Indenture or under the Senior Credit Agreement) by the Company or any
Restricted Subsidiary of all or substantially all of the assets of the Company
to any Person as an entirety or substantially as
<PAGE>
4
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 % of the directors then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the Company
then in office; or (v) the shareholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company.
"Change of Control Offer" has the meaning set forth in Section 3.15.
-----------------------
"Change of Control Purchase Date" has the meaning specified in Section
-------------------------------
3.15.
"Change of Control Purchase Price" has the meaning specified in
--------------------------------
Section 3.15.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"covenant defeasance option" has the meaning specified in Section
--------------------------
9.1(b).
"Commission" means the Securities and Exchange Commission.
----------
"Company" means Schein Pharmaceutical, Inc., a Delaware corporation,
-------
and, subject to Article VIII, its successors and assigns.
"Consolidated Cash Flow" for any period means the Consolidated Net
----------------------
Income of the Company and its consolidated Restricted Subsidiaries for such
period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense; plus (ii) Consolidated Interest
Expense; plus (iii) depreciation expense; plus (iv) amortization expense; plus
(v) any other non-cash expenses, in each case for such period.
"Consolidated Coverage Ratio," as of any date of determination, means
---------------------------
the ratio of (i) the aggregate amount of Consolidated Cash Flow for the period
consisting of the most recent four consecutive fiscal quarters ending prior to
the date of such determination to (ii) Consolidated Interest Expense for such
period; provided, however, that (A) if the
<PAGE>
5
Company or any of its Restricted Subsidiaries has incurred any Indebtedness
since the beginning of such period that remains outstanding or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (B) if since the beginning of such period the Company or any
of its Restricted Subsidiaries shall have made any Asset Disposition,
Consolidated Cash Flow for such period shall be reduced by an amount equal to
the Consolidated Cash Flow (if positive) attributable to the assets which are
the subject of such Asset Disposition for such period or increased by an amount
equal to the Consolidated Cash Flow (if negative) attributable thereto for such
period, and Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense attributable to any
Indebtedness of the Company or any of its Restricted Subsidiaries repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary of the
Company is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (C) if since the beginning of such period the
Company or any of its Restricted Subsidiaries (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary of the Company (or any
Person which becomes a Restricted Subsidiary of the Company) or an acquisition
of assets, including any Investment in a Restricted Subsidiary of the Company or
any acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period, and (D) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary of the Company or was merged with or into the Company or
any Restricted Subsidiary of the Company since the beginning of such period)
shall have made any Asset Disposition or any Investment or acquisition of assets
that would have required an adjustment pursuant to clause (B) or (C) above if
made by the Company or a Restricted Subsidiary of the Company during such
period, Consolidated Cash Flow and Consolidated Interest Expense for such period
shall be calculated after giving 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).
<PAGE>
6
"Consolidated Interest Expense" means, for any period, the total
-----------------------------
interest expense of the Company and its Restricted Subsidiaries, plus, to the
extent not included in such interest expense and without duplication, (i)
interest expense attributable to Capitalized Lease Obligations, (ii)
amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) non-cash interest expense, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and banker's acceptance
financing, (vi) interest actually paid by the Company or any such Restricted
Subsidiary under any Guarantee of Indebtedness or other obligation of any other
Person, (vii) net costs associated with Interest Rate Agreements (including
amortization of fees), and (viii) the product of (a) all Preferred Stock
dividends in respect of all Preferred Stock of Restricted Subsidiaries of the
Company and Disqualified Capital Stock of the Company held by Persons other than
the Company or a Restricted Subsidiary multiplied by (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of the Company,
expressed as a decimal, in each case, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income (loss)
-----------------------
of the Company and its consolidated Restricted Subsidiaries; provided, however,
-------- -------
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such Person is not a Restricted Subsidiary,
except that subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below); (ii) any net income (loss) of any
person acquired by the Company or a Restricted Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income (loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Restricted Subsidiary, directly
or indirectly, to the Company, except that subject to the limitations contained
in (iv) below, the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend (subject, in the case of a dividend that could have
been made to another Restricted Subsidiary, to the limitation contained in this
clause); (iv) any gain or loss realized upon the sale or other disposition of
any assets of the Company or its consolidated Restricted Subsidiaries which are
not sold or otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale or other disposition of any Capital Stock of
any Person; (v) any extraordinary gain or loss; (vi) the cumulative effect of a
change in accounting principles; and (vii) any loss resulting from a charge for
acquired in-process research and development expenses incurred in connection
with the acquisition of any other Person permitted hereunder.
"Corporate Trust Office" means the office of the Trustee at which the
----------------------
corporate trust business of the Trustee shall, at any particular time, be
administered, which office is, at
<PAGE>
7
the date as of which this Indenture is dated, located at 101 Barclay Street, 421
West, New York, NY 10286, Attention: Corporate Trust Administration.
"Credit Agent"" means The Chase Manhattan Bank (formerly Chemical
-------------
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.
"Custodian" has the meaning specified in Section 4.1.
---------
"Default" means any event that is or, with the passage of time or the
-------
giving of notice or both, would be an Event of Default.
"Depository" shall mean The Depository Trust Company, its nominees,
----------
and their respective successors.
"Disqualified Capital Stock" means, with respect to any Person, any
--------------------------
Capital Stock of such Person which by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Capital Stock, or (iii) is redeemable at the option
of the holder thereof, in whole or in part, in each case on or prior to the
first anniversary of the final Stated Maturity of the Securities.
"Effective Registration" means that the Company shall have (i)
----------------------
commenced a Registered Exchange Offer for the Initial Notes pursuant to an
effective registration statement under the Securities Act or (ii) filed and
caused to become effective a Notes Shelf Registration under the Securities Act
for the sale of Securities by the Holders.
"Equity Interests" means Capital Stock and all warrants, options or
----------------
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" means any event or condition specified as such in
----------------
Section 4.1 which shall have continued for the period of time, if any, therein
designated.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Exchange Notes" has the meaning specified in the Recitals.
--------------
"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.
<PAGE>
8
"GAAP" means generally accepted accounting principles in the United
----
States of America as in effect from time to time, including those set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
this Indenture shall be computed in conformity with GAAP as in effect on the
date of this Indenture.
"Guarantee" means any obligation, contingent or otherwise, of any
---------
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation of any other Person (whether arising
by virtue of partnership arrangements, or by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the 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 Securities and this 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 Securities and this
Indenture.
"Holder," "holder of Securities," "Securityholder" or other similar
------ -------------------- --------------
terms means the registered holder of a Security.
"Indebtedness" means, with respect to any Person on any date of
------------
determination (without duplication), (i) the principal of and premium (if any)
in respect of Indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (other than accounts payable to trade creditors arising in
the ordinary course of business), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services, (v) all Capitalized Lease
<PAGE>
9
Obligations of such Person, (vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed by
such Person; provided, however, that the amount of Indebtedness of such Person
-------- -------
shall be the lesser of (A) the Fair Market Value of such asset at such date of
determination or (B) the amount of such Indebtedness of such other Persons,
(vii) all Indebtedness of other Persons to the extent Guaranteed by such Person,
(viii) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Capital Stock or,
with respect to any Restricted Subsidiary of the Company, any Preferred Stock
(but excluding, in each case, any accrued dividends), and (ix) to the extent not
otherwise included in this definition, obligations of such Person under Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and the liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Indenture" means this instrument as originally executed and delivered
---------
or, if amended or supplemented as herein provided, as so amended or
supplemented.
"Initial Notes" has the meaning specified in the Recitals.
-------------
"Institutional Accredited Investor" shall mean an institution that is
---------------------------------
an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"Interest Rate Agreement" means with respect to any Person any
-----------------------
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
----------
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person.
"Issue Date" means the date on which the Securities are originally
----------
issued.
"legal defeasance option" has the meaning specified in Section 9.1(b).
-----------------------
"Lien" means any security interest, mortgage, pledge, hypothecation,
----
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property, or any filing or recording of any
instrument or document in respect of the
<PAGE>
10
foregoing, to secure payment of a debt or performance of an obligation or other
priority or preferential arrangement of any kind or nature whatsoever.
"Loan Agreement" means the Senior Subordinated Loan Agreement dated as
--------------
of December 20, 1996 among the Company, the financial institutions party thereto
as lenders and Societe Generale, as administrative agent.
"Loans" means the loans made to the Company pursuant to the Loan
-----
Agreement.
"Material Subsidiary" means (i) any Subsidiary of the Company which is
-------------------
a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under
the Securities Act and the Exchange Act (as such Regulation is in effect on the
date hereof) and (ii) any other Subsidiary of the Company which is material to
the business, earnings, prospects, assets or condition, financial or otherwise,
of the Company and its Subsidiaries taken as a whole.
"Net Available Cash" from an Asset Disposition means cash payments
------------------
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred, and all federal, state, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to any Person owning a beneficial interest in assets subject
to sale or minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition, and (iv) the deduction of appropriate amounts
to be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Disposition and
retained by the Company or any Restricted Subsidiary of the Company after such
Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital
-----------------
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Non-Global Purchaser" has the meaning specified in Section 2.4(d).
--------------------
"Notes Shelf Registration" shall have meaning given such term in the
------------------------
Registration Rights Agreement.
<PAGE>
11
"Offer" has the meaning specified in Section 3.10(a)(iii)(D).
-----
"Offer Amount" has the meaning specified in Section 3.10(c)(ii).
------------
"Offer Period" has the meaning specified in Section 3.10(c)(ii).
------------
"Officer" means the Chief Executive Officer, the President, the chief
-------
financial officer, the principal accounting officer, any executive vice
president, any senior vice president, the Controller, the Treasurer, the
Secretary or the Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed the Chief Executive
---------------------
Officer, the President, the chief financial officer, the principal accounting
officer, any executive vice president, any senior vice president, the
Controller, the Treasurer or the Secretary or any Assistant Secretary of the
Company and delivered to the Trustee. Each such certificate shall comply with
Section 314 of the Trust Indenture Act and include the statements provided for
in Section 11.5.
"Opinion of Counsel" means an opinion in writing signed by legal
------------------
counsel who may be an employee of or counsel to the Company or who may be other
counsel satisfactory to the Trustee. Each such opinion shall comply with
Section 314 of the Trust Indenture Act and include the statements provided for
in Section 11.5, if and to the extent required hereby.
"outstanding" when used with reference to Securities, shall, subject
-----------
to the provisions of Section 6.4, mean, as of any particular time, all
Securities authenticated and delivered by the Trustee under this Indenture,
except:
(a) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or redemption of
which moneys in the necessary amount shall have been deposited in trust
with the Trustee or with any paying agent (other than the Company) or shall
have been set aside, segregated and held in trust by the Company (if the
Company shall act as its own paying agent), provided that if such
--------
Securities are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been given as herein provided, or provision
satisfactory to the Trustee shall have been made for giving such notice;
and
(c) Securities in substitution for which other Securities shall have
been authenticated and delivered, or which shall have been paid, pursuant
to the terms of Section 2.6 (unless proof satisfactory to the Trustee is
presented that any of such Securities is held by a person in whose hands
such Security is a legal, valid and binding obligation of the Company).
<PAGE>
12
"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 AG (provided that, if
--------
applicable local law would not permit 50% of the equity interest in such an
entity to be held by the Company and Bayer Ag, such percentage may be as low as
49% if the Company and Bayer AG otherwise Control the applicable entity), (b)
any subsidiary of a Permitted Foreign Company described in clause (a) above and
(c) any wholly owned foreign subsidiary the only material assets of which are
securities of Permitted Foreign Companies described in clause (a) above.
"Permitted Holders" means (a)(i) the Persons listed on Schedule 1.1,
-----------------
(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 AG 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 $2,500,000 outstanding at
any time; (vii) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any of
its Subsidiaries or in satisfaction of judgments or claims; (viii) Interest Rate
Agreements which are entered into by the Company for bona fide hedging purposes
(as determined in good faith by the Board of Directors or senior management of
the Company) with respect to Indebtedness of the Company incurred without
violation of this Indenture or to customary commercial transactions of the
Company entered into in the ordinary course of business; (ix) any Investment
(other than a Temporary Cash Investment) evidenced by securities or other assets
received in connection with an Asset Disposition pursuant to Section 3.10; (x)
Investments, the payment for which consists exclusively of Equity Interests
(exclusive of Disqualified Capital Stock) in the Company; or (xi) loans to
employees made in connection with the exercise by them of options to purchase
shares of the common stock of the Company, provided that the proceeds of such
loans are used to purchase such shares and that such loans are secured by a
pledge of such shares so purchased.
<PAGE>
13
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision hereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any corporation,
---------------
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus the
---------
premium, if any, payable on the Security which is due or overdue or is to become
due at the relevant time.
"property" of any Person means all types of real, personal, tangible,
--------
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person under GAAP.
"Purchase Date" has the meaning specified in Section 3.10(c).
-------------
"QIB" shall mean a "qualified institutional buyer" as defined in Rule
---
144A under the Securities Act.
"record date" has the meaning specified in Section 2.4.
-----------
"Refinanced Indebtedness" has the meaning specified in Section
-----------------------
3.8(b)(xii).
"Refinancing Indebtedness" means Indebtedness issued in exchange for,
------------------------
or the proceeds of which are used to extend, refinance, renew, replace or refund
any Indebtedness permitted to be incurred pursuant to Section 3.8.
"Registered Exchange Offer" shall have the meaning given such term in
-------------------------
the Registration Rights Agreement.
"Registration Rights Agreement" means the Exchange and Registration
-----------------------------
Rights Agreement dated as of December __, 1997, between the Company, the
Guarantors and Societe Generale with respect to the Securities.
"Related Business" means any segment of the pharmaceutical or health-
----------------
care industry or ancillary thereto.
"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.
<PAGE>
14
"Restricted Global Security" has the meaning specified in Section
--------------------------
2.4(b).
"Restricted Payments" has the meaning specified in Section 3.9(a)(iv).
-------------------
"Restricted Securities" has the meaning specified in Section 2.4(d).
---------------------
"Restricted Securities Legend" has the meaning specified in Section
----------------------------
2.4.
"Restricted Subsidiary" shall mean any Subsidiary other than an
---------------------
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
---------
"Secured Indebtedness" means any Indebtedness of the Company secured
--------------------
by a Lien.
"Security" or "Securities" has the meaning specified in the Recitals.
-------- ----------
"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 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 Securities.
<PAGE>
15
"Subsidiary" of any Person means any corporation, association,
----------
partnership or other business entity (a) of which more than 50% of the total
voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person, or (iii) one or
more Subsidiaries of such Person or (b) that is or would otherwise be treated on
a consolidated basis with such Person under, and in accordance with, GAAP.
Unless otherwise specified herein, each reference to a Subsidiary shall refer to
a Subsidiary of the Company.
"Subsidiary Guarantee" has the meaning specified in Section 10.1.
--------------------
"Successor Company" has the meaning specified in Section 8.1(i).
-----------------
"Temporary Cash Investments" means any of the following: (i) any
--------------------------
Investment in direct obligations of the United States of America or any agency
or instrumentality thereof or obligations Guaranteed by the United States of
America or any agency or instrumentality thereof, (ii) Investments in time
deposit accounts, certificates of deposit and money market deposits maturing
within 180 days of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States of America, any
state thereof or any foreign country recognized by the United States of America
having capital, surplus and undivided profits aggregating in excess of
$500,000,000 (or the foreign currency equivalent thereof) and whose long-term
debt, or whose parent holding company's long-term debt, is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act), (iii) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with a bank meeting the qualifications described in clause (ii) above, or (iv)
Investments in commercial paper, maturing not more than 180 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or higher) according
to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard
Poor's Ratings Group.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
-------------------
amended.
"Trust Officer" means the Chairman of the Board, the President or any
-------------
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Trustee" means the entity identified as "Trustee" in the first
-------
paragraph hereof and, subject to the provisions of Article V, shall also include
any successor trustee.
"U.S. Government Obligations" means direct obligations (or
---------------------------
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and
<PAGE>
16
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, 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 this 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
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Shares" of a Person means all classes of Capital Stock of such
-------------
Person then outstanding and normally entitled to vote in the election of
directors or managers.
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness or Disqualified Capital Stock, as the case may be, at any date, the
number of years obtained by dividing (a) the sum of the products obtained by
multiplying (x) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including payment at
final maturity, in respect thereof, by (y) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment, by (b) the then outstanding principal amount or liquidation
preference, as
applicable, of such Indebtedness or Disqualified Capital Stock, as the case may
be.
ARTICLE II
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES
--------------------------
SECTION 2.1 Authentication and Delivery of Securities. Upon the
-----------------------------------------
execution and delivery of this Indenture, or from time to time thereafter,
Securities in an aggregate principal amount not to exceed $100,000,000 (except
as otherwise provided in Section 2.6)
<PAGE>
17
may be executed by the Company and delivered to the Trustee for authentication,
and the Trustee shall thereupon authenticate and deliver said Securities to or
upon the written order of the Company, signed by its Chief Executive Officer,
President, chief financial officer, principal accounting officer, any senior
vice president, any executive vice president, its Controller, Treasurer or any
Assistant Treasurer or its Secretary or any Assistant Secretary without any
further action by the Company.
SECTION 2.2 Execution of Securities. The Securities shall be signed
-----------------------
on behalf of the Company by its Chief Executive Officer, President, chief
financial officer, principal accounting officer, any senior vice president, any
executive vice president, its Controller, Treasurer or any Assistant Treasurer
or its Secretary or any Assistant Secretary. Such signatures may be the manual
or facsimile signatures of the present or any future such officers.
Typographical and other minor errors or defects in any such reproduction of any
such signature shall not affect the validity or enforceability of any Security
which has been duly authenticated and delivered by the Trustee.
In case any officer of the Company who shall have signed any of the
Securities shall cease to be such officer before the Security so signed shall be
authenticated and delivered by the Trustee or disposed of by the Company, such
Security nevertheless may be authenticated and delivered or disposed of as
though the person who signed such Security had not ceased to be such officer of
the Company; and any Security may be signed on behalf of the Company by such
persons as, at the actual date of the execution of such Security, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Indenture any such person was not such officer.
SECTION 2.3 Certificate of Authentication. Only such Securities as
-----------------------------
shall bear thereon a certificate of authentication substantially in the form set
forth in Exhibit A and Exhibit B, executed by the Trustee by manual signature of
one of its authorized signatories, shall be entitled to the benefits of this
Indenture or be valid or obligatory for any purpose. Such certificate by the
Trustee upon any Security executed by the Company shall be conclusive evidence
that the Security so authenticated has been duly authenticated and delivered
hereunder and that the holder is entitled to the benefits of this Indenture.
SECTION 2.4 Form, Denomination and Date of Securities; Payments of
------------------------------------------------------
Interest. (a) The Initial Notes and the Trustee's certificate of
- --------
authentication shall be substantially in the form of Exhibit A hereto, and the
Exchange Notes and the Trustee's certificate of authentication shall be in
substantially the form of Exhibit B hereto, each of which is part of this
Indenture. The Securities shall be numbered, lettered, or otherwise
distinguished in such manner or in accordance with such plans as the officers of
the Company executing the same may determine with the approval of the Trustee.
Any of the Securities may be issued with appropriate insertions, omissions,
substitutions and variations, and may have imprinted or otherwise reproduced
thereon such legend or legends, not inconsistent with the provisions of this
Indenture, as may be required to comply with any law or with any rules or
regulations pursuant thereto, or with the rules of any securities market in
which the Securities are admitted to trading, or to conform to general usage.
All Securities shall be otherwise substantially identical expect as to
denomination and as provided herein.
<PAGE>
18
Each Security shall be dated the date of its authentication, shall
bear interest from the applicable date, and shall be payable on the dates
specified on the face of the form of Security recited above.
The Person in whose name any Security is registered at the close of
business on any record date with respect to any interest payment date shall be
entitled to receive the interest, if any, payable on such interest payment date
notwithstanding any transfer or exchange of such Security subsequent to the
record date and prior to such interest payment date, except if and to the extent
that the Company shall default in the payment of the interest due on such
interest payment date, in which case such defaulted interest shall be paid to
the Persons in whose names outstanding Securities are registered at the close of
business on a subsequent record date (which shall be not less than five business
days prior to the date of payment of such defaulted interest) established by
notice given by mail by or on behalf of the Company to the holders of Securities
not less than 15 days preceding such subsequent record date. The term "record
date" as used with respect to any interest payment date (except a date for
payment of defaulted interest) shall mean if such interest payment date is the
first day of a calendar month, the fifteenth day of the next preceding calendar
month and shall mean, if such interest payment date is the fifteenth day of a
calendar month, the last day of the next preceding calendar month, whether or
not such record date is a business day.
(b) The Initial Notes are being offered and sold by the Company
pursuant to the Loan Agreement. The Initial Notes offered and sold to QIBs in
reliance on Rule 144A, except as provided in Section 2.4(d) hereof, shall be
issued initially in the form of one or more permanent global Securities in
definitive, fully registered form without interest coupons with the Global
Securities Legend and Restricted Securities Legend set forth in the form of
Initial Notes (the "Restricted Global Security") deposited with the Trustee, at
the Corporate Trust Office, as custodian for and registered in the name of the
Depository or a nominee of the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Restricted Global Security may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the Depository
or its nominee as hereinafter provided.
(c) This Section 2.4(c) shall apply only to the Restricted Global
Security deposited with or on behalf of the Depository.
Members of, or participants in, the Depository (the "Agent Members")
shall have no rights under this Indenture with respect to any Restricted Global
Security held on their behalf by the Depository or under the Restricted Global
Security, and the Depository may be treated by the Company, the Trustee, and any
agent of the Company or the Trustee as the absolute owner of the Restricted
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee, or any agent of the
Company or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Security.
<PAGE>
19
(d) Except as provided in this Section 2.4(d) and Section 2.8, owners
of beneficial interests in the Restricted Global Security will not be entitled
to receive physical delivery of certificated Initial Notes. Purchasers of
Initial Notes who are not QIBs or QIBs who elect to receive certificated Initial
Notes instead of holding their interest through the Restricted Global Security
(collectively, the "Non-Global Purchasers") will receive certificated Initial
Notes bearing the Restricted Securities Legend (the "Restricted Securities");
provided, however, that upon transfer to a QIB of any such certificated Initial
- -------- -------
Notes initially issued to a Non-Global Purchaser, such certificated Initial
Notes will, unless the transferee requests otherwise or the Restricted Global
Security has previously been exchanged in whole for Restricted Securities, be
exchanged for an interest in the Restricted Global Security pursuant to the
provisions of Section 2.5. Restricted Securities will bear the Restricted
Securities Legend unless removed in accordance with Section 2.5.
Upon the occurrence of an Effective Registration involving a Notes
Shelf Registration, all requirements with respect to the Restricted Global
Security and legends on Initial Notes will cease to apply, and certificated
Initial Notes without the Restricted Securities Legend will be available to the
Holders. Upon the occurrence of an Effective Registration involving the
Registered Exchange Offer, all requirements with respect to the Restricted
Global Security will cease to apply and certificated Initial Notes with the
"Restricted Securities Legend" will be available to Holders that do not exchange
their Initial Notes for Exchange Notes, and certificated Exchange Notes without
any legends will be available to Holders that exchange their Initial Notes for
Exchange Notes.
All certificated Securities shall be issuable in denominations of
$1,000 principal amount and any integral multiple thereof.
SECTION 2.5 Registration, Transfer and Exchange. (a) The Company
-----------------------------------
will keep at each office or agency to be maintained for the purpose as provided
in Section 3.2 a register or registers in which, subject to such reasonable
regulations as it may prescribe, it will register, and will register the
transfer of, Securities as in this Article provided. Such register shall be in
written form in the English language or in any other form capable of being
converted into such form within a reasonable time. At all reasonable times such
register or registers shall be open for inspection by the Trustee.
Upon due presentation for registration of transfer of any Security at
each such office or agency, the Company shall execute and the Trustee shall
authenticate and deliver in the name of the transferee or transferees a new
Security or Securities in authorized denominations for a like aggregate
principal amount.
Any Security or Securities may be exchanged for a Security or
Securities in other authorized denominations, in an equal aggregate principal
amount. Securities to be exchanged shall be surrendered at each office or
agency to be maintained by the Company for the purpose as provided in Section
3.2, and the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor the Security or Securities which the Securityholder
making the exchange shall be entitled to receive, bearing numbers not
contemporaneously outstanding.
<PAGE>
20
All Securities presented for registration of transfer, exchange,
redemption or payment shall (if so required by the Company or the Trustee) be
duly endorsed by, or be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Company and the Trustee duly executed by,
the holder or his attorney duly authorized in writing.
The Company may require payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection with any exchange
or registration of transfer of Securities. No service charge shall be made for
any such transaction.
The Trustee shall not be required to exchange or register a transfer
of (a) any Securities for a period of 15 days next preceding the mailing of
notice of redemption of Securities to be redeemed and ending on the date of such
mailing or (b) any Securities selected, called or being called for redemption
except, in the case of any Security where public notice has been given that such
Security is to be redeemed in part, the portion thereof not so to be redeemed.
All Securities issued upon any transfer or exchange of Securities
shall be valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Securities
surrendered upon such transfer or exchange.
(b) Notwithstanding any provision to the contrary herein, so long as
the Restricted Global Security remains outstanding and is held by or on behalf
of the Depository, transfers of the Restricted Global Security, in whole or in
part, shall only be made in accordance with Section 2.4(d) and this Section 2.5
as set forth below.
(i) Subject to clauses (ii) through (iv) below, transfers of the
Restricted Global Security shall be limited to transfers of the Restricted
Global Security in whole, but not in part, to nominees of the Depository or
to a successor of the Depository or such successor's nominee.
(ii) Restricted Global Security to Restricted Security. If a
-------------------------------------------------
holder of a beneficial interest in the Restricted Global Security deposited
with the Depository wishes at any time to transfer its interest therein to
a Person who wishes to take delivery thereof in the form of a Restricted
Security, such holder may, subject to the rules and procedures of the
Depository, cause the exchange of such interest for one or more Restricted
Securities of any authorized denomination or denominations and of the same
aggregate principal amount. Upon receipt by the Trustee at its Corporate
Trust Office of (1) instructions from the Depository directing the Trustee
to authenticate and deliver one or more Restricted Securities of the same
aggregate principal amount as the beneficial interest in the Restricted
Global Security to be exchanged, such instructions to contain the name or
names of the designated transferee or transferees, the authorized
denomination or denominations of the Restricted Securities to be so issued
and appropriate delivery instructions, (2) a certificate in the form of
Exhibit C attached hereto given by the holder of such beneficial interest
and stating that the
<PAGE>
21
Person transferring such interest in the Restricted Global Security
reasonably believes that the Person acquiring the Restricted Securities for
which such interest is being exchanged is an Institutional Accredited
Investor and is acquiring such Restricted Securities for its own account or
for one or more accounts as to which the transferee exercises sole
investment discretion, (3) a certificate in the form of Exhibit D attached
hereto given by the Person acquiring the Restricted Securities for which
such interest is being exchanged, to the effect set forth therein, and (4)
an opinion of counsel to the holder of such beneficial interest in the form
of Exhibit E attached hereto, to the effect set forth therein, then the
Trustee will instruct the Depository to reduce the Restricted Global
Security by the aggregate principal amount of the beneficial interest
therein to be exchanged, and concurrently with such reduction the Company
shall execute, and the Trustee shall authenticate and deliver, one or more
Restricted Securities of the same aggregate principal amount, in accordance
with the instructions referred to above.
(iii) Restricted Security to Restricted Global Security. If
-------------------------------------------------
a holder of a Restricted Security wishes at any time to transfer such
Restricted Security to a Person who wishes to take delivery thereof in the
form of an interest in the Restricted Global Security, such holder may,
subject to the rules and procedures of the Depository, cause the exchange
of such Restricted Security for an equivalent beneficial interest in the
Restricted Global Security. Upon receipt by the Trustee at its Corporate
Trust Office of (1) such Restricted Security, duly endorsed as provided
herein, (2) instructions from such holder directing the Trustee to credit
or cause to be credited a beneficial interest in the Restricted Global
Security equal to the principal amount of the Restricted Security to be
exchanged, such instructions to contain information regarding the
participant account with the Depository to be credited with such interest,
and (3) a certificate in the form of Exhibit F attached hereto, then the
Trustee shall cancel or cause to be cancelled such Restricted Security and
shall instruct the Depository to credit or cause to be credited to the
account of the Person specified in such instructions a beneficial interest
in the Restricted Global Security equal to the principal amount of the
Restricted Security so cancelled.
(iv) Restricted Security to Restricted Security. If a holder of
------------------------------------------
a Restricted Security wishes at any time to transfer such Restricted
Security to a Person who wishes to take delivery thereof in the form of a
Restricted Security, such holder may, subject to the restrictions on
transfer set forth herein and in such Restricted Security, cause the
exchange of such Restricted Securities for one or more Restricted
Securities of any authorized denomination or denominations and of the same
aggregate principal amount. Upon receipt by the Trustee at its Corporate
Trust Office of (1) such Restricted Security, duly endorsed as provided
herein, (2) instructions from such holder directing the Trustee to
authenticate and deliver one or more Restricted Securities of the same
aggregate principal amount as the Restricted Security to be exchanged, such
instructions to contain the name or names of the designated transferee or
transferees, the authorized denomination or denominations of the Restricted
Securities to be so issued and appropriate delivery instructions, (3) a
certificate from the holder of the Restricted Security to be exchanged in
the form of Exhibit C attached hereto (in the event that the transfer is
being made to an Institutional Accredited
<PAGE>
22
Investor otherwise than pursuant to Rule 144A), (4) a certificate in the
form of Exhibit D attached hereto (in the event the transfer is being made
to an Institutional Accredited Investor otherwise than pursuant to Rule
144A) given by the Person acquiring the Restricted Securities for which
such interest is being exchanged, to the effect set forth therein, and (5)
an opinion of counsel to the transferor of such Restricted Security in the
form of Exhibit E hereto, to the effect set forth therein, then the Trustee
shall cancel or cause to be cancelled such Restricted Security and,
concurrently therewith, the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Restricted Securities of the same
aggregate principal amount, in accordance with the instructions referred to
above.
(v) Other Exchanges. In the event that the Restricted Global
---------------
Security is exchanged pursuant to Section 2.8 for Securities in definitive
registered form without interest coupons, prior to an Effective
Registration such Initial Notes may be exchanged for one another only in
accordance with those procedures that are substantially consistent with the
provisions of clauses (i) through (iv) above (including the certification
requirements thereof intended to insure that such transfers comply with the
Securities Act) and which may be from time to time adopted by the Company
and the Trustee.
If Initial Notes are issued upon the transfer, exchange or replacement
of Initial Notes bearing the Restricted Securities Legend, or if a request is
made to remove such Restricted Securities Legend on Initial Notes, the Initial
Notes so issued shall bear the Restricted Securities Legend, or the Restricted
Securities Legend shall not be removed, as the case may be, unless (i) there is
delivered to the Company such satisfactory evidence, which may include an
opinion of counsel licensed to practice law in the State of New York, as may be
reasonably required by the Company that neither the legend nor the restrictions
on transfer set forth therein are required to ensure that transfers thereof
comply with the provisions of the Securities Act or, with respect to Restricted
Securities, that such Initial Notes are not "restricted" within the meaning of
Rule 144 under the Securities Act or (ii) there is an Effective Registration
involving the Notes Shelf Registration with respect to the Initial Notes then in
effect or the Initial Note as to which the Restricted Securities Legend is
sought to be removed has been disposed of in accordance with the Notes Shelf
Registration. Upon (i) provision of such satisfactory evidence or (ii)
notification by the Company to the Trustee of an Effective Registration with
respect to the Initial Notes, the Trustee, at the direction of the Company,
shall authenticate and deliver Initial Notes that do not bear the Restricted
Securities Legend.
SECTION 2.6 Mutilated, Defaced, Destroyed, Lost and Stolen
----------------------------------------------
Securities. In case any temporary or definitive Security shall become
mutilated, defaced or be apparently destroyed, lost or stolen, the Company in
its discretion may execute, and upon the written request of any officer of the
Company, the Trustee shall authenticate and deliver, a new Security, bearing a
number not contemporaneously outstanding, in exchange and substitution for the
mutilated or defaced Security, or in lieu of and substitution for the Security
so apparently destroyed, lost or stolen. In every case the applicant for a
substitute Security shall furnish to the Company and to the Trustee and any
agent of the Company or the Trustee such
<PAGE>
23
security or indemnity as may be required by them to indemnify and defend and to
save each of them harmless and, in every case of destruction, loss or theft
evidence to their satisfaction of the apparent destruction, loss or theft of
such Security and of the ownership thereof.
Upon the issuance of any substitute Security, the Company may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses (including the
fees and expenses of the Trustee) connected therewith. In case any Security
which has matured or is about to mature, or has been called for redemption in
full, shall become mutilated or defaced or be apparently destroyed, lost or
stolen, the Company may, instead of issuing a substitute Security, pay or
authorize the payment of the same (without surrender thereof except in the case
of a mutilated or defaced Security), if the applicant for such payment shall
furnish to the Company and to the Trustee and any agent of the Company or the
Trustee such security or indemnity as any of them may require to save each of
them harmless from all risks, however remote, and, in every case of apparent
destruction, loss or theft, the applicant shall also furnish to the Company and
the Trustee and any agent of the Company or the Trustee evidence to their
satisfaction of the apparent destruction, loss or theft of such Security and of
the ownership thereof.
Every substitute Security issued pursuant to the provisions of this
Section by virtue of the fact that any Security is apparently destroyed, lost or
stolen shall constitute an additional contractual obligation of the Company,
whether or not the apparently destroyed, lost or stolen Security shall be at any
time enforceable by anyone and shall be entitled to all the benefits of (but
shall be subject to all the limitations of rights set forth in) this Indenture
equally and proportionately with any and all other Securities duly authenticated
and delivered hereunder. All Securities shall be held and owned upon the
express condition that, to the extent permitted by law, the foregoing provisions
are exclusive with respect to the replacement or payment of mutilated, defaced,
or apparently destroyed, lost or stolen Securities and shall preclude any and
all other rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement or payment of
negotiable instruments or other securities without their surrender.
SECTION 2.7 Cancellation of Securities; Destruction Thereof. All
-----------------------------------------------
Securities surrendered for payment, redemption, registration of transfer or
exchange, if surrendered to the Company or any agent of the Company or the
Trustee, shall be delivered to the Trustee for cancellation or, if surrendered
to the Trustee, shall be cancelled by it; and no Securities shall be issued in
lieu thereof except as expressly permitted by any of the provisions of this
Indenture. The Trustee shall deliver cancelled Securities held by it to the
Company. If the Company shall acquire any of the Securities, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are delivered to the
Trustee for cancellation.
SECTION 2.8 Temporary Securities; Global Securities. Pending the
---------------------------------------
preparation of definitive Securities, the Company may execute and the Trustee
shall authenticate and deliver temporary Securities (printed, lithographed,
typewritten or otherwise reproduced, in each case in form satisfactory to the
Trustee). Temporary Securities shall be issuable as registered Securities
without coupons, of any authorized denomination, and
<PAGE>
24
substantially in the form of the definitive Securities but with such omissions,
insertions and variations as may be appropriate for temporary Securities, all as
may be determined by the Company with the concurrence of the Trustee. Temporary
Securities may contain such reference to any provisions of this Indenture as may
be appropriate. Every temporary Security shall be executed by the Company and be
authenticated by the Trustee upon the same conditions and in substantially the
same manner, and with like effect, as the definitive Securities. Without
unreasonable delay, the Company shall execute and shall furnish definitive
Securities and thereupon temporary Securities may be surrendered in exchange
therefor without charge at each office or agency to be maintained by the Company
for the purpose pursuant to Section 3.2, and the Trustee shall authenticate and
deliver in exchange for such temporary Securities a like aggregate principal
amount of definitive Securities of authorized denominations. Until so exchanged
the temporary Securities shall be entitled to the same benefits under this
Indenture as definitive Securities.
The Restricted Global Security deposited with the Depository pursuant
to Section 2.4 shall be transferred to the beneficial owners thereof only if
such transfer complies with Section 2.5(b) of this Indenture and (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for the Restricted Global Security or if at any time such Depository
ceases to be a "clearing agency" registered under the Exchange Act and a
successor depositary is not appointed by the Company within 90 days of such
notice, (ii) the Company executes and delivers to the Trustee an Officers'
Certificate stating that such Global Restricted Security shall be exchangeable,
or (iii) an Event of Default has occurred and is continuing with respect to the
Securities.
Any Restricted Global Security that is transferable to the beneficial
owners thereof pursuant to this Section 2.8 shall be surrendered by the
Depository to the Trustee at its Corporate Trust Office, to be so transferred,
in whole or from time to time in part, without charge, and the Trustee shall
authenticate and deliver, upon such transfer of each portion of such Restricted
Global Security, an equal aggregate principal amount of Restricted Securities of
authorized denominations. Any portion of the Restricted Global Security
transferred pursuant to this Section 2.8 shall be executed, authenticated and
delivered only in denominations of $1,000 and any integral multiple thereof and
registered in such names as the Depository shall direct. Any Initial Note
delivered in exchange for an interest in the Restricted Global Security shall,
except as otherwise provided by Section 2.5, bear the Restricted Securities
Legend.
Subject to the foregoing provisions of this Section 2.8, the
registered Holder of a Global Security may grant proxies and otherwise authorize
any Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
In the event of the occurrence of either of the events specified in
the second paragraph of this Section 2.8, the Company will promptly make
available to the Trustee a reasonable supply of certificated Securities in
definitive, fully registered form without interest coupons.
<PAGE>
25
SECTION 2.9 Effective Registration. In the event the Company has an
----------------------
Effective Registration, the Company shall notify the Trustee thereof in writing
within two Business Days after the effective date of such Effective
Registration. If the Effective Registration involves a Notes Shelf
Registration, the Company shall promptly cause to be delivered to the Trustee
certificates for Initial Notes without legends and instructions to the Trustee
to authenticate and deliver certificated Initial Notes without legends to
Holders presenting their certificated Initial Notes for exchange or to Holders
of interests in the Restricted Global Security in the names and denominations
specified by the Depository or to transferees of Initial Notes covered by the
Notes Shelf Registration. If the Effective Registration is with respect to a
Registered Exchange Offer for the Initial Notes, the Trustee shall notify the
Holders of receipt of such notice and, after receipt of a written order of the
Company (signed as specified in Section 2.1) for the authentication and delivery
of Exchange Notes and a properly completed letter of transmittal, ATOP
notification or other requested documents from a Holder as specified in the
exchange offer documents, shall exchange such Holder's Initial Notes for
Exchange Notes upon the terms set forth in the exchange offer documents.
SECTION 2.10 CUSIP Numbers. The Company in issuing the Securities
-------------
may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee
shall use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the "CUSIP" numbers.
ARTICLE III
COVENANTS OF THE COMPANY
------------------------
SECTION 3.1 Payment of Principal and Interest. The Company covenants
---------------------------------
and agrees that it will duly and punctually pay or cause to be paid the
principal of, and interest on, each of the Securities at the place or places, at
the respective times and in the manner provided in the Securities. Each
installment of interest on the Securities may be paid by mailing checks for such
interest payable to or upon the written order of the holders of Securities
entitled thereto as they shall appear on the registry books of the Company.
SECTION 3.2 Offices for Payments, etc. So long as any of the
-------------------------
Securities remain outstanding, the Company will maintain in the City of New York
the following: (a) an office or agency where the Securities may be presented
for payment, (b) an office or agency where the Securities may be presented for
registration of transfer and for exchange as in this Indenture provided and (c)
an office or agency where notices and demands to or upon the Company in respect
of the Securities or of this Indenture may be served. The Company will give to
the Trustee written notice of the location of any such office or agency and of
any change of location thereof. The Company hereby initially designates the
Corporate Trust Office of the Trustee or such other location as the Company may
designate upon notice from
<PAGE>
26
the Trustee, as the office or agency for each such purpose. In case the Company
shall fail to maintain any such office or agency or shall fail to give such
notice of the location or of any change in the location thereof, presentations
and demands may be made and notices may be served at the Corporate Trust Office.
SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee. The
--------------------------------------------------
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 5.9, a Trustee, so that there
shall at all times be a Trustee hereunder.
SECTION 3.4 Paying Agents. The paying agent will initially be the
-------------
Trustee. Whenever the Company shall appoint a paying agent other than the
Trustee, it will cause such paying agent to execute and deliver to the Trustee
an instrument in which such agent shall agree with the Trustee, subject to the
provisions of this Section:
(a) that it will hold all sums received by it as such agent for the
payment of the principal of or interest on the Securities (whether such
sums have been paid to it by the Company or by any other obligor on the
Securities) in trust for the benefit of the holders of the Securities or of
the Trustee,
(b) that it will give the Trustee notice of any failure by the
Company (or by any other obligor on the Securities) to make any payment of
the principal of or interest on the Securities when the same shall be due
and payable, and
(c) that it will pay any such sums so held in trust by it to the
Trustee upon the Trustee's written request at any time during the
continuance of the failure referred to in clause (b) above.
The Company will, prior to each due date of the principal of or
interest on the Securities, deposit with the paying agent a sum sufficient to
pay such principal or interest, and (unless such paying agent is the Trustee)
the Company will promptly notify the Trustee of any failure to take such action.
If the Company shall act as its own paying agent, it will, on or
before each due date of the principal of or interest on the Securities, set
aside, segregate and hold in trust for the benefit of the holders of the
Securities a sum sufficient to pay such principal or interest so becoming due.
The Company will promptly notify the Trustee of any failure to take such action.
Anything in this Section to the contrary notwithstanding, the Company
may at any time, for the purpose of obtaining a satisfaction and discharge of
this Indenture or for any other reason, pay or cause to be paid to the Trustee
all sums held in trust by the Company or any paying agent hereunder, as required
by this Section, such sums to be held by the Trustee upon the trusts herein
contained. Upon such payment to the Trustee, the relevant paying agent, if any,
shall be released from any liability with respect to such sums.
<PAGE>
27
Anything in this Section to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section are subject to the
provisions of Sections 9.4 and 9.6.
SECTION 3.5 Certificate to Trustee. The Company will furnish to the
----------------------
Trustee, on or before 120 days after the end of each fiscal year of the Company
ending after the date hereof, an Officers' Certificate from the principal
executive, financial or accounting officer of the Company as to his or her
knowledge of the Company's compliance with all conditions and covenants under
this Indenture (such compliance to be determined without regard to any period of
grace or requirement of notice provided under this Indenture).
SECTION 3.6 Securityholders' Lists. If and so long as the Trustee
----------------------
shall not be the Security registrar, the Company will furnish or cause to be
furnished to the Trustee a list in such form as the Trustee may reasonably
require of the names and addresses of the holders of the Securities pursuant to
Section 312 of the Trust Indenture Act (a) quarterly not more than 15 days after
each record date for the payment of quarterly interest on the Securities, as
hereinabove specified, as of such record date and (b) at such other times as the
Trustee may request in writing, within 30 days after receipt by the Company of
any such request as of a date not more than 15 days prior to the time such
information is furnished.
SECTION 3.7 Commission Reports. Notwithstanding that the Company may
------------------
not be subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, so long as any Securities are outstanding, the Company will
furnish to the Trustee and the holders of Securities (i) within 45 days after
the end of each of the first three fiscal quarters of each fiscal year and 90
days of the end of each fiscal year all quarterly and annual financial
information, as the case may be, that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company were required
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports.
In addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. Furthermore, for so long as any of the
Securities remain outstanding, the Company shall make available to any
prospective purchaser of the Securities or beneficial owner of the Securities,
in connection with any sale thereof, the information required by Rule 144A(d)(4)
under the Securities Act. The Company will also comply with the provisions of
Section 314(a) of the Trust Indenture Act.
SECTION 3.8 Limitation on Indebtedness. (a) The Company shall not,
--------------------------
and shall not permit any of its Restricted Subsidiaries to, incur any
Indebtedness; provided, however, that the Company may incur Indebtedness
-------- -------
(including through the issuance of Disqualified Capital Stock) if on the date of
such incurrence the Consolidated Coverage Ratio would be greater than (i)
2.50:1, if such Indebtedness is incurred prior to the expiration of 24
<PAGE>
28
months after the Issue Date and (ii) 3.00:1, if such Indebtedness is incurred on
or subsequent to the expiration of 24 months after the Issue Date.
(b) Notwithstanding Section 3.8(a), the Company and its Restricted
Subsidiaries may incur Indebtedness to the extent set forth below:
(i) the incurrence by the Company of Indebtedness under the
Senior Credit Agreement and the issuance of letters of credit thereunder
(with letters of credit being deemed to have a principal amount equal to
the undrawn amount of the letters of credit plus any unreimbursed drawings
thereon) up to an aggregate principal amount of $250,000,000 outstanding at
any one time, less principal repayments of term loans and permanent
commitment reductions with respect to revolving loans and letters of credit
under the Senior Credit Agreement made after the Issuance Date with the Net
Cash Proceeds of Asset Dispositions, if any;
(ii) Indebtedness (x) of the Company to any Restricted
Subsidiary and (y) of any Restricted Subsidiary to the Company or any other
Restricted Subsidiary;
(iii) Indebtedness of the Company represented by the
Securities;
(iv) any Indebtedness of the Company (other than the
Indebtedness described in clauses (i) and (ii) above) outstanding on the
date of this Indenture;
(v) Indebtedness represented by the Guarantees of the
Securities and Guarantees of Indebtedness incurred pursuant to clause (i)
above;
(vi) Indebtedness of the Company or any Restricted Subsidiary
under Interest Rate Agreements that are entered into by the Company or such
Restricted Subsidiary for bona fide hedging purposes (as determined in good
faith by the Board of Directors or senior management of the Company or such
Restricted Subsidiary) with respect to Indebtedness of the Company or such
Restricted Subsidiary incurred without violation of this Indenture or with
respect to customary commercial transactions of the Company or such
Restricted Subsidiary entered into in the ordinary course of business;
(vii) Indebtedness (including Capitalized Lease Obligations)
incurred by the Company or any Restricted Subsidiary to finance the
purchase, lease or improvement of property (real or personal) or equipment
(whether through the direct purchase of assets or the Capital Stock of any
Person owning such assets) in an aggregate principal amount which, when
aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (vii), does not exceed
$25,000,000;
(viii) Indebtedness incurred by the Company or any Restricted
Subsidiary constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of
<PAGE>
29
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 $10,000,000 at any one time outstanding; and
(xii) Refinancing Indebtedness; provided, however, that (A)
-------- -------
the principal amount of such Refinancing Indebtedness shall not exceed the
principal or accreted amount (in the case of any Indebtedness issued with
original issue discount, as such) of Indebtedness so extended, refinanced,
renewed, replaced, substituted or refunded (the "Refinanced Indebtedness"),
(B) the Refinancing Indebtedness shall have a Weighted Average Life to
Maturity of not less than the stated maturity of the Refinanced
Indebtedness, and (C) the Refinancing Indebtedness shall rank in right of
payment relative to the Securities on terms at least as favorable to the
holders of Securities as those contained in the documentation governing the
Refinanced Indebtedness.
(c) Notwithstanding any other provision of this Section 3.8, neither
the Company nor any Restricted Subsidiary shall incur any Indebtedness (i)
pursuant to Section 3.8(b), if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Indebtedness unless such Indebtedness shall be subordinated to the
Securities to at least the same extent as such Subordinated Indebtedness or (ii)
pursuant to Section 3.8(a) or Section 3.8(b) if such Indebtedness is subordinate
or junior in ranking in any respect to any Senior Indebtedness unless such
Indebtedness is expressly subordinated in right of payment to such Senior
Indebtedness.
(d) The Company shall not incur any Secured Indebtedness that is not
Senior Indebtedness.
SECTION 3.9 Limitation on Restricted Payments. (a) The Company shall
---------------------------------
not, and shall not permit any Restricted Subsidiary to, directly or indirectly:
<PAGE>
30
(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 at least $1.00 of additional Indebtedness pursuant to
Section 3.8(a); and (C) the aggregate amount of all such Restricted Payments
(the amount of any such Restricted Payment, if other than cash, to be determined
in good faith by the Board of Directors of the Company, whose determination
shall be conclusive and evidenced by a resolution of the Board of Directors)
declared or made after the Issue Date (including such Restricted Payment) does
not exceed the sum of:
(1) 50% of the aggregate cumulative Consolidated Net Income (or, if
such aggregate cumulative Consolidated Net Income shall be a loss, minus
100% of such loss) of the Company accrued on a cumulative basis during the
period (taken as one accounting period) from the fiscal quarter that first
begins after the Issue Date to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available at the
time of such Restricted Payment;
(2) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from the issuance or sale (other than to any of its
Subsidiaries) of its shares of Capital Stock (other than Disqualified
Capital Stock) or any options, warrants or rights to purchase such shares
of Capital Stock (other than Disqualified Capital Stock) or other cash
contributions to its capital (excluding amounts used pursuant to clauses
(ii) or (iii) of Section 3.9(b));
<PAGE>
31
(3) the aggregate Net Cash Proceeds received after the Issue Date by
the Company (other than from any of its Subsidiaries) upon the exercise of
any options, warrants or rights to purchase shares of Capital Stock (other
than Disqualified Capital Stock) of the Company;
(4) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from Indebtedness of the Company or Disqualified Capital Stock
of the Company that has been converted into or exchanged for Capital Stock
(other than Disqualified Capital Stock) of the Company or options, warrants
or rights to acquire such Capital Stock, to the extent such Indebtedness of
the Company or Disqualified Capital Stock of the Company was originally
incurred or issued for cash, plus the aggregate Net Cash Proceeds received
by the Company at the time of such conversion or exchange;
(5) to the extent not included in Consolidated Net Income, the net
reduction (received by the Company or any Restricted Subsidiary in cash) in
Investments (other than Permitted Investments) made by the Company and the
Restricted Subsidiaries since the Issue Date, not to exceed, in the case of
any Investments in any Person, the amount of Investments (other than
Permitted Investments) made by the Company and the Restricted Subsidiaries
in such Person since the Issue Date.
(b) Notwithstanding Section 3.9(a) and in the case of clauses (v) and
(vii) below, so long as there is no Default or Event of Default continuing, the
following actions shall not be prohibited:
(i) the payment of any dividend within 60 days after the date
of declaration thereof, if at such date of declaration such payment would
be permitted by the provisions of Section 3.9(a) (such payment being deemed
to have been paid on such date of declaration for purposes of the
calculation required by this Section 3.9);
(ii) the repurchase, redemption, or other acquisition or
retirement of any shares of any class of Capital Stock of the Company or
warrants, options or other rights to acquire such stock in exchange for, or
out of the Net Cash Proceeds of a substantially concurrent issue and sale
(other than to a Subsidiary) for cash of, any Capital Stock (other than
Disqualified Capital Stock) of the Company or warrants, options or other
rights to acquire such Capital Stock;
(iii) any repurchase, redemption, defeasance, retirement,
refinancing or acquisition for value or payment of principal of any
Subordinated Indebtedness in exchange for, or out of the net proceeds of a
substantially concurrent issuance and sale (other than to a Subsidiary) for
cash of, any Capital Stock (other than Disqualified Capital Stock) of the
Company or warrants, options or other rights to acquire such Capital Stock;
<PAGE>
32
(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 $10,000,000 in any fiscal year, provided,
--------
however, that, to the extent the net aggregate amount of such investments
-------
in any fiscal year is less than $10,000,000, 50% of such difference may be
carried forward and added to the $10,000,000 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 paragraph (vii)
that are at the time outstanding, not to exceed $15,000,000 at the time of
such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes
in value).
The actions described in clauses (i) and (vii) of this Section 3.9(b) shall be
Restricted Payments that shall be permitted to be made in accordance with this
Section 3.9(b) but shall reduce the amount that would otherwise be available for
Restricted Payments under Section 3.9(a)(C) (provided that any dividend paid
--------
pursuant to clause (i) of this Section 3.9(b) shall reduce the amount that would
otherwise be available under Section 3.9(a)(C) when declared, but not also when
paid pursuant to such clause (i)) and the actions described in clauses (ii),
(iii), (iv), (v) and (vi) of this Section 3.9(b) shall be permitted to be taken
in accordance with this Section 3.9 and shall not reduce the amount that would
otherwise be available for Restricted Payments under Section 3.9(a)(C).
SECTION 3.10 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
<PAGE>
33
Company elects, to secure letter of credit obligations to the extent such
related letters of credit have not been drawn upon or returned undrawn; (C)
third, to the extent of the balance of Net Available Cash after application in
- -----
accordance with clauses (A) and (B), to the extent the Company or such
Restricted Subsidiary elects, within one year from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash, to reinvest in
Additional Assets; and (D) fourth, to the extent of the balance of such Net
------
Available Cash after application in accordance with clauses (A), (B) and (C), to
make an offer (the "Offer") to purchase Securities pursuant and subject to the
conditions of this Indenture to the holders of the Securities at a purchase
price of 100% of the principal amount thereof plus accrued and unpaid interest
to the purchase date; provided, however, that, in connection with any
-------- -------
prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or (B)
above, the Company or such Restricted Subsidiary shall retire such Indebtedness
and shall cause the related loan commitment (if any) to be permanently reduced
in an amount equal to the principal amount so prepaid, repaid or purchased. The
Company shall not be required to make an offer for Securities pursuant to this
Section 3.10 if the Net Available Cash available therefor (after application of
the proceeds as provided in clauses (A), (B) and (C)) is less than $15,000,000
(which lesser amount shall be carried forward for purposes of determining
whether an offer is required with respect to the Net Available Cash from any
subsequent Asset Disposition).
For the purposes of Section 3.10(a)(ii), the following will be deemed
to be cash: (x) the assumption of Indebtedness (other than Disqualified Capital
Stock) of the Company or any Restricted Subsidiary and the release of the
Company or such Restricted Subsidiary from all liability on such Indebtedness in
connection with such Asset Disposition and (y) securities received by the
Company or any Restricted Subsidiary of the Company from the transferee that are
promptly converted by the Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase
of Securities pursuant to clause (iii)(D) of Section 3.10(a), the Company will
be required to purchase Securities tendered pursuant to an offer by the Company
for the Securities at a purchase price of 100% of their principal amount plus
accrued interest to the purchase date in accordance with the procedures
(including prorating in the event of oversubscription) set forth in Section
3.10(c).
(c) (i) Promptly, and in any event within 10 days after the Company
is required to make an Offer, the Company shall deliver to the Trustee and
send, by first class mail to each Holder, a written notice stating that the
Holder may elect to have his or her Securities purchased by the Company
either in whole or in part (subject to prorating as hereinafter described
in the event the Offer is oversubscribed) in integral multiples of $1,000
of principal amount, at the applicable purchase price. Such notice
delivered to each Holder shall identify the Security, including CUSIP
numbers, and shall specify the purchase date, which date shall not be less
than 30 days nor more than 60 days after the date of such notice (the
"Purchase Date"), the place or places of payment and that the payment will
be made upon presentation and surrender of the Security.
<PAGE>
34
(ii) Not later than the date upon which such written notice of an
Offer is delivered to the Trustee and the Holders, the Company shall
deliver to the Trustee an Officers' Certificate setting forth (A) the
amount of the Offer (the "Offer Amount"), (B) the allocation of the Net
Available Cash from the Asset Dispositions as a result of which such Offer
is being made and (C) the compliance of such allocation with the provisions
of Section 3.10(a). Upon the expiration of the period (the "Offer Period")
for which the Offer remains open, the Company shall deliver to the Trustee
for cancellation the Securities or portions thereof which have been
properly tendered to and are to be accepted by the Company. The Trustee
shall, on the Purchase Date, mail or deliver payment to each tendering
Holder in the amount of the purchase price of the Securities tendered by
such Holder to the extent such funds are available to the Trustee.
(iii) Holders electing to have a Security purchased
will be required to surrender the Security, together with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Security duly
executed, to the Company at the address specified in the notice prior to
the expiration of the Offer Period. Each Holder will be entitled to
withdraw its election if the Trustee or the Company receives, not later
than one Business Day prior to the expiration of the Offer Period, a
facsimile transmission or letter from such Holder setting forth the name of
such Holder, the principal amount of the Security or Securities which were
delivered for purchase by such Holder and a statement that such Holder is
withdrawing its election to have such Security or Securities purchased. If
at the expiration of the Offer Period the aggregate principal amount of
Securities surrendered by Holders exceeds the Offer Amount, the Company
shall select the Securities to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples thereof, shall
be purchased). Holders whose Securities are purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion
of the Securities surrendered.
(d) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other securities laws or
regulations in connection with the repurchase of Securities pursuant to this
Section 3.10.
To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 3.10, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this Indenture by virtue thereof.
SECTION 3.11 Limitation on Restrictions on Distributions from
------------------------------------------------
Restricted Subsidiaries. The Company shall not, and shall not permit any
- -----------------------
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary (a) to pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness owed to the Company or any Restricted
Subsidiary, (b) to make any loans or advances to the Company or any Restricted
Subsidiary or (c) to transfer any of its property or assets to the Company or
any Restricted
<PAGE>
35
Subsidiary, except: (i) any encumbrance or restriction pursuant to an agreement
in effect at or entered into on the Issue Date; (ii) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness incurred by such Restricted Subsidiary on or prior
to the date on which such Restricted Subsidiary was acquired by the Company
(other than Indebtedness incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company) and outstanding
on such date; (iii) any encumbrance or restriction pursuant to an agreement
effecting a refinancing of Indebtedness incurred pursuant to an agreement
referred to in clause (i) or (ii) of this Section 3.11 or contained in any
amendment to an agreement referred to in clause (i) or (ii) of this Section
3.11; provided, however, that the encumbrances and restrictions with respect to
-------- -------
such Restricted Subsidiary contained in any such refinancing agreement or
amendment are no less favorable in any material respect to the holders of the
Securities than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such agreements; and (iv) in the case of Section
3.11(c), any encumbrance or restriction (A) that restricts in a customary manner
the subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset that is the subject
of such encumbrance or restriction, (B) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any property
or assets of the Company or any Restricted Subsidiary not otherwise prohibited
by this Indenture, or (C) arising or agreed to in the ordinary course of
business, not relating to any Indebtedness, and that do not, individually or in
the aggregate, detract from the value of property or assets of the Company or
any Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary; provided that, in each case, such encumbrance or
--------
restriction relates to, and restricts dealings with, only the property or asset
that is the subject of such encumbrance or restriction; and provided further,
-------- -------
that such encumbrance or restriction does not prohibit, limit or otherwise
restrict the making or payment of any dividend or other distribution to the
Company or any Restricted Subsidiary; (v) any restriction with respect to a
Restricted Subsidiary imposed pursuant to an agreement entered into for the sale
or disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition; and (vi)
any restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business.
SECTION 3.12 Limitation on Sale of Capital Stock of Restricted
-------------------------------------------------
Subsidiaries. The Company (i) shall not, and shall not permit any Restricted
- ------------
Subsidiary to, transfer, convey, sell or otherwise dispose of any Capital Stock
of any Restricted Subsidiary to any Person (other than to the Company or a
Restricted Subsidiary) and (ii) shall not permit any Restricted Subsidiary to
issue any of its Capital Stock to any Person other than to the
Company or a Restricted Subsidiary; provided, however, that this Section 3.12
-------- -------
shall not prohibit the transfer, conveyance, sale or other disposition of all of
the Capital Stock of a Restricted Subsidiary if the Net Cash Proceeds from such
transfer, conveyance, sale or other disposition are applied in accordance with
Section 3.10; and, provided, further, that this Section 3.12 shall not prohibit
-------- -------
the transfer, conveyance, sale or other disposition of less than all of the
Capital Stock of a Restricted Subsidiary or the issuance by any Restricted
Subsidiary of any of its Capital Stock to any Person as long as (A) the Net Cash
Proceeds from such transfer, conveyance, sale or
<PAGE>
36
other disposition or issuance are applied in accordance with Section 3.10, (B)
immediately after giving effect to such transaction, no Event of Default shall
have occurred and be continuing, (C) immediately after giving pro forma effect
to such transaction, as if such transaction had occurred at the beginning of the
applicable four-quarter period, the Company would be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio
test as set forth in Section 3.8(a) and (D) immediately after giving effect to
such transaction, such Restricted Subsidiary remains a Restricted Subsidiary of
the Company.
SECTION 3.13 Limitation on Liens. The Company shall not, and shall
-------------------
not permit any Restricted Subsidiary to, directly or indirectly, incur, assume
or suffer to exist any Lien of any kind upon any of its property or assets
(including any shares of Capital Stock or Indebtedness of any Restricted
Subsidiary), whether owned on the Issue Date or acquired after the Issue Date,
or any income or profits therefrom, except if the Securities (or the Guarantee
of the Securities, in the case of Liens on properties or assets of any
Guarantor) and all other amounts due under this Indenture are directly secured
equally and ratably with (or prior to in the case of Liens with respect to
Subordinated Indebtedness) the obligation or liability secured by such Lien,
excluding, however, from the operation of the foregoing any of the following:
(a) any Lien existing as of the Issue Date;
(b) any Lien arising by reason of (i) any judgment, decree or order
of any court, so long as such Lien is in existence less than 30 days after the
entry thereof or adequately bonded or the payment of such judgment, decree or
order is covered (subject to a customary deductible) by insurance maintained
with responsible insurance companies; (ii) taxes, assessments or other
governmental charges that are not yet delinquent or are being contested in good
faith; (iii) security for payment of workers' compensation or other insurance;
(iv) good faith deposits in connection with tenders, leases or contracts (other
than contracts for the payment of borrowed money); (v) zoning restrictions,
easements, licenses, reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of title (and with
respect to leasehold interests, mortgages, obligations, liens and other
encumbrances incurred, created, assumed or permitted to exist and arising by,
through or under a landlord or owner of the leased property, with or without
consent of the lessee), none of which materially impairs the use of any property
or assets material to the operation of the business of the Company or any
Restricted Subsidiary or the value of such property or assets for the purpose of
such business; (vi) deposits to secure public or statutory obligations, or in
lieu of surety or appeal bonds with respect to matters not yet finally
determined and being contested in good faith by negotiations or by appropriate
proceedings that suspend the collection thereof; or (vii) operation of law in
favor of mechanics, materialmen, laborers, employees or suppliers, incurred in
the ordinary course of business for sums that are not yet delinquent or are
being contested in good faith by negotiations or by appropriate proceedings that
suspend the collection thereof;
(c) any Lien now or hereafter existing on property or assets of the
Company or any Guarantor securing Indebtedness of such Person incurred pursuant
to the Senior Credit Agreement;
<PAGE>
37
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or a Restricted Subsidiary; provided that any such
--------
Lien extends only to the assets that were subject to such Lien securing such
Acquired Indebtedness prior to the related acquisition;
(e) leases or subleases granted by the Company or any of its
Subsidiaries to any other Person in the ordinary course of business;
(f) Liens in the nature of trustees' Liens granted pursuant to any
indenture governing any indebtedness permitted by Section 3.8, in each case in
favor of the trustee under such indenture and securing only obligations to pay
any compensation to such trustee, to reimburse its expenses and to indemnify it
under the terms thereof;
(g) Liens to secure Indebtedness (including Capitalized Lease
Obligations) permitted by paragraph (b)(vii) of Section 3.8 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.
SECTION 3.14 Limitations on Affiliate Transactions. (a) The Company
-------------------------------------
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, enter into or conduct any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless: (i) the terms of
such Affiliate Transaction are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person who is not
an Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $1,000,000 (unless such Affiliate Transaction constitutes an
agreement with Bayer AG or its Affiliate relating to an Investment by the
Company and an Investment by Bayer AG or its Affiliate in a Permitted Foreign
Company in which case the requirements of this clause shall be applicable only
if the amount being invested by the Company exceeds $10,000,000), the terms of
such transaction have been approved by a majority of the members of the Board of
Directors of the Company and by a majority of the disinterested members of such
Board, if any (and such majority or majorities, as the case may be, determines
that such Affiliate Transaction satisfies the criteria in (i) above) and (iii)
in the event such Affiliate Transaction involves an aggregate amount in
excess of $15,000,000 (unless such Affiliate Transaction constitutes an
agreement with Bayer AG or its Affiliate relating to an Investment by the
Company and an Investment by Bayer AG or its Affiliate in a Permitted Foreign
Company in which case the requirements of this clause shall be applicable only
if the amount being invested by the Company exceeds $25,000,000), the Company
has received a written opinion from an independent investment banking firm of
nationally recognized standing that such Affiliate Transaction is fair to the
Company or such Restricted Subsidiary, as the case may be, from a financial
point of view.
<PAGE>
38
(b) The provisions of Section 3.14(a) will not prohibit (i) any
Restricted Payment permitted to be paid or made pursuant to Section 3.9, (ii)
the performance of the Company's or a Restricted Subsidiary's obligations under
any employment contract, stock option, collective bargaining agreement, employee
benefit plan, related trust agreement or any other similar arrangement
heretofore or hereafter entered into in the ordinary course of business, (iii)
payment of compensation to employees, officers, directors or consultants in the
ordinary course of business, (iv) maintenance in the ordinary course of business
of benefit programs or arrangements for employees, officers or directors,
including vacation plans, health and life insurance plans, deferred compensation
plans, and retirement or savings plans and similar plans, (v) any transaction
between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries, (vi) any agreement in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby, (vii) transactions required of
the Company or any Restricted Subsidiary under, or contemplated by, the General
Shareholders Agreement dated September 30, 1994, and the Continuing Shareholders
Agreement dated September 30, 1994, in each case as in effect on the date of
this Indenture or (viii) any agreement entered into in the ordinary course of
business between the Company and a Person who constitutes an Affiliate solely by
reason of such Person being an officer or director of the Company which
agreement provides for the repurchase by the Company, upon or following the
termination of such Person's employment or directorship with the Company, of
shares of Capital Stock of the Company owned by such Person.
SECTION 3.15 Change of Control. (a) If a Change of Control shall
-----------------
occur at any time, then each holder of Securities shall have the right to
require that the Company purchase such holder's Securities in whole or in part
in any integral multiple of $1,000, for a cash purchase price (the "Change of
Control Purchase Price") equal to 101% of the principal amount of such
Securities, plus accrued and unpaid interest, if any, on such Securities to the
date of purchase (the "Change of Control Purchase Date"), pursuant to an offer
(the "Change of Control Offer"), made in conformity with the procedures set
forth in Sections 3.15(b), (c) and (d).
(b) Within 15 days following any Change of Control, the Company shall
notify the Trustee thereof and give written notice of such Change of Control to
each holder of Securities by first-class mail, postage prepaid, at his address
appearing in the security register, stating:
(i) that a Change of Control has occurred and that such Holder
has the right to require the Company to purchase such Holder's Securities,
in whole or in part, at the Change of Control Purchase Price;
(ii) the Change of Control Purchase Price and the Change of
Control Purchase Date, which shall be a Business Day no earlier than 30
days nor later than 60 days from the date such notice is mailed, or such
later date as is necessary to comply with requirements under the Exchange
Act;
(iii) that any Security not tendered for purchase will
continue to accrue interest;
<PAGE>
39
(iv) that, unless the Company defaults in the payment of the
Change of Control Purchase Price, any Securities accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date; and
(v) the procedures that a Holder must follow to accept a
Change of Control Offer or to withdraw such acceptance.
(c) Holders electing to have Securities purchased will be required to
surrender such Securities, together with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Security duly executed, to the Company at
the address specified in the notice at least 10 Business Days prior to the
Change of Control Purchase Date. Holders will be entitled to withdraw their
election if the Company receives, not later than three Business Days prior to
the Change of Control Purchase Date, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Securities delivered
for purchase by the Holder as to which his election is to be withdrawn and a
statement that such Holder is withdrawing his election to have such Securities
purchased. Holders whose Securities are purchased only in part will be issued
new Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
(d) The Company will comply with any applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with a Change of Control Offer. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this Section, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section by virtue thereof.
(e) The Company will not, and will not permit any Subsidiary to,
create or permit to exist or become effective any restriction (other than
restrictions in effect on the Issue Date with respect to Indebtedness
outstanding on the Issue Date and refinancings thereof and customary default
provisions) that would materially impair the ability of the Company to make a
Change of Control Offer to purchase the Securities or, if such Change of Control
Offer is made, to pay for the Securities tendered for purchase.
SECTION 3.16 Limitation on Lines of Business. The Company shall not,
-------------------------------
and shall not permit its Restricted Subsidiaries to, engage in any business
other than those engaged in on the date of this Indenture and any other segment
of the pharmaceutical or health care industry or ancillary thereto.
SECTION 3.17 Limitation on Sale and Leaseback Transactions. 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 (x)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Consolidated Coverage Ratio
test set forth in paragraph (a) of Section 3.8 and (y) incurred a Lien to secure
such Indebtedness pursuant to Section 3.13, (ii) the gross cash proceeds of such
sale and
<PAGE>
40
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, Section 3.10.
SECTION 3.18 Payments for Consent. Neither the Company nor any
--------------------
Subsidiary shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
the Securities for or as an inducement to any consent, waiver or amendment of
any terms or provisions of the Securities unless such consideration is offered
to be paid or agreed to be paid to all Holders of the Securities who so consent,
waive or agree in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
SECTION 3.19 Waiver of Stay, Extension or Usury Laws. The Company
---------------------------------------
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, plead, or in any manner whatsoever claim, and will resist any
and all efforts to be compelled to take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
Company from paying all or any portion of the principal of or interest on the
Securities as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance of this
Indenture; and (to the extent that it may lawfully do so) the Company hereby
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
ARTICLE IV
DEFAULTS AND REMEDIES
---------------------
SECTION 4.1 Event of Default Defined; Acceleration of Maturity. An
--------------------------------------------------
"Event of Default" occurs if:
(a) the Company defaults in any payment of interest on any Security
when the same becomes due and payable and such default continues for a period of
30 days;
(b) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise;
(c) the Company fails to comply with Section 8.1;
(d) the Company fails to comply with Section 3.7, 3.8, 3.9, 3.10,
3.11, 3.12, 3.13, 3.14, 3.15, 3.16 or 3.17 (in each case other than a failure to
repurchase Securities when
<PAGE>
41
required pursuant to Section 3.10 or 3.15, which failure shall constitute an
Event of Default under Section 4.1(b)) and such failure continues for 30 days
after the notice specified below;
(e) the Company fails to comply with any covenant, condition or
agreement in this Indenture or the Securities (other than those referred to in
clauses (a), (b), (c) and (d) above) and such failure continues for 30 days
after the notice specified below;
(f) Indebtedness of the Company or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such unpaid
or accelerated Indebtedness exceeds $10,000,000 or its foreign currency
equivalent at the time;
(g) the Company or a Material Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(i) commences a voluntary case;
(ii) consents to the entry of an order for relief against it in
an involuntary case;
(iii) consents to the appointment of a Custodian of it or for
any substantial part of its property; or
(iv) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to insolvency;
(h) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any Material
Subsidiary in an involuntary case;
(ii) appoints a Custodian of the Company or any Material
Subsidiary or for any substantial part of its property; or
(iii) orders the winding up or liquidation of the Company or
any Material Subsidiary;
or any similar relief is granted under any foreign laws and the order, decree or
relief remains unstayed and in effect for 60 days;
(i) any judgment or decree for the payment of money in excess of
$10,000,000 or its foreign currency equivalent at the time (to the extent not
covered by insurance) is entered against the Company or any Material Subsidiary
and is not discharged and either (A) an enforcement proceeding has been
commenced by any creditor upon such judgment or
<PAGE>
42
decree and is not promptly stayed or (B) there is a period of 60 days following
the entry of such judgment or decree during which such judgment or decree is not
discharged or the execution thereof stayed; or
(j) the failure of any Subsidiary Guarantee to be in full force and
effect (except as contemplated by the terms thereof) or the denial or
disaffirmation by any Subsidiary Guarantor of its obligations hereunder or any
Subsidiary Guarantee if such failure is not cured, or such denial or
disaffirmation is not rescinded or revoked, within 10 days.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
Notwithstanding the foregoing, a Default under Section 4.1(d) or
Section 4.1(e) will not constitute an Event of Default until the Trustee or the
Holders of at least 25% in principal amount of the outstanding Securities notify
the Company in writing of the Default and the Company does not cure such Default
within the time specified in said Section 4.1(d) or (e) after receipt of such
notice. Such notice must specify the Default, demand that it be remedied, and
state that such notice is a "Notice of Default."
The Company shall 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 (f) and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause (d),
(e) or (i), its status and what action the Company is taking or proposes to take
with respect thereto and (ii) within 120 days after the end of each fiscal year,
written notice in the form of an Officers' Certificate indicating whether the
Officers signing such Officers' Certificate had actual knowledge of any Default
that occurred during such previous fiscal year.
SECTION 4.2 Acceleration. If an Event of Default (other than an
------------
Event of Default specified in Section 4.1(g) or (h) with respect to the Company)
occurs and is continuing, the Trustee, by written notice to the Company, or the
Holders of at least 25% in outstanding principal amount of the Securities, by
written notice to the Company and the Trustee, may declare the principal of, and
accrued and unpaid interest on, all the Securities to be due and payable. Upon
such a declaration, such principal and interest shall be due and payable (i) if
no Indebtedness is outstanding under the Senior Credit Agreement, immediately,
and (ii) if any Indebtedness is outstanding under the Senior Credit Agreement,
upon the first to occur of (x) the acceleration of any such Indebtedness or (y)
the fifth Business Day after receipt by the Company and the Credit Agent of such
written notice of acceleration. If an Event of Default specified in Section
4.1(g) or (h) with respect to the Company occurs and is continuing, the
principal of, and accrued and unpaid interest on, all the Securities shall ipso
----
<PAGE>
43
facto become and be immediately due and payable without any declaration or other
- -----
act on the part of the Trustee or any Holders. The Holders of a majority in
principal amount of the Securities, by notice to the Trustee, may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of acceleration. No such rescission shall affect any subsequent Default
or Event of Default or impair any right consequent thereto.
SECTION 4.3 Other Remedies. If an Event of Default occurs and is
--------------
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. No remedy shall be deemed
exclusive of any other remedy and all available remedies shall be cumulative.
SECTION 4.4 Waiver of Past Defaults. The Holders of a majority in
-----------------------
outstanding principal amount of the Securities, by notice to the Trustee, may
waive an existing Default or Event of Default and its consequences except (i) a
Default or Event of Default in the payment of the principal of or interest on a
Security or (ii) a Default or Event of Default in respect of a provision that
under Section 7.2 cannot be amended without the consent of each Holder affected.
When a Default or Event of Default is waived, it is deemed cured, but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any consequent right.
SECTION 4.5 Control by Majority. The Holders of a majority in
-------------------
outstanding principal amount of the Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 5.1, that the Trustee determines is unduly prejudicial to the
rights of other Holders (it being understood that, subject to Section 5.1, the
Trustee shall have no duty to ascertain whether or not such actions or
forbearances are unduly prejudicial to such Holders) or would subject the
Trustee to personal liability; provided, however, that the Trustee may take any
-------- -------
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking or refraining from taking any such action hereunder,
the Trustee shall be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by its taking or refraining
from taking such action.
SECTION 4.6 Limitation on Suits. Except to enforce the right of any
-------------------
Holder to receive payment of the principal of and interest on the Securities
held by such Holder on or
<PAGE>
44
after the respective due dates expressed in the Securities, no Holder may pursue
any remedy with respect to this Indenture or the Securities unless:
(a) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(b) the Holders of at least 25% in outstanding principal amount of
the Securities make a written request to the Trustee to pursue the remedy;
(c) such Holder or Holders offer to the Trustee reasonable security
or indemnity against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(e) the Holders of a majority in principal amount of the Securities
do not give the Trustee a direction inconsistent with the request during such
60-day period.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
SECTION 4.7 Rights of Holders to Receive Payment. Notwithstanding
------------------------------------
any other provision of this Indenture, the right of any Holder to receive
payment of the principal of and interest on the Securities held by such Holder
on or after the respective due dates expressed in the Securities, or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 4.8 Collection Suit by Trustee. If an Event of Default
--------------------------
specified in Section 4.1(a) or (b) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
5.6.
SECTION 4.9 Trustee May File Proofs of Claim. The Trustee may file
--------------------------------
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Holders allowed in
any judicial proceedings relative to the Company, its Subsidiaries or their
respective creditors or properties and, unless prohibited by law or applicable
regulations, may vote on behalf of the Holders in any election of a trustee in
bankruptcy or other Person performing similar functions, and any Custodian in
any such judicial proceeding is hereby authorized by each Holder to make
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compen sation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 5.6.
<PAGE>
45
SECTION 4.10 Priorities. If the Trustee collects any money or
----------
property pursuant to this Article IV, it shall pay out the money or property in
the following order:
FIRST: Costs and expenses of collection, including all sums paid or
advanced by the Trustee hereunder and the reasonable compensation, expenses
and disbursements of the Trustee, its agents, and counsel and all other
amounts due to the Trustee under Section 5.6;
SECOND: To Holders for amounts due and unpaid on the Securities for
principal and interest, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal
and interest, respectively; and
THIRD: To the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 4.10. At least 15 days before such record
date, the Company shall mail to each Holder and the Trustee a notice that states
the record date, the payment date and the amount to be paid.
SECTION 4.11 Undertaking for Costs. In any suit for the enforcement
---------------------
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section 4.11 does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 4.7 or a suit by Holders of more
than 10% in outstanding principal amount of the Securities.
ARTICLE V
CONCERNING THE TRUSTEE
----------------------
SECTION 5.1 Duties and Responsibilities of the Trustee; During
--------------------------------------------------
Default; Prior to Default. The Trustee, prior to the occurrence of an Event of
- -------------------------
Default and after the curing or waiving of all Events of Default that may have
occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture. In case an Event of Default has
occurred that has not been cured or waived, the Trustee shall exercise such of
the rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs. The Trustee shall not be
charged with knowledge of the existence of an Event of Default, other than with
respect to a payment default, unless and until the Trustee has actual knowledge
of such Event of Default or the Trustee shall have received notice thereof in
writing from the Company or from the holders of a majority in principal amount
of the Securities.
<PAGE>
46
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own wilful misconduct, except that
(a) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(i) the duties and obligations of the Trustee shall be determined
solely by the express provisions of this Indenture, and the Trustee shall
not be liable except for the performance of such duties and obligations as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such statements,
certificates or opinions that are specifically required by any provision
hereof to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a responsible officer or responsible officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction of
the holders of not less than a majority in principal amount of the Securities at
the time outstanding relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there shall be reasonable ground for believing that the
repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.
This Section 5.1 is in furtherance of and subject to Sections 315 and
316 of the Trust Indenture Act.
SECTION 5.2 Certain Rights of the Trustee. In furtherance of and
-----------------------------
subject to the Trust Indenture Act, and subject to Section 5.1:
(a) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, Officers' Certificate or
any other certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, note,
<PAGE>
47
coupon, security or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Trustee by a copy
thereof certified by the secretary or an assistant secretary of the Company;
(c) the Trustee may consult with counsel of its selection and any
advice or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be taken by it
hereunder in good faith and in reliance on such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
trusts or powers under this Indenture at the request, order or direction of any
of the Securityholders pursuant to the provisions of this Indenture, unless such
Securityholders shall have offered to the Trustee indemnification satisfactory
to it in its sole discretion against all losses and expenses;
(e) the Trustee shall not be liable for any action taken or omitted
by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture;
(f) prior to the occurrence of an Event of Default hereunder and
after the curing or waiving of all Events of Default, the Trustee shall not be
bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, appraisal, bond, debenture, note, coupon,
security, or other paper or document unless requested in writing to do so by the
holders of not less than a majority in aggregate principal amount of the
Securities then outstanding; provided that, if the payment within a reasonable
--------
time to the Trustee of the costs, expenses or liabilities likely to be incurred
by it in the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the terms of
this Indenture, the Trustee may require reasonable indemnity against such costs,
expenses or liabilities as a condition to proceeding; the reasonable expenses of
every such examination shall be paid by the Company or, if paid by the Trustee
or any predecessor trustee, shall be repaid by the Company upon demand; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys not regularly in its employ and the Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder.
SECTION 5.3 Trustee Not Responsible for Recitals, Disposition of
----------------------------------------------------
Securities or Application of Proceeds Thereof. The recitals contained herein
- ---------------------------------------------
and in the Securities, except the Trustee's certificates of authentication,
shall be taken as the statements of the
<PAGE>
48
Company, and the Trustee assumes no responsibility for the correctness of the
same. The Trustee makes no representation as to the validity or sufficiency of
this Indenture or of the Securities. The Trustee shall not be accountable for
the use or application by the Company of any of the Securities or of the
proceeds thereof.
SECTION 5.4 Trustee and Agents May Hold Securities; Collections, etc.
--------------------------------------------------------
The Trustee or any agent of the Company or the Trustee, in its individual or any
other capacity, may become the owner or pledgee of Securities with the same
rights it would have if it were not the Trustee or such agent and may otherwise
deal with the Company and receive, collect, hold and retain collections from the
Company with the same rights it would have if it were not the Trustee or such
agent.
SECTION 5.5 Moneys Held by Trustee. Subject to the provisions of
----------------------
Section 9.6, all moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated from other funds except to the extent required by
mandatory provisions of law. Neither the Trustee nor any agent of the Company
or the Trustee shall be under any liability for interest on any moneys received
by it hereunder.
SECTION 5.6 Compensation and Indemnification of Trustee and Its Prior
---------------------------------------------------------
Claim. The Company covenants and agrees to pay to the Trustee from time to
- -----
time, and the Trustee shall be entitled to, such compensation as agreed to by
the Company and the Trustee (which shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust), and the Company
covenants and agrees to pay or reimburse the Trustee and each predecessor
trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of it in accordance with any of the provisions
of this Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all agents and other persons not regularly
in its employ) except any such expense, disbursement or advance as may arise
from its negligence or bad faith. The Company also covenants to indemnify the
Trustee and each predecessor trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
Indenture or the trusts hereunder and its duties hereunder, including the costs
and expenses of enforcing this Indenture against the Company (including this
Section 5.6) and of defending itself against or investigating any claim (whether
asserted by a Holder or the Company) of liability in the premises. The
obligations of the Company under this Section to compensate and indemnify the
Trustee and each predecessor trustee and to pay or reimburse the Trustee and
each predecessor trustee for expenses, disbursements and advances shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. Such additional indebtedness shall be a lien
prior to that of the Securities upon all property and funds held or collected by
the Trustee as such, except funds held in trust for the benefit of the holders
of particular Securities, and the Securities are hereby subordinated to such
senior claim.
SECTION 5.7 Right of Trustee to Rely on Officer's Certificate, Etc.
------------------------------------------------------
Subject to Sections 5.1 and 5.2, whenever in the administration of the trusts of
this Indenture the
<PAGE>
49
Trustee shall deem it necessary or desirable that a matter be proved or
established prior to taking or suffering or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence or bad faith on the part of the
Trustee, be deemed to be conclusively proved and established by an Officers'
Certificate delivered to the Trustee, and such certificate, in the absence of
negligence or bad faith on the part of the Trustee, shall be full warrant to the
Trustee for any action taken, suffered or omitted by it under the provisions of
this Indenture upon the faith thereof.
SECTION 5.8 Persons Eligible for Appointment as Trustee. The Trustee
-------------------------------------------
hereunder shall at all times be a corporation having a combined capital and
surplus of at least $50,000,000, and which is eligible in accordance with the
provisions of Section 310(a) of the Trust Indenture Act. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of a Federal, State or District of Columbia supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
SECTION 5.9 Resignation and Removal; Appointment of Successor
-------------------------------------------------
Trustee. (a) The Trustee may at any time resign by giving written notice of
resignation to the Company and by mailing notice thereof by first-class mail to
holders of Securities at their last addresses as they shall appear on the
Security register. Upon receiving such notice of resignation, the Company shall
promptly appoint a successor trustee by written instrument in duplicate,
executed by authority of the Board of Directors, one copy of which instrument
shall be delivered to the resigning Trustee and one copy to the successor
trustee. If no successor trustee shall have been so appointed and have accepted
appointment within 30 days after the mailing of such notice of resignation, the
resigning trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Securityholder who has been a bona
fide holder of a Security or Securities for at least six months may, on behalf
of himself and all others similarly situated, petition any such court for the
appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper, prescribe and appoint a successor
trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of
Section 310(b) of the Trust Indenture Act, after written request therefor
by the Company or by any Securityholder who has been a bona fide holder of
a Security or Securities for at least six months; or
(ii) the Trustee shall cease to be eligible in accordance with
the provisions of Section 5.8 and shall fail to resign after written
request therefor by the Company or by any such Securityholder; or
(iii) the Trustee shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or a receiver or liquidator of the
Trustee or of its property shall
<PAGE>
50
be appointed, or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation;
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors of the Company, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee, or,
subject to Section 315(e) of the Trust Indenture Act, the Trustee or any
Securityholder who has been a bona fide holder of a Security or Securities for
at least six months may on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, remove the Trustee and
appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Securities at the time outstanding may at any time remove the Trustee and
appoint a successor trustee by delivering to the Trustee so removed, to the
successor trustee so appointed and to the Company the evidence provided for in
Section 6.1 of the action in that regard taken by the Securityholders.
(d) Any resignation or removal of the Trustee and any appointment of
a successor trustee pursuant to any of the provisions of this Section 5.9 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 5.10.
SECTION 5.10 Acceptance of Appointment by Successor Trustee. Any
----------------------------------------------
successor trustee appointed as provided in Section 5.9 shall execute and deliver
to the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, upon payment of its charges then
unpaid, the trustee ceasing to act shall, subject to Section 9.6, pay over to
the successor trustee all moneys at the time held by it hereunder and shall
execute and deliver an instrument transferring to such successor trustee all
such rights, powers, duties and obligations. Upon request of any such successor
trustee, the Company shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers. Any trustee ceasing to act shall, nevertheless, retain a
prior claim upon all property or funds held or collected by such trustee to
secure any amounts then due it pursuant to the provisions of Section 5.6.
Upon acceptance of appointment by a successor trustee as provided in
this Section 5.10, the Company shall mail notice thereof by first-class mail to
the holders of Securities at their last addresses as they shall appear in the
Security register. If the acceptance of appointment is substantially
contemporaneous with the resignation, then the notice called for by the
preceding sentence may be combined with the notice called for by Section 5.9.
If the Company fails to mail such notice within 10 days after acceptance of
appointment by the
<PAGE>
51
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Company.
SECTION 5.11 Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business of Trustee. Any corporation into which the Trustee may be merged or
- -------------------
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided that such
--------
corporation shall be eligible under the provisions of Section 5.8, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee and deliver such
Securities so authenticated; and, in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor trustee; and in all such cases such certificate shall have the
full force which it is anywhere in the Securities or in this Indenture; provided
--------
that the certificate of the Trustee shall have provided that the right to adopt
the certificate of authentication of any predecessor trustee or to authenticate
Securities in the name of any predecessor trustee shall apply only to its
successor or successors by merger, conversion or consolidation.
SECTION 5.12 Notice of Defaults. If a Default or Event of Default
------------------
occurs and is continuing and if a Trust Officer has actual knowledge thereof,
the Trustee shall mail to each Holder notice of the Default or Event of Default
within 90 days after it occurs. Except in the case of a Default or Event of
Default in payment of principal of, or interest on, any Security (including
payments pursuant to the optional redemption or required repurchase provisions
of such Security, if any), the Trustee may withhold the notice if and so long as
its board of directors, the Executive Committee of its board of directors or a
committee of its Trust Officers in good faith determines that withholding the
notice is in the interests of Securityholders.
SECTION 5.13 Reports by the Trustee. The Trustee shall by October 1
----------------------
of each year transmit to the Holders all reports required under Section 313(a)
of the Trust Indenture Act.
ARTICLE VI
CONCERNING THE SECURITYHOLDERS
------------------------------
SECTION 6.1 Evidence of Action Taken by Securityholders. Any
-------------------------------------------
request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be given or taken by Securityholders may be
embodied in and evidenced by one
<PAGE>
52
or more instruments of substantially similar tenor signed by such
Securityholders in person or by agent duly appointed in writing; and, except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee. Proof of execution
of any instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Sections 5.1 and 5.2)
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Article.
SECTION 6.2 Proof of Execution of Instruments and of Holding of
---------------------------------------------------
Securities; Record Date. Subject to Sections 5.1 and 5.2, the execution of any
- -----------------------
instrument by a Securityholder or his agent or proxy may be proved in accordance
with such reasonable rules and regulations as may be prescribed by the Trustee
or in such manner as shall be satisfactory to the Trustee. The holding of
Securities shall be proved by the Security register or by a certificate of the
registrar thereof. The Company may set a record date for purposes of
determining the identity of holders of Securities entitled to vote or consent to
any action referred to in Section 6.1, which record date may be set at any time
or from time to time by notice to the Trustee, for any date or dates (in the
case of any adjournment or resolicitation) not more than 60 days nor less than
five days prior to the proposed date of such vote or consent, and thereafter,
notwithstanding any other provisions hereof, only holders of Securities of
record on such record date shall be entitled to so vote or give such consent or
to withdraw such vote or consent.
SECTION 6.3 Holders to be Treated as Owners. The Company, the
-------------------------------
Trustee and any agents of the Company or the Trustee may deem and treat the
person in whose name any Security shall be registered upon the Security register
as the absolute owner of such Security (whether or not such Security shall be
overdue and notwithstanding any notation of ownership or other writing thereon)
for the purpose of receiving payment of or on account of the principal of and,
subject to the provisions of this Indenture, interest on such Security and for
all other purposes; and neither the Company nor the Trustee nor any agent of the
Company or the Trustee shall be affected by any notice to the contrary;
provided, however, that the Depository, or its nominee, shall be deemed the
- -------- -------
owner of the Restricted Global Security, and owners of beneficial interests in
the Restricted Global Security will not be considered the owners of any
Securities. All such payments so made to any such person, or upon his order,
shall be valid, and, to the extent of the sum or sums so paid, effectual to
satisfy and discharge the liability for moneys payable upon any such Security.
SECTION 6.4 Securities Owned by Company Deemed Not Outstanding. In
--------------------------------------------------
determining whether the holders of the requisite aggregate principal amount of
Securities have concurred in any direction, consent or waiver under this
Indenture, Securities which are owned by the Company or any other obligor on the
Securities or by any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or any other obligor
on the Securities shall be disregarded and deemed not to be outstanding for the
purpose of any such determination, except that for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, consent
or waiver only Securities which the Trustee knows are so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with
<PAGE>
53
respect to such Securities and that the pledgee is not the Company or any other
obligor upon the Securities or any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
other obligor on the Securities. In case of a dispute as to such right, the
advice of counsel shall be full protection in respect of any decision made by
the Trustee in accordance with such advice. Upon request of the Trustee, the
Company shall furnish to the Trustee promptly an Officers' Certificate listing
and identifying all Securities, if any, known by the Company to be owned or held
by or for the account of any of the above-described persons; and, subject to
Sections 5.1 and 5.2, the Trustee shall be entitled to accept such Officers'
Certificate as conclusive evidence of the facts therein set forth and of the
fact that all Securities not listed therein are outstanding for the purpose of
any such determination.
SECTION 6.5 Right of Revocation of Action Taken. At any time prior
-----------------------------------
to (but not after) the evidencing to the Trustee, as provided in Section 6.1, of
the taking of any action by the holders of the percentage in aggregate principal
amount of the Securities specified in this Indenture in connection with such
action, any holder of a Security the serial number of which is shown by the
evidence to be included among the serial numbers of the Securities the holders
of which have consented to such action may, by filing written notice at the
Corporate Trust Office and upon proof of holding as provided in this Article,
revoke such action so far as concerns such Security. Except as aforesaid, any
such action taken by the holder of any Security shall be conclusive and binding
upon such holder and upon all future holders and owners of such Security and of
any Securities issued in exchange or substitution therefor, irrespective of
whether or not any notation in regard thereto is made upon any such Security.
Any action taken by the holders of the percentage in aggregate principal amount
of the Securities specified in this Indenture in connection with such action
shall be conclusively binding upon the Company, the Trustee and the holders of
all the Securities.
ARTICLE VII
AMENDMENTS
----------
SECTION 7.1 Without Consent of Holders. The Company and the Trustee
--------------------------
may amend this Indenture or the Securities without notice to or consent of any
Holder:
(a) to cure any ambiguity, omission, defect or inconsistency;
(b) to comply with Article VIII;
(c) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the uncertificated
-------- -------
Securities are issued in registered form for purposes of Section 163(f) of the
Code or in a manner such that the uncertificated Securities are described in
Section 163(f)(2)(B) of the Code;
(d) to add Guarantees with respect to the Securities or to secure the
Securities;
<PAGE>
54
(e) to add to the covenants of the Company for the benefit of the
Holders of the Securities or to surrender any right or power herein conferred
upon the Company;
(f) to comply with any requirements of the Commission in connection
with qualifying this Indenture under the Trust Indenture Act;
(g) to make any change that does not adversely affect the rights of
any Holder; or
(h) to provide for the issuance of the Exchange Notes, which will
have terms substantially identical in all material respects to the Initial Notes
(except that the transfer restrictions contained in the Initial Notes will be
modified or eliminated, as appropriate), and which will be treated, together
with any outstanding Initial Notes, as a single issue of securities.
After an amendment under this Section 7.1 becomes effective, the
Company shall mail to each Holder a notice briefly describing such amendment.
The failure to give such notice to all Holders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section 7.1.
SECTION 7.2 With Consent of Holders. The Company and the Trustee may
-----------------------
amend this Indenture or the Securities without notice to any Holder but with the
written consent of the Holders of at least a majority in principal amount of the
Securities. However, without the consent of each Holder of an outstanding
Security affected, no amendment may:
(a) reduce the amount of Securities whose Holders must consent to an
amendment;
(b) reduce the rate of or extend the time for payment of interest on
any Security;
(c) reduce the principal of or extend the Stated Maturity of any
Security;
(d) reduce the premium payable upon the redemption or repurchase of
any Security or change the time at which any Security may or shall be redeemed
or repurchased in accordance with this Indenture;
(e) make any Security payable in money other than that stated in the
Security;
(f) modify or affect in any manner adverse to the Holders, the terms
and conditions of the obligation of the Company for the due and punctual payment
of the principal of or interest on Securities; or
(g) make any change in Section 4.4 or 4.7 or the second sentence of
this Section 7.2.
<PAGE>
55
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
After an amendment under this Section 7.2 becomes effective, the
Company shall mail to Holders a notice briefly describing such amendment. The
failure to give such notice to all Holders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section 7.2.
SECTION 7.3 Compliance with Trust Indenture Act. Every amendment to
-----------------------------------
this Indenture or the Securities shall comply with the Trust Indenture Act as
then in effect.
SECTION 7.4 Revocation and Effect of Consents and Waivers. A consent
---------------------------------------------
to an amendment or a waiver by a Holder of a Security shall bind the Holder and
every subsequent Holder of that Security or portion of the Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent or waiver is not made on the Security. However, any such Holder or
subsequent Holder may revoke the consent or waiver as to such Holder's Security
or portion of Security if the Trustee receives the notice of revocation before
the date the amendment or waiver becomes effective. After an amendment or
waiver becomes effective, it shall bind every Holder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to give their consent or take
any other action described above or required or permitted to be taken pursuant
to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Holders at such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall become valid or effective more than 120
days after such record date.
SECTION 7.5 Notation on or Exchange of Securities. If an amendment
-------------------------------------
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 7.6 Trustee to Sign Amendments. The Trustee shall sign any
--------------------------
amendment authorized pursuant to this Article VII if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.1) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
<PAGE>
56
ARTICLE VIII
MERGER AND CONSOLIDATION
------------------------
SECTION 8.1 When Company May Merge, Etc. The Company shall not
----------------------------
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all its assets to, any Person, unless: (i) the resulting,
surviving or transferee Person (the "Successor Company") shall be a Person
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia and the Successor Company (if not the
Company) shall expressly assume, by an indenture supplemental to this Indenture,
executed and delivered to the Trustee, in form reasonably satisfactory to the
Trustee, all the obligations of the Company under the Securities and this
Indenture; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor Company
or any Restricted Subsidiary as a result of such transaction as having been
incurred by such Successor Company or such Restricted Subsidiary at the time of
such transaction), no Event of Default shall have occurred and be continuing;
(iii) immediately after giving pro forma effect to such transaction, as if such
transaction had occurred at the beginning of the applicable four-quarter period,
the Successor Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Coverage Ratio test set forth in
Section 3.8(a); and (iv) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
SECTION 8.2 Successor Corporation Substituted. The Successor Company
---------------------------------
shall be the successor of the Company and shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this
Indenture, but the predecessor Company in the case of a conveyance, transfer or
lease shall not be released from the obligation to pay the principal of and
interest on the Securities.
Such Successor Company may cause to be signed, and may issue either in
its own name or in the name of the Company prior to such succession any or all
of the Securities issuable hereunder which theretofore shall not have been
signed by the Company
and delivered to the Trustee; and, upon the order of such successor corporation,
instead of the Company, and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee shall authenticate and shall deliver
any Securities which previously shall have been signed and delivered by the
officers of the Company to the Trustee for authentication, and any Securities
which such successor corporation thereafter shall cause to be signed and
delivered to the Trustee for that purpose. All of the Securities so issued
shall in all respects have the same legal rank and benefit under this Indenture
as the Securities theretofore or thereafter issued in accordance with the terms
of this Indenture as though all of such Securities had been issued at the date
of the execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance
such changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
<PAGE>
57
In the event of any such sale or conveyance (other than a conveyance
by way of lease) the Company or any Successor Company which shall theretofore
have become such in the manner described in this Article shall be discharged
from all obligations and covenants under this Indenture and the Securities and
may be liquidated and dissolved.
ARTICLE IX
DISCHARGE OF INDENTURE; DEFEASANCE
----------------------------------
SECTION 9.1 Discharge of Liability on Securities: Defeasance. (a)
------------------------------------------------
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.6) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article XII and the
Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Securities (other than Securities
replaced pursuant to Section 2.6), including interest thereon to maturity or
such redemption date, and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Section
9.1(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
(accompanied by an Officers' Certificate and an Opinion of Counsel stating that
all conditions precedent specified herein relating to the satisfaction and
discharge of this Indenture have been complied with) and at the cost and expense
of the Company.
(b) Subject to Sections 9.1(c) and 9.2, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture and
all obligations of the Subsidiary Guarantors under the Subsidiary Guarantee and
this Indenture ("legal defeasance option") or (ii) its obligations under
Sections 3.5, 3.7 through 3.19, 8.1(iii) and 8.1(iv) and the operation of
Sections 4.1(d), 4.1(e), 4.1(f) and 4.1(i) ("covenant defeasance option");
provided, however, no deposit under this Article IX shall be effective to
- -------- -------
terminate the obligations of the Company under the Securities or this Indenture
prior to 123 days following any such deposit. The Company may exercise its legal
defeasance option notwithstanding its prior exercise of its covenant defeasance
option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Securities may
not be accelerated because of an Event of Default specified in Sections 4.1(d),
(e), (f), (i) or (j) or because of the failure of the Company to comply with
Section 8.1(iii) and Section 8.1(iv).
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding the provisions of Sections 9.1(a) and (b), the
Company's obligations in Article II, Sections 5.6, 5.9, 9.4, 9.5 and 9.6 shall
survive until the Securities
<PAGE>
58
have been paid in full. Thereafter, the Company's obligations in Sections 5.6,
9.4 and 9.5 shall survive.
SECTION 9.2 Conditions to Defeasance. The Company may exercise its
------------------------
legal defeasance option or its covenant defeasance option only if:
(a) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and interest on
the Securities to maturity or redemption, as the case may be;
(b) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their opinion
that the payments of principal and interest when due and without reinvestment of
the deposited U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all the Securities to
maturity or redemption, as the case may be;
(c) no Event of Default shall have occurred or be continuing on the
date of such deposit and 123 days pass after the deposit is made and during the
123-day period no Default specified in Section 4.1(g) or 4.1(h) with respect to
the Company occurs which is continuing at the end of such period;
(d) the deposit does not constitute a default under any other
agreement binding on the Company;
(e) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company Act of
1940;
(f) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (A) the Company
has received from, or there has been published by, the Internal Revenue Service
a ruling, or (B) since the date hereof there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders will not recognize
income, gain or loss for Federal income tax purposes as a result of such
defeasance and will be subject to Federal income tax purposes on the same
amounts, in the same manner and at the same times as would have been the case if
such legal defeasance had not occurred;
(g) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders will not recognize income, gain or loss for Federal income tax purposes
as a result of such covenant defeasance and will be subject to Federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such covenant defeasance had not occurred;
<PAGE>
59
(h) The Holders shall have a perfected security interest under
applicable law in the cash or U.S. Government Obligations deposited pursuant to
Section 9.2(a);
(i) The Company shall have delivered to the Trustee an Opinion of
Counsel, in form and substance reasonably satisfactory to the Trustee, to the
effect that, after the passage of 123 days following the deposit, the trust
funds will not be subject to any applicable bankruptcy, insolvency,
reorganization or similar law affecting creditors' rights generally;
(j) such defeasance shall not cause the Trustee to have a conflicting
interest with respect to any securities of the Company; and
(k) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities and this Indenture as contemplated by
this Article IX have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article III.
SECTION 9.3 Application of Trust Money. The Trustee shall hold in
--------------------------
trust money or U.S. Government Obligations deposited with it pursuant to this
Article IX. It shall apply the deposited money and the money from U.S.
Government Obligations through the paying agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities.
SECTION 9.4 Repayment to Company. The Trustee and the paying agent
--------------------
shall promptly turn over to the Company upon request any excess money or
securities held by them upon payment of all the obligations under this
Indenture.
Subject to any applicable abandoned property law, the Trustee and the
paying agent shall pay to the Company upon request any money held by them for
the payment of principal of or interest on the Securities that remains unclaimed
for two years, and, thereafter, Holders entitled to the money must look to the
Company for payment as general creditors.
SECTION 9.5 Indemnity for U.S. Government Obligations. The Company
-----------------------------------------
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 9.6 Reinstatement. If the Trustee or paying agent is unable
-------------
to apply any money or U.S. Government Obligations in accordance with this
Article IX by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the obligations of the Company and the
Subsidiary Guarantors under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to this Article IX
until such time as the Trustee or paying agent is permitted to apply all such
money
<PAGE>
60
or U.S. Government Obligations in accordance with this Article IX;
provided, however, that, if the Company has made any payment of interest on or
- -------- -------
principal of any Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or paying agent.
ARTICLE X
SUBSIDIARY GUARANTEE
--------------------
SECTION 10.1 Subsidiary Guarantee. Each Guarantor hereby
--------------------
unconditionally guarantees (each a "Subsidiary Guarantee") on a senior unsecured
basis to each Holder and to the Trustee and its successors and assigns the
performance and punctual payment when due, whether at maturity, by acceleration
or otherwise, of all obligations of the Company under this Indenture and the
Securities. The Guarantor further agrees that the obligations of the Company
may be extended or renewed, in whole or in part, without notice or further
assent from such Guarantor, and that such Guarantor will remain bound under this
Article X notwithstanding any extension or renewal of any such obligation.
Each Guarantor waives presentation to, demand of, payment from and
protest to the Company of any of the Company's obligations and also waives
notice of protest for nonpayment. Each Guarantor waives notice of any default
under the Securities or the Company's obligations. The obligations of any
Guarantor hereunder shall not be affected by (a) the failure of any Holder or
the Trustee to assert any claim or demand or to enforce any right or remedy
against the Company or any other Person under this Indenture, the Securities or
any other agreement or otherwise; (b) any extension or renewal of any thereof;
(c) any rescission, waiver, amendment or modification of any of the terms or
provisions of this Indenture, the Securities or any other agreement; (d) the
release of any security held by any Holder or the Trustee for the obligations of
the Company or any of them; (e) the failure of any Holder or Trustee to exercise
any right or remedy against any other guarantor of the obligations of the
Company; or (f) any change in the ownership of such Guarantor.
Each Guarantor further agrees that its Subsidiary Guarantee
constitutes a guarantee of payment, performance and compliance when due (and not
a guarantee of collection) and waives any right to require that any resort be
had by any Holder or the Trustee to any security held for payment of the
obligations of the Company.
The obligations of each Guarantor hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason, including
any claim of waiver, release, surrender, alteration or compromise, and shall not
be subject to any defense of set-off, counterclaim, recoupment or termination
whatsoever or by reason of the invalidity, illegality or unenforceability of the
obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor herein shall not be discharged or impaired or
otherwise affected by the failure of any Holder or the Trustee to assert any
claim or demand or to enforce any remedy under this Indenture, the Securities or
any other agreement,
<PAGE>
61
by any waiver or modification of any thereof, by any default, failure or delay,
willful or otherwise, in the performance of the obligations, or by any other act
or thing or omission or delay to do any other act or thing which may or might in
any manner or to any extent vary the risk of such Guarantor or would otherwise
operate as a discharge of such Guarantor as a matter of law or equity.
Each Guarantor further agrees that its Subsidiary Guarantee shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of or interest on any obligation is
rescinded or must otherwise be restored by any Holder or the Trustee upon the
bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right that any Holder or the Trustee has at law or in equity against any
Guarantor by virtue hereof, upon the failure of the Company to pay the principal
of or interest on any of the Securities when and as the same shall become due,
whether at maturity, by acceleration, by redemption or otherwise, or to perform
or comply with any other monetary obligation of the Company under this Indenture
or the Securities, each Guarantor hereby promises to and will, upon receipt of
written demand by the Trustee, pay, or cause to be paid, in cash, to the Holders
or the Trustee an amount equal to the sum of (i) the unpaid principal amount of
such obligations, (ii) accrued and unpaid interest on such obligations (but only
to the extent not prohibited by law) and (iii) all other monetary obligations of
the Company to the Holders and the Trustee.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all such obligations. Each Guarantor further
agrees that, as between it, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article IV for the purposes of such Guarantor's
Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the obligations guaranteed hereby,
and (y) in the event of any declaration of acceleration of such obligations as
provided in Article IV, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantor for the purposes of this
Section.
Each Guarantor also agrees to pay any and all costs and expenses
(including reasonable counsels' fees and expenses) incurred by the Trustee or
any Holder of a Security in enforcing any rights under this section with respect
to such Guarantor.
To further evidence its Subsidiary Guarantee to the Holders, each
Guarantor hereby agrees to execute its Subsidiary Guarantee in substantially the
form set forth in Exhibit A and B hereto to be endorsed on each Security ordered
to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees
that its Subsidiary Guarantee set forth in this Section 10.1 shall remain in
full force and effect notwithstanding any failure to endorse on each Security a
notation of its Subsidiary Guarantee. The Subsidiary Guarantee shall be signed
on behalf of each Guarantor by its Chairman of the Board, any Vice Chairman of
the Board, its Chief Executive Officer, its President, any executive vice
president, any senior vice president, its Controller, Treasurer, or any
Assistant Treasurer or its Secretary or any Assistant
<PAGE>
62
Secretary or any authorized signatory prior to the authentication of the
Security on which it is endorsed, and the delivery of such Security by the
Trustee, after the authentication thereof hereunder, shall constitute due
delivery of the Subsidiary Guarantee on behalf of such Guarantor. Such signature
upon a Subsidiary Guarantee may be the manual or facsimile signature of such
officer and may be imprinted or otherwise reproduced on the Subsidiary
Guarantee, and in case such officer who shall have signed the Subsidiary
Guarantee shall cease to be such officer before the Security on which the
Subsidiary Guarantee is endorsed shall have been authenticated and delivered by
the Trustee or disposed of by the Company, such Security nevertheless may be
authenticated and delivered or disposed of as though the Person who signed the
Subsidiary Guarantee had not ceased to be such officer of such Guarantor.
SECTION 10.2 Limitation on Liability. Any term or provision of this
-----------------------
Indenture to the contrary notwithstanding, the maximum, aggregate amount of the
obligations guaranteed hereunder by any Guarantor shall not exceed the maximum
amount that can, after giving effect to all other contingent and fixed
liabilities of such Guarantor be hereby guaranteed without rendering this
Indenture, as it relates to such Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
SECTION 10.3 Successors and Assigns. This Article X shall be binding
----------------------
upon each Guarantor and its respective successors and assigns and shall enure to
the benefit of the successors and assigns of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee,
the rights and privileges conferred upon that party in this Indenture and in the
Securities shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions of this Indenture.
SECTION 10.4 No Waiver. Neither a failure nor a delay on the part of
---------
either the Trustee or the Holders in exercising any right, power or privilege
under this Article X shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article X at law,
in equity, by statute or otherwise.
SECTION 10.5 Modification. No modification, amendment or waiver of
------------
any provision of this Article X, nor the consent to any departure by any
Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Trustee, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on any Guarantor in any case shall entitle such Guarantor to
any other or further notice or demand in the same, similar or other
circumstance.
SECTION 10.6 Release. If at any time shares of the Capital Stock of
-------
any Guarantor shall be sold in a transaction the Net Cash Proceeds of which are
applied in accordance with the provisions of Section 3.12 which results in such
Guarantor no longer
<PAGE>
63
constituting a Subsidiary, the Trustee is hereby authorized and directed to
execute and deliver a release of such Guarantor from its obligations and
liabilities under this Article X upon receipt by the Trustee of reasonable
evidence of compliance with the requirements of this Section 10.6.
ARTICLE XI
MISCELLANEOUS PROVISIONS
------------------------
SECTION 11.1 Incorporators, Stockholders, Officers and Directors of
------------------------------------------------------
Company Exempt from Individual Liability. No recourse under or upon any
- ----------------------------------------
obligation, covenant or agreement contained in this Indenture, or in any
Security, or because of any indebtedness evidenced thereby, shall be had against
any incorporator, as such or against any past, present or future stockholder,
officer or director, as such, of the Company or of any successor, either
directly or through the Company or any successor, under any rule of law, statute
or constitutional provision or by the enforcement of any assessment or by any
legal or equitable proceeding or otherwise, all such liability being expressly
waived and released by the acceptance of the Securities by the holders thereof
and as part of the consideration for the issue of the Securities.
SECTION 11.2 Provisions of Indenture for the Sole Benefit of Parties
-------------------------------------------------------
and Securityholders. Nothing in this Indenture or in the Securities, expressed
- -------------------
or implied, shall give or be construed to give to any person, firm or
corporation, other than the parties hereto and their successors and the holders
of the Securities, any legal or equitable right, remedy or claim under this
Indenture or under any covenant or provision herein contained, all such
covenants and provisions being for the sole benefit of the parties hereto and
their successors and of the holders of the Securities.
SECTION 11.3 Successors and Assigns of Company Bound by Indenture.
----------------------------------------------------
All the covenants, stipulations, promises and agreements in this Indenture
contained by or in behalf of the Company shall bind its successors and assigns,
whether so expressed or not.
SECTION 11.4 Notices and Demands on Company, Trustee and
-------------------------------------------
Securityholders. Any notice or demand which by any provision of this Indenture
- ---------------
is required or permitted to be given or served by the Trustee or by the holders
of Securities to or on the Company may be given or served by being deposited
postage prepaid, first-class mail (except as otherwise specifically provided
herein) addressed (until another address of the Company is filed by the Company
with the Trustee) to Schein Pharmaceutical, Inc., 100 Campus Drive, Florham
Park, NJ 07932, Chief Financial Officer with a copy to the General Counsel. Any
notice, direction, request or demand by the Company or any Securityholder to or
upon the Trustee shall be deemed to have been sufficiently given or made, for
all purposes, if given or made at the Corporate Trust Office.
Where this Indenture provides for notice to Holders, such notice shall
be sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed,
<PAGE>
64
first-class postage prepaid, to each Holder entitled thereto, at his last
address as it appears in the Security register. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in regular
mail service, it shall be impracticable to mail notice to the Company and
Securityholders when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.
SECTION 11.5 Officers' Certificates and Opinions of Counsel;
-----------------------------------------------
Statements to Be Contained Therein. Upon any application or demand by the
- ----------------------------------
Company to the Trustee to take any action under any of the provisions of this
Indenture, the Company shall furnish to the Trustee an Officers' Certificate
stating that all conditions precedent provided for in this Indenture relating to
the proposed action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent have been
complied with, except that in the case of any such application or demand as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or demand, no
additional certificate or opinion need be furnished.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (a) a statement that the person
making such certificate or opinion has read such covenant or condition, (b) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with and (d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Company may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of or representations by counsel, unless such officer knows that the certificate
or opinion or representations with respect to the matters upon which his
certificate, statement or opinion may be based as aforesaid are erroneous, or in
the exercise of reasonable care should know that the same are erroneous. Any
certificate, statement or opinion of counsel may be based, insofar as it relates
to factual matters and information in the possession of the Company, upon the
certificate, statement or opinion of or representations by an officer or
officers of the Company, unless such counsel knows that the certificate,
statement or opinion or representations with respect to
<PAGE>
65
the matters upon which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable care should know that
the same are erroneous.
Any certificate, statement or opinion of an officer of the Company or
of counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Company, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm of public
accountants filed with the Trustee shall contain a statement that such firm is
independent.
SECTION 11.6 Payments Due on Saturdays; Sundays and Holidays. If the
-----------------------------------------------
date due for payment of interest on or principal of the Securities or the date
fixed for redemption of any Security shall not be a Business Day, then payment
of interest or principal need not be made on such date, but may be made on the
next succeeding Business Day with the same force and effect as if made on the
date of maturity or the date fixed for redemption, and no interest shall accrue
for the period after such date.
SECTION 11.7 Conflict of Any Provision of Indenture with Trust
-------------------------------------------------
Indenture Act. If and to the extent that any provision of this Indenture
- -------------
limits, qualifies or conflicts with another provision included in this Indenture
by operation of Sections 310 to 317, inclusive, of the Trust Indenture Act (an
"incorporated provisions), such incorporated provision shall control.
SECTION 11.8 APPLICABLE LAW. THIS INDENTURE AND EACH SECURITY SHALL
--------------
BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL
PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 11.9 Counterparts. This Indenture may be executed in any
------------
number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same instrument.
SECTION 11.10 Effect of Headings. The Article and Section headings
------------------
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
<PAGE>
66
ARTICLE XII
REDEMPTION OF SECURITIES
------------------------
SECTION 12.1 Right of Optional Redemption; Prices. At any time, the
------------------------------------
Company may redeem, in whole or in part, the Securities on not less than 30 nor
more than 60 days' prior notice at a redemption price equal to 103.00% of the
aggregate principal amount thereof if redeemed prior to January 15, 1999,
101.50% of the aggregate principal amount thereof if redeemed on or after
January 15, 1999 and prior to January 15, 2000, 100.75% of the aggregate
principal amount thereof if redeemed on or after January 15, 2000 and prior to
January 15, 2001 and 100% of the aggregate principal amount thereof if redeemed
on or after January 15, 2001, plus, in each case, accrued interest thereon to,
but excluding, the date of redemption.
SECTION 12.2 Applicability of Article. Redemption of Securities at
------------------------
the election of the Company or otherwise, as permitted or required by any
provision of this Indenture, shall be made in accordance with such provision and
this Article.
SECTION 12.3 Election to Redeem; Notice to Trustee. The election of
-------------------------------------
the Company to redeem any Securities pursuant to Section 12.1 shall be evidenced
by a resolution of the Board of Directors. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
redemption date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such redemption date and of
the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 12.4(e).
SECTION 12.4 Notice of Redemption; Partial Redemptions. (a) Notice
-----------------------------------------
of redemption to the holders of Securities to be redeemed as a whole or in part
shall be given by mailing notice of such redemption by first class mail, postage
prepaid, at least 30 days and not more than 60 days prior to the date fixed for
redemption to such holders of Securities at their last addresses as they shall
appear upon the registry books. Any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the holder receives the notice. Failure to give notice by mail, or any defect in
the notice to the holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
(b) The notice of redemption to each such holder shall identify the
Security, including CUSIP numbers, and shall specify the principal amount of
each Security held by such holder to be redeemed, the date fixed for redemption,
the redemption price, the place or places of payment, that payment will be made
upon presentation and surrender of such Securities, that interest accrued to the
date fixed for redemption will be paid as specified in said notice and that on
and after said date interest thereon or on the portions thereof to be redeemed
will cease to accrue. In case any Security is to be redeemed in part only the
notice of redemption shall state the portion of the principal amount thereof to
be redeemed and shall state that on and after the date fixed for redemption,
upon surrender of such Security, a new
<PAGE>
67
Security or Securities in principal amount equal to the unredeemed portion
thereof will be issued.
(c) The notice of redemption of Securities to be redeemed at the
option of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company.
(d) At least one business day prior to the redemption date specified
in the notice of redemption given as provided in this Section, the Company will
deposit with the Trustee or with one or more paying agents (or, if the Company
is acting as its own paying agent, set aside, segregate and hold in trust as
provided in Section 3.4) an amount of money sufficient to redeem on the
redemption date all the Securities so called for redemption at the appropriate
redemption price, together with accrued interest to the date fixed for
redemption. If less than all the outstanding Securities are to be redeemed the
Company will deliver to the Trustee at least 60 days prior to the date fixed for
redemption an Officers' Certificate stating the aggregate principal amount of
Securities to be redeemed.
(e) The Trustee shall select the Securities or portions thereof,
either pro rata, by lot or by such method as the Trustee shall deem fair and
reasonable, securities to be redeemed in whole or in part. Securities may be
redeemed in part in multiples of $1,000 or an integral multiple thereof. The
Trustee shall, upon the request of the Company, promptly notify the Company in
writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed. For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security which has been or is to be
redeemed.
SECTION 12.5 Payment of Securities Called for Redemption. (a) If
-------------------------------------------
notice of redemption has been given as above provided, the Securities or
portions of Securities specified in such notice shall become due and payable on
the date and at the place stated in such notice at the applicable redemption
price, together with interest accrued to the date fixed for redemption, and on
and after said date (unless the Company shall default in the payment of such
Securities at the redemption price, together with interest accrued to said date)
interest on the Securities or portions of Securities so called for redemption
shall cease to accrue and, except as provided in Sections 5.5 and 9.6, such
Securities shall cease from and after the date fixed for redemption to be
entitled to any benefit or security under this Indenture, and the holders
thereof shall have no right in respect of such Securities except the right to
receive the redemption price thereof and unpaid interest to the date fixed for
redemption. On presentation and surrender of such Securities at a place of
payment specified in said notice, said Securities or the specified portions
thereof shall be paid and redeemed by the Company at the applicable redemption
price, together with interest accrued thereon to the date fixed for redemption;
provided that any quarterly payment of interest becoming due on the date fixed
- --------
for redemption shall be payable to the holders of such Securities registered as
such on the relevant record date subject to the terms and provisions of Section
2.4.
<PAGE>
68
(b) If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate borne
by the Security.
(c) Upon presentation of any Security redeemed in part only, the
Company shall execute and the Trustee shall authenticate and deliver to or on
the order of the holder thereof, at the expense of the Company, a new Security
or Securities, of authorized denominations, in principal amount equal to the
unredeemed portion of the Security so presented.
SECTION 12.6 Exclusion of Certain Securities from Eligibility for
----------------------------------------------------
Selection for Redemption. Securities not held through DTC shall be excluded
- ------------------------
from eligibility for selection for redemption if they are identified by
registration and certificate number in a written statement signed by an
authorized officer of the Company and delivered to the Trustee at least 40 days
prior to the last date on which notice of redemption may be given as being owned
of record and beneficially by, and not pledged or hypothecated by either (a) the
Company or (b) an entity specifically identified in such written statement
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company.
<PAGE>
69
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date and year first above mentioned.
SCHEIN PHARMACEUTICAL, INC.
By:
-------------------------------------------
Name: Dariush Ashrafi
Title: Executive Vice President and
Chief Financial Officer
SCHEIN PHARMACEUTICAL INTERNATIONAL, INC., as
Guarantor
By:
-------------------------------------------
Name:
Title:
SCHEIN PHARMACEUTICAL PA, INC., as Guarantor
By:
-------------------------------------------
Name:
Title:
SCHEIN PHARMACEUTICAL SERVICE
COMPANY, INC., as Guarantor
By:
-------------------------------------------
Name:
Title:
STERIS LABORATORIES, INC., as Guarantor
By:
-------------------------------------------
Name:
Title:
<PAGE>
70
MARSAM PHARMACEUTICALS INC., as Guarantor
By:
-------------------------------------------
Name:
Title:
DANBURY PHARMACAL, INC., as Guarantor
By:
-------------------------------------------
Name:
Title:
DANBURY PHARMACAL PUERTO RICO, INC., as Guarantor
By:
-------------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Trustee
By:
-------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF FACE OF INITIAL NOTE]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT) (AN "ACCREDITED INSTITUTION") OR (C) IT IS NOT A U.S. PERSON AND
IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION AND (2) AGREES THAT IT
WILL NOT, WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY,
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO SCHEIN PHARMACEUTICAL,
INC. (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, (C) TO AN ACCREDITED INSTITUTION THAT, PRIOR TO
SUCH TRANSFER, FURNISHES (OR
<PAGE>
HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT. IN CONNECTION WITH ANY TRANSFER OF THIS
SECURITY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE HEREOF, IF THE PROPOSED
TRANSFEREE IS AN ACCREDITED INSTITUTION, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT.
CUSIP NO.
No. $
SCHEIN PHARMACEUTICAL, INC.
Senior Floating Rate Notes due 2004
Schein Pharmaceutical, Inc., a Delaware corporation (the "Company"),
for value received hereby promises to pay to _____________ or its registered
assigns the principal sum of _________________ Dollars on December 15, 2004, in
such coin or currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts, and to pay
interest at a rate per annum equal to the Applicable LIBOR Rate (as defined
herein).
The Company shall pay interest quarterly on January 15, April 15, July
15, and October 15, of each year, commencing with January 15, 1998. Interest on
the Securities will accrue from the most recent interest payment date to which
interest on the Securities has been paid or duly provided for, or if no interest
has been paid or duly provided for on the Securities, from December 24, 1997,
until payment of said principal sum has been made or duly provided for. The
interest so payable on any January 15, April 15, July 15, and October 15, will,
except as otherwise provided in the Indenture referred to on the reverse hereof,
be paid to the person in whose name this Security is registered at the close of
business on the December 31, March 31, June 30, and September 30, preceding such
January 15, April 15, July 15, or October 15, whether or not such day is a
business day; provided that interest may be paid, at the option of the Company,
--------
by mailing a check therefor payable to the registered holder entitled thereto at
his last address as it appears on the Security register.
A-2
<PAGE>
Interest on this Security will accrue at a rate equal to the
Applicable LIBOR Rate (as defined herein) and will be calculated on a formula
basis by multiplying the principal amount of the Securities then outstanding by
the Applicable LIBOR Rate, and multiplying such product by the LIBOR Fraction
(as defined herein).
Reference is made to the further provisions set forth on the reverse
hereof. Such further provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Security shall not be valid or obligatory until the certificate
of authentication hereon shall have been duly signed by the Trustee acting under
the Indenture.
This Security shall be deemed to be contract under the laws of the
State of New York, and for all purposes shall be construed in accordance with
the laws of the State of New York, without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws of
another jurisdiction would be required thereby.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:
SCHEIN PHARMACEUTICAL, INC.
By:
-------------------------------------------
Name:
Title:
A-3
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned
Indenture.
Dated:
THE BANK OF NEW YORK,
as Trustee
By:
-------------------------------------------
Authorized Signatory
A-4
<PAGE>
[FORM OF REVERSE OF INITIAL NOTE]
SCHEIN PHARMACEUTICAL, INC.
Senior Floating Rate Notes due 2004
This Security is one of a duly authorized issue of debt securities of
the Company, limited to the aggregate principal amount of $___________ (except
as otherwise provided in the Indenture mentioned below), issued or to be issued
pursuant to an Indenture dated as of December 24, 1997 (the "Indenture"), duly
executed and delivered by the Company and the Guarantors to the Trustee (herein
called the "Trustee"). The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as in effect on the date of the Indenture (the "Trust
Indenture Act"). Capitalized terms used herein and not defined have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms and Securityholders are referred to the Indenture and the Trust
Indenture Act for a statement of those terms. The terms of the Indenture shall
govern any inconsistencies between the Indenture and the Securities.
This Security is one of the Initial Notes referred to in the
Indenture. The Securities include the Initial Notes and the Exchange Notes
issued in exchange for the Initial Notes pursuant to the Indenture and the
Registration Rights Agreement. The Initial Notes and the Exchange Notes are
treated as a single class of securities under the Indenture.
Each Guarantor has jointly and severally guaranteed, pursuant to
Article X of the Indenture, the due and punctual payment of the principal of,
premium (if any) and interest on the Securities and all other amounts payable by
the Company under the Indenture and the Securities when and as the same shall be
due and payable, whether at maturity, by acceleration or otherwise, according to
the terms of the Securities and the Indenture.
The Securities will bear interest at the Applicable LIBOR Rate.
"Applicable LIBOR Rate" means, for each quarterly period during which any
Security 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
A-5
<PAGE>
on the basis of the offered quotation of those Reference Banks providing such
quotations; provided, however, that if fewer than two of the Reference Banks are
so quoting such interest rates as mentioned above, the Applicable LIBOR Rate for
such quarterly period shall be deemed to be the applicable LIBOR Rate for the
next preceding quarterly period and in the case of the quarterly period next
succeeding the initial quarterly period, the Applicable LIBOR Rate shall be
8.9375%. Notwithstanding the foregoing, the Applicable LIBOR Rate for the
initial quarterly period shall be 8.9375%. "Interest Rate Determination Date"
means, with respect to each quarterly period, the second London Banking Day
prior to the first day of such quarterly period. "London Banking Day" means any
day in which dealings in United States dollars are transacted or, with respect
to any future date, are expected to be transacted in the London interbank
market. "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. "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
deigned 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
Securities or the date fixed for redemption of any Security shall not be a
Business Day, then payment of interest or principal need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date of maturity or the date fixed for redemption,
and no interest shall accrue for the period after such date.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all the Securities may be declared
due and payable, in the manner and with the effect, and subject to the
conditions, provided in the Indenture. The Indenture provides that in certain
events such declaration and its consequences may be waived by the holders of a
majority in aggregate principal amount of the Securities then outstanding and
that, prior to any such declaration, such holders may waive any past default
under the Indenture and its consequences except a default in the payment of
principal of or premium, if any, or interest on any of the Securities. Any such
consent or waiver by the holder of this Security (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such holder and upon all
future holders and owners of this Security and any Security which
A-6
<PAGE>
may be issued in exchange or substitution herefor, whether or not any notation
thereof is made upon this Security or such other Securities.
Subject to certain exceptions set forth in the Indenture, the
Indenture or the Securities may be amended without notice to any Holder but with
the written consent of the Holders of at least a majority in outstanding
principal amount of the Securities; provided that no such amendment shall (a)
--------
reduce the amount of Securities whose Holders must consent to an amendment; (b)
reduce the rate of or extend the time for payment of interest on any Security;
(c) reduce the principal of or extend the Stated Maturity of any Security; (d)
reduce the premium payable upon the redemption or repurchase of any Security or
change the time at which any Security may or shall be redeemed or repurchased in
accordance with this Indenture; (e) make any Security payable in money other
than that stated in the Security; (f) modify or affect in any manner adverse to
the Holders the terms and conditions of the obligation of the Company for the
due and punctual payment of the principal of or interest on Securities; or (g)
make any change in Section 4.4 or 4.7 of the Indenture or the second sentence of
Section 7.2 of the Indenture, without the consent of each holder of Securities
affected by such amendment.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligations of the Company or the
Guarantors, which are absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Security at the place, times, and rate,
and in the currency, herein prescribed.
The Securities are issuable only as registered Securities without
coupons in denominations of $1,000 and any integral multiple thereof.
The Securities may be exchanged for a like aggregate principal amount
of Securities of other authorized denominations in accordance with and subject
to the limitations provided in the Indenture.
Upon due presentment for registration of transfer of this Security, a
new Security or Securities of authorized denominations, for a like aggregate
principal amount, will be issued to the transferee as provided in the Indenture.
No service charge shall be made for any such transfer, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto.
At any time, the Company may redeem, in whole or in part, the
Securities on not less than 30 nor more than 60 days' prior notice at a
redemption price equal to 103.00% of the aggregate principal amount thereof if
redeemed prior to January 15, 1999, 101.50% of the aggregate principal amount
thereof if redeemed on or after January 15, 1999 and prior to January 15, 2000,
100.75% of the aggregate principal amount thereof if redeemed on or after
January 15, 2000 and prior to January 15, 2001, and 100% of the aggregate
principal amount thereof if redeemed on or after January 15, 2001, plus, in each
case, accrued interest thereon to, but excluding, the date of redemption.
Subject to payment by the Company of a sum sufficient to pay the
amount due on redemption, interest on this Security (or portion hereof if this
Security is redeemed in part)
A-7
<PAGE>
shall cease to accrue upon the date duly fixed for redemption of this Security
(or portion hereof if this Security is redeemed in part).
The election of the Company to redeem any Securities pursuant to
Section 12.1 of the Indenture shall be evidenced by a resolution of the Board of
Directors. In case of any redemption at the election of the Company, the
Company shall, at least 60 days prior to the redemption date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such redemption date and of the principal amount of Securities to
be redeemed and shall deliver to the Trustee such documentation and records as
shall enable the Trustee to select the Securities to be redeemed pursuant to
Section 12.4(e) of the Indenture.
In the event of a Change of Control, the Company will make a Change of
Control Offer to purchase all of the Securities outstanding at a price equal to
101% of the principal amount of the Securities to be repurchased plus accrued
and unpaid interest thereon to the date of purchase, pursuant to an offer made
in conformity with the procedures set forth in Section 3.15 of the Indenture.
In the event of certain Asset Dispositions, subject to certain
conditions, the Company will make an Offer to purchase an aggregate principal
amount of Securities outstanding equal to the amount of Net Available Cash at a
price equal to 100% of the principal amount of the Securities to be repurchased
plus accrued and unpaid interest thereon to the date of purchase.
The Company, the Trustee, and any authorized agent of the Company or
the Trustee may deem and treat the registered Holder hereof as the absolute
owner of this Security (whether or not this Security shall be overdue and
notwithstanding any notation of ownership or other writing hereon made by anyone
other than the Company or the Trustee or any authorized agent of the Company or
the Trustee), for the purpose of receiving payment of, or on account of, the
principal hereof and premium, if any, and, subject to the provisions on the face
hereof, interest hereon and for all other purposes, and neither the Company nor
the Trustee nor any authorized agent of the Company or the Trustee shall be
affected by any notice to the contrary. So long as the Depository, or its
nominee, is the registered holder of the Restricted Global Security for the
Initial Notes, the Depository, or its nominee, will be considered the absolute
owner of the Initial Notes represented by the Restricted Global Security for all
purposes under the Indenture and this Security. Owners of beneficial interests
in the Restricted Global Security will not be considered the owners or Holders
of any Securities.
The Securities are subject to defeasance as described in the
Indenture.
No recourse shall be had for the payment of the principal of and
premium, if any, or the interest on this Security, for any claim based hereon,
or otherwise in respect hereof, or based on or in respect of the Indenture or
any indenture supplemental thereto, against any incorporator, shareholder,
officer or director, as such, past, present or future, of the Company or of any
successor corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law or by
the
A-8
<PAGE>
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
A-9
<PAGE>
[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEES]
Each Guarantor has unconditionally and irrevocably guaranteed, to the
extent set forth in the Indenture and subject to the provisions in the
Indenture, on a senior unsecured basis to each Holder and to the Trustee and its
successors and assigns all obligations of the Company under this Indenture and
the Securities. Each Guarantor has further agreed that the obligations of the
Company may be extended or renewed, in whole or in part, without notice or
further assent from such Guarantor, and that such Guarantor will remain bound
under Article X of the Indenture notwithstanding any extension or renewal of any
such obligation.
The obligations of the Guarantors to the holders of Securities and to
the Trustee pursuant to the Subsidiary Guarantees and the Indenture are
expressly set forth in Article X of the Indenture and reference is hereby made
to the Indenture for the precise terms of the Subsidiary Guarantees.
SCHEIN PHARMACEUTICAL
INTERNATIONAL, INC.
By:
--------------------------------
Name:
Title:
SCHEIN PHARMACEUTICAL PA, INC.
By:
--------------------------------
Name:
Title:
SCHEIN PHARMACEUTICAL SERVICE
COMPANY, INC.
By:
--------------------------------
Name:
Title:
STERIS LABORATORIES, INC.
By:
--------------------------------
Name:
Title:
A-10
<PAGE>
MARSAM PHARMACEUTICALS INC.
By:
-------------------------------------------
Name:
Title:
DANBURY PHARMACAL, INC.
By:
-------------------------------------------
Name:
Title:
DANBURY PHARMACAL PUERTO RICO, INC., as Guarantor
By:
-------------------------------------------
Name:
Title:
A-11
<PAGE>
[ASSIGNMENT FORM]
For value received ____________________________________________________________
hereby sells, assigns and transfers unto
____________________________________________________________
____________________________________________________________
Please insert social security or other identifying number of
assignee
Please print or typewrite name and address including zip code of
assignee:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
the within Security and does hereby irrevocably constitute and appoint
________________________________ Attorney to transfer the Security on the books
of the Company with full power of substitution in the premises.
Date: _______________ Your Signature: _________________________________________
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:_____________________________________
A-12
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have the Security attached hereto purchased by
the Company pursuant to Section 3.10 or 3.15 of the Indenture, check the
appropriate box below:
[_] Section 3.10 [_] Section 3.15
If you want to elect to have only part of the Security purchased by
the Company pursuant to Section 3.10 or Section 3.15 of the Indenture, state the
amount you elect to have purchased:
$_____________________
Date: _______________________ Your Signature:________________________
(Sign exactly as your name
appears on the Note)
Tax Identification No.:________________
Signature Guarantee:___________________
A-13
<PAGE>
EXHIBIT B
[FORM OF FACE OF EXCHANGE NOTE]
CUSIP NO.
No. $
SCHEIN PHARMACEUTICAL, INC.
Senior Floating Rate Notes due 2004
Schein Pharmaceutical, Inc., a Delaware corporation (the "Company"),
for value received hereby promises to pay to ______________________ or its
registered assigns the principal sum of _________________ Dollars on December
24, 2004, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, and to pay interest at a rate per annum equal to the Applicable LIBOR
Rate (as defined herein).
The Company shall pay interest quarterly on January 15, April 15, July
15, and October 15, of each year, commencing with January 15, 1998. Interest on
the Securities will accrue from the most recent interest payment date to which
interest on the Securities has been paid or duly provided for, or if no interest
has been paid or duly provided for on the Securities, from December 24, 1997,
until payment of said principal sum has been made or duly provided for. The
interest so payable on any January 15, April 15, July 15 and October 15, will,
except as otherwise provided in the Indenture referred to on the reverse hereof,
be paid to the person in whose name this Security is registered at the close of
business on the December 31, March 31, June 30, and September 30 preceding such
January 15, April 15, July 15 and October 15, whether or not such day is a
business day; provided that interest may be paid, at the option of the Company,
--------
by mailing a check therefor payable to the registered holder entitled thereto at
his last address as it appears on the Security register.
Interest on this Security will accrue at a rate equal to the
Applicable LIBOR Rate (as defined herein) and will be calculated on a formula
basis by multiplying the principal amount of the Securities then outstanding by
the Applicable LIBOR Rate, and multiplying such product by the LIBOR Fraction
(as defined herein).
Reference is made to the further provisions set forth on the reverse
hereof. Such further provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Security shall not be valid or obligatory until the certificate
of authentication hereon shall have been duly signed by the Trustee acting under
the Indenture.
B-1
<PAGE>
This Security shall be deemed to be contract under the laws of the
State of New York, and for all purposes shall be construed in accordance with
the laws of the State of New York, without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws of
another jurisdiction would be required thereby.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:
SCHEIN PHARMACEUTICAL, INC.
By:
------------------------------------
Name:
Title:
B-2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in
the within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK,
as Trustee
By:_____________________________________
Authorized Signatory
B-3
<PAGE>
[FORM OF REVERSE OF EXCHANGE NOTE]
SCHEIN PHARMACEUTICAL, INC.
Senior Floating Rate Notes due 2004
This Security is one of a duly authorized issue of debt securities of
the Company, limited to the aggregate principal amount of $___________ (except
as otherwise provided in the Indenture mentioned below), issued or to be issued
pursuant to an Indenture dated as of December 24, 1997 (the "Indenture"), duly
executed and delivered by the Company and the Guarantors to the Trustee (herein
called the "Trustee"). The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as in effect on the date of the Indenture (the "Trust
Indenture Act"). Capitalized terms used herein and not defined have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms and Securityholders are referred to the Indenture and the Trust
Indenture Act for a statement of those terms. The terms of the Indenture shall
govern any inconsistencies between the Indenture and the Securities.
This Security is one of the Exchange Notes referred to in the
Indenture.
Each Guarantor has jointly and severally guaranteed, pursuant to
Article X of the Indenture, the due and punctual payment of the principal of,
premium (if any) and interest on the Securities and all other amounts payable by
the Company under the Indenture and the Securities when and as the same shall be
due and payable, whether at maturity, by acceleration or otherwise, according to
the terms of the Securities and the Indenture.
The Securities will bear interest at the Applicable LIBOR Rate.
"Applicable LIBOR Rate" means, for each quarterly period during which any
Security 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
B-4
<PAGE>
on the basis of the offered quotation of those Reference Banks providing such
quotations; provided, however, that if fewer than two of the Reference Banks are
so quoting such interest rates as mentioned above, the Applicable LIBOR Rate for
such quarterly period shall be deemed to be the applicable LIBOR Rate for the
next preceding quarterly period and in the case of the quarterly period next
succeeding the initial quarterly period, the Applicable LIBOR Rate shall be
8.9375%. Notwithstanding the foregoing, the Applicable LIBOR Rate for the
initial quarterly period shall be 8.9375%. "Interest Rate Determination Date"
means, with respect to each quarterly period, the second London Banking Day
prior to the first day of such quarterly period. "London Banking Day" means any
day in which dealings in United States dollars are transacted or, with respect
to any future date, are expected to be transacted in the London interbank
market. "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. "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
deigned 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
securities or the date fixed for redemption of any Security shall not be a
Business Day, then payment of interest or principal need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date of maturity or the date fixed for redemption,
and no interest shall accrue for the period after such date.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all the Securities may be declared
due and payable, in the manner and with the effect, and subject to the
conditions, provided in the Indenture. The Indenture provides that in certain
events such declaration and its consequences may be waived by the holders of a
majority in aggregate principal amount of the Securities then outstanding and
that, prior to any such declaration, such holders may waive any past default
under the Indenture and its consequences except a default in the payment of
principal of or premium, if any, or interest on any of the Securities. Any such
consent or waiver by the holder of this
B-5
<PAGE>
Security (unless revoked as provided in the Indenture) shall be conclusive and
binding upon such holder and upon all future holders and owners of this Security
and any Security which may be issued in exchange or substitution herefor,
whether or not any notation thereof is made upon this Security or such other
Securities.
Subject to certain exceptions set forth in the Indenture, the
Indenture or the Securities may be amended without notice to any Holder but with
the written consent of the Holders of at least a majority in outstanding
principal amount of the Securities; provided that no such amendment shall (a)
--------
reduce the amount of Securities whose Holders must consent to an amendment; (b)
reduce the rate of or extend the time for payment of interest on any Security;
(c) reduce the principal of or extend the Stated Maturity of any Security; (d)
reduce the premium payable upon the redemption or repurchase of any Security or
change the time at which any Security may or shall be redeemed or repurchased in
accordance with this Indenture; (e) make any Security payable in money other
than that stated in the Security; (f) modify or affect in any manner adverse to
the Holders the terms and conditions of the obligation of the Company for the
due and punctual payment of the principal of or interest on Securities; or (g)
make any change in Section 4.4 or 4.7 of the Indenture or the second sentence of
Section 7.2 of the Indenture, without the consent of each holder of Securities
affected by such amendment.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligations of the Company or the
Guarantors, which are absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Security at the place, times, and rate,
and in the currency, herein prescribed.
The Securities are issuable only as registered Securities without
coupons in denominations of $1,000 and any integral multiple thereof.
The Securities may be exchanged for a like aggregate principal amount
of Securities of other authorized denominations in accordance with and subject
to the limitations provided in the Indenture.
Upon due presentment for registration of transfer of this Security, a
new Security or Securities of authorized denominations, for a like aggregate
principal amount, will be issued to the transferee as provided in the Indenture.
No service charge shall be made for any such transfer, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto.
At any time, the Company may redeem, in whole or in part, the
Securities on not less than 30 nor more than 60 days' prior notice at a
redemption price equal to 103.00% of the aggregate principal amount thereof if
redeemed prior to January 15, 1999, 101.50% of the aggregate principal amount
thereof if redeemed on or after January 15, 1999 and prior to January 15, 2000,
100.75% of the aggregate principal amount
B-6
<PAGE>
thereof if redeemed on or after January 15, 2000 and prior to January 15, 2001
and 100% of the aggregate principal amount thereof if redeemed on or after
January 15, 2001, plus, in each case, accrued interest thereon to, but
excluding, the date of redemption.
Subject to payment by the Company of a sum sufficient to pay the
amount due on redemption, interest on this Security (or portion hereof if this
Security is redeemed in part) shall cease to accrue upon the date duly fixed for
redemption of this Security (or portion hereof if this Security is redeemed in
part).
The election of the Company to redeem any Securities pursuant to
Section 12.1 of the Indenture shall be evidenced by a resolution of the Board of
Directors. In case of any redemption at the election of the Company, the
Company shall, at least 60 days prior to the redemption date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such redemption date and of the principal amount of Securities to
be redeemed and shall deliver to the Trustee such documentation and records as
shall enable the Trustee to select the Securities to be redeemed pursuant to
Section 12.4(e) of the Indenture.
In the event of a Change of Control, the Company will make a Change of
Control Offer to purchase all of the Securities outstanding at a price equal to
101% of the principal amount of the Securities to be repurchased plus accrued
and unpaid interest thereon to the date of purchase, pursuant to an offer made
in conformity with the procedures set forth in Section 3.15 of the Indenture.
In the event of certain Asset Dispositions, subject to certain
conditions, the Company will make an Offer to purchase an aggregate principal
amount of Securities outstanding equal to the amount of Net Available Cash at a
price equal to 100% of the principal amount of the Securities to be repurchased
plus accrued and unpaid interest thereon to the date of purchase.
The Company, the Trustee, and any authorized agent of the Company or
the Trustee may deem and treat the registered Holder hereof as the absolute
owner of this Security (whether or not this Security shall be overdue and
notwithstanding any notation of ownership or other writing hereon made by anyone
other than the Company or the Trustee or any authorized agent of the Company or
the Trustee), for the purpose of receiving payment of, or on account of, the
principal hereof and premium, if any, and, subject to the provisions on the face
hereof, interest hereon and for all other purposes, and neither the Company nor
the Trustee nor any authorized agent of the Company or the Trustee shall be
affected by any notice to the contrary.
The Securities are subject to defeasance as described in the
Indenture.
No recourse shall be had for the payment of the principal of and
premium, if any, or the interest on this Security, for any claim based hereon,
or otherwise in respect hereof, or based on or in respect of the Indenture or
any indenture supplemental thereto,
B-7
<PAGE>
against any incorporator, shareholder, officer or director, as such, past,
present or future, of the Company or of any successor corporation, either
directly or through the Company or any successor corporation, whether by virtue
of any constitution, statute or rule of law or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.
B-8
<PAGE>
[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEES]
Each Guarantor has unconditionally and irrevocably guaranteed, to the
extent set forth in the Indenture and subject to the provisions in the
Indenture, on a senior unsecured basis to each Holder and to the Trustee and its
successors and assigns all obligations of the Company under this Indenture and
the Securities. Each Guarantor has further agreed that the obligations of the
Company may be extended or renewed, in whole or in part, without notice or
further assent from such Guarantor, and that such Guarantor will remain bound
under Article X of the Indenture notwithstanding any extension or renewal of any
such obligation.
The obligations of the Guarantors to the holders of Securities and to
the Trustee pursuant to the Subsidiary Guarantees and the Indenture are
expressly set forth in Article X of the Indenture and reference is hereby made
to the Indenture for the precise terms of the Subsidiary Guarantees.
SCHEIN PHARMACEUTICAL
INTERNATIONAL, INC.
By:
-------------------------------------
Name:
Title:
SCHEIN PHARMACEUTICAL PA, INC.
By:
-------------------------------------
Name:
Title:
SCHEIN PHARMACEUTICAL SERVICE
COMPANY, INC.
By:
-------------------------------------
Name:
Title:
B-9
<PAGE>
STERIS LABORATORIES, INC.
By:
-------------------------------------
Name:
Title:
MARSAM PHARMACEUTICALS INC.
By:
-------------------------------------
Name:
Title:
DANBURY PHARMACAL, INC.
By:
-------------------------------------
Name:
Title:
DANBURY PHARMACAL PUERTO RICO, INC., as Guarantor
By:
-------------------------------------
Name:
Title:
B-10
<PAGE>
[ASSIGNMENT FORM]
For value received ____________________________________________________________
hereby sells, assigns and transfers unto
____________________________________________________________
____________________________________________________________
Please insert social security or other identifying number of
assignee
Please print or typewrite name and address including zip code of
assignee:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
the within Security and does hereby irrevocably constitute and appoint
________________________________ Attorney to transfer the Security on the books
of the Company with full power of substitution in the premises.
Date: Your Signature:___________________________________________
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:________________________________________
B-11
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have the Security attached hereto purchased by
the Company pursuant to Section 3.10 or 3.15 of the Indenture, check the
appropriate box below:
[_] Section 3.10 [_] Section 3.15
If you want to elect to have only part of the Security purchased by
the Company pursuant to Section 3.10 or Section 3.15 of the Indenture, state the
amount you elect to have purchased:
$_____________________
Date: _______________________ Your Signature:________________________
(Sign exactly as your name
appears on the Note)
Tax Identification No.:________________
Signature Guarantee:___________________
<PAGE>
EXHIBIT C
FORM OF TRANSFEROR CERTIFICATE FOR
TRANSFER FROM RESTRICTED GLOBAL SECURITY OR
RESTRICTED SECURITY TO RESTRICTED SECURITY
(Transfers Pursuant to (S) 2.5(b)(ii)
or (S) 2.5(b)(iv) of the Indenture)
_______________, 199_
[Trustee]
[Address]
Re: Schein Pharmaceutical, Inc.
Senior Floating Rate Notes
due 2004 (the "Securities")
---------------------------
Reference is hereby made to the Indenture dated as of December __,
1997 (the "Indenture") among Schein Pharmaceutical, Inc., the Guarantors and
_____________________, as Trustee. Capitalized terms used but not defined
herein shall have the meanings given them in the Indenture.
This letter relates to $ aggregate principal amount of
Securities which are held [in the form of the Restricted Global Security (CUSIP
No. ) with the Depository]/*/ in the name of [name of transferor] (the
"Transferor") to effect the transfer of the Securities.
In connection with such request, and in respect of such Securities,
the Transferor does hereby certify that such Securities are being transferred in
accordance with (i) the transfer restrictions set forth in the Securities, (ii)
to a transferee that the Transferor reasonably believes (a) is an Institutional
Accredited Investor and is acquiring Securities for its own account or for one
or more accounts as to which the transferee exercises sole investment discretion
and (b) is not a pharmaceutical company or an Affiliate of a pharmaceutical
company, and (iii) and in accordance with applicable securities laws of any
state of the United States or any other jurisdiction.
- ---------------
/*/ Insert and modify, if appropriate.
<PAGE>
[Name of Transferor]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Dated:
cc: Schein Pharmaceutical, Inc.
C-2
<PAGE>
EXHIBIT D
FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
(Transfers Pursuant to (S) 2.5(b)(ii)
and (S) 2.5(b)(iv) of the Indenture)
________________, 199_
[Trustee]
[Address]
Re: Schein Pharmaceutical, Inc.
Senior Floating Rate Notes
due 2004 (the "Securities")
---------------------------
Reference is hereby made to the Indenture dated as of December __,
1997 (the "Indenture") among Schein Pharmaceutical, Inc., the Guarantors and
________________________________, as Trustee. Capitalized terms used but not
defined herein shall have the meanings given them in the Indenture.
This letter relates to $ aggregate principal amount of
Securities which are held [in the form of the Global Security (CUSIP No. )
with the Depository]/*/ in the name of [name of transferor] (the "Transferor")
to effect the transfer of the Securities to the undersigned.
In connection with such request, and in respect of such Securities, we
confirm that:
1. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not
be offered or sold within the United States or to or for the account or
benefit of U.S. persons, except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are
acting as hereinafter stated, that if we should sell any Securities, we
will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified
institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a domestic broker-dealer) to
the Trustee (as defined in the Indenture relating to the Securities) a
signed letter containing certain representations and agreements relating to
the
- ---------------
/*/ Insert and modify, if appropriate.
D-1
<PAGE>
the restrictions on transfer of the Securities (the form of which letter
can be obtained from the Trustee), (D) outside the United States in
accordance with Regulation S under the Securities Act (if available), (E)
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (F) pursuant to an effective registration
statement under the Securities Act.
2. We understand that, on any proposed resale of Securities, we will
be required to furnish to the Trustee and the Company such certification,
legal opinions and other information as the Trustee and the Company may
reasonably require to confirm that the proposed sale complies with the
foregoing restrictions.
3. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able
to bear the economic risk of our or their investment, as the case may be.
4. We are a corporation, partnership or other entity or person having
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of an investment in the
Securities, and we are (or any account for which we are purchasing is) an
Institutional Accredited Investor, able to bear the economic risk of
investment in the Securities.
5. We are acquiring the Securities for our own account (or for
accounts as to which we exercise sole investment discretion and have
authority to make, and do make, the statements contained in this letter)
and not with a view to any distribution of the Securities, subject,
nevertheless, to the understanding that the disposition of our property
shall at all times be and remain within our control.
6. We understand that (a) the Securities will be delivered to us in
registered form only and that the certificate delivered to us in respect of
the Securities will bear a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH
BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A)
IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT), OR (B) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
D-2
<PAGE>
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED
INSTITUTION"), OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION AND (2) AGREES THAT IT WILL NOT,
WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY,
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO SCHEIN
PHARMACEUTICAL, INC. (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) TO
A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) TO AN ACCREDITED INSTITUTION THAT, PRIOR TO SUCH
TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-
DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT. IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER
THE ORIGINAL ISSUANCE HEREOF, IF THE PROPOSED TRANSFEREE IS AN
ACCREDITED INSTITUTION, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE
TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
and (b) such certificates will be reissued without the foregoing
legend only in the event of a disposition of the Securities in
accordance with the provisions of Section 2.5 of the Indenture.
7. We agree that we will give to each person to whom we transfer
Securities notice of any restrictions on transfer of Securities.
D-3
<PAGE>
8. We acknowledge that the Trustee will not be required to accept for
registration of transfer any Securities acquired by us, except upon
presentation of evidence satisfactory to the Company and the Trustee that
the restrictions set forth herein have been complied with.
9. We acknowledge that the Company, the Trustee and others will rely
upon the truth and accuracy of the foregoing acknowledgments,
representations or agreements and agree that if any of the acknowledgments,
representations or agreements deemed to have been made by our purchase of
Notes are no longer accurate, we shall promptly notify the Company and the
Trustee.
The Company and the Trustee are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[Name of Purchaser]
By:
___________________________________
Name:
_________________________________
Title:
________________________________
Dated:
cc: Schein Pharmaceutical, Inc.
D-4
<PAGE>
EXHIBIT E
FORM OF LEGAL OPINION ON TRANSFER
_________________, 199[ ]
[Trustee]
[Address]
Re: Schein Pharmaceutical, Inc.
Senior Floating Rate Notes
due 2004 (the "Securities")
---------------------------
Ladies and Gentlemen:
This opinion is being furnished to you in connection with the sale by
__________________ (the "Transferor") to ____________________________ (the
"Purchaser") of $_____________ aggregate principal amount of _______ Senior
Floating Rate Notes due 2004 of Schein Pharmaceutical, Inc. (the "Securities").
We have examined such documents and records as we have deemed
appropriate. In our examination of the foregoing, we have assumed the
authenticity of all documents, the genuineness of all signatures and the due
authorization, execution and delivery of the aforementioned by each of the
parties thereto. We have further assumed the accuracy of the representations
contained in the documents set forth above made by the parties executing such
documents. We have also assumed that the sale of the Securities to the
Transferor was exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933, as amended (the "Securities Act").
Based on the foregoing, we are of the opinion that the sale to the
Purchaser of the Securities does not require registration of such Securities
under the Securities Act.
Very truly yours,
E-1
<PAGE>
EXHIBIT F
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM RESTRICTED SECURITY TO RESTRICTED GLOBAL SECURITY
(Transfers Pursuant to (S) 2.5(b)(iii) of the Indenture)
[Trustee]
[Address]
Re: Schein Pharmaceutical, Inc.
Senior Floating Rate Notes
due 2004 (the "Securities")
---------------------------
Reference is hereby made to the Indenture dated as of December __,
1997 (the "Indenture") among Schein Pharmaceutical, Inc., the Guarantors and
________________________, as Trustee. Capitalized terms used but not defined
herein shall have the meanings given them in the Indenture.
This letter relates to $ aggregate principal amount of
Securities which are held in the name of [name of transferor] (the "Transferor")
to effect the transfer of the Securities in exchange for an equivalent
beneficial interest in the Restricted Global Security.
In connection with such request, and in respect of such Securities,
the Transferor does hereby certify that such Securities are being transferred in
accordance with (i) the transfer restrictions set forth in the Securities and
(ii) Rule 144A under the Securities Act to a transferee that the Transferor
reasonably believes is purchasing the Securities for its own account or an
account with respect to which the transferee and any such account is a Qualified
Institutional Buyer in a transaction meeting the requirements of Rule 144A and
in accordance with any applicable securities law of any state of the United
States.
[Name of Transferor]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Dated:
cc: Schein Pharmaceutical, Inc.
F-1
<PAGE>
SCHEDULE 1.1
PERMITTED HOLDERS
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 December 31,
1993 (including trustee thereunder)
Trust established by Stanley M. Bergman under trust agreement dated April 14,
1995 (including trustee thereunder)
Voting Trustee under Voting Trust Agreement dated September 30, 1994 (including
trustee thereunder)
<PAGE>
EXHIBIT 4.5
- -------------------------------------------------------------------------------
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
SCHEIN PHARMACEUTICAL, INC.
and
SOCIETE GENERALE SECURITIES CORPORATION
Dated as of December 24, 1997
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. Securities Subject to This Agreement................................. 1
(a) Definitions.................................................... 1
(b) Registrable Securities......................................... 2
2. Registered Exchange Offer............................................ 2
3. Shelf Registration................................................... 4
4. Restrictions on Public Sale by a Holder of Registrable Securities.... 6
(a) Restrictions on Public Sale by the Company and Others.......... 6
5. Registration Procedures.............................................. 7
6. Registration Expenses................................................ 12
7. Indemnification; Contribution........................................ 13
(a) Indemnification by the Company................................. 13
(b) Indemnification by Holder of Registrable Securities............ 14
(c) Conduct of Indemnification Proceedings......................... 15
(d) Contribution................................................... 17
8. Additional Interest Under Certain Circumstances; Remedies............ 19
9. Participation in Underwritten Registrations.......................... 20
10. Rule 144............................................................. 21
11. Miscellaneous........................................................ 21
(a) No Inconsistent Agreements..................................... 21
(b) Remedies....................................................... 21
(c) Amendments and Waivers......................................... 22
(d) Notices........................................................ 22
(e) Successors and Assigns......................................... 23
(f) Headings....................................................... 23
(g) Governing Law.................................................. 23
(h) Severability................................................... 23
(i) Entire Agreement............................................... 23
i
<PAGE>
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
This Exchange and Registration Rights Agreement (the "Agreement")
dated as of December 24, 1997, is made and entered into by Schein
Pharmaceutical, Inc., a Delaware corporation (together with its successors and
assigns, the "Company"), for the benefit of the holders of up to $100,000,000 in
principal amount of the Company's Senior Floating Rate Notes Due 2004 (the
"Notes"). Holders of the Notes, once issued, whether they are original holders
of the Notes or transferees of such original holders, are herein referred to
collectively as the "Holders" and individually as a "Holder." To induce Societe
Generale Securities Corporation, as initial purchaser of the Notes (the "Initial
Purchaser"), to enter into a Purchase Agreement with the Company in connection
with the issuance of the Notes, the Company has agreed to provide, as set forth
in this Agreement, registration rights with respect to the Notes. Capitalized
terms used herein without definition shall have the meanings set forth in the
Indenture dated as of December 24, 1997 (the "Indenture") among the Company, the
guarantors party thereto and The Bank of New York, as trustee (the "Trustee").
1. Securities Subject to This Agreement
------------------------------------
(a) Definitions.
-----------
"Broker-Dealer" means a broker or dealer registered under the Exchange
-------------
Act.
"Issue Date" means the date of issuance of the Notes.
----------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any successor statute.
"Holder" means a holder of a Registrable Security.
------
"Registrable Securities" means the Notes.
----------------------
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor statute.
<PAGE>
2
"Selling Holder" means a Holder who is selling Registrable Securities
--------------
pursuant to a registration statement.
"Underwriter" means a securities dealer that purchases any Registrable
-----------
Securities as principal and not as part of such dealer's market-making
activities.
(b) Registrable Securities. Any Registrable Security will cease to be
----------------------
a Registrable Security when (i) a registration statement covering such
Registrable Security has been declared effective by the Securities and Exchange
Commission (the "Commission") and it has been disposed of pursuant to such
effective registration statement or (ii) it is sold under circumstances in which
all of the applicable conditions of Rule 144 (or any similar provisions then in
force) under the Securities Act are met.
2. Registered Exchange Offer.
-------------------------
(a) The Company shall prepare and, on or prior to 45 days after the
Issue Date, file with the Commission a registration statement on an appropriate
form under the Securities Act with respect to a proposed offer (the "Registered
Exchange Offer") to the Holders of the Notes to issue and deliver to such
Holders, in exchange for the Notes, a like principal amount of debt securities
of the Company identical in all material respects to the Notes (the "Exchange
Notes") and shall use commercially reasonable efforts to cause such registration
statement to become effective under the Securities Act as soon as practical
after filing and in any event within the earlier of (i) 90 days after the Issue
Date or (ii) 30 days after the consummation of the initial public offering of
the Company's common stock, par value $.01 per share (the "Common Stock"). Upon
the effectiveness of that registration statement, the Company shall commence the
Registered Exchange Offer and shall cause the same to remain open for such
period of time, and to be conducted in accordance with such
<PAGE>
3
procedures as may be required by the applicable provisions of the Exchange Act,
and in any event for not less than 30 days after the date notice of the
Registered Exchange Offer is mailed to the Holders of the Notes. However, the
Registered Exchange Offer shall be consummated in any event on or prior to the
150th day following the Issue Date. It shall be the objective of such
Registered Exchange Offer to enable each Holder electing to exchange Notes for
Exchange Notes (assuming that such Holder is not an Affiliate of the Company,
acquires the Exchange Notes in the ordinary course of such Holder's business and
has no arrangements with any person to participate in the distribution of the
Exchange Notes) to trade such Exchange Notes from and after their receipt
without any limitations or restrictions under the Securities Act or the Exchange
Act and without material restrictions under the securities laws of a substantial
proportion of the several states of the United States.
(b) The Company shall indicate in a "Plan of Distribution" section
contained in the final prospectus constituting a part of the registration
statement relating to the Registered Exchange Offer that any Broker-Dealer who
holds Notes that were acquired for its own account as a result of market-making
activities or other trading activities (other than Notes acquired directly from
the Company), may exchange such Notes for Exchange Notes pursuant to the
Registered Exchange Offer. However, such Broker-Dealer may be deemed an
"underwriter" within the meaning of the Exchange Act and, therefore, must
deliver a prospectus meeting the requirements of the Exchange Act in connection
with any resales of the Exchange Notes received by it in the Registered Exchange
Offer, which prospectus delivery requirement may be satisfied by the delivery by
such Broker-Dealer of the final prospectus contained in the registration
statement relating to the Registered Exchange Offer. Such "Plan of
Distribution" section also shall state that the delivery by a Broker-Dealer of
the
<PAGE>
4
final prospectus relating to the Registered Exchange Offer in connection with
resales of Exchange Notes shall not be deemed an admission by such Broker-Dealer
that it is an "underwriter" within the meaning of the Exchange Act, and shall
contain all other information with respect to the resales of the Exchange Notes
by Broker-Dealers that the Commission may require in connection therewith, but
such "Plan of Distribution" shall not name any such Broker-Dealer or disclose
the amount of Exchange Notes held by any such Broker-Dealer except to the extent
required by the Commission as a result of a change in law, rule, regulation or
policy after the date of this Agreement.
(c) In connection with such Registered Exchange Offer and the offer
and sale of Exchange Notes by Broker-Dealers as contemplated above, the Company
shall take such other and further action, including making appropriate filings
under state securities laws and delivering such number of final prospectuses
relating to the Registered Exchange Offer as any Broker-Dealer proposing to
deliver the same in connection with its resales of Exchange Notes may reasonably
request, as may be necessary to realize the foregoing objectives. The Company
shall cause the registration statement relating to the Registered Exchange Offer
to remain continuously effective for a period of at least 20 Business Days (or
longer if required by applicable law) from the date on which such registration
statement is first declared effective, and shall supplement or amend the
prospectus contained therein to the extent necessary to permit such prospectus
(as supplemented or amended) to be delivered by Broker-Dealers in connection
with their resales of Exchange Notes as aforesaid.
3. Shelf Registration. If, (i) because of any change in law or in
------------------
currently prevailing interpretations of the Commission's staff, the Company is
not permitted to effect a Registered Exchange Offer or (ii) the Initial
Purchaser, as a Holder, (A) is not eligible to
<PAGE>
5
participate in the Registered Exchange Offer or (B) participates in the
Registered Exchange Offer and does not receive freely transferable Exchange
Notes in exchange for tendered Notes, in either case as contemplated by Section
2 hereof, the following provisions shall apply:
(a) The Company shall promptly file with the Commission and thereafter
shall use commercially reasonable efforts to cause to be declared effective, on
or prior to the latter of (i) 120 days after the Issue Date or (ii) 45 days
after the publication of the change of 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 the methods of distribution set forth in such registration statement and
Rule 415 under the Securities Act (the "Shelf Registration Statement").
(b) The Company agrees to use commercially reasonable efforts to keep
the Shelf Registration Statement continuously effective in order to permit the
prospectus included therein to be usable by the Holders of the Notes for a
period 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; provided that the Company shall be deemed not to have used
--------
commercially reasonable efforts to keep the Shelf Registration Statement
effective during the requisite period if it voluntarily takes any action that
would result in Holders of Notes covered thereby not being able to offer and
sell such Notes during that period, unless (i) such action is required by
applicable law, rule, regulation or policy, or (ii) in the judgement of the
Board of Directors of the Company, there is a reasonable likelihood that the
failure to take such voluntary action would adversely affect any existing or
prospective material business situation, transaction, or negotiation or
otherwise materially and adversely
<PAGE>
6
affect the Company and the taking of such voluntary action does not cause any
such registration statement not to be effective, or delay the filing of any
registration statement, for more than 90 days. Any such period during which the
Company fails to keep the registration statement effective and usable for offers
and sales of Notes is referred to as a "Suspension Period." A Suspension Period
shall commence on and include the date that the Company gives notice that the
registration statement is no longer effective or the prospectus included therein
is no longer usable for offers and sales of Notes and shall end on the date when
each Selling Holder either receives the copies of the supplemented or amended
prospectus contemplated by Section 5(b) hereof or is advised in writing by the
Company that use of the prospectus may be resumed. If one or more Suspension
Periods occur, the three-year time period referenced above shall be extended by
the number of days included in each such Suspension Period.
4. Restrictions on Public Sale by a Holder of Registrable
------------------------------------------------------
Securities. Each Holder whose securities are included in a registration
statement hereunder agrees not to effect any public sale or distribution of the
issue being registered or a similar security of the 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.
(a) Restrictions on Public Sale by the Company and Others. The
-----------------------------------------------------
Company and its Affiliates agree (i) not to effect any public sale or
distribution of any securities similar
<PAGE>
7
to the Registrable Securities (except as part of such registration statement),
during the 14 days prior to, and during the 90-day period beginning on, the
effective date of any such registration statement filed pursuant to Section 2 or
3 hereof and (ii) that any agreement entered into after the date of the
Agreement pursuant to which the Company issues or agrees to issue any privately
placed securities similar to the Registrable Securities shall contain a
provision under which holders of such securities agree not to effect any public
sale or distribution of any such securities during the periods described in (i)
above, in each case including a sale pursuant to Rule 144 under the Securities
Act (except as part of any such registration, if permitted).
5. Registration Procedures.
-----------------------
In connection with any Registered Exchange Offer or Shelf Registration
Statement, the Company shall use commercially reasonable efforts to:
(a) prepare and file with the Commission a registration statement on
any form for which the Company then qualifies or which counsel for the Company
shall deem appropriate and which form shall be available for the sale of the
Exchange Notes or Registrable Securities, as the case may be, to be registered
thereunder in accordance with the intended method of distribution thereof, and
use commercially reasonable efforts to cause such filed registration statement
to become effective and qualify an indenture relating to the Notes or the
Exchange Notes, as the case may be, substantially in the form contemplated by
the offering memorandum used in connection with the placement of the Notes;
provided (i) that before filing a registration statement or prospectus or any
- --------
amendments or supplements thereto, the Company will furnish to one counsel
selected by the Holders who hold, or will hold, as the case may be, a majority
in principal amount of the Registrable Securities to be covered by such
registration statement or exchanged pursuant to the Registered Exchange Offer,
as the
<PAGE>
8
case may be, copies of all such documents proposed to be filed,
which documents will be subject to the review of such counsel, and (ii) that
after the filing of the registration statement, the Company will promptly notify
each Holder of any stop order issued or threatened by the Commission and take
all reasonable actions required to prevent the entry of such stop order or to
remove it if entered;
(b) furnish to each Holder, prior to filing the registration
statement, if requested, copies of such registration statement as proposed to be
filed, and thereafter furnish to such Holder such number of copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in such registration
statement (including each preliminary prospectus) and such other documents as
such Holder may reasonably request in connection with the Registered Exchange
Offer or in order to facilitate the disposition of the Registrable Securities
owned by such Holder, as the case may be;
(c) use commercially reasonable efforts to register or qualify such
Exchange Notes or Registrable Securities, as the case may be, under such other
securities or blue sky laws of such jurisdictions in the United States as may be
required in connection with the Registered Exchange Offer or as any Selling
Holder or managing Underwriter reasonably (in light of the intended plan of
distribution) requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Selling Holder or managing
Underwriter to consummate the disposition of the Registrable Securities owned by
such Selling Holder in such jurisdictions, provided that the Company will not be
--------
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required
<PAGE>
9
to qualify but for this paragraph (c), (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
(d) use commercially reasonable efforts to cause such Exchange Notes
or Registrable Securities, as the case may be, to be registered with or approved
by such other governmental agencies or authorities as may be necessary by virtue
of the business and operations of the Company or its Subsidiaries in connection
with the Registered Exchange Offer or to enable the Selling Holder or Selling
Holders thereof to consummate the disposition of such Registrable Securities;
(e) notify each Holder of such Registrable Securities that is named as
a Selling Holder in any registration statement filed pursuant to this Agreement,
at any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the occurrence of an event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances in which they were made, not misleading and
promptly make available to each such Holder any such supplement or amendment;
(f) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;
(g) make available for inspection, during normal business hours and on
reasonable prior notice, by any Selling Holder of such Registrable Securities,
any Underwriter participating in any disposition pursuant to such registration
statement and any attorney,
<PAGE>
10
accountant or other professional retained by any such Selling Holder or
Underwriter (collectively, the "Inspectors") all financial and other records,
pertinent corporate documents and properties of the Company and its Subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's and the
Subsidiaries' officers, directors and employees to supply all information
reasonably requested to any such Inspectors in connection with such due
diligence. The Company may require the Inspector to agree that Records which
the Company determines, in good faith, to be confidential and any Records which
it notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission of a material fact in such registration
statement or (ii) the release of such Records is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction. Each Selling Holder of
such Registrable Securities agrees, and shall cause the Inspectors to agree,
that information obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it for any purpose whatsoever, other than
the exercise of its due diligence responsibility. Without limiting the
generality of the preceding sentence, each Selling Holder of such Registrable
Securities agrees, and shall cause the Inspectors to agree, that information
obtained by it as a result of such inspections shall not be used by it as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such information is made generally available to the
public. Each Selling Holder of such Registrable Securities further agrees, and
shall cause the Inspectors to agree, that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction, give notice to
the Company and
<PAGE>
11
allow the Company, at its expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(h) in the event such sale is pursuant to an underwritten offering,
use commercially reasonable efforts to obtain a comfort letter or comfort
letters from the Company's independent public accountants in customary form and
covering matters of the type customarily covered by comfort letters as the
managing Underwriter reasonably requests;
(i) use commercially reasonable efforts to obtain an opinion or
opinions from counsel for the Company, in customary form; and
(j) otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the Commission.
Notwithstanding any other provision of this Agreement, the Company may
delay the filing of any registration statement for up to 90 days if (i) the
Company would, in the opinion of its counsel, be required to disclose in such
registration statement information not otherwise then required by law to be
publicly disclosed and (ii) in the judgment of the Board of Directors of the
Company, there is a reasonable likelihood that such disclosure, or any other
action to be taken in connection with any registration statement, would
adversely affect any existing or prospective material business situation,
transaction, or negotiation or otherwise materially and adversely affect the
Company.
The Company may require each Selling Holder of Registrable Securities
to promptly furnish in writing to the Company such information regarding the
distribution of the Registrable Securities as it may from time to time
reasonably request and such other information as may be legally required or
reasonably requested in connection with such registration.
<PAGE>
12
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 5(e)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 5(e) hereof, and, if
so directed by the Company, such Selling Holder will deliver to the Company all
copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice.
6. Registration Expenses.
---------------------
In connection with any registration statement required to be filed
pursuant to Section 2 or 3 hereunder, the Company shall pay the following
registration expenses (the "Registration Expenses"): (i) all registration and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Exchange Notes or Registrable Securities, as the
case may be), (iii) printing expenses, (iv) internal Company expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (v) the fees and expenses
incurred in connection with any listing of the Exchange Notes or Registrable
Securities, as the case may be, (vi) fees and disbursements of counsel for the
Company and customary fees and expenses for independent certified public
accountants retained by the Company (including the expenses of any comfort
letters or costs associated with the delivery by independent certified public
accountants of a comfort letter or comfort letters requested pursuant to Section
5(h) hereof), (vii) the fees and
<PAGE>
13
expenses of any special experts retained by the Company in connection with such
registration, and (viii) reasonable fees and expenses of one counsel (who shall
be selected by Holders of a majority of the Registrable Securities and who shall
be reasonably acceptable to the Company) for the Holders incurred in connection
with the registration hereunder. The Company shall not have any obligation to
pay any underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities (including, without limitation, fees and expenses of any
qualified independent Underwriter that may be required under the rules of the
National Association of Securities Dealers), or, except as otherwise provided in
clause (viii) above, any out-of-pocket expenses of the Holders (or any agents
who manage their accounts) or fees and disbursements of any counsel for any
Underwriter in any underwritten offering.
7. Indemnification; Contribution.
-----------------------------
(a) Indemnification by the Company. The Company agrees to indemnify
------------------------------
and hold harmless each Selling Holder of Registrable Securities, its officers
and directors and each person, if any, who controls such Selling Holder within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation) arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such
<PAGE>
14
untrue statement or omission or allegation thereof based upon information
furnished in writing to the Company by such Selling Holder or on such Selling
Holder's behalf expressly for use therein; and provided that with respect to any
--------
untrue statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, the indemnity agreement contained in this paragraph
shall not apply to the extent that any such loss, claim, damage, liability or
expense results from the fact that a current copy of the prospectus was not sent
or given to the person asserting any such loss, claim, damage, liability or
expense at or prior to the written confirmation of the sale of the Registrable
Securities concerned to such person if it is determined that the provision of
such person with a current copy of the prospectus would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The Company also
agrees to indemnify, as applicable, (i) the Broker-Dealers who hold Registrable
Securities acquired for their own accounts pursuant to the Registered Exchange
Offer and their officers, directors and each person who controls such Broker-
Dealers, and (ii) the Underwriters of the Registrable Securities and their
officers, directors and each person who controls such Underwriters, on
substantially the same basis as that of the indemnification of the Selling
Holders provided in this Section 7 if such Broker-Dealers and Underwriters agree
in writing to indemnify and contribute to the Company on substantially the same
basis as the Selling Holders indemnify and contribute to the Company pursuant to
this Section 7.
(b) Indemnification by Holder of Registrable Securities. Each Selling
---------------------------------------------------
Holder whose Registrable Securities are included in a registration pursuant
hereto, shall be deemed to have agreed to indemnify and hold harmless the
Company, its directors and officers and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act from and against any and
<PAGE>
15
all losses, claims, damages, liabilities and expenses (including reasonable
costs of investigation) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Securities or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided that the provisions of this paragraph shall apply only
--------
insofar as losses, claims, damages, liabilities or expenses arise out of, or are
based upon, any such untrue statement or omission or allegation thereof based
upon information furnished in writing by such Selling Holder or on such Selling
Holder's behalf expressly for use in any registration statement or prospectus
relating to the Registrable Securities, or any amendment or supplement thereto,
or any preliminary prospectus. In case any action or proceeding shall be brought
against the Company, or its directors or officers, or any such controlling
person, in respect of which indemnity may be sought against such Selling Holder,
such Selling Holder shall have the rights and duties given to the Company, and
the Company or its directors or officers or such controlling person shall have
the rights and duties given to such Selling Holder, by the preceding paragraph.
(c) Conduct of Indemnification Proceedings. Promptly after receipt of
--------------------------------------
notice of the commencement of any action or proceeding (including any
governmental investigation) brought or asserted against any person entitled to
indemnification under clause (a) or (b) above (an "Indemnified Party") in
respect of which indemnity may be sought from any party who has agreed to
provide such indemnification (an "Indemnifying Party"), if a claim in respect
thereof is to be made against an Indemnifying Party under such clause, the
<PAGE>
16
Indemnified Party shall notify the Indemnifying Party in writing of the
commencement thereof; provided, that the omission so to notify the Indemnifying
--------
Party shall not relieve it from any liability which it may have under this
Section 7 except to the extent it has been materially prejudiced by such
omission; provided, further, that the omission so to notify the Indemnifying
-------- -------
Party shall not relieve it from any liability which it may have to an
Indemnified Party otherwise than under this Section 7. The Indemnifying Party
shall be entitled to assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party, and shall assume the
payment of all expenses indemnified hereunder. Such Indemnified Party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such separate counsel shall be
at the expense of such Indemnified Party unless (i) the Indemnifying Party has
agreed to pay such fees and expenses or (ii) the named parties to any such
action or proceeding (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party, and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on the part of
counsel employed by the Indemnifying Party to represent such Indemnified Party
(in which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense of such action or proceeding on behalf of such Indemnified Party; it
being understood, however, that the Indemnifying Party shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations of circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel)
<PAGE>
17
at any time for all such Indemnified Parties, which firm shall be designated in
writing by such Indemnified Parties). The Indemnifying Party shall not be liable
for any settlement of any such action or proceeding effected without its written
consent, which shall not be unreasonably withheld, but if settled with its
written consent, or if there be a final judgment for the plaintiff in any such
action or proceeding, the Indemnifying Party shall indemnify and hold harmless
such Indemnified Parties from and against any loss or liability (to the extent
stated above) by reason of such settlement or judgment.
(d) Contribution. If the indemnification provided for in this Section
------------
7 is due in accordance with the terms hereof but is held to be unavailable to
the Indemnified Parties in respect of any losses, claims, damages, liabilities
or judgments referred to herein (collectively, "losses"), then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses (i) as between the Company and the Selling Holders on the one
hand and the Underwriters or Broker-Dealers, as the case may be, on the other,
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Holders on the one hand and the Underwriters or
Broker-Dealers, as the case may be on the other from the offering of the
Registrable Securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company and the Selling Holders on
the one hand and of the Underwriters or Broker-Dealers, as the case may be, on
the other in connection with the statements or omissions which resulted in such
losses, as well as any other relevant equitable considerations and (ii) as
between the Company on the one hand and each Selling Holder on the other, in
such proportion as is appropriate to reflect the relative fault of the Company
and
<PAGE>
18
of each Selling Holder in connection with such statements or omissions, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Selling Holders on the one hand and the Underwriters or
Broker-Dealers, as the case may be, on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and the Selling Holders bear to the total underwriting discounts and commissions
received by the Underwriters or Broker-Dealers, as the case may be, in each case
as set forth in the table on the cover page of the prospectus. The relative
fault of the Company and the Selling Holders on the one hand and of the
Underwriters or Broker-Dealers, as the case may be, on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company and the Selling
Holders or by the Underwriters or Broker-Dealers, as the case may be. The
relative fault of the Company on the one hand and of each Selling Holder on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 7(d) were determined by
pro rata allocation (even if the Underwriters or Broker-Dealers, as the case may
be, were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid
<PAGE>
19
or payable by an Indemnified Party as a result of the losses, claims, damages,
liabilities or judgments referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim and for
which it is entitled to be indemnified hereunder. Notwithstanding the provisions
of this Section 7(d), no Underwriter or Broker-Dealer, as the case may be, shall
be required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter or Broker-Dealer, as the case may be, has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and no Selling Holder shall be required to contribute any
amount in excess of the amount by which the total price at which the Registrable
Securities of such Selling Holder were offered to the public exceeds the amount
of any damages which such Selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
8. Additional Interest Under Certain Circumstances; Remedies.
---------------------------------------------------------
(a) In the event (to the extent applicable) that (i) (A) the
Registered Exchange Offer registration statement is not filed on or prior to the
45th day following the Issue Date, (B) the Registered 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
<PAGE>
20
public offering of the Company's Common Stock or (C) the Registered Exchange
Offer is not consummated on or prior to the 150th day following the Issue Date
or (ii) a Shelf Registration Statement with respect to the Notes is not promptly
filed pursuant to Section 3(a) hereof or is not declared effective under the
Securities Act on or prior to the later of (x) the 120th day after the Issue
Date and (y) the 45th day after the publication of the change in law or
interpretation referred to in Section 3, 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, or in the case of clause (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 120- or 45-day period, as
applicable. The aggregate amount of such increase from the original interest
rate pursuant to these provisions will in no event exceed one-half of one
percent per annum. Such increase will cease to be effective on the date of
filing of the Registered Exchange Offer registration statement, effectiveness of
the Registered Exchange Offer registration statement, consummation of the
Registered Exchange Offer or the effectiveness of a Shelf Registration
Statement, as the case may be.
(b) Any amounts of additional interest due pursuant to the paragraph
above will be payable in cash, on the same original interest payment dates as
the 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
(determined on the basis of the actual number of days elapsed), and the
denominator of which is 360.
9. Participation in Underwritten Registrations.
-------------------------------------------
<PAGE>
21
No person may participate in any underwritten registration hereunder
unless such person (a) agrees to sell such person's securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and this Agreement.
10. Rule 144.
--------
To the extent it is otherwise required to do so, the Company covenants
that it will file any reports required to be filed by it under the Securities
Act and the Exchange Act so as to enable Holders to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any Holder, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
11. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company will not hereafter enter
--------------------------
into and is not presently a party to any agreement with respect to its
securities which conflicts with the rights granted to the Holders of Registrable
Securities in this Agreement.
(b) Remedies. Each Holder of Registrable Securities, in addition to
--------
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a
<PAGE>
22
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate. Any breach of this Agreement shall not cause a Default or Event of
Default under the Notes.
(c) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of Holders holding a
majority in principal amount of the Registrable Securities then outstanding
affected by such amendment, modification, supplement, waiver or departure.
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and personally delivered or sent by
registered or certified first-class mail or by telecopy:
(i) if to a Holder at its last registered address, and with a
copy to be sent to each additional address, given by such Holder to
the Company or the Trustee, as the case may be, in writing; and
(ii) if to the Company at:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
Attention: Chief Financial Officer
Telecopy No.: (973) 593-5580
with a copy to: General Counsel
Telecopy No.: (973) 593-5820
or to such other address as any Holder or the Company may give notice of
pursuant hereto.
<PAGE>
23
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; or three Business Days
after being deposited in the mail, postage prepaid, if mailed; or when received,
if telecopied.
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties hereto,
including any person to whom Registrable Securities are transferred.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of New York applicable to
contracts made and to be performed wholly within that State without regard to
the principles thereof regarding conflict of laws.
(h) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
(i) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set
<PAGE>
24
forth or referred to herein with respect to such subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
<PAGE>
25
IN WITNESS WHEREOF, the undersigned has duly executed this Agreement
for the benefit of the Initial Purchaser and the Holders, as of the date first
above written.
SCHEIN PHARMACEUTICAL, INC.
By: ____________________________________
Name: Dariush Ashrafi
Title: Executive Vice President and
Chief Financial Officer
Acknowledged as of the date first above written:
SOCIETE GENERALE SECURITIES CORPORATION,
as Initial Purchaser
By: ________________________________
Name: David M. Malcolm
Title: Managing Director
<PAGE>
EXHIBIT 4.6
SCHEIN PHARMACEUTICAL, INC.
$100,000,000
SENIOR FLOATING RATE NOTES DUE 2004
PURCHASE AGREEMENT
December 19, 1997
SOCIETE GENERALE SECURITIES CORPORATION
1221 Avenue of the Americas
New York, New York 10020
Ladies and Gentlemen:
Schein Pharmaceutical, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell $100,000,000 principal amount of its
Senior Floating Rate Notes Due 2004 (the "Securities"). The Securities are to be
issued pursuant to an Indenture dated as of December 24, 1997 (the "Indenture")
to be entered into between the Company, the subsidiaries listed on the signature
pages hereto (collectively, the "Guarantors") and The Bank of New York, as
trustee (the "Trustee"). This is to confirm the agreement concerning the
purchase of the Securities from the Company by Societe Generale Securities
Corporation (the "Initial Purchaser"). Payment of principal and interest on the
Securities will be unconditionally guaranteed, jointly and severally, on a
senior unsecured basis (the "Subsidiary Guarantees") by the Guarantors.
The Securities will be offered and sold to the Initial
Purchaser without being registered under the Securities Act of 1933, as amended
(the "Securities Act"), in reliance upon an exemption therefrom. The Company has
prepared a preliminary offering memorandum dated December 3, 1997 (the
"Preliminary Offering Memorandum") and will prepare an offering memorandum dated
the date hereof (the "Offering Memorandum") setting forth information concerning
the Company and the Securities. Copies of the Preliminary Offering Memorandum
have been, and copies of the Offering Memorandum will be, delivered by the
Company to the Initial Purchaser pursuant to the terms of this Agreement. Any
references herein to the Preliminary Offering Memorandum and the Offering
Memorandum shall be deemed to include all amendments and supplements thereto,
unless otherwise noted. The Company hereby confirms that it has authorized the
use of the Preliminary Offering Memorandum and the Offering Memorandum in
connection with the offering and resale of the Securities by the Initial
Purchaser in accordance with Section 2.
<PAGE>
2
Holders of the Securities (including the Initial Purchaser and
its direct and indirect transferees) will be entitled to the benefits of an
Exchange and Registration Rights Agreement, substantially in the form attached
hereto as Annex A (the "Registration Rights Agreement"), pursuant to which the
Company will agree to file with the Securities and Exchange Commission (the
"Commission") (i) a registration statement under the Securities Act (the
"Exchange Offer Registration Statement") registering an issue of notes of the
Company (the "Exchange Securities") which are identical in all material respects
to the Securities (except that the Exchange Securities will not contain terms
with respect to transfer restrictions) and (ii) under certain circumstances, a
shelf registration statement pursuant to Rule 415 under the Securities Act (the
"Shelf Registration Statement").
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
AND THE GUARANTORS. The Company and the Guarantors represent and warrant to and
agree, jointly and severally, with the Initial Purchaser that:
(a) Accurate Information Relating to the Securities. Each of
the Preliminary Offering Memorandum and the Offering Memorandum, as of
its respective date, did not, and on the Closing Date (as defined
herein) the Offering Memorandum will not, contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided that neither the Company nor any Guarantor makes
any representation or warranty as to information contained in or
omitted from the Preliminary Offering Memorandum or the Offering
Memorandum in reliance upon and in conformity with written information
relating to the Initial Purchaser furnished to the Company and the
Guarantors by or on behalf of the Initial Purchaser specifically for
use therein (the "Initial Purchaser's Information").
(b) Compliance with Securities Act. Each of the Preliminary
Offering Memorandum and the Offering Memorandum, as of its respective
date, contains all of the information that, if requested by a
prospective purchaser of the Securities, would be required to be
provided to such prospective purchaser pursuant to Rule 144A(d)(4)
under the Securities Act.
(c) Registration Required. Assuming the accuracy of the
representations and warranties of the Initial Purchaser contained in
Section and its compliance with the agreements set forth therein, it is
not necessary, in connection with the issuance and sale of the
Securities to the Initial Purchaser and the offer, resale and delivery
of the Securities by the Initial Purchaser in the manner contemplated
by this Agreement and the Offering Memorandum, to register the
Securities under the Securities Act or to qualify the Indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act").
(d) Corporate Existence; Compliance with Law. The Company and
each of its subsidiaries that is a "Significant Subsidiary" within the
meaning of such term as
<PAGE>
3
defined in Rule 1-02 of Regulation S-X of the Commission (each a
"Significant Subsidiary") have been duly incorporated and are validly
existing as corporations in good standing under the laws of their
respective jurisdictions of incorporation, are duly qualified to do
business and are in good standing as foreign corporations in each
jurisdiction in which their respective ownership or lease of property
or the conduct of their respective businesses requires such
qualification, and have all power and authority necessary to own or
hold their respective properties and to conduct the businesses in which
they are engaged, except where the failure to so qualify or have such
power or authority would not have, singularly or in the aggregate, a
material adverse effect on the condition (financial or otherwise),
results of operations, business or prospects of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect").
(e) Corporate Power; Authorization. Each of the Company and
the Guarantors has full right, power and authority to execute and
deliver this Agreement, the Registration Rights Agreement, the
Indenture and the Securities (collectively, the "Transaction
Documents") and to perform its respective obligations hereunder and
thereunder; and all corporate action required to be taken for the due
and proper authorization, execution and delivery of each of the
Transaction Documents and the consummation of the transactions
contemplated by this Agreement and the Indenture have been duly and
validly taken.
(f) Enforceable Obligations. The Indenture, when duly executed
by the proper officers of the Company and each Guarantor and delivered
by the Company and each Guarantor, assuming due authorization,
execution and delivery thereof by the Trustee, will constitute a valid
and binding agreement of the Company and each Guarantor enforceable
against the Company and each Guarantor in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, fraudulent transfers, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally,
general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair
dealing; the Registration Rights Agreement, when duly executed by the
proper officers of the Company and delivered by the Company, assuming
due authorization, execution and delivery thereof by the Initial
Purchaser, will constitute a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, subject
to the effects of bankruptcy, insolvency, fraudulent conveyance,
fraudulent transfer, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law)
<PAGE>
4
and an implied covenant of good faith and fair dealing; the Securities,
when duly executed, authenticated, issued and delivered as provided in
the Indenture and upon payment and delivery in accordance with this
Agreement, will be duly and validly issued and outstanding and will
constitute valid and binding obligations of the Company entitled to the
benefits of the Indenture and enforceable against the Company in
accordance with their terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, fraudulent transfer, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith
and fair dealing; the Subsidiary Guarantees (embodied in the Indenture
and the Securities), when duly executed by the proper officers of each
of the Guarantors, will constitute a valid and binding agreement of
each Guarantor enforceable against each Guarantor in accordance with
its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, fraudulent transfer, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally,
general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair
dealing; and the Indenture, the Registration Rights Agreement and the
Securities conform to the descriptions thereof contained in the
Offering Memorandum.
(g) Capitalization of the Company. The Company has an
authorized capitalization as set forth in the Offering Memorandum, and
all of the issued shares of capital stock of the Company have been duly
and validly authorized and issued, are fully paid and non-assessable
and conform to the description thereof contained in the Offering
Memorandum.
(h) Capitalization of Subsidiaries. All the outstanding shares
of capital stock of each subsidiary of the Company have been duly
authorized and validly issued, are fully paid and nonassessable and,
except to the extent set forth in the Offering Memorandum, are owned by
the Company directly or indirectly through one or more wholly-owned
subsidiaries, free and clear of any claim, lien, encumbrance, security
interest, restriction upon voting or transfer or any other claim of any
third party.
(i) No Legal Bar. The execution, delivery and performance of
each of the Transaction Documents by the Company and each Guarantor and
the consummation of the transactions contemplated hereby and thereby
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries
is subject, nor will such actions result in any violation of the
provisions of the charter or by-laws of the Company or any of its
subsidiaries or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or
assets.
(j) No Further Requirements. Except for such consents,
approvals, authorizations, registrations or qualifications (i) which
shall have been obtained or made prior to the Closing Date and (ii) as
may be required to be obtained under the Securities Exchange Act of
1934 (the "Exchange Act") and applicable state securities laws in
connection with the purchase and distribution of the Securities by the
Initial Purchaser, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency or
body is required for the execution, delivery and performance of each of
the Transaction Documents by the Company or
<PAGE>
5
the Guarantors and the consummation of the transactions contemplated
hereby and thereby.
(k) Financial Statements. BDO Seidman LLP are independent
certified public accountants with respect to the Company and its
subsidiaries within the meaning of Rule 101 of the Code of Professional
Conduct of the American Institute of Certified Public Accountants
("AICPA") and its interpretations and rulings thereunder. The
-----
historical financial statements (including the related notes) contained
in the Offering Memorandum comply in all material respects with the
requirements applicable to a registration statement on Form S-1 under
the Securities Act (except that certain supporting schedules are
omitted); such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied
throughout the periods covered thereby and fairly present the financial
position of the entities purported to be covered thereby at the
respective dates indicated and the results of their operations and
their cash flows for the respective periods indicated; and the
financial information contained in the Offering Memorandum under the
headings "Summary--Consolidated Financial Data," "Capitalization,"
"Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business"
and "Management" are derived from the accounting records of the Company
and its subsidiaries and fairly present the information purported to be
shown thereby. The pro forma financial information contained in the
Offering Memorandum has been prepared on a basis consistent with the
historical financial statements contained in the Offering Memorandum
(except for the pro forma adjustments specified therein), includes all
material adjustments to the historical financial information required
by Rule 11-02 of Regulation S-X under the Securities Act and the
Exchange Act to reflect the transactions described in the Offering
Memorandum, gives effect to assumptions made on a reasonable basis and
fairly presents the historical and proposed transactions contemplated
by the Offering Memorandum and the Transaction Documents. The other
historical financial and statistical information and data included in
the Offering Memorandum are, in all material respects, fairly
presented.
(l) No Material Adverse Change. Neither the Company nor any of
its subsidiaries has sustained, since the date of the latest audited
financial statements included in the Offering Memorandum, any material
(determined with respect to the Company and its subsidiaries taken as a
whole) loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Offering Memorandum;
and, since such date, there has not been any change in the capital
stock or an increase in long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
business, general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth or
contemplated in the Offering Memorandum.
<PAGE>
6
(m) No Material Litigation. Other than as disclosed in the
Offering Memorandum: there is no legal or governmental proceeding
pending to which the Company or any of its subsidiaries is a party or
of which any property or assets of the Company or any of its
subsidiaries is the subject which, singularly or in the aggregate, if
determined adversely to the Company or any of its subsidiaries, is
reasonably likely to have a Material Adverse Effect; and to the best of
the Company's and the Guarantors' knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others.
(n) No Defaults. Neither the Company nor any of its
subsidiaries (i) is in violation of its charter or by-laws, (ii) is in
default in any material respect, and no event has occurred which, with
notice or lapse of time or both, would constitute such a default, in
the due performance or observance of any term, covenant or condition
contained in any material indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which it is a party or by
which it is bound or to which any of its property or assets is subject
or (iii) is in violation in any respect of any law, ordinance,
governmental rule, regulation or court decree to which it or its
property or assets may be subject, except any violations or defaults
which, singularly or in the aggregate, would not have a Material
Adverse Effect.
(o) Possession of Licenses and Permits. The Company and each
of its subsidiaries possess all material licenses, certificates,
authorizations and permits issued by, and have made all declarations
and filings with, the appropriate state, federal or foreign regulatory
agencies or bodies which are necessary or desirable for the ownership
of their respective properties or the conduct of their respective
businesses as described in the Offering Memorandum, except where any
failures to possess or make the same, singularly or in the aggregate,
would not have a Material Adverse Effect, and the Company has not
received notification of any revocation or modification of any such
license, authorization or permit and has no reason to believe that any
such license, certificate, authorization or permit will not be renewed.
(p) No Lending Relationships. Except as disclosed in the
Offering Memorandum, the Company (i) does not have any material lending
or other relationship with any bank or lending affiliate of the Initial
Purchaser and (ii) does not intend to use any of the proceeds from the
sale of the Securities hereunder to repay any outstanding debt owed to
any affiliate of the Initial Purchaser.
(q) Investment Company Act. Neither the Company nor any of its
subsidiaries is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company
Act"), and the rules and regulations of the Commission thereunder.
(r) No Registration Rights. Except as otherwise disclosed in
the Offering Memorandum, there are no contracts, agreements or
understandings between the Company or any Guarantor and any person
granting such person the right to require the Company or such Guarantor
to file a registration statement under the Securities
<PAGE>
7
Act with respect to any securities of the Company or such Guarantor or
to require the Company or such Guarantor to include such securities
with the Securities and Subsidiary Guarantees registered pursuant to
any Exchange Offer Registration Statement or Shelf Registration
Statement.
(s) No Stabilization. Neither the Company, nor to the
Company's or the Guarantors' best knowledge, any of its affiliates, has
taken or may take, directly or indirectly, any action designed to cause
or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price
of the Securities to facilitate the sale or resale of the Securities.
(t) Possession of Intellectual Property. The Company and each
of its subsidiaries own or possess adequate rights to use all material
patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights,
licenses and know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) necessary for the conduct of their respective businesses,
except where the absence of which would not reasonably be expected to
have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries has reason to believe that the conduct of their respective
businesses will conflict with, and has not received any notice of any
claim of conflict with, any such rights of others.
(u) Title to Personal Property. The Company and each of its
subsidiaries have good and marketable title in fee simple to, or have
valid rights to lease or otherwise use, all items of real or personal
property which are material to the business of the Company and its
subsidiaries taken as a whole, in each case free and clear of all
liens, encumbrances, claims and defects that may result in a Material
Adverse Effect.
(v) Title to Real Property. The Company and each of its
subsidiaries have good and marketable title in fee simple to all real
property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Offering
Memorandum or such as do not materially affect the value of such
property and do not materially interfere with the use made and proposed
to be made of such property by the Company and its subsidiaries; and
all real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
(w) No Labor Dispute. No labor disturbance by the employees of
the Company or any of its subsidiaries exists or, to the best of the
Company's knowledge, is imminent which might be expected to have a
Material Adverse Effect.
(x) Employee Benefit Plans. No "prohibited transaction" (as
defined in Section 406 of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"), or
<PAGE>
8
Section 4975 of the Internal Revenue Code of 1986, as amended from time
to time (the "Code")) or "accumulated funding deficiency" (as defined
in Section 302 of ERISA) or any of the events set forth in Section
4043(b) of ERISA (other than events with respect to which the 30-day
notice requirement under Section 4043 of ERISA has been waived) has
occurred with respect to any employee benefit plan which could have a
Material Adverse Effect; each employee benefit plan is in compliance in
all material respects with applicable law, including ERISA and the
Code; the Company has not incurred and does not expect to incur
liability under Title IV of ERISA with respect to the termination of,
or withdrawal from, any "pension plan"; and each "pension plan" (as
defined in ERISA) for which the Company would have any liability that
is intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects, and nothing has occurred, whether
by action or by failure to act, which could cause the loss of such
qualification.
(y) No Material Environmental Liabilities. There has been no
storage, generation, transportation, handling, treatment, disposal,
discharge, emission, or other release of any kind of toxic or other
wastes or other hazardous substances by, due to, or caused by the
Company or any of its subsidiaries (or, to the best of the Company's
knowledge, any other entity for whose acts or omissions the Company or
any of its subsidiaries is or may be liable) upon any of the property
now or previously owned or leased by the Company or any of its
subsidiaries, or upon any other property, in violation of any statute
or any ordinance, rule, regulation, order, judgment, decree or permit
or which would, under any statute or any ordinance, rule (including
rule of common law), regulation, order, judgment, decree or permit,
give rise to any liability, except for any violation or liability which
would not have, singularly or in the aggregate with all such violations
and liabilities, a Material Adverse Effect; there has been no disposal,
discharge, emission or other release of any kind onto such property or
into the environment surrounding such property of any toxic or other
wastes or other hazardous substances with respect to which the Company
or any of its subsidiaries have knowledge, except for any such
disposal, discharge, emission, or other release of any kind which would
not have, singularly or in the aggregate with all such discharges and
other releases, a Material Adverse Effect.
(z) Taxes. The Company and its subsidiaries each (i) have
filed all necessary federal, state and foreign income and franchise tax
returns, (ii) have paid all federal, state, local and foreign taxes due
and payable for which it is liable, including, but not limited to,
withholding taxes and amounts payable under the Code, except to the
extent any taxes in question are being contested in good faith through
appropriate proceedings and as to which reserves have been established,
and has furnished all information returns it is required to furnish
pursuant to the Code, (iii) have established adequate reserves for all
such taxes which are not yet due and payable and (iv) do not have any
tax deficiency or claims outstanding or assessed or, to the best of the
Company's knowledge, proposed against it which could reasonably be
expected to have a Material Adverse Effect.
<PAGE>
9
(aa) Insurance Policies. The Company and its subsidiaries each
maintain insurance policies and surety bonds, including, but not
limited to, general liability and property insurance, which insures the
Company and each of its subsidiaries and their respective employees
against losses and risks generally insured against by comparable
companies in comparable businesses. Neither the Company nor any of its
subsidiaries (i) has failed to give notice or to present any insurance
claim with respect to any material matter, including, but not limited
to, the Company's or the subsidiaries' respective business, property or
employees under any insurance policy or surety bond in a due and timely
manner, (ii) has any material disputes or claims against any
underwriter of such insurance policies or surety bonds or has failed to
pay any premiums due and payable thereunder or (iii) has failed to
comply with any material conditions contained in such insurance
policies and surety bonds. To the best of the Company's knowledge,
there are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to
satisfy in full any valid claim of the Company or any of its
subsidiaries.
(bb) Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(cc) Minute Books. The minute books of the Company and each of
its Significant Subsidiaries have been made available to the Initial
Purchaser and counsel for the Initial Purchaser, and such books (i)
contain a complete summary of all meetings and actions of the directors
and stockholders of the Company and each of its subsidiaries since the
time of its respective incorporation through the date of the latest
meeting and action (except for certain meetings identified on and
certified by the Secretary of the Company on a certificate of such
Secretary which has previously been provided to the Initial Purchaser),
and (ii) accurately in all material respects reflect all transactions
referred to in such minutes.
(dd) Transactions with Management and Others. No relationship,
direct or indirect, exists between or among the Company or the
Guarantors on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company or the Guarantors on the other
hand, which is required to be described in the Offering Memorandum and
which is not so described.
(ee) No Outstanding Subscriptions. Except as described in the
Offering Memorandum, there are no outstanding subscriptions, rights,
warrants, calls or options to acquire, or instruments convertible into
or exchangeable for, or agreements or
<PAGE>
10
understandings with respect to the sale or issuance of, any shares of
capital stock of or other equity or other ownership interest in the
Company or any of its subsidiaries.
(ff) Solvency. On and immediately after the Closing Date, the
Company (after giving effect to the issuance of the Securities and to
the other transactions related thereto as described in the Offering
Memorandum) will be Solvent. As used in this paragraph, the term
"Solvent" means, with respect to a particular date, that on such date
(i) the present fair market value (or present fair saleable value) of
the assets of the Company on a consolidated basis is not less than the
total amount required to pay the probable liabilities of the Company on
a consolidated basis on its total existing debts and liabilities
(including contingent liabilities) as they become absolute and matured,
(ii) the Company is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and commitments as they
mature and become due in the normal course of business, (iii) assuming
the sale of the Securities as contemplated by this Agreement and the
Offering Memorandum, the Company is not incurring debts or liabilities
beyond its ability to pay as such debts and liabilities mature and (iv)
the Company is not engaged in any business or transaction, and is not
about to engage in any business or transaction, for which its property
would constitute unreasonably small capital after giving due
consideration to the capital needs of the Company, taking into account
the projected capital requirements and the capital available to the
Company. In computing the amount of such contingent liabilities at any
time, it is intended that such liabilities will be computed at the
amount that, in the light of all the facts and circumstances existing
at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
(gg) Material Agreements or Instruments. Except as set forth
on Annex 2 to the opinion to be delivered by Proskauer Rose LLP,
pursuant to Section 5(d) hereof, there are no other material documents
or instruments to which the Company or any of its Significant
Subsidiaries is bound or to which the properties or assets of the
Company or its Significant Subsidiaries is subject.
(hh) No Margin Securities. None of the proceeds of the sale of
the Securities will be used, directly or indirectly, for the purpose of
purchasing or carrying any "margin securities" as that term is defined
in Regulations G and U of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or
carry any margin security or for any other purpose which might cause
any of the Securities to be considered a "purpose credit" within the
meanings of Regulation G, T, U or X of the Federal Reserve Board.
(ii) No Brokerage Fees. Neither the Company nor any of its
subsidiaries is a party to any contract, agreement or understanding
with any person that would give rise to a valid claim by such person
(other than the Initial Purchaser) against the Company or the Initial
Purchaser for a brokerage commission, finder's fee or like payment in
connection with the offering and sale of the Securities.
<PAGE>
11
(jj) Compliance with 144A(d)(3). The Securities satisfy the
eligibility requirements of Rule 144A(d)(3) under the Securities Act.
(kk) No Offers to Buy. Neither the Company nor any of its
affiliates has, directly or through any agent, sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any
security (as such term is defined in the Securities Act), which is or
will be integrated with the sale of the Securities in a manner that
would require registration of the Securities under the Securities Act.
(ll) No General Solicitation. None of the Company or any of
its affiliates or any other person acting on its or their behalf has
engaged, in connection with the offering of the Securities, in any form
of general solicitation or general advertising within the meaning of
Rule 502(c) under the Securities Act.
(mm) No Registered Securities. There are no securities of the
Company registered under the Exchange Act or listed on a national
securities exchange or quoted in a U.S. automated inter-dealer
quotation system.
(nn) Compliance with Regulation M. The Company has not taken
and will not take, directly or indirectly, any action prohibited by
Regulation M under the Exchange Act in connection with the offering of
the Securities.
(oo) No Forward-Looking Statement. No forward-looking
statement (within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act) contained in the Preliminary Offering
Memorandum or the Offering Memorandum has been made or reaffirmed
without a reasonable basis or has been disclosed other than in good
faith.
(pp) No Commerce with Cuba. None of the Company or any of its
subsidiaries does business with the government of Cuba or with any
person or affiliate located in Cuba within the meaning of Florida
Statutes Section 517.075.
2. PURCHASE AND RESALE OF THE SECURITIES. (a) On the basis of
the representations, warranties and agreements contained herein, and subject to
the terms and conditions set forth herein, the Company agrees to issue and sell
to the Initial Purchaser, and the Initial Purchaser agrees to purchase from the
Company, $100,000,000 principal amount of Securities. The Initial Purchaser
shall pay for such Securities by paying in full the outstanding indebtedness
under the Senior Subordinated Loan Agreement dated as of December 20, 1996, as
amended (the "Senior Subordinated Loan Agreement"), among the Company, the
several banks and financial institutions from time to time parties thereto and
Societe Generale (after giving effect to the Company's required payments under
the Senior Subordinated Loan Agreement of accrued interest through December 24,
1997 of $1,666,026.80 and a breakage fee of $1,464.88), and the Initial
Purchaser will cause Societe Generale to deliver evidence of such payment in
full of such indebtedness to the Company on the Closing Date. The Company shall
not be obligated to deliver any of the Securities except upon payment for all
the Securities to be purchased as provided herein. The Company has agreed to pay
the Initial
<PAGE>
12
Purchaser $3,750,000, representing the sum of (i) a commission in the amount of
$3,000,000 and (ii) $750,000 representing a fee for financial advisory service
rendered to the Company. Such fees are in lieu of the fees agreed to in the
third paragraph of the Commitment Letter dated November 12, 1997, among the
Company, the Initial Purchaser and Societe Generale.
(b) The Initial Purchaser has advised the Company that it
proposes to offer the Securities for resale upon the terms and subject to the
conditions set forth herein and in the Offering Memorandum. The Initial
Purchaser represents and warrants to, and agrees with, the Company that (i) it
is purchasing the Securities pursuant to a private sale exempt from registration
under the Securities Act, (ii) it has not solicited offers for, or offered or
sold, and will not solicit offers for, or offer or sell, the Securities by means
of any form of general solicitation or general advertising within the meaning of
Rule 502(c) of Regulation D under the Securities Act ("Regulation D") or in any
manner involving a public offering within the meaning of Section 4(2) of the
Securities Act and (iii) it has solicited and will solicit offers for the
Securities only from, and has offered or sold and will offer, sell or deliver
the Securities, as part of its initial offering, only to (A) persons whom it
reasonably believes to be qualified institutional buyers ("Qualified
Institutional Buyers") as defined in Rule 144A under the Securities Act, or if
any such person is buying for one or more institutional accounts for which such
person is acting as fiduciary or agent, only when such person has represented to
it that each such account is a Qualified Institutional Buyer to whom notice has
been given that such sale or delivery is being made in reliance on Rule 144A and
in each case, in transactions in accordance with Rule 144A and (B) a limited
number of other accredited investors ("Accredited Investors") as defined in Rule
501(a)(1), (2), (3) or (7) under Regulation D that are institutional investors
in private sales exempt from registration under the Securities Act. The Initial
Purchaser agrees that, prior to or simultaneously with the confirmation of sale
by the Initial Purchaser to any purchaser of any of the Securities purchased by
the Initial Purchaser from the Company pursuant hereto, the Initial Purchaser
shall furnish to that purchaser a copy of the Offering Memorandum (and any
amendment or supplement thereto that the Company shall have furnished to the
Initial Purchaser prior to the date of such confirmation of sale). In addition
to the foregoing, the Initial Purchaser acknowledges and agrees that the Company
and, for purposes of the opinions to be delivered to the Initial Purchaser
pursuant to Sections 5(d) and (e), counsel for the Company and for the Initial
Purchaser, respectively, may rely upon the accuracy of the representations and
warranties of the Initial Purchaser and its compliance with its agreements
contained in this Section , and the Initial Purchaser hereby consents to such
reliance.
(c) The Company acknowledges and agrees that the Initial
Purchaser may sell Securities to any affiliate of the Initial Purchaser and that
any such affiliate may sell Securities purchased by it to the Initial Purchaser.
3. DELIVERY OF AND PAYMENT FOR THE SECURITIES. Delivery of and
payment for the Securities shall be made at the offices of Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, NY, or at such other place as shall be
agreed upon by the Initial Purchaser and the Company, at 10:00 A.M., New York
City time, on December 24, 1997, or at such other date or time, not later than
seven full business days thereafter, as shall be agreed
<PAGE>
13
upon by the Initial Purchaser and the Company (such date and time being referred
to herein as the "Closing Date").
The Securities to be purchased by the Initial Purchaser
hereunder and sold to Qualified Institutional Buyers shall be represented by one
or more global securities in book-entry form which will be deposited by or on
behalf of the Company with The Depository Trust Company or its designated
custodian. Securities to be resold to Accredited Investors shall be delivered in
physical, certificated form to such Accredited Investors. On the Closing Date,
the Company shall deliver or cause to be delivered the Securities to the Initial
Purchaser against payment to or upon the order of the Company of the purchase
price by causing The Depository Trust Company to credit the Securities to the
account of the Initial Purchaser at The Depository Trust Company.
Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of the InitialPurchaser hereunder. The Company shall make the
certificates representing the Securities available for inspection by the Initial
Purchaser and for delivery to The Depository Trust Company or its designated
custodian in New York, New York, not later than two business days prior to the
Closing Date.
4. FURTHER AGREEMENTS OF THE COMPANY AND THE GUARANTORS. The
Company and the Guarantors agree with the Initial Purchaser:
(a) to advise the Initial Purchaser promptly and, if
requested, confirm such advice in writing, of the happening of any
event which makes any statement of a material fact made in the Offering
Memorandum untrue or which requires the making of any additions to or
changes in the Offering Memorandum (as amended or supplemented from
time to time) in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; to advise
the Initial Purchaser promptly of any order preventing or suspending
the use of the Preliminary Offering Memorandum or the Offering
Memorandum, of any suspension of the qualification of the Securities
for offering or sale in any jurisdiction and of the initiation or
threatening of any proceeding for any such purpose; and to use its best
efforts to prevent the issuance of any such order preventing or
suspending the use of the Preliminary Offering Memorandum or the
Offering Memorandum or suspending any such qualification and, if any
such suspension is issued, to obtain the lifting thereof at the
earliest possible time;
(b) to furnish promptly to the Initial Purchaser and counsel
for the Initial Purchaser, without charge, as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum (and any
amendments or supplements thereto) as may be reasonably requested;
(c) prior to making any amendment or supplement to the
Offering Memorandum, to furnish a copy thereof to the Initial Purchaser
and counsel for the Initial Purchaser and not to effect any such
amendment or supplement to which the
<PAGE>
14
Initial Purchaser shall reasonably object by notice to the Company
after a reasonable period to review;
(d) if, at any time prior to completion of the resale of the
Securities by the Initial Purchaser, any event shall occur or condition
exist as a result of which it is necessary, in the opinion of counsel
for the Initial Purchaser or counsel for the Company, to amend or
supplement the Offering Memorandum in order that the Offering
Memorandum will not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is
delivered to a purchaser, not misleading, or if it is necessary to
amend or supplement the Offering Memorandum to comply with applicable
law, to promptly prepare such amendment or supplement as may be
necessary to correct such untrue statement or omission or so that the
Offering Memorandum, as so amended or supplemented, will comply with
applicable law;
(e) for so long as the Securities are outstanding and are
"restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act, to furnish to holders of the Securities and prospective
purchasers of the Securities designated by such holders, upon request
of such holders or such prospective purchasers, the information
required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act, unless the Company is then subject to and in compliance
with Section 13 or 15(d) of the Exchange Act (the foregoing agreement
being for the benefit of the holders from time to time of the
Securities and prospective purchasers of the Securities designated by
such holders);
(f) for so long as the Securities are outstanding, to furnish
to the Initial Purchaser copies of any annual reports, quarterly
reports and current reports filed by the Company with the Commission on
Forms 10-K, 10-Q and 8-K, or such other similar forms as may be
designated by the Commission, and such other documents, reports and
information as shall be furnished by the Company to the Trustee or to
the holders of the Securities pursuant to the Indenture or the Exchange
Act or any rule or regulation of the Commission thereunder;
(g) to promptly take from time to time such actions as the
Initial Purchaser may reasonably request to qualify the Securities for
offering and sale under the securities or Blue Sky laws of such
jurisdictions as the Initial Purchaser may designate and to continue
such qualifications in effect for so long as required for the resale of
the Securities; and to arrange for the determination of the eligibility
for investment of the Securities under the laws of such jurisdictions
as the Initial Purchaser may reasonably request; provided that the
Company and its subsidiaries shall not be obligated to qualify as
foreign corporations in any jurisdiction in which they are not so
qualified or to file a general consent to service of process in any
jurisdiction;
(h) to assist the Initial Purchaser in arranging for the
Securities to be designated Private Offerings, Resales and Trading
through Automated Linkages (PORTAL) Market securities in accordance
with the rules and regulations adopted by the National
<PAGE>
15
Association of Securities Dealers, Inc. ("NASD") relating to trading in
the PORTAL Market and for the Securities to be eligible for clearance
and settlement through The Depository Trust Company ("DTC");
(i) not to, and to cause its affiliates not to, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of
any security (as such term is defined in the Securities Act) which
could be integrated with the sale of the Securities in a manner which
would require registration of the Securities under the Securities Act;
(j) except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case
may be, not to, and to cause its affiliates not to, and not to
authorize or knowingly permit any person acting on their behalf to,
solicit any offer to buy or offer to sell the Securities by means of
any form of general solicitation or general advertising within the
meaning of Regulation D or in any manner involving a public offering
within the meaning of Section 4(2) of the Securities Act; and not to
offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, any securities under circumstances where such offer, sale,
contract or disposition would cause the exemption afforded by Section
4(2) of the Securities Act to cease to be applicable to the offering
and sale of the Securities as contemplated by this Agreement and the
Offering Memorandum;
(k) During the period beginning from the date hereof and
continuing to, and including, the Closing Date or such earlier time as
the Initial Purchaser may notify the Company, not to offer for sale,
sell, contract to sell or otherwise dispose of, directly or indirectly,
or file a registration statement for, or announce any offering of, any
securities of the Company that are substantially similar to the
Securities.
(l) during the period from the Closing Date until two years
after the Closing Date, without the prior written consent of the
Initial Purchaser, not to, and not permit any of its affiliates (as
defined in Rule 144 under the Securities Act) to, resell any of the
Securities that have been reacquired by them, except for Securities
purchased by the Company or any of its affiliates and resold in a
transaction registered under the Securities Act;
(m) not to, for so long as the Securities are outstanding, be
or become, or be or become owned by, an open-end investment company,
unit investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the Investment Company
Act, and not to be or become, or be or become owned by, a closed-end
investment company required to be registered, but not registered
thereunder;
(n) in connection with the offering of the Securities, until
the Initial Purchaser shall have notified the Company of the completion
of the resale of the Securities, not to, and to cause its affiliated
purchasers (as defined in Regulation M under the Exchange Act) not to,
either alone or with one or more other persons, bid for or purchase,
for any account in which it or any of its affiliated purchasers has a
beneficial interest, any
<PAGE>
16
Securities, or attempt to induce any person to purchase any Securities;
and not to, and to cause its affiliated purchasers not to, make bids or
purchase for the purpose of creating actual, or apparent, active
trading in or of raising the price of the Securities;
(o) in connection with the offering of the Securities, to make
its officers, employees, independent accountants and legal counsel
reasonably available upon request by the Initial Purchaser;
(p) to furnish to the Initial Purchaser on the date hereof a
copy of the independent accountants' report included in the Offering
Memorandum signed by the accountants rendering such report;
(q) to do and perform all things required to be done and
performed by it under this Agreement that are within its control prior
to or after the Closing Date, and to use its best efforts to satisfy
all conditions precedent on its part to the delivery of the Securities;
(r) not to take any action prior to the execution and delivery
of the Indenture which, if taken after such execution and delivery,
would violate any of the covenants contained in the Indenture;
(s) not to take any action prior to the Closing Date which
would require the Offering Memorandum to be amended or supplemented
pursuant to Section 4(d);
(t) prior to the Closing Date, not to issue any press release
or other communication directly or indirectly or hold any press
conference with respect to the Company, its condition, financial or
otherwise, or earnings, business affairs or business prospects (except
for routine oral marketing communications in the ordinary course of
business and consistent with the past practices of the Company and of
which the Initial Purchaser is notified), without the prior written
consent of the Initial Purchaser, unless in the judgment of the Company
and its counsel, and after notification to the Initial Purchaser, such
press release or communication is required by law; and
(u) to apply the net proceeds from the sale of the Securities
as set forth in the Offering Memorandum under the heading "Use of
Proceeds."
5. CONDITIONS OF INITIAL PURCHASER'S OBLIGATIONS. The
obligations of the Initial Purchaser hereunder are subject to the accuracy, when
made, of the representations and warranties of the Company and the Guarantors
contained herein, to the accuracy of the statements of the Company and the
Guarantors made in any certificates pursuant to the provisions hereof, to the
performance by the Company and the Guarantors of their obligations hereunder,
and to each of the following additional terms and conditions:
(a) All corporate proceedings and other legal matters incident
to the authorization, form and validity of each of the Transaction
Documents and all other legal matters relating to the Transaction
Documents and the transactions contemplated
<PAGE>
17
hereby shall be reasonably satisfactory in all material respects to
counsel for the Initial Purchaser, and the Company shall have furnished
to such counsel all documents and information that they may reasonably
request to enable them to pass upon such matters.
(b) The Offering Memorandum (and any amendments or supplements
thereto) shall have been printed and copies distributed to the Initial
Purchaser as promptly as practicable on or following the date of this
Agreement or at such other date and time as to which the Initial
Purchaser may agree; and no stop order suspending the sale of the
Securities in any jurisdiction shall have been issued and no proceeding
for that purpose shall have been commenced or shall be pending or
threatened.
(c) The Initial Purchaser shall not have discovered and
disclosed to the Company on or prior to the Closing Date that the
Offering Memorandum or any amendment or supplement thereto contains an
untrue statement of a fact which, in the opinion of counsel for the
Initial Purchaser, is material or omits to state any fact which, in the
opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
(d) Proskauer Rose LLP shall have furnished to the Initial
Purchaser such counsel's written opinion and Rule 10b-5 statement, as
counsel to the Company, each addressed to the Initial Purchaser and
dated the Closing Date, in form and substance reasonably satisfactory
to the Initial Purchaser, to the effect set forth in Annex B-1 and B-2
hereto, respectively, with any further modifications which may be
satisfactory to counsel for the Initial Purchaser.
(e) King & Spalding shall have furnished to the Initial
Purchaser such counsel's written opinion, as special regulatory counsel
to the Company, addressed to the Initial Purchaser and dated the
Closing Date, in form and substance reasonably satisfactory to the
Initial Purchaser, to the effect set forth in Annex C hereto, with any
further modifications which may be satisfactory to counsel for the
Initial Purchaser.
(f) The Initial Purchaser shall have received from Simpson
Thacher & Bartlett, counsel for the Initial Purchaser, such opinion or
opinions, dated the Closing Date, with respect to such matters as the
Initial Purchaser may reasonably require, and the Company shall have
furnished to such counsel such documents as they request for enabling
them to pass upon such matters.
(g) At the time of the execution of this Agreement, the
Initial Purchaser shall have received from BDO Seidman LLP a letter,
addressed to the Initial Purchaser and dated such date, in form and
substance satisfactory to the Initial Purchaser (i) confirming that
they are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of the Securities Act
and the applicable published rules and regulations thereunder and (ii)
stating the conclusions and findings of such firm with respect to the
financial statements and certain financial
<PAGE>
18
information contained in the Preliminary Offering Memorandum or the
Offering Memorandum.
References to the Offering Memorandum in this paragraph (g)
and in paragraph (h) below include any supplement thereto at the date
of the letter.
(h) On the Closing Date, the Initial Purchaser shall have
received a letter (the "bring-down letter") from BDO Seidman LLP
addressed to the Initial Purchaser and dated the Closing Date
confirming, as of the date of the bring-down letter (or, with respect
to matters involving changes or developments since the respective dates
as of which specified financial information is given in the Offering
Memorandum, as of a date not more than three business days prior to the
date of the bring-down letter), the conclusions and findings of such
firm with respect to the financial information and other matters
covered by its letter delivered to the Initial Purchaser concurrently
with the execution of this Agreement pursuant to Section 5(g) above
(the "initial letters").
(i) The Company shall have furnished to the Initial Purchaser
a certificate, dated the Closing Date, of its Chairman of the Board,
its President, any executive vice president, senior vice president or
its chief financial officer stating that (i) such officer has carefully
examined the Offering Memorandum (ii) in his opinion, the Offering
Memorandum, as of its date, did not include any untrue statement of a
material fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and since the date of the Offering Memorandum, no event has
occurred which should have been set forth in a supplement or amendment
to the Offering Memorandum and (iii) to the best of his knowledge after
reasonable investigation, as of the Closing Date, the Company and each
Guarantor have complied with all agreements and satisfied all
conditions on their part to be performed or satisfied hereunder at or
prior to the Closing Date.
(j) The Initial Purchaser shall have received a counterpart of
the Registration Rights Agreement which shall have been executed and
delivered by a duly authorized officer of the Company.
(k) The Indenture shall have been duly executed and delivered
by the Company, the Guarantors and the Trustee, the Securities shall
have been duly executed and delivered by the Company and duly
authenticated by the Trustee and the form of Subsidiary Guarantees
endorsed on the Securities shall have been duly executed and delivered
by the Guarantors.
(l) The Securities shall have been approved by the NASD for
trading in the PORTAL Market.
(m) If any event shall have occurred that requires the Company
under Section 4(d) to prepare an amendment or supplement to the
Offering Memorandum, such amendment or supplement shall have been
prepared, the Initial Purchaser shall
<PAGE>
19
have been given a reasonable opportunity to comment thereon, and copies
thereof shall have been delivered to the Initial Purchaser reasonably
in advance of the Closing Date.
(n) There shall not have occurred any invalidation of Rule
144A under the Securities Act by any court or any withdrawal or
proposed withdrawal of any rule or regulation under the Securities Act
or the Exchange Act by the Commission or any amendment or proposed
amendment thereof by the Commission which in the judgment of the
Initial Purchaser would materially impair the ability of the Initial
Purchaser to purchase, hold or effect resales of the Securities as
contemplated hereby.
(o) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency or body which would, as of the Closing Date,
prevent the issuance or sale of the Securities; and no injunction,
restraining order or order of any other nature by any federal or state
court of competent jurisdiction shall have been issued as of the
Closing Date which would prevent the issuance or sale of the
Securities.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Initial Purchaser.
6. REPRESENTATIONS OF THE INITIAL PURCHASER. The Initial
Purchaser represents to and agree, jointly and severally, with the Company and
each of the Guarantors:
(a) Corporate Power; Authorization. The Initial Purchaser has
full right, power and authority to execute and deliver this Agreement
and the Registration Rights Agreement and to perform its respective
obligations hereunder and thereunder; and all corporate action required
to be taken for the due and proper authorization, execution and
delivery of each of this Agreement and the Registration Rights
Agreement and the consummation of the transactions contemplated by this
Agreement have been duly and validly taken.
(b) Enforceable Obligations. The Registration Rights
Agreement, when duly executed by the proper officers of the Initial
Purchaser and delivered by the Initial Purchaser, assuming due
authorization, execution and delivery thereof by the Company, will
constitute a valid and binding agreement of the Initial Purchaser
enforceable against the Initial Purchaser in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, fraudulent transfer, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally,
general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair
dealing.
7. REIMBURSEMENT OF INITIAL PURCHASER'S EXPENSES. If (a) the
Company shall fail to tender the Securities for delivery to the Initial
Purchaser for any reason permitted under this Agreement, (b) the Initial
Purchaser shall decline to purchase the Securities for any reason permitted
under this Agreement or (c) the Initial Purchaser shall purchase the Securities
<PAGE>
20
pursuant to this Agreement, the Company shall reimburse the Initial Purchaser
for the fees and expenses of their counsel and for such other out-of-pocket
expenses as shall have been reasonably incurred by them in connection with this
Agreement and the proposed purchase and resale of the Securities, and upon
demand the Company shall pay the full amount thereof to the Initial Purchaser.
8. INDEMNIFICATION OF THE INITIAL PURCHASER AND THE COMPANY.
(a) Indemnification of the Initial Purchaser. The Company and each Guarantor,
jointly and severally, shall indemnify and hold harmless the Initial Purchaser
and each person, if any, who controls the Initial Purchaser within the meaning
of the Securities Act (collectively referred to for the purposes of this Section
8 as the Initial Purchaser) against any loss, claim, damage or liability, joint
or several, or any action in respect thereof, to which the Initial Purchaser may
become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of or is based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Preliminary Offering Memorandum or the Offering Memorandum or in any amendment
or supplement thereto or (ii) the omission or alleged omission to state in the
Preliminary Offering Memorandum or the Offering Memorandum or in any amendment
or supplement thereto a material fact required to be stated therein or necessary
to make the statements therein not misleading, and shall reimburse the Initial
Purchaser for any legal or other expenses reasonably incurred by the Initial
Purchaser in connection with investigating or preparing to defend or defending
against or appearing as a third party witness in connection with any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that the foregoing indemnification agreement with respect to the
Preliminary Offering Memorandum shall not inure to the benefit of the Initial
Purchaser if (i) a copy of the Offering Memorandum (as then amended or
supplemented) was required by law to be delivered to the person asserting any
such loss, claim, damage or liability at or prior to the written confirmation of
the sale of Securities to such person, (ii) a copy of the Offering Memorandum
(as then amended or supplemented) was not sent or given to such person by or on
behalf of the Initial Purchaser and (iii) the Offering Memorandum (as so amended
or supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability; and further provided, however, that the Company and the
Guarantors shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of or is based upon (i) an
untrue statement or alleged untrue statement in or omission or alleged omission
from the Preliminary Offering Memorandum or the Offering Memorandum or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company and the Guarantors through the Initial
Purchaser specifically for use therein, which information the parties hereto
agree is limited to the Initial Purchaser's Information.
(b) Indemnification of Company, Directors and Officers. The
Initial Purchaser shall indemnify and hold harmless the Company and each
Guarantor, their respective directors and officers, and each person, if any, who
controls the Company or Guarantor within the meaning of the Securities Act
(collectively referred to for the purposes of this Section 8 as the Company),
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof, to which the Company or any Guarantor may become subject, under
the Securities Act or otherwise, insofar as such loss, claim, damage, liability
or action arises out
<PAGE>
21
of or is based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Preliminary Offering Memorandum or the Offering
Memorandum or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through the Initial Purchaser by or
on behalf of the Initial Purchaser specifically for use therein, and shall
reimburse the Company or such Guarantor for any legal or other expenses
reasonably incurred by the Company or such Guarantor in connection with
investigating or preparing to defend or defending against or appearing as third
party witness in connection with any such loss, claim, damage, liability or
action as such expenses are incurred; provided that the parties hereto hereby
agree that such written information provided by the Initial Purchaser consists
solely of the Initial Purchaser's Information.
(c) Actions; Notification. Promptly after receipt by an
indemnified party under this Section 8 of notice of any claim or the
commencement of any action, the indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under this Section 8,
notify the indemnifying party in writing of the claim or the commencement of
that action; provided, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under this
Section 8 except to the extent it has been materially prejudiced by such
failure; and, provided, further, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have to an
indemnified party otherwise than under this Section 8. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
any indemnified party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
employment thereof has been specifically authorized by the indemnifying party in
writing, (ii) such indemnified party shall have been advised in writing (a copy
of which shall be provided to the indemnifying party) by such counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the indemnifying party and in the reasonable
judgment of such counsel it is advisable for such indemnified party to employ
separate counsel or (ii) the indemnifying party has failed to assume the defense
of such action and employ counsel reasonably satisfactory to the indemnified
party, in which case, if such indemnified party notifies the indemnifying party
in writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action on behalf of such indemnified party, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or
<PAGE>
22
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for all such indemnified parties, which firm shall be designated in writing
by the Initial Purchaser (without giving effect to the first parenthetical
contained in Section 8(a)), if the indemnified parties under this Section 8
consist of the Initial Purchaser or any of its officers, employees or
controlling persons, or by the Company (without giving effect to the
parenthetical contained in Section 8(b)), if the indemnified parties under this
Section 8 consist of the Company or any of the Company's directors, officers,
employees or controlling persons. Each indemnified party, as a condition of the
indemnity agreements contained in Sections 8(a) and 8(b), shall use all
reasonable efforts to cooperate with the indemnifying party in the defense of
any such action or claim. Subject to the provisions of Section 8(d) below, no
indemnifying party shall be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) Settlement without Consent if Failure to Reimburse. If at
any time an indemnified party shall have requested that an indemnifying party
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by this Section 8 effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the request for reimbursement, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.
(e) Contribution. If the indemnification provided for in this
Section 8 is unavailable or insufficient to hold harmless an indemnified party
under Section 8(a) or (b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and the Guarantors on the
one hand and the Initial Purchaser on the other from the offering of the
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Guarantors on the one hand and the Initial
Purchaser on the other with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Guarantors on the one hand and the Initial
Purchaser on the other with respect to such offering shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Securities purchased under this Agreement (before deducting expenses) received
by the Company and the Guarantors bear to the total underwriting discounts and
commissions received by the Initial Purchaser with respect to the Securities
purchased under this Agreement, in each case
<PAGE>
23
as set forth in the Offering Memorandum. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company and the Guarantors
on the one hand or the Initial Purchaser on the other, the intent of the parties
and their relative knowledge, access to information and opportunity to correct
or prevent such untrue statement or omission; provided that the parties hereto
agree that the written information furnished to the Company by the Initial
Purchaser for use in the Preliminary Offering Memorandum, or the Offering
Memorandum consists solely of the Initial Purchaser's Information. The Company
and the Initial Purchaser agree that it would not be just and equitable if
contributions pursuant to this Section 8(e) were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 8(e) shall be
deemed to include, for purposes of this Section 8(e), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(e), the Initial Purchaser shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public less the amount of any damages which the Initial Purchaser has
otherwise paid or become liable to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The obligations of the Company, the Guarantors and the Initial
Purchaser in this Section 8 are in addition to any other liability which the
Company, the Guarantors or the Initial Purchaser, as the case may be, may
otherwise have.
9. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of and be binding upon the Initial Purchaser, the
Company, the Guarantors and their respective successors. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person, firm or corporation, other than the Initial Purchaser, the Company, the
Guarantors and their respective successors and the controlling persons and
officers and directors referred to in Section 8 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
10. EXPENSES. In addition to the Company's obligations under
Section 7, the Company and the Guarantors agree with the Initial Purchaser to
pay (a) the costs incident to the authorization, issuance, sale, preparation and
delivery of the Securities and any taxes payable in that connection; (b) the
costs incident to the preparation, printing and distribution of the Preliminary
Offering Memorandum, the Offering Memorandum and any amendments and exhibits
thereto and the costs of printing, reproducing and distributing the applicable
Transaction Documents by mail, telex or other means of communications; (c) all
expenses and listing fees incurred in connection with the application for
quotation of the Securities on the PORTAL Market and the approval of the
Securities for book-entry transfer by The
<PAGE>
24
Depository Trust Company; (d) any applicable listing or other fees; (e) the fees
and expenses of qualifying the Securities under the securities laws of the
several jurisdictions as provided in Section 4(g) and of preparing, printing and
distributing Blue Sky Memoranda and Legal Investment Surveys (including related
fees and expenses of counsel to the Initial Purchaser); (f) any fees charged by
securities rating services for rating the Securities; (g) all fees and expenses
of the Trustee and any agent thereof; and (h) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement (including, without limitation, the fees and expenses of counsel to
the Company and the fees and expenses of BDO Seidman LLP).
11. SURVIVAL. The respective indemnities, rights of
contribution, representations, warranties and agreements of the Company, the
Guarantors and the Initial Purchaser contained in this Agreement or made by or
on behalf on them, respectively, pursuant to this Agreement, shall survive the
delivery of and payment for the Securities and shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of any of them or any person controlling any
of them.
12. NOTICES, ETC. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Initial Purchaser, shall be delivered or
sent by mail, telex or facsimile transmission to Societe Generale
Securities Corporation, 1221 Avenue of the Americas, New York, New York
10020, Attention: High Yield Capital Markets, Telephone: (212) 278-
5423, Telecopy: (212) 278-5460; and
(b) if to the Company or the Guarantors, shall be
delivered or sent by mail, telex or facsimile transmission to the
address of the Company set forth in the Offering Memorandum, Attention:
Dariush Ashrafi, Telephone: (973) 593-5920, Telecopy: (973) 593-5580.
13. DEFINITIONS OF CERTAIN TERMS. For purposes of this
Agreement, (a) "business day" means any day on which the New York Stock
Exchange, Inc. is open for trading and (b) "subsidiary" has the meaning set
forth in Rule 405 of the Rules and Regulations of the Securities Act.
14. INITIAL PURCHASER'S INFORMATION. The parties hereto
acknowledge and agree that, for all purposes of this Agreement, the Initial
Purchaser's Information consists solely of the following information in the
Offering Memorandum: (i) the last paragraph on the front cover page concerning
the terms of the offering by the Initial Purchaser; (ii) the first paragraph on
page i concerning over-allotment and trading activities by the Initial
Purchaser; and (iii) the statements concerning the Initial Purchaser contained
in the fourth sentence of the second paragraph and the third sentence of the
fifth paragraph under the heading "Plan of Distribution."
<PAGE>
25
15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16. JOINT AND SEVERAL LIABILITY. Each of the Guarantors, by
its execution and delivery of a counterpart to this Agreement, agrees that it
shall be joint and severally liable for all obligations and liabilities of the
Company.
17. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
18. HEADINGS. The headings herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.
<PAGE>
26
If the foregoing is in accordance with your understanding of
the agreement between the Company, the Guarantors and the Initial Purchaser,
kindly indicate your acceptance in the space provided for that purpose below.
Very truly yours,
SCHEIN PHARMACEUTICAL, INC.
By
---------------------------------
Name: Dariush Ashrafi
Title: Executive Vice President and
Chief Financial Officer
SCHEIN PHARMACEUTICAL
INTERNATIONAL, INC.
By:
---------------------------------
Name: Martin Sperber
Title: President
SCHEIN PHARMACEUTICAL PA, INC.
By:
---------------------------------
Name: Martin Sperber
Title: Chairman of the Board and
Chief Executive Officer
SCHEIN PHARMACEUTICAL SERVICE
COMPANY, INC.
By:
---------------------------------
Name: Martin Sperber
Title: President
<PAGE>
STERIS LABORATORIES, INC.
By:
---------------------------------
Name: Martin Sperber
Title: Chairman of the Board and
Chief Executive Officer
MARSAM PHARMACEUTICALS INC.
By:
---------------------------------
Name: Paul Feuerman
Title: Assistant Secretary
DANBURY PHARMACAL, INC.
By:
---------------------------------
Name: Martin Sperber
Title: Chairman of the Board and
Chief Executive Officer
DANBURY PHARMACAL PUERTO RICO,
INC.
By:
---------------------------------
Name: Martin Sperber
Title: Chairman of the Board and
Chief Executive Officer
Accepted and agreed to as of the date first above written:
SOCIETE GENERALE SECURITIES CORPORATION
By
---------------------------------
Name: David M. Malcolm
Title: Managing Director
<PAGE>
Annex A
[Form of Exchange and Registration Rights Agreement]
<PAGE>
Annex B-1
[Form of Proskauer Rose LLP Opinion Letter]
<PAGE>
Annex B-2
[Form of Proskauer Rose LLP Rule 10b-5 Letter]
<PAGE>
Annex C
[Form of King & Spalding Opinion Letter]
<PAGE>
EXHIBIT 4.7
OFFERING MEMORANDUM CONFIDENTIAL
$100,000,000
[LOGO] SCHEIN PHARMACEUTICAL
SENIOR FLOATING RATE NOTES DUE 2004
-----------------
Schein Pharmaceutical, Inc. ("Schein" or the "Company") is offering (the
"Offering") $100,000,000 of Senior Floating Rate Notes due 2004 (the "Notes").
Interest on the Notes will be payable quarterly on January 15, April 15, July
15 and October 15 of each year, commencing on January 15, 1998, at a rate per
annum equal to the Applicable LIBOR Rate (as defined herein). Interest on the
Notes will be reset quarterly. The Notes will mature on December 15, 2004
unless previously redeemed. The Notes will be redeemable, in whole or in part,
at the option of the Company, at any time, at the redemption prices set forth
herein, plus accrued and unpaid interest thereon, to the date of redemption.
Upon the occurrence of a Change of Control (as defined herein), each holder of
Notes may require the Company to repurchase such holder's Notes, in whole or
in part, at a repurchase price of 101% of the principal amount, plus accrued
and unpaid interest thereon, to the date of repurchase. The Company currently
expects to repurchase or redeem a portion of the Notes offered hereby. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Notes."
The indebtedness evidenced by the Notes will be senior unsecured obligations
of the Company, will rank pari passu in right of payment with all existing and
future senior indebtedness of the Company and will rank senior in right of
payment to all existing and future indebtedness of the Company that is, by its
terms, expressly subordinated to the Notes. Holders of secured indebtedness of
the Company, including the lenders under the Senior Credit Agreement (as
defined herein), will have claims with respect to the assets constituting
collateral for such indebtedness that are prior to the claims of holders of
the Notes. In the event of a default on the Notes, or a bankruptcy,
liquidation or reorganization of the Company, such assets will be available to
satisfy obligations with respect to the indebtedness secured thereby before
any payment therefrom could be made on the Notes. To the extent that the value
of such collateral is not sufficient to satisfy the indebtedness secured
thereby, amounts remaining outstanding on such indebtedness would be entitled
to share with the Notes and their claims with respect to any other assets of
the Company. As of September 27, 1997, as adjusted for the Offering, the
Company and its Restricted Subsidiaries (as defined herein) would have had
secured indebtedness of approximately $160.6 million outstanding. The
obligations of the Company and the Guarantors (as defined herein) under the
Senior Credit Agreement are secured by substantially all of the assets of the
Company and the Guarantors. As of September 27, 1997, as adjusted for the
Offering, the Company would have had approximately $69.8 million of undrawn
availability under the Senior Credit Agreement. The Indenture relating to the
Notes (the "Indenture") will permit the Company and the Restricted
Subsidiaries to incur additional Indebtedness (as defined herein), including
Secured Indebtedness (as defined herein), subject to certain limitations. See
"Description of Notes."
All of the Company's existing and future Restricted Subsidiaries will
unconditionally guarantee on a senior unsecured basis the performance and
punctual payment when due, whether at maturity, by acceleration or otherwise,
of all obligations of the Company under the Indenture and the Notes (the
"Subsidiary Guarantees"). Each of the Guarantors has guaranteed the Company's
indebtedness under the Senior Credit Agreement on a senior secured basis. The
Subsidiary Guarantees will rank pari passu in right of payment with all
existing and future unsecured senior indebtedness of the Guarantors and senior
in right of payment to all future subordinated indebtedness of the Guarantors.
The Subsidiary Guarantee of each Guarantor will be effectively subordinated to
the prior payment in full of all secured indebtedness of such Guarantors,
including secured indebtedness under the Senior Credit Agreement. See
"Description of Notes--Guarantees."
The Notes have been designated eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages (PORTAL) market. The
Company and the Restricted Subsidiaries have agreed, for the benefit of all
holders of the Notes, that, after the sale of the Notes, they will file a
registration statement relating to an exchange offer for the Notes under the
Securities Act (as defined herein) for another series of notes with
substantially the same terms as the Notes offered hereby. See "Exchange Offer
and Registration Rights Agreement."
-----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
-----------------
The offering price of the Notes is 97.500% plus accrued interest, if any, from
December 24, 1997.
-----------------
THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND, UNLESS SO
REGISTERED, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. ACCORDINGLY, THE
NOTES ARE BEING OFFERED AND SOLD HEREBY ONLY TO (A) QUALIFIED
INSTITUTIONAL BUYERS (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN RELIANCE ON THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER, AND (B) TO A LIMITED
NUMBER OF INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT EXECUTE AND
DELIVER A LETTER CONTAINING REPRESENTATIONS AND AGREEMENTS.
PROSPECTIVE PURCHASERS ARE HEREBY NOTIFIED THAT SELLERS OF THE NOTES
MAY BE RELYING ON THE EXEMPTION FROM PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A. FOR CERTAIN RESTRICTIONS ON
RESALES, SEE "TRANSFER RESTRICTIONS."
-----------------
The Notes are offered by the Company, subject to prior sale, when, as and if
delivered to and accepted by the Initial Purchaser (as defined herein) and
subject to certain other conditions. The Initial Purchaser reserves the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of the Notes to qualified institutional
buyers will be made against payment therefor on or about December 24, 1997, in
book-entry form through the facilities of The Depository Trust Company.
Delivery of Notes to institutional accredited investors will be made in
certificated form on the same date. See "Description of Notes--Book-Entry;
Delivery and Form" and "Description of Notes--Certificated Securities."
SOCIETE GENERALE
Securities Corporation
December 19, 1997
<PAGE>
[INSERT PICTURES.]
The information in the captions above is presented as of December 3, 1997
and is subject to change. No assurance can be given that any of the Company's
products covered by pending Abbreviated New Drug Applications ("ANDAs") or
other products under development will be successfully developed or approved by
the United States Food and Drug Administration ("FDA") or achieve significant
revenue or profitability.
----------------
INFeD(R) is a registered trademark of the Company; and Ferrlecit(R) and
Unipine XL(R) are registered trademarks of Makoff R&D Laboratories, Inc. and
Ethical Holdings plc, respectively.
----------------
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVERALLOTMENT, STABILIZING TRANSACTIONS AND SYNDICATE SHORT COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION."
THIS OFFERING MEMORANDUM (THE "OFFERING MEMORANDUM") IS BEING PROVIDED ON A
CONFIDENTIAL BASIS TO QUALIFIED INSTITUTIONAL BUYERS AND TO A LIMITED NUMBER
OF INSTITUTIONAL ACCREDITED INVESTORS FOR INFORMATIONAL USE SOLELY IN
CONNECTION WITH THE CONSIDERATION OF THE PURCHASE OF THE NOTES. ITS USE FOR
ANY OTHER PURPOSE IS NOT AUTHORIZED. IT MAY NOT BE COPIED OR REPRODUCED IN
WHOLE OR IN PART, NOR MAY IT BE DISTRIBUTED OR ANY OF ITS CONTENTS BE
DISCLOSED TO ANYONE OTHER THAN THE PROSPECTIVE INVESTORS TO WHOM IT IS BEING
PROVIDED.
THE INFORMATION CONTAINED IN THIS OFFERING MEMORANDUM HAS BEEN PROVIDED BY
THE COMPANY ON A CONFIDENTIAL BASIS SOLELY TO THE PROSPECTIVE PURCHASERS OF
THE NOTES. NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE BY THE
INITIAL PURCHASER AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION
CONTAINED IN THIS OFFERING MEMORANDUM (INCLUDING, WITHOUT LIMITATION, THE
FINANCIAL DATA CONTAINED HEREIN), AND NOTHING CONTAINED IN THIS OFFERING
MEMORANDUM IS, OR SHALL BE RELIED UPON AS, A PROMISE OR REPRESENTATION BY THE
INITIAL PURCHASER AS TO THE PAST OR THE FUTURE. THE INITIAL PURCHASER DOES NOT
ASSUME ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF SUCH
INFORMATION. IN MAKING AN INVESTMENT DECISION, PROSPECTIVE INVESTORS MUST RELY
ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THE CONTENTS OF THIS OFFERING
MEMORANDUM ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH
PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISOR AND TAX
ADVISOR AS TO LEGAL, BUSINESS OR TAX ADVICE. PROSPECTIVE INVESTORS MAY OBTAIN
ADDITIONAL INFORMATION UPON REQUEST FROM THE INITIAL PURCHASER OR THE COMPANY
THAT THEY MAY REASONABLY REQUIRE IN CONNECTION WITH THE DECISION TO PURCHASE
ANY OF THE NOTES.
THE NOTES DESCRIBED HEREIN HAVE NOT BEEN REGISTERED WITH, RECOMMENDED BY OR
APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY
OTHER FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY, NOR HAS
ANY SUCH COMMISSION OR REGULATORY AUTHORITY REVIEWED OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE NOTES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. PROSPECTIVE INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
EACH PURCHASER OF NOTES OFFERED HEREBY WILL BE DEEMED TO HAVE MADE CERTAIN
ACKNOWLEDGEMENTS, REPRESENTATIONS AND AGREEMENTS AS SET FORTH UNDER "TRANSFER
RESTRICTIONS."
EACH PROSPECTIVE PURCHASER OF THE NOTES MUST COMPLY WITH ALL LAWS AND
REGULATIONS APPLICABLE TO IT IN FORCE IN ANY JURISDICTION IN WHICH IT
PURCHASES, OFFERS OR SELLS THE NOTES OR POSSESSES OR DISTRIBUTES THIS OFFERING
MEMORANDUM AND MUST OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED TO BE
OBTAINED BY IT FOR THE PURCHASE, OFFER OR SALE BY IT OF THE NOTES UNDER THE
LAWS AND
i
<PAGE>
REGULATIONS APPLICABLE TO IT IN FORCE IN ANY JURISDICTION TO WHICH IT IS
SUBJECT OR IN WHICH IT MAKES SUCH PURCHASES, OFFERS OR SALES, AND NEITHER THE
COMPANY NOR THE INITIAL PURCHASER SHALL HAVE ANY RESPONSIBILITY THEREFOR.
THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE NOTES BY ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE AN OFFERING OR A
SOLICITATION.
THIS OFFERING IS BEING MADE IN THE UNITED STATES IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT FOR AN OFFER AND SALE OF
SECURITIES WHICH DOES NOT INVOLVE A PUBLIC OFFERING. EACH PURCHASER OF THE
NOTES OFFERED HEREBY IN MAKING ITS PURCHASE WILL BE DEEMED TO HAVE MADE
CERTAIN ACKNOWLEDGEMENTS, REPRESENTATIONS AND AGREEMENTS AS SET FORTH HEREIN
UNDER "TRANSFER RESTRICTIONS."
This Offering Memorandum is highly confidential and has been prepared by the
Company solely for use in connection with this Offering. The Initial Purchaser
reserves the right to reject any offer to purchase any of the Notes, in whole
or in part, for any reason, or to sell less than all of the Notes offered
hereby or for which any prospective purchaser has subscribed. This Offering
Memorandum is personal to each offeree and does not constitute an offer to any
other person or to the public generally to subscribe for or otherwise acquire
the Notes. Distribution of this Offering Memorandum to any person other than
the offeree and those persons, if any, retained to advise such offeree with
respect hereto is unauthorized, and any disclosure of any of its contents,
without the prior written consent of the Company, is prohibited. Each person
receiving this Offering Memorandum represents that such person's investment
decision is based solely on this Offering Memorandum and that such person is
not relying on any other information it may have received from the Company,
the Initial Purchaser or any other person. Each prospective purchaser, by
accepting delivery of this Offering Memorandum, agrees to the foregoing and to
make no photocopies of this Offering Memorandum or any documents delivered
pursuant hereto and, if the offeree does not purchase the Notes, or the
Offering is terminated, to return this Offering Memorandum and all documents
delivered pursuant hereto to Societe Generale Securities Corporation, 1221
Avenue of the Americas, New York, New York 10020, Attention: High Yield
Capital Markets.
MARKET DATA USED THROUGHOUT THIS OFFERING MEMORANDUM WERE OBTAINED FROM
INTERNAL COMPANY SURVEYS, INDUSTRY PUBLICATIONS AND CURRENTLY AVAILABLE
INFORMATION. INDUSTRY PUBLICATIONS GENERALLY STATE THAT THE INFORMATION
CONTAINED THEREIN HAS BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE, BUT
THERE CAN BE NO ASSURANCE AS TO THE ACCURACY AND COMPLETENESS OF SUCH
INFORMATION. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED SUCH MARKET DATA.
SIMILARLY, INTERNAL COMPANY SOURCES, WHILE BELIEVED BY THE COMPANY TO BE
RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS OFFERING
MEMORANDUM, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
INITIAL PURCHASER. THE INFORMATION CONTAINED HEREIN IS AS OF THE DATE HEREOF
AND SUBJECT TO CHANGE, COMPLETION OR AMENDMENT WITHOUT NOTICE. NEITHER THE
DELIVERY OF THIS OFFERING MEMORANDUM AT ANY TIME NOR ANY SUBSEQUENT COMMITMENT
TO ENTER INTO ANY FINANCING SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN
OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
ii
<PAGE>
THIS OFFERING MEMORANDUM CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS"
CONCERNING THE COMPANY'S OPERATIONS, OPERATING PERFORMANCE AND FINANCIAL
CONDITION, WHICH ARE SUBJECT TO INHERENT UNCERTAINTIES AND RISKS, INCLUDING
THOSE IDENTIFIED UNDER "RISK FACTORS." ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THIS OFFERING MEMORANDUM. WHEN USED IN THIS OFFERING
MEMORANDUM, THE WORDS "ESTIMATE," "PROJECT," "ANTICIPATE," "EXPECT," "INTEND,"
"BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS.
IT IS EXPECTED THAT DELIVERY OF THE NOTES WILL BE MADE AGAINST PAYMENT
THEREFOR ON OR ABOUT THE DATE SPECIFIED IN THE LAST PARAGRAPH OF THE COVER
PAGE OF THIS OFFERING MEMORANDUM, WHICH WILL BE THE THIRD BUSINESS DAY
FOLLOWING THE DATE HEREOF. SEE "PLAN OF DISTRIBUTION."
Notes to be resold to qualified institutional buyers as set forth herein
will initially be issued in the form of one Global Note (the "Global Note").
The Global Note will be deposited on the date of the closing of the sale of
the Notes offered hereby (the "Closing Date") with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in the name of Cede
& Co., as nominee of the Depositary (such nominee being referred to herein as
the "Global Note Holder"). Beneficial interests in the Global Note
representing the Notes will be shown on, and transfers thereof to qualified
institutional buyers will be effected through, records maintained by the
Depositary and its participants. Notes that are issued to institutional
accredited investors as described under "Description of Notes--Book-Entry;
Delivery and Form" and "Description of Notes--Certificated Securities" will be
issued in the form of registered definitive certificates (the "Certificated
Notes"). See "Description of Notes--Book-Entry; Delivery and Form" and
"Description of Notes--Certificated Securities."
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE
FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT
ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE
FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED
IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN
APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR
CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
NOTICE TO FLORIDA RESIDENTS
PURSUANT TO SECTION 517.061(11)(a)(5) OF THE FLORIDA SECURITIES ACT, YOU
HAVE THE RIGHT TO RESCIND YOUR SUBSCRIPTION (UNLESS YOU ARE AN INSTITUTIONAL
INVESTOR DESCRIBED IN SECTION 517.061(7) OF THE FLORIDA SECURITIES ACT) BY
GIVING NOTICE OF SUCH RESCISSION BY TELEPHONE, TELEGRAPH OR LETTER, WITHIN
THREE DAYS AFTER YOU FIRST TENDER CONSIDERATION TO THE INITIAL PURCHASER. IF
NOTICE IS NOT RECEIVED BY SUCH TIME, THE FOREGOING RIGHT OF RESCISSION SHALL
BE NULL AND VOID.
iii
<PAGE>
OFFERING MEMORANDUM SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Offering Memorandum, including
information under "Risk Factors." All references to the Company's operations
for a particular fiscal year refer to the 52-53 week period ended on the last
Saturday in December of that year, and all references to the Company's
operations for a particular fiscal quarter refer to the three month period
ended on the last Saturday in that quarter. Unless otherwise indicated, all
references to "Schein Pharmaceutical," "Schein" or the "Company" refer
collectively to Schein Pharmaceutical, Inc. and its predecessors and
subsidiaries.
THE COMPANY
Schein Pharmaceutical is one of the leading generic pharmaceutical companies
in the United States. The Company develops, manufactures and markets one of the
broadest generic product lines in the pharmaceutical industry through the
integration of its product development expertise, diverse, high-volume
production capacity and direct sales and marketing force. The Schein product
line includes both solid dosage and sterile dosage generic products, and the
Company is also developing a line of specialty branded pharmaceuticals. The
Company's primary branded product, INFeD, is the leading injectable iron
product in the United States. The Company has a substantial pipeline of
products under development, including 24 ANDAs filed with FDA. The Company
supplements its internal product development, manufacturing and marketing
capabilities through strategic collaborations. Schein generated net revenues of
$478.0 million and EBITDA (as defined) of $55.8 million during the 12 months
ended September 1997.
The Company believes it manufactures and markets the broadest product line of
any U.S. pharmaceutical company in terms of number and types of products. The
Company manufactures and markets approximately 160 chemical entities formulated
in approximately 350 different dosages under approximately 200 ANDAs approved
by FDA. Schein is currently the sole manufacturing source for 47 generic
pharmaceutical products, of which 45 are sterile dosage products. The Company's
solid dosage products include both immediate-release and extended-release
capsules and tablets; sterile dosage products include solutions, suspensions,
powders and lyophilized (freeze-dried) products primarily for administration as
injections, ophthalmics and otics. The manufacture of sterile dosage products
is significantly more complex than the manufacture of solid dosage products,
which limits competition in this product area. The Company currently
manufactures approximately four billion solid dosage tablets and capsules and
75 million sterile dosage vials and ampules annually. Solid dosage generic
products and sterile dosage generic products each accounted for approximately
40% of the Company's net revenues in the 12 months ended September 1997.
Since introducing INFeD in 1992, the Company has been developing a portfolio
of branded products, primarily in select therapeutic markets, such as iron
management for the nephrology, oncology and hematology markets. INFeD is used
in the treatment of certain types of anemia, particularly in dialysis patients,
and accounted for approximately 20% of the Company's net revenues in the nine
months ended September 1997. The Company markets INFeD through a 20-person
dedicated sales and marketing force, as well as through co-marketing
collaborations with Bayer Corporation in the nephrology market and MGI Pharma,
Inc. ("MGI") in the oncology market.
The Company believes its 120-person direct sales and marketing force is the
largest in the U.S. generic pharmaceutical industry. Through its customized
marketing programs, the Company markets its products to approximately 60,000
customers representing all major customer channels, including pharmaceutical
wholesalers, chain and independent drug retailers, hospitals, managed care
organizations, other group purchasing organizations and physicians.
1
<PAGE>
The Company's commitment to product development has resulted in 23 ANDA
approvals during the past three years and its current pipeline of 24 pending
ANDAs and over 60 additional products under development. During the past three
fiscal years, the Company, directly and through its strategic collaborations,
has expended approximately $74.0 million on product pipeline development
activities, which the Company believes is among the highest product development
expenditure levels for any independent generic drug company. The Company
pursues product development through its 140-person product development staff
and various collaborations and licensing arrangements with other pharmaceutical
and drug delivery technology companies. The Company's product development
efforts focus on: (i) major branded drugs coming off patent; (ii) drugs for
which patent protection has lapsed and for which there are few or no generic
producers; (iii) drugs whose patents may be susceptible to challenge; (iv)
proprietary and branded products focused in select therapeutic areas; and (v)
generic products that require specialized development, formulation, drug
delivery or manufacturing technology.
The Company supplements its internal product development, manufacturing and
marketing capabilities from external sources. During 1994, Schein entered into
a strategic alliance with Bayer Corporation, through which Bayer Corporation
became a 28.3% stockholder of Schein, and Bayer Corporation currently
participates with Schein in several collaborations. In 1995, the Company
acquired Marsam Pharmaceuticals Inc. ("Marsam"), expanding the Company's
ability to develop and manufacture sterile penicillins and oral and sterile
cephalosporins. In addition, the Company has entered into strategic
collaborations involving product development arrangements with companies such
as Elan Corporation plc ("Elan") and Ethical Holdings plc ("Ethical"); raw
material supply arrangements with companies such as Johnson Matthey plc
("Johnson Matthey") and Abbott Laboratories ("Abbott"); and sales and marketing
arrangements with Bayer Corporation and other companies such as Elensys Care
Services, Inc. ("Elensys") and MGI.
Schein's objective is to become the leading generic pharmaceutical company in
the approximately $10 billion generic pharmaceutical industry in the United
States. The Company's strategy for achieving this objective comprises the
following five elements:
Leverage Diverse Pharmaceutical Formulation and Manufacturing Capabilities to
Extend the Breadth of Its Generic Product Line. The Company believes it
manufactures and markets the broadest product line of any U.S. pharmaceutical
company. This product line includes both solid dosage and sterile dosage
products comprising approximately 160 chemical entities in approximately 350
dosage forms and strengths under approximately 200 approved ANDAs. Solid dosage
forms include both immediate-release and extended-release capsules and tablets;
sterile dosage forms include solutions, suspensions, powders and lyophilized
(freeze-dried) products primarily for administration as injections, ophthalmics
and otics. The Company believes its diverse high-volume manufacturing
capabilities enable it to participate in segments of the generic drug industry
where competition is limited. As the U.S. generic drug market consolidates and
major drug buyers increasingly purchase from fewer suppliers, the Company
believes its high volume and diverse drug formulation and manufacturing
capabilities will constitute an important competitive advantage.
Pursue Strategic Collaborations to Supplement Product Development and
Manufacturing Resources. Schein has formed product development and marketing
alliances with several bulk pharmaceutical producers, drug delivery technology
companies and other drug manufacturers to expand the breadth of its product
development capabilities. Included among these are collaborations with drug
delivery companies, Elan and Ethical, and several bulk pharmaceutical and
finished dosage form producers. The Company plans to utilize collaborative and
licensing arrangements with third parties to share product development risk and
gain access to sales and marketing rights, dosage forms, proprietary drug
delivery technologies, specialized formulation capabilities and active
pharmaceutical ingredients.
2
<PAGE>
Focus Product Development on Complex and Other Generic Drugs that Require
Specialized Development or Manufacturing Technology and Encounter Limited
Competition. The Company targets generic drugs for which it believes it can
achieve relatively high margins by being the first or among the first generic
manufacturers to launch the product. The Company is currently the sole generic
source for 47 products, and the Company is developing several "complex generic"
drugs that are difficult to duplicate due to formulation and/or manufacturing
complexities and other generic drugs for which raw materials are in limited
supply. In addition, the Company closely analyzes pharmaceutical patents and
initiates patent challenges where appropriate opportunities exist. Products
currently being considered for development include several that could lead to
patent challenges. The Company has generated significant revenues and profits
from generic products that have been the subject of successful patent
challenges initiated by the Company.
Develop and Market Branded Drugs for Select Therapeutic
Categories. Leveraging its broad pharmaceutical formulation, development and
manufacturing capabilities, the Company targets branded drug development and
marketing opportunities in select therapeutic categories with limited
competition. The Company's branded drug development and marketing efforts
currently focus on injectable products used in the management of iron-related
disorders. The Company's first branded product, INFeD, is the leading
injectable iron product in the U.S. Schein's near-term development plan is to
expand the Company's iron management expertise into the oncology, hematology
and gastroenterology markets, and the Company expects that a New Drug
Application ("NDA") for its next generation injectable iron product will be
filed with FDA in the first half of 1998. The Company also is pursuing
opportunities to broaden its branded pharmaceutical product line by: (i)
formulating and developing, either internally or through development
collaborations, unique products that may be patented; (ii) acquiring products
developed by other drug companies; and (iii) acquiring formulation technologies
for developing new dosage forms of existing drugs.
Expand Market Penetration through Direct Sales and Innovative Marketing
Programs. The Company believes its 120-person direct sales and marketing force
is the largest in the U.S. generic pharmaceutical industry. This sales and
marketing force includes 90 field representatives, 20 telemarketing
representatives and 10 marketing personnel and covers all major customer
groups, including chain and independent drug retailers, managed care
organizations, pharmaceutical wholesalers, hospitals and group purchasing
organizations. The Company has developed market share initiatives with selected
leading chain and wholesale customers and developed and implemented customized
marketing programs to meet specific customer needs, including customer
inventory management, patient-focused education and compliance programs. With
respect to its branded product business, the Company has a team of
approximately 20 sales representatives dedicated to marketing INFeD. This sales
and marketing force is complemented by marketing collaborations with Bayer (as
defined herein) in the nephrology market and MGI in the oncology market.
3
<PAGE>
THE OFFERING
Issuer...................... Schein Pharmaceutical, Inc.
Securities Offered.......... $100,000,000 principal amount of Senior Floating
Rate Notes due 2004.
Maturity Date............... December 15, 2004.
Interest Payment Dates...... January 15, April 15, July 15 and October 15 of
each year, commencing on January 15, 1998.
Optional Redemption......... The Notes will be redeemable, in whole or in
part, at the option of the Company, at any time,
at the redemption prices set forth herein, plus
accrued and unpaid interest thereon, to the date
of redemption. See "Description of Notes--
Optional Redemption."
Subsidiary Guarantees....... All of the Company's existing and future
Restricted Subsidiaries will unconditionally
guarantee on a senior unsecured basis the
performance and punctual payment when due,
whether at maturity, by acceleration or
otherwise, of all obligations of the Company
under the Indenture and the Notes. The Subsidiary
Guarantees will rank pari passu in right of
payment with all existing and future unsecured
senior indebtedness of the Guarantors and senior
in right of payment to all future subordinated
indebtedness of the Guarantors. Each of the
Guarantors has guaranteed the Company's
indebtedness under the Senior Credit Agreement on
a senior secured basis. The Subsidiary Guarantee
of each Guarantor will be effectively
subordinated to the prior payment in full of all
secured indebtedness of such Guarantors,
including secured indebtedness under the Senior
Credit Agreement. See "Description of Notes--
Guarantees."
Ranking..................... The indebtedness evidenced by the Notes will be
senior unsecured obligations of the Company, will
rank pari passu with all existing and future
senior indebtedness of the Company and will rank
senior in right of payment to all existing and
future indebtedness of the Company that is, by
its terms, expressly subordinated to the Notes.
Holders of secured indebtedness of the Company,
including the lenders under the Senior Credit
Agreement, will have claims with respect to the
assets constituting collateral for such
indebtedness that are prior to the claims of
holders of the Notes. In the event of a default
on the Notes, or a bankruptcy, liquidation or
reorganization of the Company, such assets will
be available to satisfy obligations with respect
to the indebtedness secured thereby before any
payment therefrom could be made on the Notes. To
the extent that such collateral is not sufficient
to satisfy the indebtedness secured thereby,
amounts remaining outstanding on such
indebtedness would be entitled to share with the
Notes and their claims with respect to any other
assets of the Company. As of September 27, 1997,
as adjusted for the Offering, the Company and its
Restricted
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<PAGE>
Subsidiaries would have had secured indebtedness
of approximately $160.6 million outstanding. The
obligations of the Company and the Guarantors
under the Senior Credit Agreement are secured by
substantially all of the assets of the Company
and the Guarantors. As of September 27, 1997, as
adjusted for the Offering, the Company would have
had approximately $69.8 million of undrawn
availability under the Senior Credit Agreement.
The Indenture relating to the Notes will permit
the Company and the Restricted Subsidiaries to
incur additional Indebtedness, including Secured
Indebtedness, subject to certain limitations. See
"Description of Notes."
Change of Control........... Upon a Change of Control, each holder of Notes
may require the Company to repurchase any or all
outstanding Notes owned by such holder at 101% of
the principal amount thereof, plus accrued and
unpaid interest thereon, to the date of
repurchase. See "Description of Notes--Change of
Control."
Restrictive Covenants....... The Indenture under which the Notes will be
issued will contain certain covenants pertaining
to the Company and its Restricted Subsidiaries,
including but not limited to covenants with
respect to the following matters: (i) limitations
on indebtedness; (ii) limitations on restricted
payments such as dividends, repurchases of the
Company's or subsidiaries' stock, repurchases of
subordinated obligations and investments; (iii)
limitations on liens; (iv) limitations on
engaging in certain lines of business; (v)
limitations on mergers, consolidations and
transfers of all or substantially all assets;
(vi) limitations on restrictions on distributions
from restricted subsidiaries; (vii) limitations
on sales of assets and of stock of subsidiaries;
(viii) limitations on transactions with
affiliates; (ix) limitations on the sale of
capital stock of restricted subsidiaries; and (x)
limitations on sale and leaseback transactions.
However, all of these covenants are subject to a
number of important qualifications and
exceptions. See "Description of Notes--Certain
Covenants."
Exchange Offer and
Registration................ The Company has agreed to (i) file, within 45
days after the Issue Date (as defined herein), a
registration statement (the "Exchange Offer
Registration Statement") with respect to an offer
to exchange the Notes (the "Registered Exchange
Offer") for a series of notes of the Company with
terms identical in all material respects to the
Notes (the "Exchange Notes"), (ii) use
commercially reasonable efforts to cause such
Exchange Offer Registration Statement to be
declared effective within the earlier of (A) 90
days after the Issue Date or (B) 30 days after
the effectiveness of the consummation of the
initial public offering of the Company's Common
Stock and (iii) consummate the Registered
Exchange Offer within 150 days after the Issue
Date. Such Exchange Notes, if issued, will bear
the rate of interest of the Notes immediately
prior to the consummation of the Exchange Offer
(as defined herein). In the event that the
applicable
5
<PAGE>
laws or interpretations of the staff of the
Commission do not permit the Company to effect
the Registered Exchange Offer, the Company will
use commercially reasonable efforts to cause to
become effective a shelf registration statement
(the "Shelf Registration Statement") with respect
to the resale of Notes and to keep the Shelf
Registration Statement effective until three
years from the Issue Date or such shorter period
that will terminate when all the Notes covered by
the Shelf Registration Statement have been sold.
The Company shall cause such Shelf Registration
Statement to be declared effective on or prior to
the latter of (x) the 120th day after the Issue
Date or (y) the 45th day after the publication of
the change in law or interpretation. In the event
that the Company does not comply with certain
covenants set forth in the Exchange and
Registration Rights Agreement (as defined herein)
to be executed by the Company and the Initial
Purchaser, the Company will be obligated to pay
certain additional interest to the holders of the
Notes. See "Exchange and Registration Rights
Agreement."
Transfer Restrictions;
Absence of a Public Market
for the Notes.............. The Notes have not been registered under the
Securities Act and are subject to restrictions on
transferability and resale. The Notes are new
securities, and there is currently no established
market for the Notes. If issued, the Exchange
Notes will generally be freely transferable
(subject to the restrictions discussed elsewhere
herein) but will be new securities for which
there will not initially be a market.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the
Notes or, if issued, the Exchange Notes. The
Notes have been designated eligible for trading
in the PORTAL market. The Initial Purchaser has
advised the Company that it currently intends to
make a market in the Notes. However, the Initial
Purchaser is not obligated to do so, and any
market making with respect to the Notes may be
discontinued at any time without notice. The
Company does not intend to apply for a listing of
the Notes, or, if issued, the Exchange Notes, on
any securities exchange or on any automated
dealer quotation system. See "Transfer
Restrictions."
Use of Proceeds............. The Company is amending the terms of the Senior
Subordinated Loan Agreement (as defined herein)
to allow for the issuance of the Notes and
intends to use the net proceeds of the Offering
to repay the Senior Subordinated Loan (as defined
herein). See "Use of Proceeds."
RISK FACTORS
Prospective purchasers of the Notes should carefully consider the information
set forth under the caption "Risk Factors" and all other information set forth
in this Offering Memorandum before making any investment in the Notes.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER SEPTEMBER
------------------------------------------------ ----------------------
1992 1993 1994 1995 (1) 1996 1996 1997
-------- -------- -------- -------- -------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $319,875 $393,926 $385,428 $391,846 $476,295 $352,172 $353,829
Cost of sales........... 207,276 217,653 237,380 250,507 320,675 236,721 240,562
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 112,599 176,273 148,048 141,339 155,620 115,451 113,267
COSTS AND EXPENSES:
Selling, general and
administrative........ 55,763 64,489 71,416 73,250 84,366 61,149 57,950
Research and
development........... 14,234 18,055 19,170 28,324 27,030 23,044 22,854
-------- -------- -------- -------- -------- -------- --------
42,602 93,729 57,462 39,765 44,224 31,258 32,463
Amortization of
goodwill and other
intangibles........... -- -- -- 3,399 10,195 7,713 7,722
Special compensation,
restructuring and
relocation (2)........ 7,417 8,426 33,594 -- -- -- --
Acquired in-process
Marsam research and
development (1)....... -- -- -- 30,000 -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income........ 35,185 85,303 23,868 6,366 34,029 23,545 24,741
Interest expense, net.. 2,315 1,467 1,493 10,005 23,285 16,081 20,456
Other expense (income),
net (3)............... 195 9,215 579 779 4,156 1,745 (4,536)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes and minority
interest............... 32,675 74,621 21,796 (4,418) 6,588 5,719 8,821
Provision for income
taxes (4)............. 12,490 29,096 15,165 10,482 5,191 3,573 5,095
Minority interest...... 2,173 (343) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 18,012 $ 45,868 $ 6,631 $(14,900) $ 1,397 $ 2,146 $3,726
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA (as defined) (5). $ 39,748 $ 91,864 $ 61,074 $ 50,396 $ 54,932 $ 39,174 $ 40,037
Depreciation and
amortization........... 6,105 7,328 8,464 17,395 25,450 18,018 19,749
Capital expenditures,
net.................... 17,416 22,806 16,135 13,986 11,309 8,625 8,992
Ratio of earnings to
fixed charges (6)...... 10.6x 26.9x 8.0x -- 1.3x 1.3x 1.4x
PRO FORMA DATA:
Cash interest expense
(7).................... $ 23,488 $ 16,788 $ 17,897
Ratio of EBITDA (as
defined) to cash
interest expense....... 2.3x 2.3x 2.2x
Ratio of total debt to
EBITDA
(as defined) (8)....... -- -- 4.7x
<CAPTION>
DECEMBER AS OF AS ADJUSTED
------------------------------------------------ SEPTEMBER SEPTEMBER
1992 1993 1994 1995 1996 1997 1997 (9)
-------- -------- -------- -------- -------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 82,731 $ 87,035 $ 98,610 $ 92,021 $ 99,111 $ 93,480 $ 89,280
Total assets............ 211,744 227,861 269,729 522,410 544,312 520,699 524,899
Total debt.............. 44,625 27,563 45,927 280,558 286,480 256,413 260,613
Stockholders' equity.... 85,761 130,336 140,164 125,692 129,980 137,084 137,084
</TABLE>
7
<PAGE>
- --------
(1) Includes the results of Marsam from September 1995, the date of purchase.
In connection with the purchase of Marsam, the Company recognized acquired
in-process research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 to
the Consolidated Financial Statements of the Company.
(2) Special compensation, restructuring and relocation expenses includes costs
recognized by the Company in connection with its restructuring and
relocation of its corporate headquarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 2 and
12 to the Consolidated Financial Statements of the Company.
(3) Other expense (income), net in 1992 includes $0.5 million of an
extraordinary income item.
(4) Provision for income taxes in 1993 includes an adjustment to reduce income
taxes by $1.1 million relating to the adoption of Statement of Financial
Accounting Standards No. 109.
(5) EBITDA is defined as income (loss) before provision for income taxes and
minority interest, interest expense, net and depreciation and amortization,
excluding gains on sales of securities and non-cash items (special
compensation, acquired in-process Marsam research and development,
contingent settlement accruals, equity in net losses of international
investments and other non-cash items). The Company has included information
concerning EBITDA in this Offering Memorandum because it believes that such
information may be used by certain investors as one measure of a company's
historical ability to service debt. EBITDA should not be considered as an
alternative to, or more meaningful than, earnings from operations or other
traditional indications of a company's operating performance.
(6) The ratio of earnings to fixed charges is computed by dividing (i) income
(loss) before provision for income taxes and minority interest plus fixed
charges by (ii) fixed charges. Fixed charges consist of interest on
indebtedness including amortization of debt issuance costs and the
estimated interest component of rental expense (assumed to be one-third).
In fiscal 1995, fixed charges exceeded income (loss) before provision for
income taxes and minority interest by $4.4 million.
(7) Pro forma cash interest expense is defined as historical interest expense,
net adjusted for (i) the exclusion of amortization of deferred financing
fees of $2.2 million in fiscal 1996 and $0.9 million and $2.3 million in
the nine months ended September 1996 and 1997, respectively, (ii) interest
expense as if the Offering had occurred on December 31, 1995 and the
proceeds were used to repay the Senior Subordinated Loan or its predecessor
debt and (iii) interest expense associated with drawdowns under the
revolving credit facility under the Senior Credit Agreement which were used
to pay the $4.2 million in fees and expenses incurred as a result of the
Offering.
(8) The ratio of total debt to EBITDA (as defined) is computed by dividing (i)
EBITDA (as defined) for the twelve months ended September 1997 by (ii)
total debt as of September 1997 as adjusted for the Offering.
(9) As adjusted to give effect to the Offering and the payment of $4.2 million
in fees and expenses in connection therewith, using proceeds from the
Company's revolving credit facility under the Senior Credit Agreement.
8
<PAGE>
RISK FACTORS
Prospective investors in the Notes should carefully consider the following
risk factors, in addition to the other information set forth in this Offering
Memorandum, before making an investment in the Notes offered hereby. This
Offering Memorandum contains statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Those statements appear in a number of places herein and include
statements regarding the intent, belief or current expectations of the
Company, primarily with respect to the future operating performance of the
Company or related industry developments. Prospective purchasers of the Notes
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results and industry developments may differ from those described in the
forward-looking statements as a result of various factors, many of which are
beyond the control of the Company. The information contained herein,
including, without limitation, the information set forth below and the
information under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations," identifies important factors
that could cause such differences.
RISK FACTORS RELATED TO THE NOTES
Substantial Leverage
The Company is highly leveraged. As of September 27, 1997, as adjusted for
the Offering, the Company would have had total consolidated indebtedness of
$260.6 million. In addition, subject to certain restrictions set forth in the
Senior Credit Agreement and the Indenture, the Company may incur additional
indebtedness in the future for acquisitions, capital expenditures and other
corporate purposes.
The Company's high degree of leverage could have important consequences,
including the following: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired;
(ii) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on the Notes and its other
indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) the financial covenants and other restrictions contained in
the Senior Credit Agreement and the Indenture and other agreements relating to
the Company's indebtedness require the Company to meet certain financial
tests, restrict its ability to borrow additional funds and impose limitations
on the disposition of assets; (iv) obligations in respect of the Senior Credit
Agreement are, and the Notes will be, and other indebtedness of the Company
may be, at variable rates of interest, which expose the Company to the risk of
increased interest rates; (v) all of the indebtedness outstanding under the
Senior Credit Agreement is secured by substantially all the assets of the
Company and matures prior to the maturity of the Notes; (vi) the Company may
be substantially more leveraged than certain of its competitors, which may
place the Company at a competitive disadvantage; and (vii) the Company's
substantial degree of leverage may limit its flexibility to adjust to changing
market conditions and make it more vulnerable to a downturn in general
economic conditions or its business. See "Description of Notes."
The Company's ability to make scheduled payments of the principal of, or
interest on, or to refinance its indebtedness (including the Notes) depends on
its future operating performance, which to a certain extent is subject to
economic, financial, competitive and other factors beyond its control. The
Company believes that, based on its current level of operations and
anticipated growth, its cash flow from operations will be adequate to meet its
anticipated requirements for working capital, capital expenditures, interest
payments and scheduled principal payments over the next several years. There
can be no assurance, however, that the Company's business will generate cash
flow at or above expected levels. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt, fund
working capital requirements and make necessary capital expenditures, or its
future earnings are insufficient to make all required principal payments out
of internally generated funds, the Company may be required to refinance all or
a portion of its existing debt, sell assets or obtain additional financing.
There can be no assurance that any such refinancing or asset sales would be
possible or that any additional financing could be obtained on terms
acceptable to the Company or at all, particularly in
9
<PAGE>
view of the Company's high level of debt. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Ability to Service Debt
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend on its financial and
operating performance, which in turn will be subject to prevailing economic
conditions and to certain financial, business and other factors beyond its
control. If the Company's cash flow and capital resources are insufficient to
fund its debt service obligations, the Company may be forced to reduce or
delay planned expansion and capital expenditures, sell assets, obtain
additional equity capital or restructure its debt. There can be no assurance
that the Company's operating results, cash flow and capital resources will be
sufficient for payment of its indebtedness in the future. In the absence of
such operating results and resources, the Company could face substantial
liquidity problems and might be required to dispose of material assets or
operations to meet its debt service and other obligations, and there can be no
assurance as to the timing of such sales or the proceeds that the Company
could realize therefrom. In addition, because the Notes will bear interest at
floating rates and the Senior Credit Agreement bears interest at floating
rates, an increase in interest rates could adversely affect, among other
things, the Company's ability to meet its debt service obligations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Notes."
Ranking of Notes
The Notes will be senior unsecured obligations of the Company and will rank
pari passu in right of payment with all current and future unsecured senior
indebtedness of the Company. The Notes will (i) rank senior in right of
payment to all subordinated indebtedness of the Company and (ii) be
guaranteed, on a senior unsecured basis, by the Restricted Subsidiaries of the
Company. The Notes will also be effectively subordinated to all existing and
future indebtedness of any subsidiary of the Company that is not a Guarantor
of the Notes.
The indebtedness incurred under the Senior Credit Agreement is secured by
substantially all of the assets of the Company. In addition, the Indenture
will permit the Company and the Guarantors to incur certain other secured
indebtedness. The holders of all existing and future secured indebtedness will
have a claim prior to the holders of the Notes with respect to any assets
pledged by the Company and the Guarantors as security for such indebtedness.
Further, as of September 27, 1997, as adjusted for the Offering, the Senior
Credit Agreement would have provided the Company with $69.8 million of undrawn
availability, which, if drawn, would effectively rank prior to the Notes and
the Subsidiary Guarantees. Upon an event of default under the Senior Credit
Agreement, the lenders thereunder would be entitled to foreclose on the assets
of the Company and the Guarantors pledged as security for the indebtedness
incurred thereunder. In such event, the assets of the Company and the
Guarantors remaining after payment of such secured indebtedness may be
insufficient to satisfy the obligations of the Company and the Guarantors with
respect to the Notes and the Subsidiary Guarantees. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Notes."
As of September 27, 1997, as adjusted for the Offering, the aggregate
principal amount of secured indebtedness of the Company and the Guarantors
which would have effectively ranked senior to the Notes and the Subsidiary
Guarantees would have been approximately $160.6 million.
Fraudulent Conveyance
The issuance of the Notes and the Subsidiary Guarantees may be subject to
review by a court under federal bankruptcy law or comparable provisions of
state fraudulent transfer law. Under federal or state fraudulent transfer
laws, if a court were to find that, at the time the Notes and Subsidiary
Guarantees were issued, the Company or a Guarantor, as the case may be, (i)
issued the Notes or a Subsidiary Guarantee with the intent of hindering,
delaying or defrauding current or future creditors or (ii)(A) received less
than fair consideration or reasonably equivalent value for incurring the
indebtedness represented by the Notes or a Subsidiary Guarantee
10
<PAGE>
and (B)(1) was insolvent or was rendered insolvent by reason of the issuance
of the Notes or such Subsidiary Guarantee, (2) was engaged, or about to
engage, in a business or transaction for which its remaining assets
constituted unreasonably small capital or (3) intended to incur, or believed
(or should have believed) it would incur, debts beyond its ability to pay as
such debts mature (as all of the foregoing terms are defined in or interpreted
under such fraudulent transfer statutes), such court could avoid all or a
portion of the Company's or a Guarantor's obligations to the holders of the
Notes or subordinate the Company's or a Guarantor's obligations to the holders
of the Notes to other existing and future indebtedness of the Company or such
Guarantor, as the case may be, the effect of which would be to entitle such
other creditors to be paid in full before any payment could be made on the
Notes, and take other action detrimental to the holders of the Notes,
including in certain circumstances, invalidating the Notes. In that event,
there would be no assurance that any repayment on the Notes would ever be
recovered by the holders of the Notes.
The definition of insolvency for purposes of the foregoing considerations
varies among jurisdictions depending upon the federal or state law that is
being applied in any such proceeding. However, the Company or a Guarantor
generally would be considered insolvent at the time it incurs the indebtedness
constituting the Notes or a Subsidiary Guarantee, as the case may be, if (i)
the fair market value (or fair saleable value) of its assets is less than the
amount required to pay its total existing debts and liabilities (including the
probable liability on contingent liabilities) as they become absolute or
matured or (ii) it is incurring debts beyond its ability to pay as such debts
mature.
There can be no assurance as to what standard a court would apply in order
to evaluate the parties' intent or to determine whether the Company or a
Guarantor, as the case may be, was insolvent at the time, or rendered
insolvent upon consummation, of the sale of the Notes or the issuance of a
Subsidiary Guarantee or that, regardless of the method of valuation, a court
would not determine that the Company or a Guarantor, as the case may be, was
insolvent at the time, or rendered insolvent upon consummation, of the
Offering. Nor can there be any assurance that a court would not determine,
regardless of whether the Company or a Guarantor was insolvent on the date the
Notes and Subsidiary Guarantees were issued, that the payments constituted
fraudulent transfers on another ground.
In addition, the Subsidiary Guarantees could also be subject to the claim
that, since the Subsidiary Guarantees were incurred for the benefit of the
Company (and only indirectly for the benefit of the Guarantors), the
obligations of the Guarantors thereunder were incurred for less than
reasonably equivalent value or fair consideration. A court could avoid a
Guarantor's obligation under its Subsidiary Guarantee, subordinate the
Subsidiary Guarantee to other indebtedness of such Guarantor or take other
action detrimental to the holders of the Notes.
Restrictions Imposed by Terms of the Company's Indebtedness
The Indenture will contain certain covenants that, among other things: (i)
limit the ability of the Company and its Restricted Subsidiaries to incur
additional indebtedness, repay other indebtedness and amend other debt
instruments; (ii) restrict the ability of the Company and its Restricted
Subsidiaries to make dividends and other restricted payments (including
investments); (iii) limit the ability of the Company and its Restricted
Subsidiaries to incur certain liens; (iv) limit the ability of the Company to
engage in other lines of business; (v) limit the ability of the Company to
consolidate or merge with or into, or to sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, another
person; (vi) limit the ability of the Restricted Subsidiaries to create
restrictions on the payment of dividends and other payments; (vii) limit the
ability of the Company and its Restricted Subsidiaries to make sales of assets
and stock of a subsidiary; (viii) limit transactions by the Company and its
Restricted Subsidiaries with affiliates; (ix) limit the sale of capital stock
of Restricted Subsidiaries; and (x) limit the ability of the Company and its
Restricted Subsidiaries to enter into sale and leaseback transactions. In
addition, the Senior Credit Agreement also contains certain other restrictive
covenants which are generally more restrictive than those contained in the
Indenture and limit the Company's ability to prepay its other indebtedness
(including the Notes). The Senior Credit Agreement also requires the Company
to maintain specified consolidated financial ratios and satisfy certain
consolidated financial tests. See "Description of Certain Indebtedness" and
"Description of Notes."
11
<PAGE>
The Company's ability to comply with the covenants in the Indenture and the
Senior Credit Agreement may be affected by events beyond its control,
including prevailing economic, financial, competitive, legislative, regulatory
and other conditions. The breach of any such covenants or restrictions could
result in a default under the Indenture and/or the Senior Credit Agreement,
which would permit the holders of the Notes and/or the lenders under the
Senior Credit Agreement, as the case may be, to declare all amounts borrowed
thereunder to be due and payable, together with accrued and unpaid interest,
and the commitments of the lenders to make further extensions of credit under
the Senior Credit Agreement could be terminated. If the Company was unable to
repay its indebtedness to the lenders under the Senior Credit Agreement, such
lenders could proceed against any or all of the collateral securing the
indebtedness under the Senior Credit Agreement, which collateral will consist
of substantially all of the assets of the Company and the Guarantors. In
addition, if the Company fails to comply with the financial and operating
covenants contained in the Senior Credit Agreement, such failure could result
in an event of default thereunder, which could permit the acceleration of the
debt incurred thereunder and, in some cases, cross-acceleration and cross-
default of indebtedness outstanding under other debt instruments of the
Company, including the Notes. See "Description of Notes."
Limitation on Change in Control
Upon a Change of Control, the Company will be required to offer to purchase
all of the outstanding Notes at a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest thereon to the date of repurchase.
The Senior Credit Agreement also provides that certain change of control
events with respect to the Company constitute a default thereunder. Any future
credit agreements or other agreements to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing the Notes, or
if the Company is required to make an asset sale offer pursuant to the terms
of the Notes, the Company could seek the consent of its lenders to purchase
the Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or refinance such
borrowings, the Company will remain prohibited from purchasing the Notes. In
such case, the Company's failure to purchase tendered Notes would constitute
an Event of Default as defined under the Indenture. If, as a result thereof, a
default occurs with respect to any other senior indebtedness, payments to the
holders of the Notes could be limited.
In addition, the Change of Control provisions may not be waived by the Board
of Directors of the Company or the Trustee without the consent of holders of
at least a majority in principal amount of the Notes. As a result, the Change
of Control provisions of the Notes may in certain circumstances discourage or
make more difficult a sale or takeover of the Company and, thus, the removal
of incumbent management. See "Description of Notes--Change of Control."
Lack of Public Market; Restrictions on Transferability
The Company does not intend to apply for a listing of the Notes, or if
issued, the Exchange Notes, on any securities exchange or on any automated
dealer quotation system. There is currently no established market for the
Notes, and there can be no assurance as to the liquidity of markets that may
develop for the Notes, the ability of the holders of the Notes to sell their
Notes or the price at which such holders would be able to sell their Notes. If
such market were to exist, the Notes could trade at prices that may be lower
than the initial market values thereof depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. The Notes are expected to be designated for trading in the
PORTAL market. The Initial Purchaser has advised the Company that it currently
intends to make a market with respect to the Notes. However, the Initial
Purchaser is not obligated to do so, and any market making with respect to the
Notes may be discontinued at any time without notice. In addition, such market
making activity will be subject to the limits imposed by the Securities Act
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
may be limited during the pendency of the Exchange Offer or the effectiveness
of a shelf registration statement in lieu thereof. See "Exchange and
Registration Rights Agreement," "Transfer Restrictions" and "Plan of
Distribution."
12
<PAGE>
The Notes are being offered in reliance upon an exemption from registration
under the Securities Act and applicable state securities laws. Therefore, the
Notes may be transferred or resold only in a transaction registered under or
exempt from the Securities Act and applicable state securities laws. Pursuant
to the Exchange and Registration Rights Agreement, the Company and the
Guarantors have agreed to file the Exchange Offer Registration Statement with
the Commission and to use their best efforts to cause such registration
statement to become effective with respect to the Exchange Notes. If issued,
the Exchange Notes generally will be permitted to be resold or otherwise
transferred by each holder without the requirement of further registration.
The Exchange Notes, however, also will constitute a new issue of securities
with no established trading market. The Exchange Offer will not be conditioned
upon any minimum or maximum aggregate principal amount of Notes being tendered
for exchange. No assurance can be given as to the liquidity of the trading
market for the Exchange Notes, or, in the case of non-exchanging holders of
Notes, the trading market for the Notes following the Exchange Offer. See
"Exchange and Registration Rights Agreement."
The liquidity of, and trading market for, the Notes or the Exchange Notes
also may be adversely affected by a general decline in the market for similar
securities. Such a decline may adversely affect such liquidity and trading
markets independent of the financial performance of, and prospects for, the
Company.
RISK FACTORS RELATED TO THE COMPANY'S OPERATIONS
Dependence Upon New Products and Effect of Product Lifecycles
The Company's results of operations depend, to a significant extent, upon
its ability to develop and commercialize new pharmaceutical products in
response to the competitive dynamics within the pharmaceutical industry.
Generally, following the expiration of patents and any other market
exclusivity periods for branded drugs, the first pharmaceutical manufacturers
successfully to market generic equivalents of such drugs achieve higher
revenues and gross profit from the sale of such generic drugs than do others
from the sale of generic equivalents subsequently approved. As competing
generic products reach the market, the prices, sales volumes and profit
margins of the first generic versions often decline significantly. For these
reasons, the Company's ability to achieve growth in revenues and profitability
depends on its being among the first companies regularly to introduce new
generic products. While the Company believes the pipeline of generic drugs and
branded drugs it currently has under development will allow it to compete
effectively, no assurance can be given that any of the drugs in its pipeline
will be successfully developed or approved by FDA, will be among the first to
the market or will achieve significant revenues and profitability. See "--
Dependence on Successful Patent Litigation," "--Competition," "--Dependence on
Regulatory Approval and Compliance," "--Pending Regulatory Matters,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Dependence on Certain Existing Products
The Company derives and is expected to continue to derive a significant
portion of its revenues and gross profit from a limited number of products.
Net revenues from INFeD in 1996 and the nine months ended September 1997 were
$88.0 million and $72.1 million, respectively, or 19% and 20%, respectively,
of the Company's total net revenues, with gross profit from INFeD as a
percentage of total gross profit being significantly greater. Any material
decline in revenues or gross profit from these products could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Products."
Dependence on Successful Patent Litigation
A significant portion of the Company's revenues and gross profit has been
derived from generic versions of branded drug products covered by patents the
Company has challenged under the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Waxman-Hatch Act"). In several successful
proceedings, the Company has been advised and represented by an independent
patent attorney (the "Consultant") whose involvement has been substantial. The
Company expects that the Consultant will be involved with the Company
13
<PAGE>
in no more than two additional patent challenges, one of which is currently
being litigated. Through its internal efforts, and with the assistance of
third-party collaborators and advisors, the Company has identified a number of
additional patents that may be susceptible to challenge. There can be no
assurance the Company will successfully complete the development of any
additional products involving patent challenges, succeed in any pending or
future patent challenges or, if successful, receive significant revenues or
profit from the products covered by successfully challenged patents. See "--
Dependence Upon New Products and Effect of Product Lifecycles," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Government Regulations" and "Certain Transactions."
Competition
The pharmaceutical industry is intensely competitive. The Company competes
with numerous companies in the pharmaceutical industry generally and the
generic segment of the industry specifically. These competitors include
generic drug manufacturers and large pharmaceutical companies that continue to
manufacture the branded and/or generic versions of drugs after the expiration
of their patents relating to these drugs. Many of the Company's competitors
have greater financial and other resources than the Company and, therefore,
are able to spend more than the Company on research, product development and
marketing. In addition, following the expiration of patents on branded drugs,
manufacturers of these products have employed various strategies intended to
maximize their share of the markets for these products, as well as, in some
cases, generic equivalents of these products, and are expected to continue to
do so in the future. There can be no assurance that developments by others
will not render any product the Company produces or may produce obsolete or
otherwise non-competitive. See "--Dependence Upon New Products and Effect of
Product Lifecycles," "--Consolidation of Distribution Network; Customer
Concentration" and "Business--Competition."
Dependence on Regulatory Approval and Compliance
The development, manufacture, marketing and sale of pharmaceutical products
is subject to extensive federal, state and local regulation in the U.S. and
similar regulation in other countries. The Company, like its competitors, must
obtain approval from FDA before marketing most drugs, and must demonstrate
continuing compliance with current Good Manufacturing Practices ("cGMP")
regulations. Generally, for generic products an ANDA is submitted to FDA, and
for new drugs an NDA is submitted. Under certain circumstances following
product approval and market introduction, FDA can request product recalls,
seize inventories and merchandise in commerce, move to enjoin further
manufacture and product distribution, suspend distribution or withdraw FDA
approval of the product, and debar a company from submitting new applications.
FDA also can take administrative action against a company to suspend
substantive review of pending applications and withhold approvals, if it
concludes that the data and applications from that company may not be reliable
or that there are significant unresolved cGMP issues pertinent to the
manufacture of drugs at a particular facility of that company. Any such
actions are likely to have a material adverse effect on a company's business.
The Company has ANDAs currently pending before FDA and intends to file
additional ANDAs in the future. Delays in the review of these applications or
the inability of the Company to obtain approval of certain of these
applications or to market the product following approval could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "--Dependence Upon New Products and Effect of Product
Lifecycles," "--Pending Regulatory Matters" and "Business--Government
Regulations."
Pending Regulatory Matters
In early 1996, FDA conducted an inspection of the operations of the
Company's subsidiary, Steris Laboratories, Inc. ("Steris"), located in
Phoenix, Arizona. At the conclusion of that inspection, FDA identified various
cGMP manufacturing and reporting deficiencies in Steris' operations. Steris
has subsequently been advised by FDA that it will not approve any ANDAs for
products manufactured at the Steris facility until FDA confirms that the
manufacturing and reporting deficiencies have been corrected. Ten of the
Company's pending ANDAs have been filed from the Steris facility. Following
the 1996 inspection, Steris implemented numerous measures to correct these
deficiencies and place Steris in compliance with applicable FDA manufacturing
and reporting requirements.
14
<PAGE>
In July 1997, FDA conducted a follow-up inspection of the Steris facility.
At the conclusion of that inspection, FDA identified additional cGMP
deficiencies at the Steris facility. Steris has implemented measures intended
to correct these deficiencies and believes that a full reinspection will be
required before FDA will approve ANDAs for new products manufactured at the
Steris facility. While the Company is currently discussing with FDA the timing
of this reinspection, no assurance can be given as to when it will take place.
Following the 1996 inspection of Steris, FDA's Office of Regulatory Affairs
staff commenced an investigation of Steris' operations that focused primarily
on drug stability issues, including Steris' alleged failure to notify FDA on
an adequate and timely basis of drug stability problems with respect to
certain products manufactured at the Steris facility. On the basis of this
investigation, the U.S. Department of Justice ("DOJ") notified Steris in a
letter dated July 28, 1997 that the alleged reporting deficiencies constituted
serious breaches of regulatory obligations and indicated that it would be
willing to negotiate a settlement of the alleged violations with Steris. The
contemplated settlement will require Steris to pay a substantial misdemeanor
fine for failure to observe application reporting requirements for two drugs
during 1994 and 1995. While the Company does not expect any other sanctions to
arise in respect of this matter, any such sanctions could have a material
adverse effect on the Company's business, results of operations and financial
condition.
In 1995, FDA inspected the operations of the Company's subsidiary, Danbury
Pharmacal, Inc. ("Danbury"), which operates facilities in Carmel, New York and
Danbury, Connecticut. As a result of observations made by FDA relating to
Danbury's compliance with cGMP requirements and the integrity of the data
submitted by Danbury in support of certain ANDAs, Danbury voluntarily audited
all data submitted in connection with 26 of its pending and approved ANDAs.
Since the 1995 inspection, FDA has continued to approve ANDAs for products
manufactured by Danbury. In August 1997, FDA reinspected the Carmel and
Danbury facilities. FDA observed certain cGMP deficiencies which the Company
has corrected in a manner satisfactory to FDA. FDA is currently conducting an
additional inspection of those facilities, which the Company believes
primarily will involve evaluations of the ANDA audits and the procedural
changes Danbury instituted to remedy cGMP deficiencies observed during the
1995 FDA inspection.
In June 1997, FDA conducted an ANDA preapproval and cGMP inspection at the
Company's Marsam subsidiary, located in Cherry Hill, New Jersey. Although the
inspection focused primarily on issues relating to the manufacture of certain
drug products that are the subject of five pending ANDAs, the inspection also
included an examination of Marsam's general compliance with cGMP requirements.
Marsam was informed at the conclusion of the inspection that FDA intended to
withhold approval of the five ANDAs until certain alleged cGMP deficiencies
are corrected. Marsam has provided FDA with information it believes
demonstrates that the alleged deficiencies are not significant and that
corrective measures have been implemented. FDA has begun a follow-up
inspection to determine whether these corrective actions have been implemented
satisfactorily. Seven of the Company's pending ANDAs have been filed from the
Marsam facility.
There can be no assurance that FDA will determine that the Company has
adequately corrected the alleged deficiencies or that approval of any of the
pending or subsequently submitted ANDAs by the Company will be forthcoming. In
addition, there can be no assurance that FDA, following the reinspection of
the Steris, Danbury and Marsam facilities and its review of their respective
responses to the alleged cGMP deficiencies, will not seek to impose additional
regulatory sanctions against the Company and its subsidiaries. See "--
Dependence Upon New Products and Effect of Product Lifecycles" and "Business--
Government Regulations."
Consolidation of Distribution Network; Customer Concentration
The Company's principal customers are wholesale drug distributors and major
drug store chains. These customers comprise a significant part of the
distribution network for pharmaceutical products in the United States. This
distribution network is continuing to undergo significant consolidation marked
by mergers and acquisitions among wholesale distributors and the growth of
large retail drug store chains. As a result, a small number of large wholesale
distributors control a significant share of the market, and the number of
independent drug stores and small drug store chains has decreased. The Company
expects that consolidation of drug
15
<PAGE>
wholesalers and retailers will increase competitive pricing pressure on
generic drug manufacturers. The Company believes this consolidation has caused
and may continue to cause the Company's customers to reduce purchases of the
Company's products. For the nine months ended September 1997 and for the year
ended December 1996, sales to the Company's ten largest customers represented
approximately 70% of the Company's total net revenues. For the nine months
ended September 1997, three customers accounted for 17%, 16% and 11%,
respectively, of the Company's total net revenues. The same three customers
accounted for 16%, 15% and 11%, respectively, of the Company's total net
revenues in 1996. The loss of any of these customers could materially and
adversely affect the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Industry Overview."
Dependence on Collaborative Relationships
The Company develops and markets certain products through collaborative
arrangements with other companies through which it gains access to dosage
forms, proprietary drug delivery technology, specialized formulation
capabilities and active pharmaceutical ingredients. The Company relies on its
collaborative partners for any number of functions, including product
formulation, approval and supply. There can be no assurance these products
will be successfully developed or that the Company's partners will perform
their obligations under these collaborative arrangements. Further, there can
be no assurance that the Company will be able to enter into future
collaborative arrangements on favorable terms, or at all. Even if the Company
enters into such collaborative arrangements, there can be no assurance that
any such arrangement will be successful. See "Business--Strategy" and
"Business--Strategic Collaborations."
Supply of Raw Materials
The principal components of the Company's products are active and inactive
pharmaceutical ingredients and certain packaging materials. Many of these
components are available only from a single source and, in many of the
Company's ANDAs, only one supplier of raw materials has been identified, even
in instances when multiple sources exist. Because FDA approval of drugs
requires manufacturers to specify their proposed suppliers of active
ingredients and certain packaging materials in their applications, FDA
approval of any new supplier would be required if active ingredients or such
packaging materials were no longer available from the specified supplier. The
qualification of a new supplier could delay the Company's development and
marketing efforts. Any interruption of supply could have a material adverse
effect on the Company's ability to manufacture its products or to obtain or
maintain regulatory approval of such products. In addition, the Company
obtains a significant portion of its raw materials from foreign suppliers.
Arrangements with international raw material suppliers are subject, among
other things, to FDA regulation, various import duties and other government
clearances. Acts of governments outside the U.S. may affect the price or
availability of raw materials needed for the development or manufacture of
generic drugs. In addition, recent changes in patent laws in jurisdictions
outside the U.S. may make it increasingly difficult to obtain raw materials
for research and development prior to the expiration of the applicable U.S.
patents. There can be no assurance that the Company will establish or, if
established, maintain good relationships with its suppliers or that such
suppliers will continue to exist or be able to supply ingredients in
conformity with legal or regulatory requirements. See "Business--Strategy" and
"Business--Manufacturing and Distribution."
Risk of Product Liability Claims; No Assurance of Adequate Insurance
The testing, manufacture and sale of pharmaceutical products involve a risk
of product liability claims and the adverse publicity that may accompany such
claims. The Company is a defendant in a number of product liability cases, the
outcome of which the Company believes should not materially and adversely
affect the Company's business, financial condition or results of operations.
Although the Company maintains what it believes to be an adequate amount of
product liability insurance coverage, there can be no assurance that the
Company's existing product liability insurance will cover all current and
future claims or that the Company will be able to maintain existing coverage
or obtain, if it determines to do so, insurance providing additional coverage
at reasonable rates. No assurance can be given that one or more of the claims
arising under any pending or future
16
<PAGE>
product liability cases, whether or not covered by insurance, will not have a
material adverse effect on the Company's business, results of operations or
financial condition. See "Business--Product Liability; Insurance" and
"Business--Legal Proceedings."
Control of the Company
Several of the Company's current principal stockholders are parties to the
Restructuring Agreements (as defined herein), which govern the voting of their
common stock (the "Common Stock") until March 2000. The shares subject to
these agreements represent a majority of the shares of Common Stock
outstanding. Under these agreements, the voting trustee (currently Martin
Sperber, the Chairman of the Board, Chief Executive Officer and President of
the Company), has the right to vote, or direct the vote of, the shares subject
to these agreements. Accordingly, Mr. Sperber is able to control substantially
all matters requiring stockholder approval, including the election of
directors. These agreements remain in effect until March 2000, subject to
earlier termination under certain circumstances. Upon such termination, the
stockholders who are parties to these agreements may be able to control all
matters requiring stockholder approval, including the election of directors.
Bayer Corporation, which owns 28.3% of the outstanding shares of Common
Stock, is a party to an agreement with the Company (the "Standstill") that,
among other things, prevents Bayer Corporation from acquiring or seeking to
acquire control of the Company until May 15, 2001. After such date, Bayer
Corporation has the right to acquire control through open market purchases,
and under certain circumstances within six months of the end of the
Standstill, to acquire from certain principal stockholders of the Company or
from the Company a number of shares that would enable Bayer Corporation to own
a majority of the outstanding shares of Common Stock. During the Standstill,
Bayer Corporation has, under the terms of the Restructuring Agreements, the
right to acquire, including under certain circumstances the right to acquire
from the Company and certain of its principal stockholders, a significant
number of additional shares of Common Stock.
As long as Bayer Corporation owns 10% or more of the outstanding Common
Stock, Bayer Corporation has the right to nominate one member of the Company's
Board of Directors and the right to nominate one or more additional directors,
depending on the number of shares it owns. Until May 15, 2001, the Company may
not undertake certain actions without the consent of Bayer Corporation,
including, among other things, engaging in any business not principally in a
segment of the pharmaceutical or health care industry or amending the
Company's charter or by-laws to require more than majority approval to elect a
majority of the Board of Directors, merge, consolidate or sell all or
substantially all the Company's assets. In addition, until the shares of the
Company's Common Stock held by more than 300 persons who are neither current
stockholders, their permitted transferees nor employees of the Company have a
total market value in excess of $100.0 million, the Company may not undertake
certain other actions without the consent of Bayer Corporation.
Each of the provisions described above may make it more difficult for a
third party to acquire, or may discourage acquisition bids for, Schein. See
"Management--Board of Directors" and "Certain Transactions--Restructuring
Agreements."
Fluctuating Results of Operations
During the past three years, the Company's results of operations have
fluctuated materially on both an annual and a quarterly basis. These
fluctuations have resulted from several factors, including, among others, the
timing of introductions of new products by the Company and its competitors,
timing of receipt of patent settlement revenues, dependence by the Company on
a limited number of products, certain non-recurring expenses related to the
Company's restructuring and relocation in 1994, the Marsam Acquisition (as
defined herein) in 1995 and weak performance by the generic drug industry in
the second half of 1996 and continuing into the first half of 1997. The
Company believes that it will continue to experience fluctuations in net
revenues, gross profit and net income as a result of, among other things, the
timing of regulatory approvals and market introduction of new products by the
Company and its competitors, and downward pressure on pricing for generic
products available from multiple approved sources. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
17
<PAGE>
THE COMPANY
The Company was founded in 1985. From 1992 to 1994, the Company engaged in a
series of corporate reorganization transactions, including the separation of
the Company from Henry Schein, Inc., a company engaged in the direct marketing
of health care products and services to office-based health care
practitioners, and the Company's reincorporation from New York to Delaware by
way of the merger of the Company's parent into the Company. In 1994, Bayer
Corporation purchased 28.3% of the Company's outstanding shares and agreed to
pursue future strategic alliances with the Company. In September 1995, the
Company acquired all the outstanding shares of Marsam, a developer,
manufacturer and marketer of generic injectable prescription drugs.
The Company is a Delaware corporation with its corporate offices at 100
Campus Drive, Florham Park, New Jersey 07932. Its telephone number is (973)
593-5500.
USE OF PROCEEDS
The Company is amending the terms of the Senior Subordinated Loan Agreement
to allow for the issuance of the Notes and intends to use the net proceeds of
the Offering to repay the Senior Subordinated Loan.
18
<PAGE>
CAPITALIZATION
The following table sets forth the total short-term debt and total
capitalization of the Company as of September 1997 (i) on a historical basis
and (ii) as adjusted to give effect to the Offering and the payment of $4.2
million in fees and expenses in connection therewith using proceeds from the
Company's revolving credit facility under the Senior Credit Agreement. This
table should be read in conjunction with the Consolidated Financial Statements
of the Company and the notes thereto included elsewhere in this Offering
Memorandum. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 1997
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
SHORT-TERM DEBT:
Revolving credit facility (1)........................... $ 26,000 $ 30,200
Current portion of term loan facility................... 6,842 6,842
Current portion of capitalized lease obligations........ 101 101
-------- --------
Total short-term debt................................. $ 32,943 $ 37,143
======== ========
LONG-TERM DEBT:
Term loan facility...................................... $123,158 $123,158
Senior Subordinated Loan................................ 100,000 --
Senior Floating Rate Notes Due 2004..................... -- 100,000
Capitalized lease obligations........................... 312 312
-------- --------
Total long-term debt.................................. 223,470 223,470
-------- --------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 529 authorized shares, 273
issued
and outstanding, actual and as adjusted................ 3 3
Additional paid-in capital.............................. 38,876 38,876
Retained earnings....................................... 92,107 92,107
Other................................................... 6,098 6,098
-------- --------
Total stockholders' equity............................ 137,084 137,084
-------- --------
Total capitalization................................ $360,554 $360,554
======== ========
</TABLE>
- --------
(1) After giving effect to the Offering, the Company would have had
approximately $69.8 million of borrowing availability under the Senior
Credit Agreement, subject to satisfaction of certain conditions. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's financial position at December 1995 and 1996, and its results of
operations for the years ended December 1994, 1995 and 1996, has been derived
from the audited consolidated financial statements of the Company included
elsewhere in this Offering Memorandum. The selected consolidated financial
information with respect to the Company's financial position at December 1992,
1993 and 1994, and its results of operations for the years ended December 1992
and 1993, has been derived from the audited consolidated financial statements
of the Company which are not included in this Offering Memorandum. The
information for the interim periods is unaudited; however, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such information have been included. The
interim results of operations may not be indicative of the results for the
full year. The selected consolidated financial data presented below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Offering
Memorandum.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER SEPTEMBER
------------------------------------------------ ----------------------
1992 1993 1994 1995 (1) 1996 1996 1997
-------- -------- -------- -------- -------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $319,875 $393,926 $385,428 $391,846 $476,295 $352,172 $353,829
Cost of sales........... 207,276 217,653 237,380 250,507 320,675 236,721 240,562
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 112,599 176,273 148,048 141,339 155,620 115,451 113,267
COSTS AND EXPENSES:
Selling, general and
administrative........ 55,763 64,489 71,416 73,250 84,366 61,149 57,950
Research and
development........... 14,234 18,055 19,170 28,324 27,030 23,044 22,854
-------- -------- -------- -------- -------- -------- --------
42,602 93,729 57,462 39,765 44,224 31,258 32,463
Amortization of
goodwill and other
intangibles........... -- -- -- 3,399 10,195 7,713 7,722
Special compensation,
restructuring and
relocation (2)........ 7,417 8,426 33,594 -- -- -- --
Acquired in-process
Marsam research and
development (1)....... -- -- -- 30,000 -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income........ 35,185 85,303 23,868 6,366 34,029 23,545 24,741
Interest expense, net.. 2,315 1,467 1,493 10,005 23,285 16,081 20,456
Other expense (income),
net (3)............... 195 9,215 579 779 4,156 1,745 (4,536)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes and minority
interest............... 32,675 74,621 21,796 (4,418) 6,588 5,719 8,821
Provision for income
taxes (4)............. 12,490 29,096 15,165 10,482 5,191 3,573 5,095
Minority interest...... 2,173 (343) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 18,012 $ 45,868 $ 6,631 $(14,900) $ 1,397 $ 2,146 $3,726
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA (as defined) (5). $ 39,748 $ 91,864 $ 61,074 $ 50,396 $ 54,932 $ 39,174 $ 40,037
Depreciation and
amortization........... 6,105 7,328 8,464 17,395 25,450 18,018 19,749
Capital expenditures,
net.................... 17,416 22,806 16,135 13,986 11,309 8,625 8,992
Ratio of earnings to
fixed charges (6)...... 10.6x 26.9x 8.0x -- 1.3x 1.3x 1.4x
PRO FORMA DATA:
Cash interest expense
(7).................... $ 23,488 $ 16,788 $ 17,897
Ratio of EBITDA (as
defined) to cash
interest expense....... 2.3x 2.3x 2.2x
Ratio of total debt to
EBITDA (as defined)
(8).................... -- -- 4.7x
<CAPTION>
DECEMBER AS OF AS ADJUSTED
------------------------------------------------ SEPTEMBER SEPTEMBER
1992 1993 1994 1995 1996 1997 1997 (9)
-------- -------- -------- -------- -------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 82,731 $ 87,035 $ 98,610 $ 92,021 $ 99,111 $ 93,480 $ 89,280
Total assets............ 211,744 227,861 269,729 522,410 544,312 520,699 524,899
Total debt.............. 44,625 27,563 45,927 280,558 286,480 256,413 260,613
Stockholders' equity.... 85,761 130,336 140,164 125,692 129,980 137,084 137,084
</TABLE>
20
<PAGE>
- --------
(1) Includes the results of Marsam from September 1995, the date of purchase.
In connection with the purchase of Marsam, the Company recognized acquired
in-process research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 to
the Consolidated Financial Statements of the Company.
(2) Special compensation, restructuring and relocation expenses includes costs
recognized by the Company in connection with its restructuring and
relocation of its corporate headquarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 2 and
12 to the Consolidated Financial Statements of the Company.
(3) Other expense (income), net in 1992 includes $0.5 million of an
extraordinary income item.
(4) Provision for income taxes in 1993 includes an adjustment to reduce income
taxes by $1.1 million relating to the adoption of Statement of Financial
Accounting Standards No. 109.
(5) EBITDA is defined as income (loss) before provision for income taxes and
minority interest, interest expense, net and depreciation and
amortization, excluding gains on sales of securities and non-cash items
(special compensation, acquired in-process Marsam research and
development, contingent settlement accruals, equity in net losses of
international investments and other non-cash items). The Company has
included information concerning EBITDA in this Offering Memorandum because
it believes that such information may be used by certain investors as one
measure of a company's historical ability to service debt. EBITDA should
not be considered as an alternative to, or more meaningful than, earnings
from operations or other traditional indications of a company's operating
performance.
(6) The ratio of earnings to fixed charges is computed by dividing (i) income
(loss) before provision for income taxes and minority interest plus fixed
charges by (ii) fixed charges. Fixed charges consist of interest on
indebtedness including amortization of debt issuance costs and the
estimated interest component of rental expense (assumed to be one-third).
In fiscal 1995, fixed charges exceeded income (loss) before provision for
income taxes and minority interest by $4.4 million.
(7) Pro forma cash interest expense is defined as historical interest expense,
net adjusted for (i) the exclusion of amortization of deferred financing
fees of $2.2 million in fiscal 1996 and $0.9 million and $2.3 million in
the nine months ended September 1996 and 1997, respectively, (ii) interest
expense as if the Offering had occurred on December 31, 1995 and the
proceeds were used to repay the Senior Subordinated Loan or its
predecessor debt and (iii) interest expense associated with drawdowns
under the revolving credit facility under the Senior Credit Agreement
which were used to pay the $4.2 million in fees and expenses incurred as a
result of the Offering.
(8) The ratio of total debt to EBITDA (as defined) is computed by dividing (i)
EBITDA (as defined) for the twelve months ended September 1997 by (ii)
total debt as of September 1997 as adjusted for the Offering.
(9) As adjusted to give effect to the Offering and the payment of $4.2 million
in fees and expenses in connection therewith, using proceeds from the
Company's revolving credit facility under the Senior Credit Agreement.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Consolidated Financial
Statements of the Company and notes thereto included elsewhere in this
Offering Memorandum. This Offering Memorandum contains forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Offering Memorandum should be read as being applicable
to all related forward-looking statements wherever they appear in this
Offering Memorandum. See "Risk Factors."
OVERVIEW
The Company currently manufactures and markets two classes of pharmaceutical
products, generic products and branded products. The Company's results of
operations depend on the Company's ability to develop and commercialize new
pharmaceutical products. Generally, following the expiration of patents and
any other market exclusivity periods for branded drugs, the first
pharmaceutical manufacturers successfully to market generic equivalents of
such drugs achieve higher revenues and gross profit from the sale of such
generic drugs than do others from the sale of generic equivalents subsequently
approved. As competing generic equivalents reach the market, the prices, sales
volumes and profit margins of the earliest generic versions often decline
significantly. For these reasons, the Company's ability to achieve growth in
revenues and profitability depends on its being among the first companies to
introduce new generic products. During the past five years, the Company has
introduced a significant number of generic products to the market at patent
expiration dates and in a number of cases prior to patent expiration of the
branded product by successful challenges to the patent under the Waxman-Hatch
Act.
The Company's dependence on a limited number of products, the product cycles
of such products, and the timing of receipt of patent settlement revenues have
resulted in significant fluctuations in the Company's earnings. Continued
growth in the Company's revenues will depend on continued market demand for
its products, as well as the successful introduction and marketing of new
products.
Net revenues from INFeD as a portion of total net revenues increased from
16% in 1994 to 20% in the nine months ended September 1997. Gross profit
margins on INFeD exceed gross profit margins on the Company's generic products
generally; accordingly, the gross profit from increased sales of INFeD have
offset the reduction in gross profit from generic products during the periods
presented.
The following table sets forth the net revenues of the Company's generic and
branded businesses for each of the periods shown:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER SEPTEMBER
-------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Generic business:
Core products......................... $291.9 $300.8 $331.6 $ 247.6 $ 221.4
Nortriptyline......................... 32.6 19.0 9.0 7.3 4.5
Vecuronium bromide.................... -- -- 34.2 23.2 30.8
Patent settlement revenues............ -- 5.0 13.5 13.5 25.0
------ ------ ------ -------- --------
Total generic revenues................ 324.5 324.8 388.3 291.6 281.7
Branded business:
INFeD................................. 60.9 67.0 88.0 60.6 72.1
------ ------ ------ -------- --------
Net revenues........................ $385.4 $391.8 $476.3 $ 352.2 $ 353.8
====== ====== ====== ======== ========
</TABLE>
22
<PAGE>
From 1992 to 1994, the Company engaged in a series of corporate
reorganization transactions, including the separation of the Company from
Henry Schein, Inc., which is engaged in the direct marketing of health care
products and services to office-based health care practitioners. In connection
with these transactions, Bayer Corporation purchased from the Company's
stockholders 28.3% of the Company's outstanding shares for $312.4 million and
agreed with the Company to pursue future strategic alliances. Charges for
special compensation, restructuring and relocation incurred in connection with
the reorganization aggregated $7.4 million, $8.4 million and $33.6 million for
1992, 1993 and 1994, respectively.
The Company acquired all the outstanding capital stock of Marsam (the
"Marsam Acquisition") in September 1995 for $245.0 million in cash, which
expanded the Company's ability to manufacture sterile penicillins and oral and
sterile cephalosporins.
RESULTS OF OPERATIONS
The following table sets forth certain selected income statement data as a
percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER SEPTEMBER
----------------------- ------------
1994 1995 1996 1996 1997
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 61.6 63.9 67.3 67.2 68.0
------ ------ ------ ----- -----
Gross profit............................ 38.4 36.1 32.7 32.8 32.0
Costs and expenses:
Selling, general and administrative... 18.5 18.7 17.7 17.4 16.4
Research and development.............. 5.0 7.2 5.7 6.5 6.4
Amortization of goodwill and other
intangibles.......................... -- 0.9 2.1 2.2 2.2
Special compensation, restructuring
and relocation....................... 8.7 -- -- -- --
Acquired in-process Marsam research
and development...................... -- 7.7 -- -- --
------ ------ ------ ----- -----
Operating income........................ 6.2 1.6 7.2 6.7 7.0
Interest expense, net................. 0.4 2.5 4.9 4.6 5.8
Other expense (income), net........... 0.2 0.2 0.9 0.5 (1.3)
------ ------ ------ ----- -----
Income (loss) before provision for
income taxes........................... 5.6 (1.1) 1.4 1.6 2.5
Provision for income taxes............ 3.9 2.7 1.1 1.0 1.4
------ ------ ------ ----- -----
Net income (loss)....................... 1.7% (3.8)% 0.3% 0.6% 1.1%
====== ====== ====== ===== =====
</TABLE>
Nine Months Ended September 1997 Compared to Nine Months Ended September 1996
Net revenues increased $1.6 million, or 0.5%, from $352.2 million in 1996 to
$353.8 million in 1997. In the branded business, sales increased $11.5
million, which offset a decline in sales of generic products of $9.9 million.
The increase in branded product sales reflected largely an increase in units
sold. The decline in generic revenues resulted from a $26.2 million decline in
the sales of core products and a $2.8 million decline in sales of
nortriptyline, offset by an $11.5 million increase in patent settlement
revenues received in the first quarter of 1997 and a $7.6 million increase in
sales of vecuronium bromide. The decrease in sales of core products reflected
the strategic decision in the second half of 1996 to discontinue certain low-
margin manufactured products and to reduce selling efforts on outsourced
products as well as competitive pressures on other core products, which was
offset by the impact of a $6.4 million increase in sales of new products.
Gross profit decreased $2.2 million, or 1.9%, from $115.5 million in 1996 to
$113.3 million in 1997. The gross profit margin decreased from 32.8% in 1996
to 32.0% in 1997. This decline in gross profit was largely comprised of a
decline in gross profit on core products which was partially offset by
increased gross profit on INFeD, vecuronium bromide and new products. Gross
profit from patent settlements received in the first quarters of 1996 and 1997
contributed an additional $5.6 million, reduced by increased manufacturing
variances and other
23
<PAGE>
costs of $4.6 million. In the third quarter of 1997 compared to the third
quarter of 1996, the gross profit margin decreased from 32.6% to 29.7%,
reflecting a less favorable mix of products sold as well as competitive price
pressures.
Selling, general and administrative expenses decreased $3.2 million, or
5.2%, from $61.1 million in 1996 to $58.0 million in 1997. Selling, general
and administrative expenses as a percent of net revenues decreased from 17.4%
in 1996 to 16.4% in 1997. The decrease in selling, general and administrative
expenses was due primarily to the effects of various cost reduction
initiatives, including a reduction in the retail field sales force. In the
third quarter of 1997, the Company experienced increased selling, general and
administrative expenses compared to earlier quarters of 1997 due primarily to
higher brand marketing expenses.
Research and development expenses decreased $0.2 million, or 0.8%, from
$23.0 million in 1996 to $22.8 million in 1997. However, expenses in the third
quarter of 1997 increased compared to earlier 1997 quarters largely reflecting
costs associated with a development project nearing launch stage.
Amortization of goodwill and other intangibles was unchanged compared to the
comparable period in 1996.
As a result of the factors discussed above, operating income increased $1.2
million, or 5.1%, from $23.5 million in 1996 to $24.7 million in 1997.
Interest expense, net increased $4.4 million, or 27.2%, from $16.1 million
in 1996 to $20.5 million in 1997 principally due to higher amortization of
deferred financing expenses of $2.5 million and increased interest costs of
$1.5 million resulting from refinancing of senior debt with higher cost
subordinated debt in December 1996.
Other expense (income), net changed by $6.3 million from an expense of $1.7
million in 1996 to income of $4.5 million in 1997. Gains on the sale of
marketable securities of $9.9 million, primarily in the third quarter of 1997,
offset increased equity losses from the Company's investment in international
joint ventures of $1.0 million and other expenses.
The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses. The effective tax rate
decreased from 62.5% in 1996 to 57.8% in 1997, primarily as a result of higher
income offsetting fixed non-deductible expenses.
1996 Compared to 1995
Net revenues increased $84.4 million, or 21.6%, from $391.9 million in 1995
to $476.3 million in 1996. In the generic business, net revenues increased
$63.5 million, and in the branded business, net revenues increased $21.0
million, driven by increased unit sales of INFeD. Increased revenues of
generic products consisted of $34.2 million in sales generated by vecuronium
bromide, a new product launched in March 1996, an $8.5 million increase in
patent settlement revenues and a $30.8 million increase in sales of the
Company's core products, offset in part by a decline in nortriptyline sales of
$10.0 million. The sales of core products increased primarily from the Marsam
Acquisition, which increased core product sales by $31.4 million, and from
$7.6 million in sales of new products, offset by an $8.2 million decrease in
sales of the Company's other core products, due primarily to price decreases.
The Company's gross profit increased $14.3 million, or 10.1%, from $141.3
million in 1995 to $155.6 million in 1996. The gross profit margin fell from
36.1% in 1995 to 32.7% in 1996. An increase in gross profit of $31.2 million
was attributable to the Company's branded business, vecuronium bromide and
patent settlement revenues, which was partially offset by a $12.6 million
increase in manufacturing and regulatory costs.
Selling, general and administrative expenses increased $11.1 million, or
15.2%, from $73.3 million in 1995 to $84.4 million in 1996. Selling, general
and administrative expenses decreased as a percentage of net revenues from
18.7% in 1995 to 17.7% in 1996. Selling, general and administrative expenses
increased due primarily to increased sales volume, the full year impact of the
Marsam Acquisition of $2.6 million and an increase in promotional activities
in support of new product launches.
24
<PAGE>
Research and development expenses decreased $1.3 million, or 4.6%, from
$28.3 million in 1995 to $27.0 million in 1996. Acquired in-process Marsam
research and development charges of $30.0 million were fully reflected in
1995.
Amortization of goodwill and other intangibles increased $6.8 million from
$3.4 million in 1995 to $10.2 million in 1996, giving effect to the full year
impact of the Marsam Acquisition.
As a result of the factors discussed above, operating income increased $27.7
million from $6.3 million in 1995 to $34.0 million in 1996.
Interest expense, net increased $13.3 million from $10.0 million in 1995 to
$23.3 million in 1996. The increase was due primarily to the increase in
average debt associated with the debt financing for the Marsam Acquisition and
higher interest rates.
Other expense (income), net increased by $3.4 million from $0.8 million in
1995 to $4.2 million in 1996. Equity losses from the Company's investment in
international joint ventures accounted for $3.0 million of the increase.
The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses. The 1996 effective income
tax rate of 78.9% represented a decrease from the 1995 effective rate of
237.3% primarily due to the impact of certain non-recurring and non-deductible
expenses, which were largely comprised of the acquired in-process Marsam
research and development charge of $30.0 million.
1995 Compared to 1994
Net revenues increased $6.4 million, or 1.7%, from $385.4 million in 1994 to
$391.8 million in 1995. In the branded business, net revenues increased $6.1
million, and in the generic business, net revenues increased $0.3 million. The
increase in net revenues in the branded business resulted from an increased
number of units of INFeD sold. In the generic business, the changes consisted
of increases of $4.8 million in sales of new products, $5.0 million in new
patent settlement revenues and $14.0 million from the impact of the Marsam
Acquisition. These increases in the generic business were offset by a $13.6
million decrease in sales of nortriptyline and a $4.1 million decrease in
sales of the Company's other core products due primarily to price declines.
The Company's gross profit decreased $6.7 million, or 4.5%, from $148.0
million in 1994 to $141.3 million in 1995. The gross profit margin decreased
from 38.4% in 1994 to 36.1% in 1995. The decrease was primarily a result of a
$12.8 million decrease attributable to lower selling prices of nortriptyline
and decreased gross profit on other core products due to competitive pricing
pressures. This was partially offset by a $4.0 million increase representing
the impact of the Marsam Acquisition, an increase in gross profit in the
Company's branded business and decreased manufacturing and regulatory costs.
Selling, general and administrative expenses increased $1.9 million, or
2.6%, from $71.4 million in 1994 to $73.3 million in 1995. The increase in
selling, general and administrative expenses was due primarily to an increase
in sales volume, an increase in promotional activities in support of the
Company's branded business, new product launches and the Marsam Acquisition.
Selling, general and administrative expenses increased as a percentage of net
revenues from 18.5% in 1994 to 18.7% in 1995.
Research and development expenses increased $9.1 million, or 47.8%, from
$19.2 million in 1994 to $28.3 million in 1995. Of the $9.1 million increase,
$2.1 million represented spending in connection with a worldwide technology
licensing and development agreement which the Company entered into during
September 1994, and the remaining increase in research and development
expenses was attributable to various new in-house development projects.
Amortization of goodwill and other intangibles of $3.4 million and acquired
in-process Marsam research and development charges of $30.0 million in 1995
resulted from the Company's Marsam Acquisition in September 1995. See Note 3
to the Consolidated Financial Statements of the Company.
25
<PAGE>
The corporate reorganization and relocation were completed during 1994,
resulting in a $33.6 million charge. There were no restructuring or relocation
expenses incurred during 1995.
As a result of the factors discussed above, operating income decreased $17.5
million from $23.9 million in 1994 to $6.4 million in 1995.
Interest expense, net increased $8.5 million from $1.5 million in 1994 to
$10.0 million in 1995. The increase was due primarily to the increase in
average debt associated with the debt financing for the Marsam Acquisition
funded in September 1995.
The Company's effective tax rate is higher than the statutory rate due to
the effect of significant non-deductible expenses. The 1995 effective income
tax rate of 237.3% increased from the 1994 effective income tax rate of 69.6%,
primarily due to the impact of certain non-recurring and non-deductible
expenses, which were largely comprised of the acquired in-process Marsam
research and development charge of $30.0 million. The 1994 effective income
tax rate also reflects the impact of non-deductible expenses, primarily
special compensation charges in connection with the corporate reorganization
completed during 1994.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its business operations primarily
through a revolving credit facility and used long-term bank financing to fund
acquisitions. The Company plans to use the proceeds of the Offering as set
forth under "Use of Proceeds."
Net cash provided by operating activities was $27.1 million and $10.8
million in the nine months ended September 1997 and in the year ended December
1996, respectively. The net cash provided by operating activities during 1997
was primarily attributable to net income, as adjusted for non-cash charges, of
$15.9 million and decreases in inventories and accounts receivable aggregating
$11.4 million. The net cash provided by operating activities during 1996 was
primarily attributable to net income, as adjusted for non-cash charges, of
$27.9 million and an increase in accounts payable and accrued expenses of
$11.9 million, offset by an increase in inventories and accounts receivable of
$31.0 million.
Net cash provided by investing activities for the nine months ended
September 1997 and used in investing activities for the year ended December
1996 was $1.2 million and $20.0 million, respectively. Cash provided by
investing activities in 1997 resulted from the proceeds of sales of marketable
securities of $11.6 million, offset primarily by capital expenditures, net of
$9.0 million. The 1996 use of cash in investing activities was primarily due
to capital expenditures, net, purchase of product rights and licenses and
investments in international joint ventures of $17.4 million.
Net cash used in financing activities for the nine months ended September
1997 of $30.1 million resulted from the net repayment of debt. Net cash
provided by financing activities for the year ended December 1996 of $3.6
million was primarily due to net proceeds of debt.
In September 1995, the Company entered into a secured revolving credit and
term loan agreement (as amended, the "Senior Credit Agreement") with a group
of banks to provide funds for the Marsam Acquisition, the repayment of certain
debt, working capital and general corporate purposes. The Senior Credit
Agreement, which expires in December 2001, provided a term loan facility of
$250.0 million and a revolving credit facility of $100.0 million. In December
1996, the Company prepaid $100.0 million of the term loan portion of the
Senior Credit Agreement using the proceeds from a $100.0 million senior
subordinated loan (the "Senior Subordinated Loan") provided by Societe
Generale, New York branch, an affiliate of the Initial Purchaser and a lead-
manager of the Senior Credit Agreement. As a result of this payment and a
scheduled payment, the term loan facility was reduced to $145.0 million at
December 1996. In the first nine months of 1997, the Company made principal
payments of $15.0 million, thus reducing the term loan portion to $130.0
million at September 1997. Quarterly principal payments on the term loan
commence in September 1998 and end in the year 2001. Amortization
26
<PAGE>
amounts will total $13.7 million, $34.2 million, $41.0 million and $41.1
million in years 1998 through 2001, respectively. In addition to such
principal payments, the Company is required to make additional principal
payments in certain circumstances. Amounts outstanding under the revolving
credit facility were $41.0 million and $26.0 million as of December 1996 and
September 1997, respectively.
Borrowings under the Senior Credit Agreement bear interest, which is payable
at least quarterly, at a rate equal to a floating alternate base rate (derived
from the greater of the prime rate of the Credit Agent (as defined herein),
the three-month secondary market rate for certificates of deposit plus 1.00%
and the Federal Funds rate plus 1/2 of 1.00%), plus a margin ranging from zero
to 1.50% or at a rate equal to LIBOR (as defined herein) plus a margin ranging
from 0.75% to 2.50%, depending on the type of borrowing and the Company's
performance against certain criteria. Outstanding borrowings under the Senior
Subordinated Loan through January 31, 1998 bear interest, payable quarterly,
at a rate equal to a floating alternate base rate (derived from the greater of
Societe Generale's prime rate, the three-month secondary market rate for
certificates of deposit plus 1.00% and the Federal Funds rate plus 1/2 of
1.00%) plus a margin of 3.00% or a rate equal to LIBOR plus a margin of 4.00%.
The original obligations under the Senior Subordinated Loan will be
effectively replaced by the Notes offered hereby. See "Description of Certain
Indebtedness."
The Company believes that its existing credit facilities and cash expected
to be generated from operations are sufficient to finance its current level of
operations and currently contemplated capital expenditures.
The Company has signed a non-binding letter dated October 7, 1997 with
Cheminor Drugs Limited and its subsidiaries ("Cheminor") and Dr. Reddy's
Laboratories Limited and its subsidiaries ("Reddy") outlining the parties'
intent to enter into a strategic alliance agreement. Cheminor will make
available to the Company its present and future dosage form generic products
on an exclusive basis in the United States and in certain countries, and the
Company will make available to Cheminor and Reddy its present and future
products on an exclusive basis for sale in India and certain other countries.
Cheminor and Reddy will make available to the Company bulk active
pharmaceutical ingredients. As part of the contemplated arrangement, the
Company would purchase 2.0 million publicly traded shares of Cheminor Drugs
Limited for $10.0 million, and under certain circumstances have the right and
the obligation to purchase an additional 1.0 million shares for $5.0 million.
Cheminor would have the right to make fair market value purchases of the
Company's Common Stock, once the shares are publicly traded; the purchase
price could be payable from profits otherwise due Cheminor from the alliance.
Each party would also be entitled to representation on the other company's
board of directors consistent with its equity interest. See "Certain
Transactions."
In the event the Company makes any significant acquisitions, it may be
required to raise additional funds through the issuance of additional debt or
equity securities. There can be no assurance that such funds, if required,
would be available or, if available, would be on terms acceptable to the
Company.
The Company has filed a registration statement covering an initial public
offering (the "Common Stock Offering") of its Common Stock. Consummation of
each of this Offering and the Common Stock Offering is not contingent upon
consummation of the other. There can be no assurance that the filing will
become effective or that any shares will be sold. If the Common Stock Offering
occurs, the Company intends to use a portion of the net proceeds from the
Common Stock Offering to repurchase or redeem a portion of the Notes offered
hereby.
QUARTERLY INFORMATION
As a result of a variety of factors, including the introduction of new
products by the Company, the timing of receipt of patent settlement revenues
and changes in the degree of competition for the Company's products, the
Company's quarterly results of operations have fluctuated significantly and
are expected to fluctuate significantly in the future.
27
<PAGE>
The following tables present unaudited quarterly financial data for the
years 1995 and 1996, and for the nine months ended September 1997. The Company
believes all necessary adjustments have been included in the amounts stated
below to present fairly the selected quarterly information when read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 1995 YEAR ENDED DECEMBER 1996 SEPTEMBER 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------------------------- ------------------------------------ --------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Net product
sales.......... $83,978 $98,880 $ 96,344 $107,644 $109,949 $120,398 $108,325 $124,123 $106,839 $114,441 $107,549
Patent
settlements.... 5,000 -- -- -- 13,500 -- -- -- 25,000 -- --
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total net
revenues....... 88,978 98,880 96,344 107,644 123,449 120,398 108,325 124,123 131,839 114,441 107,549
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit..... 34,454 39,141 33,303 34,441 42,420 37,620 35,411 40,169 44,722 36,568 31,977
Cost and
expenses:
Selling, general
and
administrative. $18,214 18,298 17,955 18,783 19,907 20,755 20,487 23,217 19,227 18,478 20,245
Research and
development.... 7,579 7,996 7,331 5,418 7,242 8,119 7,683 3,986 6,744 7,434 8,676
Amortization of
goodwill and
other
intangibles.... -- -- 1,128 2,271 2,548 2,550 2,615 2,482 2,550 2,598 2,574
Acquired in-
process Marsam
research &
development.... -- -- 30,000 -- -- -- -- -- -- -- --
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss).......... 8,661 12,847 (23,111) 7,969 12,723 6,196 4,626 10,484 16,201 8,058 482
Interest
expense, net... 743 954 2,790 5,518 5,321 5,379 5,382 7,203 6,884 6,850 6,722
Other expense
(income), net.. 519 607 456 (803) 126 79 1,539 2,412 1,809 (426) (5,919)
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
before
provision for
income taxes... 7,399 11,286 (26,357) 3,254 7,276 738 (2,295) 869 7,508 1,634 (321)
Provision for
income taxes... 2,996 4,571 1,693 1,222 3,343 733 (503) 1,618 3,625 1,315 155
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss).......... 4,403 6,715 (28,050) 2,032 3,933 5 (1,792) (749) 3,883 319 (476)
======= ======= ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
INFLATION
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
Disclosures about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in asserting performance.
28
<PAGE>
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Results of operations and financial position
will be unaffected by implementation of these new standards. The Company has
not determined whether either of these two standards will have a material
impact on its financial statement disclosure.
RISK MANAGEMENT
The Company is potentially subject to a concentration of credit risk with
respect to its trade receivables, the majority of which are due from
wholesalers, drug store chains and distributors. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains sufficient allowances and insurance to cover potential
or anticipated losses for uncollectible accounts.
The Company considers its investment in international subsidiaries and joint
ventures to be both long-term and strategic. As a result, the Company does not
hedge the long-term translation exposure to its balance sheet. Foreign
currency translations to date have not been material.
YEAR 2000 COMPLIANCE
The Company is modifying its computer systems to be Year 2000 compliant. The
Company does not expect that the cost of modifying such systems will be
material. The Company believes it will achieve Year 2000 compliance in advance
of the year 2000 and does not anticipate any material disruption in its
operations as the result of any failure by the Company to be in compliance.
The Company does not have any information concerning the Year 2000 compliance
status of its suppliers and customers.
29
<PAGE>
BUSINESS
GENERAL
Schein Pharmaceutical is one of the leading generic pharmaceutical companies
in the United States. The Company develops, manufactures and markets one of
the broadest generic product lines in the pharmaceutical industry through the
integration of its product development expertise, diverse, high-volume
production capacity and direct sales and marketing forces. The Schein product
line includes both solid dosage and sterile dosage generic products, and the
Company is also developing a line of specialty branded pharmaceuticals. The
Company's primary branded product, INFeD, is the leading injectable iron
product in the United States. The Company has a substantial pipeline of
products under development, including 24 ANDAs filed with FDA. The Company
supplements its internal product development, manufacturing and marketing
capabilities through strategic collaborations. Schein generated net revenues
of $478.0 million and EBITDA (as defined) of $55.8 million during the 12
months ended September 1997.
The Company believes it manufactures and markets the broadest product line
of any U.S. pharmaceutical company in terms of number and types of products.
The Company manufactures and markets approximately 160 chemical entities
formulated in approximately 350 different dosages under approximately 200
ANDAs approved by FDA. Schein is currently the sole manufacturing source for
47 generic pharmaceutical products, of which 45 are sterile dosage products.
The Company's solid dosage products include both immediate-release and
extended-release capsules and tablets; sterile dosage products include
solutions, suspensions, powders and lyophilized (freeze-dried) products
primarily for administration as injections, ophthalmics and otics. The
manufacture of sterile dosage products is significantly more complex than the
manufacture of solid dosage products, which limits competition in this product
area. The Company currently manufactures approximately four billion solid
dosage tablets and capsules and 75 million sterile dosage vials and ampules
annually. Solid dosage generic products and sterile dosage generic products
each accounted for approximately 40% of the Company's net revenues in the 12
months ended September 1997.
Since introducing INFeD in 1992, the Company has been developing a portfolio
of branded products, primarily in select therapeutic markets, such as iron
management for the nephrology, oncology and hematology markets. INFeD is used
in the treatment of certain types of anemia, particularly in dialysis
patients, and accounted for approximately 20% of the Company's net revenues in
the nine months ended September 1997. The Company markets INFeD through a 20-
person dedicated sales and marketing force, as well as through co-marketing
collaborations with Bayer Corporation in the nephrology market and MGI in the
oncology market.
The Company believes its 120-person direct sales and marketing force is the
largest in the U.S. generic pharmaceutical industry. Through its customized
marketing programs, the Company markets its products to approximately 60,000
customers representing all major customer channels, including pharmaceutical
wholesalers, chain and independent drug retailers, hospitals, managed care
organizations, other group purchasing organizations and physicians.
Schein's objective is to become the leading generic pharmaceutical company
in the approximately $10 billion generic pharmaceutical industry in the United
States. The Company's growth strategy is to: (i) leverage its diverse
pharmaceutical formulation and manufacturing capabilities to extend the
breadth of its generic product line; (ii) pursue strategic collaborations to
supplement product development and manufacturing resources; (iii) focus its
product development on complex and other generic drugs that require
specialized development or manufacturing technology and are therefore expected
to encounter limited competition; (iv) develop and market branded drugs for
select therapeutic categories; and (v) expand market penetration through
direct sales and innovative marketing programs.
The Company's commitment to product development has resulted in 23 ANDA
approvals during the past three years and its current pipeline of 24 pending
ANDAs and over 60 additional products under development. During the past three
fiscal years, the Company, directly and through its strategic collaborations,
has expended
30
<PAGE>
approximately $74.0 million on product pipeline development activities, which
the Company believes is among the highest product development expenditure
levels for any independent generic drug company. The Company pursues product
development through its 140-person product development staff and various
collaborations and licensing arrangements with other pharmaceutical and drug
delivery technology companies. The Company's product development efforts focus
on: (i) major branded drugs coming off patent; (ii) drugs for which patent
protection has lapsed and for which there are few or no generic producers;
(iii) drugs whose patents may be susceptible to challenge; (iv) proprietary
and branded products focused in select therapeutic areas; and (v) generic
products that require specialized development, formulation, drug delivery or
manufacturing technology.
The Company supplements its internal product development, manufacturing and
marketing capabilities from external sources. During 1994, Schein entered into
a strategic alliance with Bayer Corporation, through which Bayer Corporation
became a 28.3% stockholder of Schein, and Bayer Corporation currently
participates with Schein in several collaborations. In 1995, the Company
acquired Marsam, expanding the Company's ability to develop and manufacture
sterile penicillins and oral and sterile cephalosporins. In addition, the
Company has entered into strategic collaborations involving product
development arrangements with companies such as Ethical and Elan; raw material
supply arrangements with companies such as Johnson Matthey and Abbott; and
sales and marketing arrangements with Bayer and other companies such as
Elensys and MGI.
INDUSTRY OVERVIEW
In the U.S., pharmaceutical products are marketed as either branded or
generic. Branded products are marketed under brand names and through programs
designed to attract physician and consumer loyalty. Branded drugs generally
are covered by patents at the time of their market introduction, thereby
resulting in periods of market exclusivity for the patent holders. Following
the expiration of these patents, marketing of branded drugs often continues,
particularly in cases where there is significant physician or consumer
loyalty.
Generic pharmaceuticals (also known as "multi-source" or "off-patent"
pharmaceuticals) are the chemical and therapeutic equivalents of branded
drugs. Under the Waxman-Hatch Act, generic drugs generally may be sold in the
United States following (i) FDA approval of an ANDA that includes evidence
that the generic drug is bioequivalent to its branded counterpart and (ii) the
expiration, invalidation or circumvention of any patents on the corresponding
branded drug and the expiration of any other market exclusivity periods
applicable to the branded drug.
Since the adoption of the Waxman-Hatch Act, generic pharmaceuticals have
become an increasingly important segment of the U.S. pharmaceutical market,
particularly when measured in terms of the increasing rate at which doctors'
prescriptions have allowed generic drugs to be substituted for branded drugs.
In 1996, prescriptions dispensed in the United States for generic drugs
reached 40% of the total drug prescriptions dispensed. In terms of dollar
sales, however, generic drugs have accounted for a much lower percentage of
the total U.S. pharmaceutical market. In 1996, sales of generic drugs
accounted for approximately $10 billion out of a total U.S. prescription
pharmaceutical market of approximately $83 billion.
The lower percentage of total dollar sales attributable to generic
pharmaceuticals compared to the growth in the number of generic pharmaceutical
prescriptions dispensed reflects the pricing dynamics for generic
pharmaceuticals. As the number of commercially available generic competitors
of a branded drug increases, their selling prices and gross margins decline
substantially. Generic drugs are generally sold at a 20% to 80% discount from
their branded counterparts. Intense price competition in the generic drug
industry requires companies to introduce new generic drug products regularly
in order to maintain and increase revenues.
Growth of the generic drug industry has been driven primarily by the dollar
volume of branded drugs that have lost patent protection and the rising rate
at which generic drugs have been substituted for branded drugs. Industry
sources estimate that, during the next five years, branded drugs with 1996
U.S. sales of more than $13 billion will lose patent protection. The rising
rate of generic substitution has resulted in large part from increasing
pressure within the U.S. health care industry to contain costs. Due to the
lower cost of generic drugs compared
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<PAGE>
to their branded counterparts, third party payors, such as insurance
companies, company health plans, health maintenance organizations, managed
care organizations, pharmacy benefit managers, group purchasing organizations,
government-based programs and others, have adopted policies that encourage or
mandate generic substitution. In addition, physicians, pharmacists and
consumers are becoming increasingly comfortable with the quality and
therapeutic equivalence of generic drugs.
A significant portion of pharmaceuticals are distributed in the United
States through wholesale drug distributors and major retail drug store chains.
During the past several years, there has been a consolidation of these
distribution channels, resulting in a smaller number of wholesale distributors
and the emergence of fewer, larger regional and nationwide retail drug store
chains. In addition to forcing generic drug manufacturers to lower their
prices and/or provide volume discounts, these customers have also been seeking
to reduce the number of sources from which they purchase pharmaceutical
products.
Participants in the generic drug market include independent generic drug
manufacturers such as the Company, generic drug subsidiaries of large branded
pharmaceutical companies and joint ventures and collaborations between branded
pharmaceutical companies and generic drug manufacturers. The participation of
branded pharmaceutical companies in the U.S. generic industry accelerated
during the first half of the 1990s as pricing pressure and generic
substitution grew. The extent to which the branded pharmaceutical companies
will continue to participate in the generic drug industry segment cannot be
predicted by the Company.
The Company believes it is well positioned to capitalize on these industry
trends by leveraging its product development, manufacturing and marketing
capabilities to expand its market penetration.
STRATEGY
The Company's objective is to become the leading generic pharmaceutical
company in the approximately $10 billion generic pharmaceutical industry in
the United States. The Company's strategy for achieving this objective
comprises the following five elements:
Leverage Diverse Pharmaceutical Formulation and Manufacturing Capabilities
to Extend the Breadth of Its Generic Product Line. The Company believes it
manufactures and markets the broadest product line of any U.S. pharmaceutical
company. This product line includes both solid dosage and sterile dosage
products comprising approximately 160 chemical entities in approximately 350
dosage forms and strengths under approximately 200 approved ANDAs. Solid
dosage forms include both immediate-release and extended-release capsules and
tablets; sterile dosage forms include solutions, suspensions, powders and
lyophilized (freeze-dried) products primarily for administration as
injections, ophthalmics and otics. The Company believes its diverse high-
volume manufacturing capabilities enable it to participate in segments of the
generic drug industry where competition is limited. As the U.S. generic drug
market consolidates and major drug buyers increasingly purchase from fewer
suppliers, the Company believes its high volume and diverse drug formulation
and manufacturing capabilities will constitute an important competitive
advantage.
Pursue Strategic Collaborations to Supplement Product Development and
Manufacturing Resources. Schein has formed product development and marketing
alliances with several bulk pharmaceutical producers, drug delivery technology
companies and other drug manufacturers to expand the breadth of its product
development capabilities. Included among these are collaborations with drug
delivery companies, Elan and Ethical, and several bulk pharmaceutical and
finished dosage form producers. The Company plans to utilize collaborative and
licensing arrangements with third parties to share product development risk
and gain access to sales and marketing rights, dosage forms, proprietary drug
delivery technologies, specialized formulation capabilities and active
pharmaceutical ingredients.
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<PAGE>
Focus Product Development on Complex and Other Generic Drugs that Require
Specialized Development or Manufacturing Technology and Encounter Limited
Competition. The Company targets generic drugs for which it believes it can
achieve relatively high margins by being the first or among the first generic
manufacturers to launch the product. The Company is currently the sole generic
source for 47 products, and the Company is developing several "complex
generic" drugs that are difficult to duplicate due to formulation and/or
manufacturing complexities and other generic drugs for which raw materials are
in limited supply. In addition, the Company closely analyzes pharmaceutical
patents and initiates patent challenges where appropriate opportunities exist.
Products currently being considered for development include several that could
lead to patent challenges. The Company has generated significant revenues and
profits from generic products that have been the subject of successful patent
challenges initiated by the Company.
Develop and Market Branded Drugs for Select Therapeutic
Categories. Leveraging its broad pharmaceutical formulation, development and
manufacturing capabilities, the Company targets branded drug development and
marketing opportunities in select therapeutic categories with limited
competition. The Company's branded drug development and marketing efforts
currently focus on injectable products used in the management of iron-related
disorders. The Company's first branded product, INFeD, is the leading
injectable iron product in the U.S. Schein's near-term development plan is to
expand the Company's iron management expertise into the oncology, hematology
and gastroenterology markets, and the Company expects that an NDA for its next
generation injectable iron product will be filed with FDA in the first half of
1998. The Company also is pursuing opportunities to broaden its branded
pharmaceutical product line by: (i) formulating and developing, either
internally or through development collaborations, unique products that may be
patented; (ii) acquiring products developed by other drug companies; and (iii)
acquiring formulation technologies for developing new dosage forms of existing
drugs.
Expand Market Penetration through Direct Sales and Innovative Marketing
Programs. The Company believes its 120-person direct sales and marketing force
is the largest in the U.S. generic pharmaceutical industry. This sales and
marketing force includes 90 field representatives, 20 telemarketing
representatives and 10 marketing personnel and covers all major customer
groups, including chain and independent drug retailers, managed care
organizations, pharmaceutical wholesalers, hospitals and group purchasing
organizations. The Company has developed market share initiatives with
selected leading chain and wholesale customers and developed and implemented
customized marketing programs to meet specific customer needs, including
customer inventory management, patient-focused education and compliance
programs. With respect to its branded product business, the Company has a team
of approximately 20 sales representatives dedicated to marketing INFeD. This
sales and marketing force is complemented by marketing collaborations with
Bayer in the nephrology market and MGI in the oncology market.
PRODUCTS
The Company believes it manufactures and markets the broadest number of
products of any U.S. pharmaceutical company in terms of number and types of
products. The Company's product line includes both solid dosage and sterile
dosage generic products; the Company is also developing a line of specialty
branded pharmaceuticals. The Company manufactures and markets approximately
160 chemical entities in approximately 350 dosage forms and strengths under
approximately 200 approved ANDAs. Schein is currently the sole generic source
for 47 pharmaceutical products.
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The following table sets forth the percentages of the Company's net revenues
attributable to its generic and branded businesses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
---------------------------- NINE MONTHS ENDED
1992 1993 1994 1995 1996 SEPTEMBER 1997
---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C>
Generic business:
Manufactured sterile dosage........ 16% 18% 25% 30% 38% 37%
Manufactured solid dosage.......... 58 55 40 35 28 30
Purchased products................. 18 16 19 18 15 13
--- --- --- --- --- ---
Total generic...................... 92 89 84 83 81 80
Branded business:
INFeD.............................. 8 11 16 17 19 20
--- --- --- --- --- ---
Total............................ 100% 100% 100% 100% 100% 100%
=== === === === === ===
</TABLE>
Generic Products
The Company's generic business consists of the manufacturing and marketing
of sterile and solid dosage products and the marketing of certain additional
purchased products.
The Company's sterile dosage product portfolio is comprised of approximately
110 products and accounted for approximately 37% of the Company's total net
revenues in the nine months ended September 1997. This portfolio includes
vecuronium bromide, an anesthetic product that is currently the Company's
largest selling generic product. The Company is manufacturing and marketing
vecuronium bromide prior to expiration of the patent covering this product
pursuant to a licensing arrangement. None of the Company's other sterile
dosage products accounted for more than 6% of net revenues in the nine months
ended September 1997. Included in the sterile dosage product portfolio are 45
products for which the Company is currently the sole generic source, one of
which is vecuronium bromide.
The Company's solid dosage product portfolio is comprised of approximately
50 products and accounted for approximately 30% of the Company's total net
revenues in the nine months ended September 1997. None of the Company's solid
dosage products accounted for more than 6% of net revenues in the nine months
ended September 1997. The Company's solid dosage portfolio includes two
products for which the Company is currently the sole generic source.
The Company supplements its manufactured product line with purchased
products. The margins received by the Company on these products, however, are
generally lower than the margins received by the Company on products that it
manufactures. In addition, the Company believes its customers are increasingly
seeking to purchase products directly from manufacturers. The percentage of
the Company's total net revenues of generic products manufactured by others
has declined from approximately 18% in 1995 to 13% for the nine months ended
September 1997.
Branded Products
Until 1992, the Company's focus was on generic pharmaceutical products. In
1992, the Company introduced INFeD, its primary branded product, and currently
has other branded products under development. The Company focuses on products
used in the management of iron-related disorders. Currently, INFeD, an
injectable iron dextran used in the treatment of severe anemia or iron
deficiency, accounts for approximately 20% of the Company's net revenues.
INFeD is most commonly used in the U.S. to treat iron deficiency anemia in
patients with end-stage renal disease (ESRD) who are receiving therapy with
recombinant human erythropoietin (EPO). In addition to the dialysis market,
the high incidence of iron deficiency anemia related to other medical
conditions presents further opportunities for the Company to leverage its
existing INFeD sales and marketing capabilities.
The Company is seeking to expand its branded pharmaceutical business through
internal development and collaborative arrangements with other companies, with
a particular view to leveraging its expertise in iron
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<PAGE>
management into the nephrology, hematology and oncology markets. The following
table identifies the Company's branded product marketing and development
activities:
<TABLE>
<CAPTION>
PRODUCT THERAPEUTIC APPLICATION STATUS
- ------- ----------------------- ------
<S> <C> <C>
INFeD Iron management Launched in U.S. in 1992
Ferrlecit Iron management NDA expected to be filed by Makoff R&D
Laboratories, Inc. in first half of 1998
Unipine XL Hypertension Launched in U.K. in 1996
</TABLE>
Iron Management Market
In recent years, there has been increasing focus on improving the quality of
life of patients undergoing chronic disease therapy through, among other
means, iron management. The oxygen carrying component of red blood cells,
hemoglobin, requires iron to function efficiently. In some cases, iron
management requires the treatment of iron deficiency and, in other cases, the
treatment of iron excess. The Company is currently marketing and developing
prescription products for the treatment of anemia in the dialysis and oncology
markets, and seeks to market INFeD for the gastroenterology and bloodless
medicine markets.
Dialysis Market. The dialysis market is currently the largest market for
injectable iron and iron replacement products. Orally administered iron has
historically been, and continues to be, the first form of treatment used by
doctors to treat anemia in dialysis patients. Research has shown, however,
that orally administered iron inadequately treats iron deficiency in dialysis
patients and that injectable iron is more rapidly and directly absorbed in the
body. The National Kidney Foundation's Dialysis Outcome Quality Improvement
(DOQI) guidelines encourage more consistent use of injectable iron to
supplement the use of oral iron in dialysis patients. Approximately 60% to 65%
of dialysis patients are given injectable iron at least once a year. EPO
therapy is currently used to treat approximately 92% of all dialysis patients.
EPO allows patients to generate their own red blood cells, thus greatly
reducing the need for blood transfusions. One of the effects of EPO treatment,
however, is rapid mobilization of iron reserves and depletion of iron stores.
The Company believes that certain studies indicate that INFeD can be used
together with EPO to overcome this iron depletion effect. Accordingly, the use
of EPO therapy has created a need for iron management techniques.
Oncology Market. In the oncology market, which includes patients with cancer
and cancer-related illnesses, anemia is a significant side effect of the
disease and the drugs used in treatment of the disease. Fatigue associated
with anemia is not widely recognized or treated as part of cancer treatment
regimens. Although there is a small base of injectable iron users in this
area, the Company believes there is potential for market expansion.
Hematology and Gastroenterology. INFeD may also have applications in the
area of bloodless medicine. Bloodless medicine is surgery without the use of
blood infusions or transfusions; instead, plasma is supplemented with iron
that is administered to the patient before surgery to build up red blood cells
or after surgery to more rapidly replace red blood cells lost during surgery.
In the gastroenterology market, of the over one million patients with
inflammatory bowel disease, 30% to 70% experience anemia, mostly due to iron
deficiency.
INFeD. INFeD (iron dextran injection, USP 50 mg/mL) is a liquid complex of
ferric hydroxide and dextran that is used in the treatment of patients with
documented iron deficiency in whom oral administration is unsatisfactory or
impossible. INFeD's product label includes the following warning: "Warning:
The parenteral use of complexes of iron and carbohydrates has resulted in
anaphylactic-type reactions. Deaths associated with such administration have
been reported. Therefore, INFeD (iron dextran injection, USP 50 mg/mL) should
be used only in those patients in whom the indications have been clearly
established and laboratory investigations confirm an iron-deficient state not
amenable to oral iron therapy."
Currently, iron dextran is the only injectable iron formulation in the U.S.
market. The Company introduced its injectable iron product, INFeD, in May
1992. INFeD currently has approximately 85% of the injectable iron market, and
iron dextran products are marketed by one other company in the U.S. Net sales
of INFeD in 1996
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<PAGE>
and the nine months ended September 1997 were $88.0 million and $72.1 million,
respectively, and accounted for 19% and 20%, respectively, of the Company's
net revenues. Growth in sales of INFeD has been driven by the expanding use of
EPO and the growing recognition of patient outcomes and quality of life issues
associated with iron deficiency anemia in dialysis patients. For patients
being treated with EPO, injectable iron therapy has become adjunctive therapy
rather than supportive therapy, as studies have shown that anemic patients may
become resistant to EPO and that injectable iron can help to maintain EPO
responsiveness and optimize its effectiveness. The Company believes that the
dialysis market should continue to expand with the expected increase in the
ESRD population, as well as the expanding use of hemodialysis in the treatment
of ESRD patients.
Ferrlecit. Ferrlecit (sodium ferric gluconate complex in sucrose injection)
is intended to be the Company's next generation injectable iron product.
Ferrlecit is administered parenterally to treat hemodialysis patients with
iron deficiency anemia.
Ferrlecit was developed by the Nattermann Company, of Cologne (now Rhone-
Poulenc Rorer GMBH) and is widely used in Europe. In 1996, pursuant to an
exclusive trademark and distribution agreement with Makoff R&D Laboratories
("R&DL"), a specialty renal pharmaceutical company, the Company acquired the
exclusive right to market and distribute Ferrlecit in the U.S. and several
other countries for a period of ten years after market authorization has been
granted by FDA. R&DL has completed Phases I, II and III clinical trials and
expects to file an NDA in the first half of 1998. See "--Government
Regulations--NDA Process."
Other Products
Unipine XL. In the U.K., the Company is currently manufacturing and
marketing Unipine XL, a once- a-day version of nifedipine used in the
treatment of hypertension, pursuant to a license obtained from Ethical. The
Company is also preparing for Unipine XL's launch in Israel, South Africa, the
Caribbean and selected markets in Latin America and Asia.
PRODUCT DEVELOPMENT
The Company seeks to expand its product portfolio through continuing
investment in research and development. As a result of its approximately $74.0
million investment in product development over the past three fiscal years,
the Company has 24 ANDAs pending with FDA and over 60 products under
development internally and with third parties. The Company believes that this
investment in development activities should accelerate its ANDA filings and
launches in the next several years. The Company's product development
activities are conducted by 140 research and development professionals and
supported by others with expertise in manufacturing, technology, legal,
regulatory and intellectual property issues.
The Company's generic product development efforts focus on: (i) major
branded drugs coming off patent; (ii) drugs for which patent protection has
lapsed and for which there are few or no generic producers; (iii) drugs whose
patents may be susceptible to challenge; (iv) proprietary and branded products
in select therapeutic areas; and (v) generic products that require specialized
development, formulation, drug delivery or manufacturing technology. In
furtherance of its strategy to be among the first to market generic versions
of brand drugs, the Company uses its scientific, pharmacologic, manufacturing
and legal expertise to identify brand products covered by patents that are
susceptible to challenge or circumvention. When the Company decides to pursue
development of a generic version of a brand product so identified, it seeks a
source for the drug's active pharmaceutical ingredient, develops a formulation
for the drug, conducts bioequivalence studies on its formulation and prepares
an ANDA filing. The ANDA filing must include a certification from the Company
that the patent on the brand product is invalid or not infringed, and the
patent holder must be provided with notice of the filing and basis for the
certification. If the patent holder commences litigation within 45 days of the
notice, FDA may not approve the ANDA for a period of 30 months, unless the
case is resolved earlier in court or by settlement. A successful patent
challenge may result in a court determination that the patent on the brand
product is invalid, not infringed or unenforceable. Alternatively, a
settlement with the patent holder may include a license to the Company to sell
the generic version of the brand product prior to the expiration of the patent
covering the product.
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<PAGE>
In its branded product business, the Company intends to develop products for
the management of iron-related disorders and select other businesses, as well
as promote the use of its primary branded product, INFeD, beyond the dialysis
market to other therapeutic areas, such as oncology and gastroenterology.
STRATEGIC COLLABORATIONS
To expand its product portfolio and improve its profitability, the Company
will continue to pursue strategic collaborations to access additional dosage
forms, proprietary drug delivery technology, specialized formulation
capabilities and sources of bulk active materials. The Company has product
development arrangements with companies such as Ethical and Elan;
collaborative arrangements for direct access to raw materials with, among
others, Johnson Matthey and Abbott; and sales and marketing arrangements with
companies such as Bayer Corporation, Elensys and MGI. The Company has recently
entered into a non-binding letter of intent regarding Cheminor and Reddy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
MANUFACTURING AND DISTRIBUTION
The Company operates five manufacturing facilities and two distribution
centers. The following table presents the facilities owned or leased by the
Company and indicates the location and type of each of these facilities:
<TABLE>
<CAPTION>
OWN OR SQUARE LEASE
PROPERTY LOCATION LEASE FEET EXPIRATION
-------- -------- ------ ------- ----------
<S> <C> <C> <C> <C>
Manufacturing Facilities
Solid dosage............ Carmel, NY (1) (2) Own 112,000 --
Solid dosage............ Humacao, PR Own 75,000 --
Solid dosage............ Danbury, CT (2) Lease 88,000 2005
Sterile dosage.......... Phoenix, AZ (1) (2) Own 175,000 --
Sterile dosage.......... Cherry Hill, NJ (1) (2) Own 99,700 --
Lease 109,800 (3) 1999
Distribution Centers
Eastern................. Brewster, NY (1) Lease 98,500 2007
Western ................ Phoenix, AZ Lease 76,000 2000
Corporate Offices......... Florham Park, NJ (1) Lease 53,000 2005
</TABLE>
- --------
(1) The Company maintains administrative offices at this facility.
(2) The Company maintains research laboratories at this facility.
(3) The Company has an option to purchase this facility.
Manufacturing Facilities
The Company's aggregate manufacturing capacity is among the largest of any
generic pharmaceutical company in the United States. The diversity and
capacity of these facilities are important elements of the Company's strategy
to expand the range of its existing product line and provide several
significant benefits, including (i) the ability to satisfy the growing
preference among many of the Company's customers for buying pharmaceuticals
directly from manufacturers and from fewer sources, (ii) added flexibility in
raw materials sourcing and manufacturing cost control, and (iii) economies of
scale with respect to manufacturing infrastructure functions common to solid
dosage manufacturing and/or sterile dosage manufacturing, such as water
distillation, air purification, drug formulation systems, filling and
packaging lines, and quality control and regulatory compliance. See "--
Strategy" and "--Government Regulations."
The Company has made a substantial investment in plant and equipment and
believes that it is unique in its capacity to produce a broad line of both
sterile dosage products and solid dosage products. The Company manufactures a
variety of product forms and types, including immediate-release and extended-
release solid dosage products and sterile anti-infectives, injectables,
penicillins, cephalosporins, ophthalmics and otics. The
37
<PAGE>
Company currently produces approximately four billion tablets and capsules and
75 million vials and ampules annually and has the capacity to increase
production to six billion tablets and capsules and 100 million vials and
ampules annually. This range of manufacturing capabilities allows the Company
to participate in segments of the generic industry where competition is
limited. Further, the Company's high-volume production enables it to obtain
favorable access to raw materials, which typically represent a substantial
portion of the cost of producing drug products. See "Risk Factors--Dependence
on Regulatory Approval and Compliance."
The Company is one of only two U.S. generic manufacturers with dedicated
sterile filling facilities for cephalosporin and penicillin antibiotics, which
target the high volume institutional injectable market. In addition, the
Company's ophthalmic and otic drug manufacturing facilities target higher
margin specialty markets.
In accordance with FDA requirements for manufacturers of finished
pharmaceutical products, the Company has developed strict quality control
procedures to ensure the quality and safety of its products. The Company
employs sanitary handling procedures, customized systems for monitoring and
regulating environmental conditions and back-up systems for many of the
critical steps in the production processes. The Company performs sample
testing of raw materials and packaging supplies used in manufacturing its
products and conducts on-site audits of raw material suppliers. In its
manufacturing process, the Company maintains strict quality control procedures
and believes it is in material compliance with FDA's cGMP standards. The
Company has approximately 380 employees dedicated to quality control and
quality assurance. Because developing and obtaining approval of new generic
products requires a large investment and several years of lead time, the
Company believes that companies like itself that have modern, versatile
manufacturing facilities will have a competitive advantage in responding to
market opportunities. See "Risk Factors--Dependence on Regulatory Approval and
Compliance," "Risk Factors--Pending Regulatory Matters" and "--Government
Regulations."
The Company does not manufacture the active pharmaceutical ingredients used
in the preparation of its products. Instead, the Company purchases these
active pharmaceutical ingredients from international and domestic sources. FDA
requires pharmaceutical manufacturers to identify in their drug applications
the supplier(s) of all the raw materials for its products. If raw materials
for a particular product become unavailable from an approved supplier
specified in a drug application, any delay in the required FDA approval of a
substitute supplier could interrupt manufacture of the product, which could
materially and adversely affect the Company's profit margins and market share
for the product. To the extent practicable, the Company attempts to identify
more than one supplier in each drug application. However, in the case of
certain products (including certain products that contribute (or may
contribute) significantly to its sales and net income), the Company has
submitted drug applications that identify only one supplier. The Company has a
program of identifying alternative suppliers where practicable and, in many
cases, filing supplemental applications with FDA for approval.
The Company obtains a significant portion of its raw materials from
international suppliers. Arrangements with international raw material
suppliers are subject, among other things, to FDA, customs and other
government clearances, various duties and regulation by the country of origin.
The Company has a number of collaborative arrangements for exclusive access to
some difficult to source products.
SALES AND MARKETING
The Company believes that it has one of the largest direct sales and
marketing forces in the generic drug industry, with approximately 90 field
representatives, 20 telemarketing representatives and 10 marketing personnel.
This team is focused on enhancing pharmacist and payor knowledge of the Schein
product line and providing a differentiated level of customer service and
support. The sales and marketing force promotes Schein's newly approved
products and supports customers with innovative, value added services in
inventory management and patient education.
The Company's broad customer base, which purchases from wholesalers and
directly from the Company, includes: retail customers, including chain drug
stores, mass merchandisers, food stores and independent drug stores; wholesale
distributors; managed care providers, including group purchasing
organizations, HMOs and
38
<PAGE>
mail order companies; alternative site customers, such as long term care
companies, home infusion companies and surgery centers; and medical/surgical
suppliers.
Most pharmaceuticals today are sold through national and regional
wholesalers, who command approximately 80% of the U.S. drug distribution
market. While pharmaceutical products are typically distributed via these
wholesalers, pharmaceutical companies often directly enter into contracts with
the retail chains, managed care and institutional customers covering the
actual acquisition price. Under these arrangements, wholesalers often serve as
depots for substantially all of a customer's product needs, allowing it to
maintain minimal inventories and receive overnight deliveries of several
manufacturers' products from a single source. Currently, approximately 64% of
the Company's revenues are sold through wholesalers, with approximately 82% of
these revenues subject to direct contracts between the Company and its
customers. In general, it is the Company's strategy to seek to enter into
purchase contracts with retail, managed care and institutional customers.
Sales to Bergen Brunswig Corporation, Cardinal Health, Inc. and McKesson Drug
Company accounted for 17%, 16% and 11%, respectively, of the Company's total
net revenues for the nine months ended September 1997 and accounted for 16%,
15% and 11%, respectively, of the Company's total net revenues in fiscal 1996.
The vast majority of the Company's products are sold under the "Schein
Pharmaceutical," "Marsam Pharmaceuticals" and "Steris Laboratories" labels. In
addition, the Company sells a limited number of products to distributors under
private labels.
The Company directs its sales and marketing activities through programs
specific to its generic product and branded product businesses.
Generic Products
The Company has one of the largest generic sales and marketing organizations
in the U.S. generic pharmaceutical industry, with a sales and marketing
organization of 120 people serving the retail, institutional, alternative
site, managed care and other generic drug purchasing markets, including a 20-
person telemarketing sales force and 10 marketing personnel supporting the 90-
person field sales organization. The Company's large sales and marketing force
permits effective coverage of all purchasers of generic products. The sales
and marketing force promotes newly approved products, encourages substitution
of the Company's generic products for branded products and supports the
customer with value added services in inventory management and patient
education.
The Company has developed market share initiatives with selected leading
chain and wholesale customers and has implemented customized marketing
programs to meet specific customer needs, including the following:
. The Company has developed and implemented a unique vendor managed
inventory program, Schein Pharmaceutical Managed Auto Replenishment
Technology ("S.M.A.R.T.(TM)"), which monitors customers' inventory levels
daily to ensure adequate stocking levels, minimize the occurrence of back
orders and returned goods and enhance inventory turnover for such key
customers.
. The Company uses state-of-the-art electronic data interchange ("EDI")
systems, which enable it to efficiently exchange data with its key
wholesale and retail customers for a variety of transactions.
. The Company offers a patient compliance program through which consumers
receive prescription refill reminders from their pharmacies.
. The Company has designed the Generic Acceptance and Intervention Network
("G.A.I.N.(TM)"), a patient-focused education program to promote the use
of generic products for its customers.
Branded Products
The Company has a sales and marketing organization of 20 people dedicated to
marketing INFeD. The Company also has established a co-promotion arrangement
with Bayer Corporation under which 150 of Bayer's
39
<PAGE>
specialty sales representatives devote a portion of their time in the United
States and Puerto Rico detailing INFeD to the nephrology market. In addition,
as part of its marketing effort in the oncology market, the Company entered
into a co-promotion arrangement with MGI in March 1997 for MGI's 21-person
sales force to support INFeD in the oncology market.
COMPETITION
In the generic pharmaceutical business, the Company competes with a number
of companies, including independent generic manufacturers and larger
pharmaceutical companies, which sell the same generic equivalents of the
Company's products. Many companies, including large pharmaceutical firms with
financial and marketing resources and development capabilities substantially
greater than those of the Company, are engaged in developing, marketing and
selling products that compete with those offered by the Company. The selling
prices of the Company's products may decline as competition increases.
Further, other products now in use or under development by others may be more
effective than the Company's current or future products. The pharmaceutical
industry is characterized by intense competition and rapid product development
and technological change. The Company's pharmaceuticals could be rendered
obsolete or made uneconomical by the development of new pharmaceuticals to
treat the indications addressed by the Company's products, technological
advances affecting the cost of production, or marketing or pricing actions by
one or more of the Company's competitors. The Company's business, results of
operations and financial condition could be materially adversely affected by
any one or more of such developments. Competitors may also be able to complete
the regulatory process for certain products before the Company and, therefore,
may begin to market their products in advance of the Company's products. The
Company believes that competition among prescription pharmaceuticals and
generics will be based on, among other things, product efficacy, safety,
reliability, availability and price. The Company believes that various
competitive factors, including pressure from major wholesalers and delays in
generic drug approvals by FDA, led to price declines beginning in mid-1996 for
generic drugs, largely offsetting growth in unit sales.
From time to time, the Company may compete for the in-license or acquisition
of certain branded products with other pharmaceutical companies pursuing a
similar strategy. The Company's branded product competes with generic
pharmaceuticals which claim to offer equivalent therapeutic benefits at a
lower cost. In some cases, third-party payors encourage the use of lower cost
generic products by paying or reimbursing a user or supplier of a branded
prescription product a lower purchase price than would be paid or reimbursed
for a generic product, making branded products less attractive, from a cost
perspective, to buyers. The aggressive pricing activities of the Company's
generic competitors and the payment and reimbursement policies of third-party
payors could have a material adverse effect on the Company's business, results
of operations and financial condition.
GOVERNMENT REGULATIONS
The research, development and commercial activities relating to branded and
generic prescription pharmaceutical products are subject to extensive
regulation by U.S. and foreign governmental authorities. Certain
pharmaceutical products are subject to rigorous pre-clinical testing and
clinical trials and to other approval requirements by FDA in the United States
under the Federal Food, Drug and Cosmetic Act (the "FDCA") and the Public
Health Services Act and by comparable agencies in most foreign countries.
The FDCA, the Public Health Services Act, the Controlled Substances Act and
other federal statutes and regulations govern or influence all aspects of the
Company's business. Noncompliance with applicable requirements can result in
fines and other judicially imposed sanctions, including product seizures,
injunctive actions and criminal prosecutions. In addition, administrative or
judicial actions can result in the recall of products and the total or partial
suspension of the manufacturing of products, as well as the refusal of the
government to approve pending applications or supplements to approved
applications. FDA also has the authority to withdraw approvals of drugs in
accordance with statutory due process procedures. See "Risk Factors--
Dependence on Regulatory Approval and Compliance" and "Risk Factors--Pending
Regulatory Matters."
40
<PAGE>
FDA approval is required before any dosage form of any new unapproved drug,
including a generic equivalent of a previously approved drug, can be marketed.
All applications for FDA approval must contain information relating to product
formulation, stability, manufacturing processes, packaging, labeling and
quality control. In addition, acts of foreign governments may affect the price
or availability of raw materials needed for the development or manufacture of
generic drugs.
ANDA Process
The Waxman-Hatch Act established abbreviated application procedures for
obtaining FDA approval for those drugs which are off-patent and whose non-
patent exclusivity under the Waxman-Hatch Act has expired and which are shown
to be bioequivalent to previously approved brand name drugs. Approval to
manufacture these drugs is obtained by filing an ANDA. An ANDA is a
comprehensive submission which must contain data and information pertaining to
the formulation, specifications and stability of the generic drug as well as
analytical methods and manufacturing process validation data and quality
control procedures. As a substitute for clinical studies, FDA requires data
indicating that the ANDA drug formulation is bioequivalent to a previously
approved NDA drug. In order to obtain an ANDA approval of a strength or dosage
form which differs from the referenced brand name drug, an applicant must file
and have granted an ANDA Suitability Petition. A product is not eligible for
ANDA approval if it is not bioequivalent to the referenced brand name drug or
if it is intended for a different use. However, such a product might be
approved under an NDA with supportive data from clinical trials.
The advantage of the ANDA approval process is that an ANDA applicant
generally can rely upon bioequivalence data in lieu of conducting pre-clinical
testing and clinical trials to demonstrate that a product is safe and
effective for its intended use(s). The Company files ANDAs to obtain approval
to manufacture and market its generic products. No assurance can be given that
ANDAs or other abbreviated applications will be suitable or available for the
Company's products or that the Company's proposed products will receive FDA
approval on a timely basis, if at all. While the FDCA provides for a 180-day
review period, the Company believes the average length of time between initial
submission of an ANDA and receiving FDA approval is approximately two years.
While the Waxman-Hatch Act established the ANDA, it has also fostered
pharmaceutical innovation through such incentives as market exclusivity and
patent restoration. The Waxman-Hatch Act provides two distinct market
exclusivity provisions which either preclude the submission or delay the
approval of a competitive drug application. A five-year marketing exclusivity
period is provided for new chemical compounds and a three-year marketing
exclusivity period is provided for applications containing new clinical
investigations essential to the approval of the application. The non-patent
market exclusivity provisions apply equally to patented and non-patented drug
products. Any entitlement to patent marketing exclusivity under the Waxman-
Hatch Act is based upon the term of the original patent plus any patent
extension granted under the Waxman-Hatch Act as compensation for reduction of
the effective life of a patent as a result of time spent by FDA in reviewing
the innovator's NDA. The patent and non-patent marketing exclusivity
provisions do not prevent the filing or the approval of an NDA. Additionally,
the Waxman-Hatch Act provides 180-day market exclusivity against effective
approval of another ANDA for the first ANDA applicant who (a) submits a
certificate challenging a listed patent as being invalid or not infringed and
(b) successfully defends in court any patent infringement action based on such
certification. The brand product segment of the pharmaceutical industry has
initiated legislative efforts to limit the impact of the Waxman-Hatch Act,
both on the federal and state levels. Recently, legislation has been
introduced designed to extend the patent protection on certain brand
pharmaceuticals and efforts have been made by the brand pharmaceutical
industry to introduce legislation to limit generic firms' ability to begin
research and development activities prior to patent expiration. In addition,
the brand product pharmaceutical companies have also initiated legislative
efforts in various states to limit the substitution of generic versions of
certain types of branded pharmaceuticals. The Company cannot predict whether
any such legislation will be enacted.
41
<PAGE>
NDA Process
An NDA is a filing submitted to FDA to obtain approval for a drug not
eligible for an ANDA and must contain complete pre-clinical and clinical
safety and efficacy data or a right of reference to such data. Before dosing a
new drug in healthy human subjects or patients may begin, stringent government
requirements for pre-clinical data must be satisfied. The pre-clinical data,
typically obtained from studies in animal species, as well as from laboratory
studies, are submitted in an Investigational New Drug ("IND") application, or
its equivalent in countries outside the United States, where clinical trials
are to be conducted. The pre-clinical data must provide an adequate basis for
evaluating both the safety and the scientific rationale for the initiation of
clinical trials.
Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. In Phase I, which frequently begins with the initial
introduction of the compound into healthy human subjects prior to introduction
into patients, the product is tested for safety, adverse effects, dosage,
tolerance, absorption, metabolism, excretion and other elements of clinical
pharmacology. Phase II typically involves studies in a small sample of the
intended patient population to assess the efficacy of the compound for a
specific indication, to determine dose tolerance and the optional dose range
as well as to gather additional information relating to safety and potential
adverse effects. Phase III trials are undertaken to further evaluate clinical
safety and efficacy in an expanded patient population at typically dispersed
study sites, in order to determine the overall risk-benefit ratio of the
compound and to provide an adequate basis for product labeling. Each trial is
conducted in accordance with certain standards under protocols that detail the
objectives of the study, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol must be submitted to FDA as
part of the IND.
Data from pre-clinical testing and clinical trials may be submitted to FDA
as an NDA for marketing approval and to foreign health authorities as a
marketing authorization application. The process of completing clinical trials
for a new drug is likely to take several years and require the expenditure of
substantial resources. Preparing an NDA or marketing authorization application
involves considerable data collection, verification, analysis and expense, and
there can be no assurance that approval from FDA or any other health authority
will be granted on a timely basis, if at all. The approval process is affected
by a number of factors, primarily the risks and benefits demonstrated in
clinical trials as well as the severity of the disease and the availability of
alternative treatments. FDA or other health authorities may deny an NDA or
marketing authorization application if the regulatory criteria are not
satisfied, or such authorities may require additional testing or information.
Even after initial FDA or other health authority approval has been obtained,
further studies, including Phase IV post-marketing studies, may be required to
provide, for example, additional data on safety, and will be required to gain
approval for the use of a product as a treatment for clinical indications
other than those for which the product was initially tested. Also, FDA or
other regulatory authorities require post-marketing reporting to monitor
serious and unanticipated adverse effects of the drug. Results of post-
marketing programs may limit or expand the further marketing of the products.
Further, if there are any modifications to the drug, including changes in
indication, manufacturing process or labeling or a change in manufacturing
facility, an application seeking approval for such changes must be submitted
to FDA or other regulatory authority. Additionally, FDA regulates post-
approval promotional labeling and advertising activities to assure that such
activities are being conducted in conformity with statutory and regulatory
requirements. Failure to adhere to such requirements can result in regulatory
actions which could have a material adverse effect on the Company's business,
results of operations and financial condition.
Other Regulation
The Prescription Drug Marketing Act (the "PDMA"), which amends various
sections of the FDCA, imposes requirements and limitations upon drug sampling
and prohibits states from licensing distributors of prescription drugs unless
the state licensing program meets certain federal guidelines that include,
among other things, state licensing of wholesale distributors of prescription
drugs under federal guidelines that include minimum standards for storage,
handling and record keeping. In addition, the PDMA sets forth civil and
criminal penalties for violations of these and other provisions. Various
sections of the PDMA are still being implemented by FDA and the states.
Nevertheless, failure by the Company's distributors to comply with the
requirements of
42
<PAGE>
the PDMA could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Risk Factors--Dependence
on Regulatory Approval and Compliance" and "Risk Factors--Pending Regulatory
Matters."
Manufacturers of marketed drugs must comply with cGMP regulations and other
applicable laws and regulations required by FDA, the Drug Enforcement Agency,
the Environmental Protection Agency and other regulatory agencies. Failure to
do so could lead to sanctions, which may include an injunction suspending
manufacturing, the seizure of drug products and the refusal to approve
additional marketing applications. Manufacturers of controlled substances are
also subject to the licensing, quota and regulatory requirements of the
Controlled Substances Act. Failure to comply with the Controlled Substances
Act and the regulations promulgated thereunder could subject the Company to
loss or suspension of those licenses and to civil or criminal penalties. The
Company seeks to ensure that any third party with whom it contracts for
product manufacturing or packaging will comply with cGMPs. FDA conducts
periodic inspections to ensure compliance with these rules. However, there can
be no assurance that any such third parties will be found to be in compliance
with cGMP standards. Any such non-compliance could result in a temporary or
permanent interruption in the development and testing of the Company's planned
products or in the marketing of approved products, as well as increased costs.
Such non-compliance could have a material adverse effect on the Company's
business, results of operations and financial condition.
Products marketed outside the United States, which are manufactured in the
United States, are subject to certain FDA regulations as well as regulation by
the country in which the products are to be sold. The Company is required to
obtain approval for and maintain compliance with applicable regulations
relating to the marketing of its products outside the United States. There can
be no assurance that any such approval may be obtained or such compliance
maintained.
PRODUCT LIABILITY; INSURANCE
The testing, manufacturing and distribution of the Company's products
involve a risk of product liability claims. Pursuant to the Company's various
insurance policies, the Company is self-insured up to the first $500,000 of
claims for each occurrence and $2,500,000 in the aggregate per policy year.
Although no assurance can be given, the Company believes that its product
liability insurance is adequate. Product liability insurance, however, could
cease to be available or could cease to be available on acceptable terms,
either as a function of the market for product liability insurance for
pharmaceutical companies or the Company's own claims experience. See "Risk
Factors--Risk of Product Liability Claims; No Assurance of Adequate
Insurance."
EMPLOYEES
At September 1997, the Company had approximately 1,850 employees, of which
830 were engaged in manufacturing, 380 were engaged in quality control and
quality assurance, 240 were engaged in administration, finance and human
resources, 140 were engaged in research and product development, 140 were
engaged in sales and marketing, 80 were engaged in distribution and 40 were
engaged in regulatory affairs. No employee is represented by a union, and the
Company has never experienced a work stoppage. Management believes its
relationship with its employees is good.
LEGAL PROCEEDINGS
The Company is a defendant in several product liability cases typical for a
company in the pharmaceutical industry. The Company also is involved in other
proceedings and claims of various types. Management believes the disposition
of these matters will not have a material adverse effect on the Company.
In October 1997, the Company received a subpoena from the Department of
Health and Human Services, Office of Inspector General seeking pricing
information for two products formerly marketed by the Company, vinblastine
sulfate and vincristine sulfate. The Company is aware of a number of other
pharmaceutical manufacturers and distributors that have been served with
similar subpoenas, which the Company believes is in connection with a
government investigation into claims for reimbursement by Medicare and/or
Medicaid. The Company intends to comply with the subpoena.
43
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<C> <C> <S>
Martin Sperber 66 Chairman of the Board of Directors, Chief Executive
Officer and President
Marvin Samson 56 Executive Vice President and Director
Dariush Ashrafi 50 Executive Vice President, Chief Financial Officer and
Director
Paul Feuerman 38 Senior Vice President, General Counsel, and Director
David R. Ebsworth* 43 Director
Richard L. Goldberg* 61 Director
</TABLE>
- --------
* Members of the Compensation Committee.
Martin Sperber has been Chairman, Chief Executive Officer, President and
Director of the Company since 1989. From 1985 until 1989, Mr. Sperber was
President and Chief Operating Officer of the Company. Mr. Sperber has been
employed in various positions in the Schein organization for over 40 years.
Mr. Sperber is a member of the Board of the Generic Pharmaceutical Industry
Association, a member of the Board of the American Foundation for
Pharmaceutical Education, a member of the American Pharmaceutical Association
and a member of the Council for Overseers of the Long Island University Arnold
and Marie Schwartz College of Pharmacy. Mr. Sperber received his B.S. degree
in pharmacy from Columbia University.
Marvin Samson has been Executive Vice President and Director since the
Marsam Acquisition. Mr. Samson is also President, Chief Executive Officer and
Chairman of the Board of Marsam, a company he founded in 1985. Prior thereto,
Mr. Samson was CEO, President and founder of Elkins-Sinn, Inc., a manufacturer
of generic injectable products. Currently, Mr. Samson is Chairman of the
Generic Pharmaceutical Industry Association, a member of the board of
directors of Sabratek Corp. (NASDAQ), and a member of the board of trustees of
the Philadelphia College of Pharmacy, the West Jersey Hospital System and the
American Society of Hospital Pharmacists Foundation. Mr. Samson received his
B.S. degree in chemistry from Temple University.
Dariush Ashrafi has been Executive Vice President and Chief Financial
Officer since October 1995, and Director since September 1997 and from May
1995 until September 1995 was Senior Vice President and CFO. From 1990 to
1995, Mr. Ashrafi was Senior Vice President, Chief Financial Officer and
director of The Warnaco Group, Inc., an apparel company. Prior to joining
Warnaco, he spent 18 years with Ernst & Young and became a partner in 1983.
Mr. Ashrafi received his B.S. degrees in Aeronautical and Astronautical
Engineering and in Management Science from the Massachusetts Institute of
Technology and his M.S. in Finance from the Massachusetts Institute of
Technology Sloan School.
Paul Feuerman has been General Counsel since 1991. He has been a Vice
President of the Company since January 1992, Senior Vice President since
February 1997, and a Director since September 1997. Mr. Feuerman previously
was associated with the law firm of Proskauer Rose LLP. He received his B.A.
from Trinity College and his J.D. from Columbia Law School.
David R. Ebsworth became a Director of the Company in September 1994 as part
of Bayer Corporation's investment in the Company. He is currently Executive
Vice President, Bayer Corporation and President, Pharmaceutical Division North
America. Between 1983 and 1993, Dr. Ebsworth held various management and sales
marketing positions with the Bayer companies in Germany and Canada. Dr.
Ebsworth received his B.S. and Doctor of Philosophy degrees from the
University of Surrey (England).
44
<PAGE>
Richard L. Goldberg has been a Director of the Company since September 1994.
He is currently a Senior Partner at Proskauer Rose LLP and has been a member
of that law firm since 1990. Prior to 1990, he was a Senior Partner at Botein
Hays & Sklar. Mr. Goldberg is also a member of the board of directors of
Comtech Telecommunications Corp. (NASDAQ). He is a graduate of Brooklyn
College and received his J.D. from Columbia Law School.
BOARD OF DIRECTORS
The Board of Directors has six directors, four of whom--Martin Sperber,
Marvin Samson, Dariush Ashrafi and Paul Feuerman--are also officers of the
Company and two of whom--David R. Ebsworth and Richard L. Goldberg--are not
officers of the Company.
Pursuant to the Restructuring Agreements (as defined herein), until Bayer
(as defined herein) owns less than 10% of the Company's outstanding Common
Stock, Bayer is entitled to nominate a number of members of the Board of
Directors of the Company, rounded down to the nearest whole number, equal to
the product of (a) the number of members of the Board of Directors and (b) its
percentage stockholdings of Common Stock at the time of nomination. In this
regard, Bayer nominated David R. Ebsworth as a member of the Board of
Directors. The Voting Trustee (as defined herein) (currently Mr. Sperber) is
entitled under the Restructuring Agreements to nominate the balance of the
members of the Board of Directors until the Voting Trust Termination Date (as
defined herein). Until May 15, 2001, the Voting Trustee and certain of the
Company's principal stockholders must vote for the election of Bayer's
nominee(s). Until the Voting Trust Termination Date, Bayer and certain of the
Company's principal stockholders must vote for the election of the Voting
Trustee's nominees.
The Company's officers are elected by the Board of Directors for one-year
terms and serve at the discretion of the Board of Directors. See "Risk
Factors--Control of the Company" and "Certain Transactions."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has one standing committee: the
Compensation Committee.
The Compensation Committee approves the compensation for senior executives
of the Company, makes recommendations to the Board of Directors with respect
to compensation levels and administers the Company's stock option plans. The
members of the Compensation Committee are Messrs. Ebsworth and Goldberg.
The Company's Board of Directors is expected to appoint directors who are
not affiliated with the Company to an Audit Committee of the Board of
Directors. The Audit Committee will have general responsibility for
surveillance of financial controls, as well as for accounting and audit
activities of the Company. The Audit Committee will annually review the
qualifications of the Company's independent certified public accountants, make
recommendations to the Board of Directors as to their selection and review the
plan, fees and results of their audit.
LIMITATIONS ON LIABILITY
The Company's certificate of incorporation contains a provision that,
subject to certain exceptions, limits the personal liability of the Company's
directors for monetary damages to the Company and its stockholders for
breaches of fiduciary duty owed to the Company or its stockholders.
In addition, the Company has entered into agreements with its directors and
officers providing for indemnification of those individuals under certain
circumstances.
The Company has obtained director and officer liability insurance that
insures the Company's directors and officers against certain liabilities.
45
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the Company's remaining executive officers
(the "Named Executive Officers") for the year ended December 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION (1) AWARDS PAYOUTS
--------------------------- ---------- -----------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING LTIP ALL OTHER
POSITION (2) (3) ($) ($) ($) OPTIONS PAYOUTS ($) COMPENSATION ($)
------------------ ------- ------ ------------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Martin Sperber.......... 700,000 -- 9,929 (4) -- -- 10,305 (4)
Chairman, Chief
Executive Officer and
President
Marvin Samson........... 400,000 70,000 -- 200 -- 37,786 (5)
Executive Vice
President
Dariush Ashrafi......... 341,000 59,700 10,257 (6) 200 75,000 24,321 (6)
Executive Vice
President and Chief
Financial Officer
Paul Feuerman........... 185,000 32,400 7,738 (7) 200 100,000 13,397 (7)
Senior Vice President
and General Counsel
</TABLE>
- --------
(1) The compensation described in this table does not include medical, group
life insurance or other benefits available generally to all salaried
employees of the Company, as well as certain perquisites and other
personal benefits, the value of which does not exceed the lesser of
$50,000 or 10% of the named executive officer's total salary and bonus
reported in this table.
(2) Michael Casey, who served as the Company's Executive Vice President until
September 5, 1997, received $326,442 in Salary, $61,300 in Bonus, options
covering 200 shares of Common Stock, $75,000 in LTIP payouts and $9,477 in
All Other Compensation. All Other Compensation includes $7,260 for profit
sharing contribution, $1,125 in 401(k) employer matching contribution and
$1,092 for the cost of term life insurance coverage provided by the
Company.
(3) James McGee, who served as the Company's Executive Vice President and
Chief Operating Officer until May 15, 1997, received $431,000 in Salary,
$75,400 in Bonus, $98,825 in Other Annual Compensation, options covering
200 shares of Common Stock, $2,000,000 in LTIP payouts and $180,833 in All
Other Compensation. Other Annual Compensation includes $2,515 in tax
payments for a company car, $661 in tax payments for the supplemental
retirement plan, $113 in tax payments for state unemployment insurance and
$95,536 in tax payments for a relocation loan made on behalf of Mr. McGee.
All Other Compensation includes $7,500 for profit sharing contribution,
$1,125 in 401(k) employer matching contribution, $21,550 in supplemental
retirement plan contribution, $1,448 for the cost of term life insurance
coverage provided by the Company, $104,540 for forgiven equity loss loan
and associated tax deposit and $44,670 for the value of split dollar life
insurance policy.
(4) Other Annual Compensation includes $8,426 in tax payments for a company
car, $1,391 in tax payments for supplemental retirement plan and $112 in
tax payments for state unemployment insurance made on behalf of Mr.
Sperber. All Other Compensation includes $7,500 for profit sharing
contribution, $1,125 in 401(k) employer matching contribution and $1,680
for the cost of term life insurance coverage provided by the Company.
(5) All Other Compensation includes $7,500 for profit sharing contribution,
$250 in 401(k) employer matching contribution, $16,660 in supplemental
retirement plan contribution, $909 for the cost of term life insurance
provided by the Company and $12,467 for the value of split dollar life
insurance policy.
(6) Other Annual Compensation includes $10,257 in tax payments for an
allowance in lieu of a company car made on behalf of Mr. Ashrafi. All
Other Compensation includes $7,500 for profit sharing contribution, $1,125
in 401(k) employer matching contribution, $14,550 in supplemental
retirement plan contribution and $1,146 for the cost of term life
insurance coverage provided by the Company.
(7) Other Annual Compensation includes $7,586 in tax payments for a company
car, $39 in tax payments for the supplemental retirement plan and $113 in
tax payments for state unemployment insurance made on behalf of Mr.
Feuerman. All Other Compensation includes $7,500 for profit sharing
contribution, $1,125 in 401(k) employer matching contribution, $4,150 in
supplemental retirement plan contribution and $622 for the cost of term
life insurance provided by the Company.
46
<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Martin Sperber dated
September 30, 1994 pursuant to which Mr. Sperber serves as Chairman of the
Board, Chief Executive Officer and President of the Company. Under this
agreement, the term of Mr. Sperber's employment commenced on January 1, 1994
and terminates on January 1, 1999, unless earlier terminated by the death of
Mr. Sperber, by action of the Board of Directors with or without cause, due to
the disability of Mr. Sperber or by Mr. Sperber upon 30 days written notice or
a material breach by the Company of his employment or stock option agreement
that is not cured within 30 days. If Mr. Sperber is terminated without cause,
in addition to all accrued but unpaid compensation to the date of termination,
he is entitled to receive as severance compensation his base salary from the
date of termination through January 1, 1999 and an amount equal to the product
of (i) a fraction, the numerator of which is the amount of earned incentive
compensation for the last full year before termination and the denominator of
which is 365 and (ii) the number of days from termination until January 1,
1999. If Mr. Sperber voluntarily terminates his employment prior to January 1,
1999 (other than for an uncured breach by the Company), he is only entitled to
such severance pay as is determined by the Compensation Committee. Mr. Sperber
currently receives base annual compensation of $700,000. Mr. Sperber may also
receive incentive compensation in an amount to be determined by the
Compensation Committee. If Mr. Sperber's employment is terminated prior to
January 1, 1999, such incentive compensation shall be based on objective
criteria established by the Compensation Committee or $250,000 plus the
product of (x) the fraction derived by dividing (i) the sum of the actual cash
incentive compensation earned by each of the three most senior executives of
the Company other than Mr. Sperber in the year Mr. Sperber's employment is
terminated less the sum of the minimum cash incentive compensation
contemplated for such executives for such year, by (ii) the sum of the maximum
cash incentive compensation contemplated for such executives for such year
less the sum of the minimum cash incentive compensation contemplated for such
executives for such year and (y) $250,000. Mr. Sperber is prohibited from
competing with the Company during the term of the agreement and until the
second anniversary of the date the Company makes its final base salary payment
to Mr. Sperber pursuant to the agreement.
Following termination of Mr. Sperber's employment other than for cause, Mr.
Sperber will be entitled during his lifetime and for the life of his spouse to
continue to participate in, or receive benefits that, on an after-tax basis,
are the same as those under all medical and dental benefit plans, policies and
programs in effect at the termination of his employment. In addition, unless
Mr. Sperber's employment is terminated for cause, Mr. Sperber will be entitled
to an annual pension, beginning after the termination of his employment and
continuing until the later of the death of Mr. Sperber or his spouse, in an
amount equal to 45% (or 40%, if Mr. Sperber's employment is terminated due to
his voluntary resignation) of the average total cash compensation for the
highest three of the last five years prior to termination, reduced generally
by the sum of the amount Mr. Sperber would be entitled to receive under all of
the Company's qualified retirement plans within the meaning of Section 401(a)
of the Internal Revenue Code and under Social Security if he commenced
receiving such benefit payments at age 65. See "--Stock Options."
The Company entered an Option Agreement with Mr. Sperber dated September 30,
1994 under which Mr. Sperber was granted, as a key employee pursuant to the
Company's 1993 Stock Option Plan, a non-qualified option to purchase from the
Company up to 4,795 shares of Common Stock at a price of $2,000 per share. The
option expires on the earlier of September 30, 2004 or upon Termination of
Employment (as defined in the 1993 Stock Option Plan). In the event of Mr.
Sperber's death, disability, retirement or termination without cause, the
option remains exercisable for one year (but may be extended by the Company at
its discretion). Upon termination of Mr. Sperber's employment for cause (or
discovery of justification for termination for cause after termination for
another reason), all outstanding options are immediately cancelled. In the
event Mr. Sperber's employment is terminated for any other reason, all
outstanding options will remain exercisable for three months from the date of
termination (but may be extended at the discretion of the Company).
Pursuant to an employment agreement with Marsam dated July 28, 1995, to
which the Company agreed to be bound by certain provisions, Marvin Samson was
appointed an Executive Vice President and Director of the Company, as well as
President, Chief Executive Officer and Chief Operating Officer of Marsam, for
an initial
47
<PAGE>
term that commenced on the date of the Marsam Acquisition and terminates on
the fifth anniversary of that date (the "Initial Term"), which term is
automatically extended for one-year periods unless earlier terminated upon 180
days advance written notice by either party. During the Initial Term, Mr.
Samson may terminate the agreement at any time, but the Company may only
terminate Mr. Samson for cause. If the Company terminates Mr. Samson's
employment other than for cause during the Initial Term, Mr. Samson is
entitled to severance compensation in the amount of his annual salary, as well
as comparable health and disability insurance coverage (or reimbursement
therefor), for the remainder of the Initial Term (or any extension thereof).
If Mr. Samson terminates the agreement prior to the end of the Initial Term,
he is entitled to continue receiving 50% of his salary and comparable
insurance benefits (or reimbursement therefor) starting on the date of
termination and ending on the earlier of the third anniversary of the
termination or the fifth anniversary of the Marsam Acquisition. Mr. Samson
currently receives base annual compensation of $400,000. In 1996, the
Company's Board of Directors determined to award a $70,000 bonus to Mr.
Samson, payable to Mr. Samson in 1997. Mr. Samson is also entitled to
participate in and receive benefits from the Company's bonus, stock option,
pension, profit-sharing, insurance and other employee benefit plans. In
addition, the agreement provides that during any time when the Company is
obligated to pay Mr. Samson a salary or consulting fee, Mr. Samson is also
entitled to an automobile, or, at the Company's option, an automobile
allowance. Mr. Samson is prohibited from competing with the Company (or owning
more than 3% of the outstanding equity of a competing business) during the
term of his employment or consultancy with the Company, during any period in
which the Company is making severance compensation payments or upon
termination for cause by the Company until the earlier of the sixth
anniversary of the Marsam Acquisition and the fourth anniversary of the
termination.
The Company, at its option, may retain Mr. Samson as a consultant for a
period of one year after the Initial Term (or any extension thereof) or after
Mr. Samson terminates the agreement. As a consultant, Mr. Samson is entitled
to receive a consulting fee in an amount equal to his base salary immediately
prior to termination, as well as comparable health and disability insurance
coverage (or reimbursement therefor). Such consulting fee may be reduced
dollar-for-dollar by any compensation received by Mr. Samson for other
employment that he is engaged in at the time. The Company, at its option, may
terminate the consultancy upon 30 days prior written notice.
The agreement also provides that Mr. Samson, having been elected a director
of the Company effective on the date of the Marsam Acquisition, is entitled to
have his name included in the slate of the Company's management nominees for
re-election as a director during the term of the agreement. Mr. Samson is also
entitled to designate three of Marsam's seven board members.
Following termination of Mr. Samson's employment other than for cause, Mr.
Samson will be entitled to an annual pension for a period of ten years. A
compensation continuation agreement dated October 19, 1991 provides for a
payment in the first year equal to 100% of his prior year base salary and a
payment equal to 50% of his base salary for the subsequent nine years. The
Company has also agreed to provide certain benefits to Mr. Samson in the form
of payments on the split dollar life insurance contract insuring the lives of
Mr. Samson and his wife.
The Company entered into an employment agreement with Dariush Ashrafi dated
May 1, 1995, pursuant to which Mr. Ashrafi serves as Executive Vice President
and Chief Financial Officer of the Company. Under this agreement, the term of
Mr. Ashrafi's employment began on May 1, 1995 and terminates 60 days after
either Mr. Ashrafi or the Company gives written notice that he or it does not
wish to continue the employment, unless earlier terminated for cause or upon
the death or disability of Mr. Ashrafi. Mr. Ashrafi currently receives annual
base compensation of $341,000. In 1996, the Company's Board of Directors
determined to award a $59,700 bonus to Mr. Ashrafi, payable to Mr. Ashrafi in
1997. Pursuant to a deferred compensation agreement dated April 17, 1995,
between the Company and Mr. Ashrafi, Mr. Ashrafi is entitled to receive a
bonus of $300,000, payable in quarterly payments in the amount of $75,000. If
Mr. Ashrafi's employment with the Company is terminated under certain
circumstances, he is entitled to receive 100% of his base salary and annual
cash bonus paid or payable by the Company to him in respect of the last full
fiscal year preceding the termination date as one lump
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sum payment. Further, if Mr. Ashrafi is terminated other than for cause or
disability, or if he voluntarily terminates his employment in certain
instances, he is entitled to receive basic health and medical benefits until
the earlier of one year following termination and his full-time employment
elsewhere.
The Company entered into an employment agreement with Paul Feuerman dated
November 29, 1993, pursuant to which Mr. Feuerman serves as Senior Vice
President and General Counsel to the Company. Under this agreement, the term
of Mr. Feuerman's employment began on November 29, 1993 and terminates 60 days
after either Mr. Feuerman or the Company gives written notice that he or it
does not wish to continue the employment, unless earlier terminated for cause
or upon the death or disability of Mr. Feuerman. Mr. Feuerman currently
receives annual base compensation of $225,000. In 1996, the Company's Board of
Directors determined to award a $32,400 bonus, payable to Mr. Feuerman in
1997. Pursuant to a deferred compensation agreement dated August 8, 1996,
between the Company and Mr. Feuerman, Mr. Feuerman is entitled to receive a
bonus of $500,000, payable in two annual installments of $100,000 each
followed by two annual installments of $150,000 each. If Mr. Feuerman's
employment with the Company is terminated under certain circumstances, he is
entitled to receive 100% of his base salary and annual cash bonus paid or
payable by the Company to him in respect of the last full fiscal year
preceding the termination date as one lump sum payment. Further, if Mr.
Feuerman is terminated other than for cause or disability, or if he
voluntarily terminates his employment in certain instances, he is entitled to
receive basic health and medical benefits for one year following termination
and his full-time employment elsewhere.
The Company entered into an agreement dated November 29, 1993 with James C.
McGee, pursuant to which Mr. McGee served as the Company's Executive Vice
President. Mr. McGee ceased full-time employment and became a consultant to
the Company on May 15, 1997. Under an agreement dated September 20, 1996, Mr.
McGee is entitled to receive as severance a lump sum payment, some portion of
his annual base salary as and when bonuses are paid to certain senior
executives in respect of fiscal 1997 and continuing health and dental
insurance coverage. Until December 31, 1998, Mr. McGee will serve as a
consultant to the Company and is entitled to receive base consulting fees
equal to his annual base salary, plus an additional consulting fee equal to
some portion of his annual base salary to be paid as and when bonuses are paid
to senior executive officers of the Company in respect of fiscal 1998.
STOCK OPTIONS
The Company's 1997 Stock Option Plan (the "1997 Plan") provides for the
granting of options to purchase not more than an aggregate of 27,400 shares of
Common Stock, subject to adjustment under certain circumstances. In addition,
the Company's 1993 Stock Option Plan (the "1993 Plan") provided for the
granting of options to purchase not more than an aggregate of 27,400 shares of
Common Stock, subject to adjustment under certain circumstances. In addition,
the Company's 1995 Non-Employee Director Stock Option Plan (the "Non-Employee
Director Plan") provides for the granting of options to purchase not more than
an aggregate of 1,000 shares of Common Stock, subject to adjustment under
certain circumstances. Although options granted under the 1993 Plan to
purchase 25,586 shares are still outstanding, no further grants will be made
pursuant to the 1993 Plan. Some or all of the options granted under the 1997
Plan may be "incentive stock options" within the meaning of section 422 of the
Internal Revenue Code of 1986 (the "Code"). The Company has granted options to
purchase 4,252 shares under the 1997 Plan at the then fair market value.
The Compensation Committee administers the 1997 Plan. The Compensation
Committee has full power and authority to interpret the 1997 Plan, set the
terms and conditions of individual options and supervise the administration of
the 1997 Plan.
The Compensation Committee determines, subject to the provisions of the 1997
Plan, to whom options are granted, the number of shares of Common Stock
subject to an option, whether stock options will be incentive or non-
qualified, the exercise price of the options (which, in the case of non-
qualified options, may be less than the fair market value of the shares on the
date of grant) and the period during which options may be exercised. All
employees of the Company are eligible to participate in the 1997 Plan. No
options may be granted under the 1997 Plan after March 3, 2007.
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The Compensation Committee may amend the 1997 Plan from time to time.
However, the Compensation Committee may not, without stockholder approval,
amend the 1997 Plan to increase the number of shares of Common Stock under the
1997 Plan (except for changes in capitalization as specified in the 1997
Plan).
The Non-Employee Director Plan provides for automatic annual grants of
options to purchase shares of the Company's Common Stock to non-employee
directors of the Company in amounts calculated using a formula provided in the
plan. The Company has granted options to purchase 189 shares of Common Stock
under the Non-Employee Director Plan.
The Board of Directors of the Company may amend the Non-Employee Director
Plan from time to time. However, the Board of Directors may not, without
stockholder approval, amend the plan to increase the number of shares of
Common Stock available for option grants under the plan (except for changes in
capitalization specified in the plan).
CERTAIN OTHER EMPLOYEE BENEFIT PLANS
The Company maintains the Retirement Plan of Schein Pharmaceutical, Inc. &
Affiliates (the "Company Retirement Plan"), under which employees (other than
temporary employees) of the Company may participate on the first day of the
first pay period after completing six consecutive calendar months during which
they complete at least 500 hours of service. Effective July 1, 1996, the
Company Retirement Plan became the successor to the Marsam Pharmaceuticals
Retirement Plan.
Participants generally may make basic contributions to the Company
Retirement Plan, by salary deduction, of up to 14% of their compensation from
the Company, subject to applicable federal tax limitations ($9,500 for the
1997 plan year, subject to cost of living adjustments); the amount of a
participant's basic contribution is generally excluded from gross income for
federal or state income tax purposes. The Company makes a mandatory matching
contribution to the Company Retirement Plan of $.25 for each dollar
contributed to the Company Retirement Plan as a basic contribution, up to the
first 3% of a participant's contribution; the Company also may make additional
matching contributions and may make other non-matching contributions to the
Company Retirement Plan at the discretion of the Board of Directors. In 1997,
the Company made a discretionary, non-matching contribution under the Company
Retirement Plan for 1996 equal to 5% of compensation.
Participants in the Company Retirement Plan have a 100% vested and
nonforfeitable interest in the value of their basic contribution and the
Company's matching contribution, and they acquire a 100% vested and
nonforfeitable interest in the Company's non-matching amounts at retirement,
death, disability or termination pursuant to an employee reduction plan. If
their employment terminates prior to the normal retirement date for any other
reason, participants acquire a 10% vested and nonforfeitable interest in the
Company's non-matching contribution amounts for each of the first four years
of service; and a 20% vested and nonforfeitable interest in the Company's non-
matching contribution amounts for each of the fifth, sixth and seventh years
of service; accordingly, after seven years of service, participants have a
100% vested and nonforfeitable interest in the value of the Company's non-
matching contribution amounts.
Participants are entitled to receive the amounts in their Company Retirement
Plan accounts in a single lump-sum payment on death, disability, retirement or
termination of employment. At the election of the participant, the
participant's Company Retirement Plan account is eligible for payment in
installments of either 5 or 10 years. In certain circumstances, participants
may receive loans and hardship withdrawals from their accounts in the Company
Retirement Plan.
Supplemental Retirement Plan. The Company maintains a Supplemental
Retirement Plan (the "Supplemental Retirement Plan"). Under the Supplemental
Retirement Plan, the Company pays non-qualified deferred compensation to
certain of its employees consisting of benefits based on annual compensation
in excess of limitations imposed by the Code on contributions under the
Company Retirement Plan. The Supplemental Retirement Plan is an unfunded
"pension benefit plan" subject to the Employee Retirement Income Security Act
of 1974, as amended.
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Split Dollar Life Insurance Plan. The Company maintains a Split Dollar Life
Insurance Plan (the "Life Insurance Plan"). Under the Life Insurance Plan,
each participating officer owns a life insurance policy. Each policy is
designed to provide at age 65 an annuity equal to a specified percentage of
the participant's projected average annual salary for the final three years of
employment (less Social Security benefits and certain benefits under the
Company Retirement Plan). A cash surrender value, which is owned by the
individual and designed to fund the annuity, accumulates under each
participant's policy. The Company and the employee will share the cost of
premiums. The premiums advanced by the Company will be repaid out of the cash
value of the policies.
1993 Book Equity Appreciation Rights Program. The Company maintains a Book
Equity Appreciation Rights Program (the "Program") to allow certain employees
to benefit from an increase in the Company's book value (calculated according
to a formula defined in the Program). All participants are fully vested in
their book equity appreciation rights ("BEARs"). The Company does not intend
to make any additional grants of BEARs.
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CERTAIN TRANSACTIONS
In 1994, the Company entered into a Heads of Agreement with Bayer
Corporation and Bayer A.G. (collectively, "Bayer"), pursuant to which the
Company and Bayer committed together to explore business opportunities for the
U.S. and abroad.
In 1994, the Company entered into a three-year co-promotion agreement with
Bayer covering the Company's INFeD product. Under the terms of the agreement,
in 1994, 1995 and 1996, in exchange for promotional support, the Company
shared with Bayer the net profits of INFeD in excess of specified threshold
amounts. In early 1997, this agreement was amended and extended to December
1997. The parties are currently negotiating a further extension of this
agreement. This amended agreement provides that in exchange for promotional
support, the Company pays Bayer a fixed dollar amount plus a fixed percentage
of sales above a threshold amount. The Company incurred selling expenses under
these agreements of approximately $3.0 million in 1996 and $2.9 million for
the first nine months of 1997. There were no selling expenses under the first
agreement for 1994 and 1995. See "--Restructuring Agreements."
Since 1994, the Company and Bayer, through their respective affiliates, have
entered into several joint ventures to own, manage or develop generic
pharmaceutical businesses outside of the U.S. Each of Schein and Bayer have
contributed various assets and rights and funded the operations of these
ventures, and in certain circumstances have guaranteed certain liabilities of
these ventures, such as leases and lines of credit. It is contemplated that
the Company and Bayer will sell products to certain of these ventures for
resale in their local markets. Bayer and Schein are each currently evaluating
the extent of their continued participation in certain of these ventures.
The Company, together with the Pharmaceutical, Consumer Healthcare, Afga
Film and Diagnostics divisions of Bayer, has created a collaboration called
Bayer Healthcare Partners. Bayer Healthcare Partners is a marketing tool
through which the various participants combine their sales efforts to offer a
package of goods and services designed to be more attractive to a customer,
most likely a managed health care provider. The participants share in the
costs and profits associated with sales of the covered products to that
customer.
Since 1985, the Company has had a series of non-exclusive agreements
(collectively, the "Consulting Agreement") with the Consultant. Under the
Consulting Agreement, the Consultant and the Company have identified certain
patents on branded pharmaceutical products that might be susceptible to a
challenge, and the Consultant has acted as litigation counsel or advising
counsel to the Company in those instances where the Company decided to proceed
with a patent challenge. For projects in which the Consultant has rendered an
opinion, the Company pays the Consultant half the adjusted gross profit from
the Company's sale of generic versions of the patented product until the date
on which the patent would normally have expired or half the proceeds of any
settlement. In 1995 and 1996, the Company recorded in the aggregate net
product sales and settlements from patent challenges of $106.0 million and
related gross profits of $62.6 million (after deducting payments to the
Consultant of $17.4 million). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."
The Consultant's services are provided on a non-exclusive basis to the
Company. The Consulting Agreement does not have a specific term and continues
until the current projects under the Consulting Agreement are completed and
all payments due to the Consultant are made. There are two current projects
under the Consulting Agreement, one of which has resulted in a pending patent
challenge initiated by the Company. In accordance with the Consultant's right
to delegate responsibility for defending patent challenge litigation to other
counsel selected with the consent of the Company, responsibility for the
pending patent challenge has been delegated to other counsel. The Consultant
may terminate the Consulting Agreement for certain specified reasons at any
time. Without regard to who terminates the Consulting Agreement or the reasons
therefor, the Consultant will be entitled to payment in conjunction with any
sales or settlements with respect to any patented product for which the
Consultant has previously rendered an opinion setting forth the basis for a
possible patent challenge. The Consultant has rendered opinions with respect
to each of the two patented drug products that are the
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respective subjects of the current projects under the Consulting Agreement,
and the Company will owe the Consultant payments to the extent that the
Company successfully develops one or both of these products and challenges the
applicable patents and thereafter markets one or both of these products, or
otherwise favorably settles any such challenge.
In the conduct of its business, the Company sells pharmaceutical products to
Henry Schein, Inc. for distribution to its customers. Net sales to Henry
Schein, Inc. were $6.4 million, $5.3 million and $8.6 million in 1994, 1995
and 1996, respectively, and $5.5 million and $5.4 million for the nine months
ended September 1996 and the nine months ended September 1997, respectively.
Other than certain common stockholders, there is no affiliation between Henry
Schein, Inc. and the Company, and all transactions between the Company and
Henry Schein, Inc. are on an arm's-length basis.
The Company has signed a non-binding letter dated October 7, 1997 with
Cheminor and Reddy outlining the parties' intent to enter into a strategic
alliance agreement. As part of the contemplated arrangement, Cheminor could
purchase shares of the Company's Common Stock, once the shares are publicly
traded, at fair market value; the purchase price could be payable from the
profits otherwise due Cheminor from the alliance. Cheminor would have certain
rights to acquire additional shares from time to time, at fair market value,
to maintain its percentage interest in the Company. In addition, Cheminor
would have representation on the Company's Board of Directors consistent with
its equity investment through the purchase of the Company's shares once they
are publicly traded. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
In connection with Mr. Ashrafi's relocation, the Company loaned Mr. Ashrafi
$150,000 at an interest rate of 6.875% per annum evidenced by a promissory
note dated May 31, 1996. As of September 1997, an aggregate principal amount
of $150,000 was outstanding on that loan.
Richard L. Goldberg, who is a Director of the Company, is a member of
Proskauer Rose LLP, which has been retained by the Company to provide legal
services.
Restructuring Agreements
At the time of Bayer Corporation's acquisition of its 28.3% interest in the
Company, the Company, Bayer Corporation, Mr. Sperber, and certain other
principal stockholders entered into certain agreements (the "Restructuring
Agreements") relating to the governance of the Company and certain other
matters.
Agreements Relating to Control of the Company. The Restructuring Agreements
provide that, until the earlier of March 1, 2000 and the effective date of a
merger, consolidation or combination that results in the voting trustee
(currently Mr. Sperber) (the "Voting Trustee") neither holding the position of
chairman of the board, president, chief executive officer or chief operating
officer of the resulting entity nor having the right to designate a majority
of the members of the board of the resulting entity (such earlier date, the
"Voting Trust Termination Date"), the Voting Trustee will have the right to
vote, or direct the vote of, all the shares of Common Stock owned by Marvin
Schein, Pamela Schein and Pamela Joseph and certain trusts established by them
or for their issue (collectively, the "Family Stockholders"). As a result of
the foregoing, the Voting Trustee as a practical matter will be able to
control substantially all matters requiring stockholder approval, including
the election of directors, until March 1, 2000. The Restructuring Agreements
provide that Mr. Sperber may designate certain individuals to succeed him as
Voting Trustee under the Restructuring Agreements.
The Restructuring Agreements provide that, until Bayer Corporation owns less
than 10% of the Company's outstanding Common Stock (the "Governance
Termination Date"), Bayer Corporation shall be entitled to nominate a number
of members of the Board of Directors of the Company, rounded down to the
nearest whole number, equal to the product of (a) the number of members of the
Board of Directors and (b) its percentage stockholdings of Common Stock of the
Company at the time of nomination. The Voting Trustee is entitled, until the
Voting Trust Termination Date, to nominate the balance of the members of the
Board of Directors. Until May 15, 2001, the Voting Trustee and the other
Continuing Stockholders (as defined herein) (to the extent their shares of
Common Stock are not voted by the Voting Trustee) must vote for the election
of Bayer Corporation's
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nominee(s). Until the Voting Trust Termination Date, Bayer Corporation and the
Continuing Stockholders (to the extent their shares of Common Stock are not
voted by the Voting Trustee) must vote for the election of the Voting
Trustee's nominees.
Until May 15, 2001, the Company may not, without Bayer Corporation's
consent, among other things, (a) own, manage or operate any business not
principally engaged in a segment of the pharmaceutical or health care industry
or any business ancillary thereto, (b) amend or restate the Company's charter
or by-laws to require more than majority approval to elect a majority of the
Board of Directors, merge, consolidate or sell all or substantially all the
Company's assets or (c) engage in transactions with any affiliate on terms
more favorable to the affiliate than could be obtained in an arm's-length
transactions, other than intercompany transactions and transactions under or
identified in the Restructuring Agreements. In addition, until the earlier of
(i) the Governance Termination Date and (ii) the date on which the shares of
the Company's Common Stock that are held by more than 300 persons who are
neither current stockholders, their permitted transferees nor employees of the
Company have a total market value in excess of $100.0 million (the "Qualified
Public Offering Date"), the Company may not undertake certain other actions
without the consent of Bayer Corporation.
The Restructuring Agreements include the Standstill, which imposes certain
restrictions on Bayer Corporation and its affiliates until May 15, 2001 (the
"Standstill Period"). Under the Standstill, Bayer Corporation and its
affiliates may not, among other things, (a) acquire, announce an intention to
acquire or offer to acquire any assets of the Company or its subsidiaries
(other than in the ordinary course) or equity securities of the Company, (b)
participate in or encourage the formation of a group or entity that seeks to
acquire equity securities of the Company, (c) solicit proxies or become a
participant in any election contest with respect to the Company, (d) initiate
or otherwise solicit stockholders for the approval of stockholder proposals or
induce any other person to initiate any stockholder proposal, (e) seek to
place designees on, or remove any member of, the Board or Directors, (f)
deposit any equity securities in a voting trust or like arrangement, (g) seek
to control the management of the Company or negotiate with any person with
respect to any form of extraordinary transaction with the Company or other
transaction not in the ordinary course of business, or be involved in a tender
or exchange offer or other attempt to violate the Standstill or (h) request
the Company or otherwise seek to amend or waive any provision of the
Standstill.
After the Standstill Period, Bayer Corporation has the right, exercisable
within six months of the end of the Standstill Period and if there is an
insufficient number of shares of Common Stock available on the open market for
Bayer Corporation to acquire a majority of the outstanding Common Stock of the
Company on the open market, to acquire from the Family Stockholders and then
from the Company, a number of shares that should enable Bayer Corporation to
own a majority of the outstanding Common Stock of the Company.
Notwithstanding the Standstill, Bayer Corporation generally may acquire
Common Stock (a) unless Bayer Corporation has sold shares of Common Stock
other than to a Permitted Assignee, (I) in connection with its exercise of
certain preemptive rights or (II) if, after the Qualified Public Offering
Date, necessary to own at least 21% more of the Company's outstanding Common
Stock than certain 10% holders and (b) up to the "New Percentage," defined as:
30% of the Company's outstanding common stock between May 15, 1997 and May 15,
1999; 33 1/3% between May 16, 1999 and May 15, 2000; and 36 2/3% between May
16, 2000 and the end of the Standstill Period.
Under the Restructuring Agreements, if Bayer Corporation and its affiliates
for any reason acquire shares in excess of the New Percentage, until May 15,
2001, Bayer Corporation shall vote those excess shares in accordance with the
Voting Trustee's instructions and those excess shares will not be considered
in determining the number of director nominees to which Bayer Corporation is
entitled.
Under the Restructuring Agreements, each of Marvin Schein, Pamela Schein and
Pamela Joseph has agreed that such individual, and such individual's Family
Group (as defined herein), shall not acquire shares if, as a consequence of
the acquisition such individual, together with such individual's Family Group,
owns in excess of (a) in the case of Marvin Schein and his Family Group,
35.85% of the Common Stock of the Company, (b) in the case of Pamela Schein
and her Family Group, 27.55% of the Common Stock of the Company and (c) in the
case of Pamela Joseph and her Family Group, 12.97% of the Common Stock of the
Company.
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Restrictions on Transfer. The Restructuring Agreements generally provide
that Marvin Schein, Pamela Schein, Pamela Joseph, Mr. Sperber, Stanley
Bergman, certain trusts established by these individuals (collectively, the
"Continuing Stockholders") and certain of their transferees may not transfer
any of their shares until March 1, 2000, except (a) pursuant to Rule 144 under
the Securities Act, but subject to volume limitations intended to equal the
volume limitations applicable to affiliates as set forth in Rule 144(e)(1)
(the "Maximum Rule 144 Sales Amount"), (b) in a wide distribution in an amount
that exceeds the Maximum Rule 144 Sales Amount, regardless of whether the
seller is an affiliate or Rule 144(k) is applicable, in connection with which
the seller or the underwriter confirms that no direct or indirect purchaser in
that distribution is intended to acquire more than the Maximum Rule 144 Sales
Amount, (c) to certain family members of the transferor, related trusts or
estates, or other entities owned exclusively by such transferor, family
members, trusts or estates (collectively, a "Family Group"), (d) in private
placements, to persons who own fewer than 1% of the outstanding common stock
of the Company immediately prior to the transfer and who are not affiliated
with or Family Group members of the transferor, of no more than (I) 1% of the
outstanding Common Stock of the Company to any one person, its affiliates or
Family Group members in any three-month period and (II) 4% of the outstanding
Common Stock of the Company to all persons in any twelve-month period, (e) in
connection with the exercise of certain registration rights granted to the
Company's stockholders under the Restructuring Agreements, but only if, to the
extent the number of shares sold exceeds the Maximum Rule 144 Sales Amount, it
is confirmed to the Company that it is intended that no purchaser will acquire
more than the Maximum Rule 144 Sales Amount, (f) pledges to a financial
institution or transfers to a financial institution in the exercise of its
pledge rights, (g) to Bayer Corporation as provided under the Restructuring
Agreements, (h) pursuant to a merger or a consolidation that has been approved
by the Board of Directors and stockholders of the Company, (i) in a tender
offer in which Mr. Sperber (or any member of his Family Group who acquired
shares from Mr. Sperber) sells shares and (j) in a tender offer for a majority
of the shares of Common Stock of the Company by a bidder not affiliated with
Bayer A.G., if Bayer A.G. and its affiliates have failed to pursue a tender
offer or other acquisition permitted under the Restructuring Agreements. In
addition, Continuing Stockholders have been granted registration rights.
In addition to the above restrictions, the Restructuring Agreements
generally provide that Bayer Corporation and the Continuing Stockholders may
not transfer any of their shares until May 15, 1999. However, Bayer
Corporation may transfer its shares in connection with certain registration
rights granted to Bayer Corporation under the Restructuring Agreements or to a
Permitted Assignee. The Continuing Stockholders may transfer their shares as
provided in the preceding paragraph. A "Permitted Assignee" is (a) a successor
to all or substantially all the business and assets of Bayer Corporation or a
majority-owned subsidiary of Bayer A.G. who agrees to be bound by the
Restructuring Agreements, (b) with respect to certain preemptive rights,
rights of first refusal and rights of first offer, a single purchaser who,
immediately after the purchase and for 60 days thereafter, owns at least 10%
of the shares then owned by Bayer Corporation and who agrees to be bound by
the Standstill and (c) with respect to certain registration rights, any person
referred to in (a) above and up to three non-affiliated purchasers who,
immediately after the respective purchases and for 60 days thereafter, own in
the aggregate at least 20% of the shares then owned by Bayer Corporation and
who agree to be bound by the Standstill.
If Bayer Corporation sells any of its shares in the Company to any
unaffiliated third party, then the following of Bayer Corporation's rights
under the Restructuring Agreements terminate: the right to consent to certain
transactions of the Company; the right to purchase additional shares on
Company issuances of equity securities; the right to acquire shares to
maintain an ownership percentage of more than 21% of outstanding shares over
certain 10% holders; the right to acquire from the Company or the Family
Stockholders under certain circumstances after the Standstill Period, shares
for a controlling interest in the Company; and rights of first refusal with
regard to share transfers by Continuing Stockholders. However, certain of
those rights (i.e., rights to purchase additional shares on Company issuances
of equity securities and rights of first refusal) may be transferred to a
single purchaser who owns at least 10% of the Company's shares then owned by
Bayer Corporation and who agrees to be bound by the Standstill obligations.
Mr. Sperber and Mr. Bergman may not transfer any of their shares to Bayer
A.G. except in certain open market transactions and except to the extent that
Bayer A.G. first offered to purchase such shares from the Family Stockholders
and the Family Stockholders did not sell such shares.
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The Company may not transfer any of its shares to Bayer A.G., except to the
extent that Bayer A.G. is entitled to purchase shares under the Restructuring
Agreements and those shares are not purchased in the open market or from
Family Stockholders.
Rights of Inclusion and First Refusal. The Restructuring Agreements provide
that, if at any time prior to the Voting Trust Termination Date, any Family
Stockholder or Family Group member (an "Offeree") receives an offer from a
third party to purchase some or all of the Offeree's shares of Common Stock,
the Offeree wishes to sell the shares (other than in a transaction described
in clauses (a) through (i) of the first paragraph of "--Restrictions on
Transfer" above) and Mr. Sperber, as Voting Trustee, consents to the
transaction, the Company or its designee shall have the right of first refusal
to purchase those shares on the same terms as in the third party offer.
Under the Restructuring Agreements, if the Company fails to exercise its
right of first refusal and Bayer Corporation has not sold shares other than to
a Permitted Assignee, such right will be deemed assigned to Bayer Corporation,
provided that (a) the stockholdings of Bayer A.G. may not as a result of its
exercising such right exceed the New Percentage and (b) if as a result of its
exercising such right, Bayer A.G. would own a majority of the shares of Common
Stock of the Company, Bayer Corporation will exercise such right at a price
per share equal to the greater of (I) the price contained in the third party
offer and (II) the price determined by an investment banking firm, who will
take into consideration, among other things, that control of the Company will
pass at that time to Bayer A.G.
In addition, if, prior to the end of the Standstill or the time that Bayer
Corporation sells shares other than to a Permitted Assignee, the Company is
not entitled to exercise the right of first refusal described above and a
Continuing Stockholder is permitted under the Restructuring Agreements, and in
good faith wishes, to sell shares of Common Stock to a third party (other than
sales under Rule 144 under the Securities Act and sales under clauses (b), (i)
and (j) of the first paragraph of "--Restrictions on Transfer" above), Bayer
Corporation shall have the right of first offer to purchase those shares of
Common Stock on the same terms as the Continuing Stockholder wishes to sell
the shares of Common Stock.
The Restructuring Agreements provide that if at any time prior to the
earlier of the second anniversary of the Qualified Public Offering Date and
May 15, 2001, Bayer is permitted under the Restructuring Agreements, and in
good faith wishes, to sell shares of Common Stock to a third party, the
Company and the Continuing Stockholders shall have the right of first offer to
purchase those shares of Common Stock on the same terms as the Bayer wishes to
sell the shares of Common Stock.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
As of September 5, 1995, the Company entered into the Senior Credit
Agreement with a group of lenders. The Chase Manhattan Bank (formerly Chemical
Bank) acts as credit agent thereunder. The Senior Credit Agreement, as
amended, provides a term loan facility of $250.0 million and a revolving
credit facility of $100.0 million, each maturing on December 31, 2001. As of
September 27, 1997, the Company had pre-paid $120 million of the term loan
portion of the Senior Credit Agreement and had permanently reduced the
lenders' commitments with respect thereto and had outstandings under the
revolving credit facility of approximately $26.0 million.
The Company's borrowing can be based, at the option of the Company, on a
spread above LIBOR or an alternate base rate ("ABR"). The interest rate spread
applicable to term loan and revolving credit borrowings fluctuates based on
leverage. The spread, in the case of LIBOR loans, can range from 0.75% to
2.50% and, in the case of ABR loans, from 0% to 1.50%. The ABR is based on a
per annum rate which is the greater of (i) the prime rate of the Credit Agent,
(ii) the secondary market rate for three-month certificates of deposit as
published in Federal Reserve Statistical Release H-15 (519), plus 1%, and
(iii) the Federal Funds rate, plus one-half of 1%. A commitment fee ranging
from 0.25% to 0.50% per annum of the unused daily amount of the total
commitment is payable quarterly.
The term loan facility may be prepaid at any time by the Company. Such
facility is subject to quarterly amortization payments, beginning on September
30, 1998. Annual amortization payments will total $13.7 million, $34.2
million, $41.0 million, and $41.1 million in years 1998 through 2001,
respectively. In addition to scheduled amortization, the term loan facility is
subject to mandatory prepayment, without penalty or premium, to the extent of
(a) 75% of excess cash flow for any fiscal year, (b) a specified percentage,
based on leverage, from net proceeds derived from an equity issuance, (c) 100%
of net proceeds from a permitted debt issuance, and (d) 100% of net proceeds
from an asset sale in excess of $1.0 million, all as more fully set forth in
the Senior Credit Agreement.
The Senior Credit Agreement contains a number of affirmative covenants,
including those relating to existence; business and properties; insurance;
taxes; recordkeeping and financial reporting; and notice of certain events, as
well as negative covenants, including: limitations on indebtedness; liens;
sale and lease-back transactions; investments, loans and advances; mergers,
consolidations and sales of assets; dividends and distributions; payment of
dividends by subsidiaries; capital expenditures; transactions with affiliates;
and changes in line of business. The Company is required to maintain specified
financial ratios with respect to leverage, senior debt, fixed charge coverage
and working capital and a minimum net worth.
The Senior Credit Agreement contains customary events of default, including
covenant default, breach of representation and warranty, failure to pay
principal or interest or fees when due, cross-default to other indebtedness,
bankruptcy default, ERISA default, the occurrence of a change in control, the
guarantee agreement or any security document (as defined therein) ceasing to
be in full force and effect and any interest created by a security document
ceasing to be enforceable or ceasing to have the effect and priority purported
to be created thereby.
Borrowings under the Senior Credit Agreement are secured on a senior basis
by mortgages on real property, liens on inventory and receivables and a pledge
of subsidiary stock, which represents substantially all of the Company's
assets. The Company's obligations under the Senior Credit Agreement are
jointly and severally guaranteed on a senior secured basis by the Company's
domestic subsidiaries.
The Senior Subordinated Loan is being repaid from the proceeds of the Notes
offered hereby. See "Use of Proceeds."
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DESCRIPTION OF NOTES
GENERAL
The Notes are to be issued under an indenture, to be dated as of December
24, 1997 (the "Indenture") between the Company, the Guarantors and The Bank of
New York, as Trustee (the "Trustee"), a copy of which is available upon
request to the Company. The following summary of certain provisions of the
Indenture and the Notes does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the
Indenture (including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act")) and the Notes. Capitalized terms used herein and not
otherwise defined have the meanings set forth in "--Certain Definitions."
Under certain circumstances, the Company will be able to designate current
or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
will not be subject to the restrictive covenants set forth in the Indenture.
As of the date of the Indenture, all of the Company's Subsidiaries other than
Schein Pharmaceutical (Netherlands) B.V., Schein Pharmaceutical (Bermuda) Ltd.
and Schein Farmaceutica de Peru will be Restricted Subsidiaries.
TERMS OF THE NOTES
The Notes will be limited to $100.0 million aggregate principal amount, and
will mature on December 15, 2004. Each Note will bear interest at the floating
rate described below payable quarterly in arrears on January 15, April 15,
July 15 and October 15, commencing on January 15, 1998, to holders of record
on the immediately preceding December 31, March 31, June 30 and September 30,
respectively.
Interest on the Notes will accrue at a rate equal to the Applicable LIBOR
Rate and will be calculated on a formula basis by multiplying the principal
amount of the Notes then outstanding by the Applicable LIBOR Rate, and
multiplying such product by the LIBOR Fraction.
The "Applicable LIBOR Rate" means, for each quarterly period during which
any Note is outstanding subsequent to the initial quarterly period, 300 basis
points over the rate determined by the Company (notice of such rate to be sent
to the Trustee by the Company on the date of determination thereof) equal to
the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the
offered rates for deposits in U.S. dollars for a period of three months, as
set forth on the Reuters Screen LIBO Page as of 11:00 a.m., London time, on
the Interest Rate Determination Date for such quarterly period; provided,
however, that if only one such offered rate appears on the Reuters Screen LIBO
Page, the Applicable LIBOR Rate for such quarterly period will mean such
offered rate. If such rate is not available at 11:00 a.m., London time, on the
Interest Rate Determination Date for such quarterly period, then the
Applicable LIBOR Rate for such quarterly period will mean the arithmetic mean
(rounded upwards, if necessary, to the nearest 1/16 of 1%) of the interest
rates per annum at which deposits in amounts equal to US$1 million are offered
by the Reference Banks to leading banks in the London interbank market for a
period of three months as of 11:00 a.m., London time, on the Interest Rate
Determination Date for such quarterly period. If on any Interest Rate
Determination Date, at least two of the Reference Banks provide such offered
quotations, then the Applicable LIBOR Rate for such quarterly period will be
determined in accordance with the preceding sentence on the basis of the
offered quotations of those Reference Banks providing such quotations;
provided, however, that if fewer than two of the Reference Banks are so
quoting such interest rates as mentioned above, the Applicable LIBOR Rate for
such quarterly period shall be deemed to be the applicable LIBOR Rate for the
next preceding quarterly period and in the case of the quarterly period next
succeeding the initial quarterly period, the Applicable LIBOR Rate shall be
8.9375%. Notwithstanding the foregoing, the Applicable LIBOR Rate for the
initial quarterly period shall be 8.9375%.
"Interest Rate Determination Date" means, with respect to each quarterly
period, the second London Banking Day prior to the first day of such quarterly
period.
"LIBOR Fraction" means the actual number of days in the quarterly period
divided by 360; provided, however, that the number of days in each quarterly
period shall be calculated by including the first day of such quarterly period
and excluding the last.
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"London Banking Day" means any day in which dealings in U.S. dollars are
transacted or, with respect to any future date, are expected to be transacted
in the London interbank market.
"quarterly period" means the period from and including a scheduled payment
date (or December 24, 1997, in the case of the initial quarterly period)
through the day next preceding the following scheduled interest payment date.
"Reference Banks" means each of: Societe Generale, London Branch; The Chase
Manhattan Bank, London Branch; Deutsche Bank, London Branch; and Rabobank
Nederland, London Branch and any such replacement bank thereof as listed on
the Reuters Screen LIBO Page and their respective successors, and if any such
banks are not at the applicable time providing interest rates as contemplated
within the definition of the "Applicable LIBOR Rate," Reference Banks shall
mean the remaining bank or banks so providing such rates. In the event that
less than two of such banks are providing such rates, the Company shall use
reasonable efforts to appoint additional Reference Banks so that there are at
least two such banks providing such rates; provided, however, that such banks
appointed by the Company shall be London offices of leading banks engaged in
the London interbank market.
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on
the Reuter Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service for the purpose of displaying London Interbank
Offered Rates of leading banks).
If the date due for payment of interest on or principal of the Notes or the
date fixed for redemption of any Note shall not be a Business Day (as defined
herein), then payment of interest or principal need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date of maturity or the date fixed for redemption,
and no interest shall accrue for the period after such date.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the option of the Company, in whole or in
part, at any time, upon not less than 30 nor more than 60 days' prior notice,
at 103.000% of the principal amount thereof, plus accrued and unpaid interest
thereon to, but excluding the date of redemption, if redeemed prior to January
15, 1998 and at the following redemption prices (expressed as a percentage of
principal amount), plus accrued and unpaid interest thereon to, but excluding,
the date of redemption, if redeemed during the 12-month period commencing on
January 15 of each year:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
1998.............................. 103.000%
1999.............................. 101.500%
2000.............................. 100.750%
2001 and thereafter............... 100.000%
</TABLE>
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable, although no Note of $1,000
in original principal amount will be redeemed in part.
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund or other
mandatory redemption obligation prior to maturity.
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GUARANTEES
All of the Company's existing and future Restricted Subsidiaries (referred
to herein as the "Guarantors"), will unconditionally guarantee on a senior
unsecured basis the performance and punctual payment when due, whether at
maturity, by acceleration or otherwise, of all obligations of the Company
under the Indenture and the Notes. Each of the Guarantors has guaranteed the
Company's indebtedness under the Senior Credit Agreement on a senior secured
basis. The Subsidiary Guarantee of each Guarantor will be effectively
subordinated to the prior payment in full of all secured indebtedness of such
Guarantors, including secured indebtedness under the Senior Credit Agreement.
Each Subsidiary Guarantee will be limited to an amount not to exceed the
maximum amount that can, after giving effect to all other contingent and fixed
liabilities of the applicable Guarantor, be guaranteed by such Guarantor,
without rendering such Subsidiary Guarantee voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. Each Guarantor will agree to pay,
in addition to the amount stated above, any and all costs and expenses
(including reasonable counsel fees and expenses) incurred by the Trustee or
any holder of a Note in enforcing any rights under the Subsidiary Guarantee
with respect to such Guarantor.
Each Subsidiary Guarantee is a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all the Notes, (b) be binding
upon the relevant Guarantor, and (c) enure to the benefit of and be
enforceable by the Trustee, the holders of Notes and their successors,
transferees and assigns.
RANKING
The indebtedness evidenced by the Notes will be senior unsecured obligations
of the Company, will rank pari passu in right of payment with all existing and
future senior indebtedness of the Company and will rank senior in right of
payment to all existing and future indebtedness of the Company that is, by its
terms, expressly subordinated to the Notes. The Notes will also be effectively
subordinated to all existing and future indebtedness of any Subsidiary of the
Company that is not a Guarantor of the Notes.
Holders of secured indebtedness of the Company, including the lenders under
the Senior Credit Agreement, will have claims with respect to the assets
constituting collateral for such indebtedness that are prior to the claims of
holders of the Notes. In the event of a default on the Notes, or a bankruptcy,
liquidation or reorganization of the Company, such assets will be available to
satisfy obligations with respect to the indebtedness secured thereby before
any payment therefrom could be made on the Notes. To the extent that the value
of such collateral is not sufficient to satisfy the indebtedness secured
thereby, amounts remaining outstanding on such indebtedness would be entitled
to share with the Notes and their claims with respect to any other assets of
the Company. As of September 27, 1997, as adjusted for the Offering, the
Company and its Restricted Subsidiaries would have had secured indebtedness of
approximately $160.6 million outstanding. The obligations of the Company and
the Guarantors under the Senior Credit Agreement are secured by substantially
all of the assets of the Company and the Guarantors. As of September 27, 1997,
as adjusted for the Offering, the Company would have had approximately $69.8
million of undrawn availability under the Senior Credit Agreement. The
Indenture will permit the Company and its Restricted Subsidiaries to incur
additional Indebtedness, including Secured Indebtedness, subject to certain
limitations.
CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each holder of Notes
shall have the right to require that the Company purchase such holder's Notes
in whole or in part in any integral multiple of $1,000, for a cash purchase
price (the "Change of Control Purchase Price") equal to 101% of the principal
amount of such Notes, plus accrued and unpaid interest, if any, on such Notes
to the date of purchase (the "Change of Control Purchase Date"), pursuant to
the offer described below (the "Change of Control Offer") and the other
procedures set forth in the Indenture.
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Within 15 days following any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each
holder of Notes by first-class mail, postage prepaid, at his address appearing
in the security register, stating, among other things, (i) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase each Holder's Notes, in whole or in part, at the Change of Control
Purchase Price; (ii) the Change of Control Purchase Price and the Change of
Control Purchase Date which shall be a Business Day no earlier than 30 days
nor later than 60 days from the date such notice is mailed, or such later date
as is necessary to comply with requirements under the Exchange Act; (iii) that
any Note not tendered for purchase will continue to accrue interest; (iv)
that, unless the Company defaults in the payment of the Change of Control
Purchase Price, any Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Purchase Date; and (v) certain other procedures that a holder of Notes must
follow to accept a Change of Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. The Senior Credit
Agreement prohibits the purchase of the Notes by the Company prior to full
repayment of Indebtedness thereunder and, upon a Change of Control, all
amounts outstanding under the Senior Credit Agreement may become due and
payable. There can be no assurance that, in the event of a Change of Control,
the Company will be able to obtain the necessary consents from the lenders
under the Senior Credit Agreement to consummate a Change of Control Offer. The
failure of the Company to make or consummate the Change of Control Offer or
pay the Change of Control Purchase Price when due would result in an Event of
Default.
The existence of a right of the holder of Notes to require the Company to
purchase such holder's Notes upon a Change of Control may deter a third party
from acquiring the Company in a transaction which constitutes a Change of
Control.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
in effect on the Issue Date with respect to Indebtedness outstanding on the
Issue Date and refinancing thereof and customary default provisions) that
would materially impair the ability of the Company to make a Change of Control
Offer to purchase the Notes or, if such Change of Control Offer is made, to
pay for the Notes tendered for purchase.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any of its Restricted Subsidiaries to, incur any Indebtedness; provided,
however, that the Company may incur Indebtedness (including through the
issuance of Disqualified Capital Stock) if on the date of such incurrence the
Consolidated Coverage Ratio would be greater than (i) 2.50:1, if such
Indebtedness is incurred prior to the expiration of 24 months after the Issue
Date, and (ii) 3.00:1 if such Indebtedness is incurred on or subsequent to the
expiration of 24 months after the Issue Date.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may incur Indebtedness to the extent set forth below:
(i) the incurrence by the Company of Indebtedness under the Senior Credit
Agreement and the issuance of letters of credit thereunder (with letters of
credit being deemed to have a principal amount equal to the undrawn amount of
the letters of credit plus any unreimbursed drawings thereon) up to an
aggregate principal amount of $250.0 million outstanding at any one time, less
principal repayments of term loans and permanent commitment reductions with
respect to revolving loans and letters of credit under the Senior Credit
Agreement made after the Issuance Date with the Net Cash Proceeds of Asset
Dispositions, if any;
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(ii) Indebtedness (x) of the Company to any Restricted Subsidiary and (y) of
any Restricted Subsidiary to the Company or any other Restricted Subsidiary;
(iii) Indebtedness of the Company represented by the Notes; (iv) any
Indebtedness of the Company (other than the Indebtedness described in clauses
(i) and (ii) above) outstanding on the date of the Indenture; (v) Indebtedness
represented by the Guarantees of the Notes and Guarantees of Indebtedness
incurred pursuant to clause (i) above; (vi) Indebtedness of the Company or any
Restricted Subsidiary under Interest Rate Agreements that are entered into by
the Company or such Restricted Subsidiary for bona fide hedging purposes (as
determined in good faith by the Board of Directors or senior management of the
Company or such Restricted Subsidiary) with respect to Indebtedness of the
Company or such Restricted Subsidiary incurred without violation of the
Indenture or with respect to customary commercial transactions of the Company
or such Restricted Subsidiary entered into in the ordinary course of business;
(vii) Indebtedness (including Capitalized Lease Obligations) incurred by the
Company or any Restricted Subsidiary to finance the purchase, lease or
improvement of property (real or personal) or equipment (whether through the
direct purchase of assets or the Capital Stock of any Person owning such
assets) in an aggregate principal amount which, when aggregated with the
principal amount of all other Indebtedness then outstanding and incurred
pursuant to this clause (vii), does not exceed $25.0 million; (viii)
Indebtedness incurred by the Company or any Restricted Subsidiary constituting
reimbursement obligations with respect to letters of credit issued in the
ordinary course of business, including, without limitation, letters of credit
in respect of workers' compensation claims or self-insurance, or other
Indebtedness with respect to reimbursement type obligations regarding workers'
compensation claims; provided, that upon the drawing of such letters of credit
or the incurrence of such Indebtedness, such obligations are reimbursed within
30 days following such incurrence; (ix) Acquired Indebtedness; provided,
however, that such Indebtedness is not incurred in contemplation of such
acquisition or merger; and provided, further that the Company would have been
able to incur such Indebtedness at the time of the incurrence thereof pursuant
to clause (a) above, determined on a pro forma basis as if such transaction
had occurred at the beginning of such four-quarter period and such
Indebtedness and the operating results of such merged or acquired entity had
been included for all purposes in such pro forma calculation as if such entity
had been a Restricted Subsidiary at the beginning of such four-quarter period;
(x) obligations in respect of performance and surety bonds and completion
guarantees provided by the Company or any Restricted Subsidiary in the
ordinary course of business; (xi) additional indebtedness in an aggregate
amount not to exceed $10.0 million at any one time outstanding; and (xii)
Refinancing Indebtedness; provided, however, that (A) the principal amount of
such Refinancing Indebtedness shall not exceed the principal or accreted
amount (in the case of any Indebtedness issued with original issue discount,
as such) of Indebtedness so extended, refinanced, renewed, replaced,
substituted or refunded (the "Refinanced Indebtedness"), (B) the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity of not less than
the stated maturity of the Refinanced Indebtedness and (C) the Refinancing
Indebtedness shall rank in right of payment relative to the Notes on terms at
least as favorable to the holders of Notes as those contained in the
documentation governing the Refinanced Indebtedness.
(c) Notwithstanding any other provision of this covenant, neither the
Company nor any Restricted Subsidiary shall incur any Indebtedness (i)
pursuant to paragraph (b) above, if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Indebtedness unless such Indebtedness shall be subordinated to
the Notes to at least the same extent as such Subordinated Indebtedness or
(ii) pursuant to paragraph (a) or (b) if such Indebtedness is subordinate or
junior in ranking in any respect to any Senior Indebtedness unless such
Indebtedness is expressly subordinated in right of payment to such Senior
Indebtedness.
(d) The Company shall not incur any Secured Indebtedness that is not Senior
Indebtedness.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of its Capital Stock (other than dividends or distributions
payable solely in shares of its Capital Stock (other than Disqualified
Capital Stock) or in options, warrants or other rights to acquire such
Capital Stock and other
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than dividends and distributions paid by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of the Capital Stock of the Company or any
Restricted Subsidiary or options, warrants or other rights to acquire such
Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to the relevant scheduled
principal payment, sinking fund or maturity, any Subordinated Indebtedness;
or
(iv) make any Investment in any Person, including, without limitation,
any Unrestricted Subsidiary (other than a Permitted Investment)
(the foregoing actions described in clauses (i) through (iv) above being
hereinafter collectively referred to as "Restricted Payments") unless after
giving effect to the proposed Restricted Payment, (A) no Default or Event of
Default shall have occurred and be continuing and such Restricted Payment
shall not cause or constitute a Default or an Event of Default; (B)
immediately before and immediately after giving effect to such transaction on
a pro forma basis, the Company could incur $1.00 of additional Indebtedness
pursuant to paragraph (a) under "Limitation of Indebtedness"; and (C) the
aggregate amount of all such Restricted Payments (the amount of any such
Restricted Payment, if other than cash, to be determined in good faith by the
Board of Directors of the Company, whose determination shall be conclusive and
evidenced by a resolution of the Board of Directors) declared or made after
the Issue Date (including such Restricted Payment) does not exceed the sum of:
(i) 50% of the aggregate cumulative Consolidated Net Income (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company accrued on a cumulative basis during the period
(taken as one accounting period) from the fiscal quarter that first begins
after the Issue Date to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the time
of such Restricted Payment;
(ii) the aggregate Net Cash Proceeds received after the Issue Date by the
Company from the issuance or sale (other than to any of its Subsidiaries)
of its shares of Capital Stock (other than Disqualified Capital Stock) or
any options, warrants or rights to purchase such shares of Capital Stock
(other than Disqualified Capital Stock) or other cash contributions to its
capital (excluding amounts used pursuant to clauses (ii) or (iii) of
paragraph (b) below);
(iii) the aggregate Net Cash Proceeds received after the Issue Date by
the Company (other than from any of its Subsidiaries) upon the exercise of
any options, warrants or rights to purchase shares of Capital Stock (other
than Disqualified Capital Stock) of the Company;
(iv) the aggregate Net Cash Proceeds received after the Issue Date by the
Company from Indebtedness of the Company or Disqualified Capital Stock of
the Company that has been converted into or exchanged for Capital Stock
(other than Disqualified Capital Stock) of the Company or options, warrants
or rights to acquire such Capital Stock, to the extent such Indebtedness of
the Company or Disqualified Capital Stock of the Company was originally
incurred or issued for cash, plus the aggregate Net Cash Proceeds received
by the Company at the time of such conversion or exchange;
(v) to the extent not included in Consolidated Net Income, the net
reduction (received by the Company or any Restricted Subsidiary in cash) in
Investments (other than Permitted Investments) made by the Company and the
Restricted Subsidiaries since the Issue Date, not to exceed, in the case of
any Investments in any Person, the amount of Investments (other than
Permitted Investments) made by the Company and the Restricted Subsidiaries
in such Person since the Issue Date.
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(b) Notwithstanding the foregoing, and in the case of clauses (v) and (vii)
below, so long as there is no Default or Event of Default continuing, the
foregoing provisions shall not prohibit the following actions:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would be
permitted by the provisions of paragraph (a) of this "Limitation on
Restricted Payments" covenant (such payment being deemed to have been paid
on such date of declaration for purposes of the calculation required by
paragraph (a) of this "Limitation on Restricted Payments" covenant);
(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or warrants,
options or other rights to acquire such stock in exchange for, or out of
the Net Cash Proceeds of a substantially concurrent issue and sale (other
than to a Subsidiary) for cash of, any Capital Stock (other than
Disqualified Capital Stock) of the Company or warrants, options or other
rights to acquire such Capital Stock;
(iii) any repurchase, redemption, defeasance, retirement, refinancing or
acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for, or out of the net proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) for cash of, any
Capital Stock (other than Disqualified Capital Stock) of the Company or
warrants, options or other rights to acquire such Capital Stock;
(iv) the repurchase, redemption, defeasance, retirement or other
acquisition for value or payment of principal of any Subordinated
Indebtedness through the issuance of Refinancing Indebtedness;
(v) Investments in Permitted Foreign Companies in a net aggregate amount
not to exceed $10.0 million in any fiscal year, provided, however, that, to
the extent the net aggregate amount of such Investments in any fiscal year
is less than $10.0 million, 50% of such difference may be carried forward
and added to the $10.0 million permitted amount for the subsequent fiscal
year;
(vi) Investments in Cheminor Drugs Limited and Dr. Reddy's Laboratories
Limited having an aggregate fair market value, taken together with all
other Investments made pursuant to this clause (vi) that are at the time
outstanding, not to exceed $10.0 million; and
(vii) Additional Investments (including, without limitation, Unrestricted
Subsidiaries) having an aggregate fair market value, taken together with
all other Investments made pursuant to this clause (vii) that are at the
time outstanding, not to exceed $15.0 million at the time of such
Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value).
The actions described in clauses (i) and (vii) of this paragraph (b) shall be
Restricted Payments that shall be permitted to be taken in accordance with
this paragraph (b) but shall reduce the amount that would otherwise be
available for Restricted Payments under clause (C) of paragraph (a) of this
"Limitation on Restricted Payments" covenant (provided that any dividend paid
pursuant to clause (i) of this paragraph (b) shall reduce the amount that
would otherwise be available under clause (C) of paragraph (a) of this
"Limitation on Restricted Payments" covenant when declared, but not also when
paid pursuant to such clause (i)) and the actions described in clauses (ii),
(iii), (iv), (v) and (vi) of this paragraph (b) shall be permitted to be taken
in accordance with this paragraph and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (C) of paragraph
(a).
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, incur, assume or suffer to
exist any Lien of any kind upon any of its property or assets (including any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary), whether
owned on the Issue Date or acquired after the Issue Date, or any income or
profits therefrom, except if the Notes (or the Guarantee of the Notes, in the
case of Liens on properties or assets of any Guarantor) and all other amounts
due under the Indenture are directly secured equally and ratably with (or
prior to in the case of Liens with respect to
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Subordinated Indebtedness) the obligation or liability secured by such Lien,
excluding, however, from the operation of the foregoing any of the following:
(a) any Lien existing as of the Issue Date;
(b) any Lien arising by reason of (i) any judgment, decree or order of
any court, so long as such Lien is in existence less than 30 days after the
entry thereof or adequately bonded or the payment of such judgment, decree
or order is covered (subject to a customary deductible) by insurance
maintained with responsible insurance companies; (ii) taxes, assessments or
other governmental charges that are not yet delinquent or are being
contested in good faith; (iii) security for payment of workers'
compensation or other insurance; (iv) good faith deposits in connection
with tenders, leases or contracts (other than contracts for the payment of
borrowed money); (v) zoning restrictions, easements, licenses,
reservations, provisions, covenants, conditions, waivers, restrictions on
the use of property or minor irregularities of title (and with respect to
leasehold interests, mortgages, obligations, liens and other encumbrances
incurred, created, assumed or permitted to exist and arising by, through or
under a landlord or owner of the leased property, with or without consent
of the lessee), none of which materially impairs the use of any property or
assets material to the operation of the business of the Company or any
Restricted Subsidiary or the value of such property or assets for the
purpose of such business; (vi) deposits to secure public or statutory
obligations, or in lieu of surety or appeal bonds with respect to matters
not yet finally determined and being contested in good faith by
negotiations or by appropriate proceedings that suspend the collection
thereof; or (vii) operation of law in favor of mechanics, materialmen,
laborers, employees or suppliers, incurred in the ordinary course of
business for sums that are not yet delinquent or are being contested in
good faith by negotiations or by appropriate proceedings that suspend the
collection thereof;
(c) any Lien now or hereafter existing on property or assets of the
Company or any Guarantor securing Indebtedness of such Person incurred
pursuant to the Senior Credit Agreement;
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or a Restricted Subsidiary; provided that any
such Lien extends only to the assets that were subject to such Lien
securing such Acquired Indebtedness prior to the related acquisition;
(e) leases or subleases granted by the Company or any of its Subsidiaries
to any other Person in the ordinary course of business;
(f) Liens in the nature of trustees' Liens granted pursuant to any
indenture governing any indebtedness permitted by the "Limitation on
Indebtedness" covenant in each case in favor of the trustee under such
indenture and securing only obligations to pay any compensation to such
trustee, to reimburse its expenses and to indemnify it under the terms
thereof;
(g) Liens to secure Indebtedness (including Capitalized Lease
Obligations) permitted by clause (vii) of paragraph (b) of the "Limitation
on Indebtedness" covenant covering only the assets acquired with such
Indebtedness; and
(h) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (g) so
long as the amount of property or assets subject to such Lien is not
increased thereby.
Limitations on Lines of Business. The Company shall not, and shall not
permit its Restricted Subsidiaries to, engage in any business other than those
engaged in on the date of the Indenture and any other segment of the
pharmaceutical or health-care industry or ancillary thereto.
Commission Reports. Notwithstanding that the Company may not be subject to
the reporting requirements of Sections 13 or 15(d) of the Exchange Act, so
long as any Notes are outstanding, the Company will furnish to the Trustee and
the holders of Notes (i) within 45 days after the end of each of the first
three fiscal quarters of each fiscal year and 90 days of the end of each
fiscal year all quarterly and annual financial information, as the
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case may be, that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file any
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, whether or not required by the rules and regulations of
the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. Furthermore, for
so long as any of the Notes remain outstanding, the Company has agreed to make
available to any prospective purchaser of the Notes or beneficial owner of the
Notes, in connection with any sale thereof, the information required by Rule
144(d)(4) under the Securities Act.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary (a) to pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness owed to the Company or any
Restricted Subsidiary, (b) to make any loans or advances to the Company or any
Restricted Subsidiary or (c) to transfer any of its property or assets to the
Company or any Restricted Subsidiary, except: (i) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the Issue
Date; (ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness incurred by
such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date; (iii)
any encumbrance or restriction pursuant to an agreement effecting a
refinancing of Indebtedness incurred pursuant to an agreement referred to in
clause (i) or (ii) of this covenant or contained in any amendment to an
agreement referred to in clause (i) or (ii) of this covenant; provided,
however, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing agreement or amendment
are no less favorable in any material respect to the holders of the Notes than
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (iv) in the case of clause (c) above, any
encumbrance or restriction (A) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset that is the
subject of such encumbrance or restriction, (B) existing by virtue of any
transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do
not, individually or in the aggregate, detract from the value of property or
assets of the Company or any Restricted Subsidiary in any manner material to
the Company or any Restricted Subsidiary; provided that, in each case, such
encumbrance or restriction relates to, and restricts dealings with, only the
property or asset that is the subject of such encumbrance or restriction; and
provided, further, that such encumbrance or restriction does not prohibit,
limit or otherwise restrict the making or payment of any dividend or other
distribution to the Company or any Restricted Subsidiary; (v) any restriction
with respect to a Restricted Subsidiary imposed pursuant to an agreement
entered into for the sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; and (vi) any restrictions on cash or other deposits
or net worth imposed by customers under contracts entered into in the ordinary
course of business.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person
assuming sole responsibility for, any liabilities, contingent or otherwise) at
the time of such Asset Disposition at least equal to the Fair Market Value of
the shares or assets that are the subject matter of such Asset Disposition,
(ii) at least 80% of the consideration therefor received by the Company or
such Restricted Subsidiary is in the form of cash; and (iii) an
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amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent the Company elects (or is required by the terms of the
Senior Credit Agreement), to prepay, repay or purchase such indebtedness
incurred under the Senior Credit Agreement within 180 days after the later of
the date of such Asset Disposition or the receipt of such Net Available Cash,
(B) second, to the extent of the balance of Net Available Cash after
application in accordance with clause (A), to the extent the Company elects,
to secure letter of credit obligations to the extent such related letters of
credit have not been drawn upon or returned undrawn; (C) third, to the extent
of the balance of Net Available Cash after application in accordance with
clauses (A) and (B), to the extent the Company or such Restricted Subsidiary
elects, within one year from the later of the date of such Asset Disposition
or the receipt of such Net Available Cash, to reinvest in, Additional Assets;
and (D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), to make an offer to
purchase Notes pursuant and subject to the conditions of the Indenture to the
holders of the Notes at a purchase price of 100% of the principal amount
thereof plus accrued and unpaid interest to the purchase date; provided,
however, that, in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A) or (B) above, the Company or such
Restricted Subsidiary shall retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal
to the principal amount so prepaid, repaid or purchased. The Company shall not
be required to make an offer for Notes pursuant to this covenant if the Net
Available Cash available therefor (after application of the proceeds as
provided in clauses (A), (B) and (C)) is less than $15.0 million (which lesser
amount shall be carried forward for purposes of determining whether an offer
is required with respect to the Net Available Cash from any subsequent Asset
Disposition).
For the purposes of clause (a)(ii) of this covenant, the following will be
deemed to be cash: (x) the assumption of Indebtedness (other than Disqualified
Capital Stock) of the Company or any Restricted Subsidiary and the release of
the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition and (y) securities
received by the Company or any Restricted Subsidiary of the Company from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(D) of this covenant, the Company will be required
to purchase Notes tendered pursuant to an offer by the Company for the Notes
at a purchase price of 100% of their principal amount plus accrued interest to
the purchase date in accordance with the procedures (including prorating in
the event of oversubscription) set forth in the Indenture.
(c) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant.
Limitation on Affiliate Transactions. The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction (including the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of the
Company (an "Affiliate Transaction") unless: (i) the terms of such Affiliate
Transaction are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time
of such transaction in arm's-length dealings with a Person who is not an
Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $1.0 million (unless such Affiliate Transaction
constitutes an agreement with Bayer A.G. or its Affiliate relating to an
Investment by the Company and an Investment by Bayer A.G. or its Affiliate in
a Permitted Foreign Company in which case the requirements of this clause
shall be applicable only if the amount being invested by the Company exceeds
$10.0 million), the terms of such transaction have been approved by a majority
of the members of the Board of Directors of the Company and by a majority of
the disinterested members of such Board, if any (and such majority or
majorities, as the case may be, determines that such Affiliate Transaction
satisfies the criteria in (i) above) and (iii) in the event such Affiliate
Transaction involves an aggregate amount in excess of $15.0 million (unless
such Affiliate Transaction constitutes an agreement with Bayer A.G. or its
Affiliate relating to an Investment by the Company and an Investment by Bayer
A.G. or its Affiliate in a Permitted Foreign Company in which case the
requirements of this clause shall be
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applicable only if the amount being invested by the Company exceeds $25.0
million), the Company has received a written opinion from an independent
investment banking firm of nationally recognized standing that such Affiliate
Transaction is fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view.
The provisions of the foregoing paragraph will not prohibit (i) any
Restricted Payment permitted to be paid or made pursuant to the covenant
described under "Limitation on Restricted Payments," (ii) the performance of
the Company's or a Restricted Subsidiary's obligations under any employment
contract, stock option, collective bargaining agreement, employee benefit
plan, related trust agreement or any other similar arrangement heretofore or
hereafter entered into in the ordinary course of business, (iii) payment of
compensation to employees, officers, directors or consultants in the ordinary
course of business, (iv) maintenance in the ordinary course of business of
benefit programs or arrangements for employees, officers or directors,
including vacation plans, health and life insurance plans, deferred
compensation plans, and retirement or savings plans and similar plans, (v) any
transaction between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries, (vi) any agreement in effect as of the Issue Date or
any amendment thereto or any transaction contemplated thereby, (vii)
transactions required of the Company or any Restricted Subsidiary under, or
contemplated by, the General Shareholders Agreement dated September 30, 1994,
and the Continuing Shareholders Agreement dated September 30, 1994, in each
cased as in effect on the date of this Indenture or (viii) any agreement
entered into in the ordinary course or business between the Company and a
Person who constitutes an Affiliate solely by reason of such Person being an
officer or director of the Company which agreement provides for the repurchase
by the Company, upon or following the termination of such Person's employment
or directorship with the Company, of shares of Capital Stock of the Company
owned by such Person.
Limitation on Sale of Capital Stock of Restricted Subsidiaries. The Company
(i) shall not, and shall not permit any Restricted Subsidiary to, transfer,
convey, sell or otherwise dispose of any Capital Stock of any Restricted
Subsidiary to any Person (other than to the Company or a Restricted
Subsidiary) and (ii) shall not permit any Restricted Subsidiary to issue any
of its Capital Stock to any Person other than to the Company or a Restricted
Subsidiary; provided, however, that the foregoing shall not prohibit the
transfer, conveyance, sale or other disposition of all the Capital Stock of a
Restricted Subsidiary if the Net Cash Proceeds from such transfer, conveyance,
sale or other disposition are applied in accordance with the covenant
described above under "Limitation on Sales of Assets and Subsidiary Stock";
and, provided, further, that this covenant shall not prohibit the transfer,
conveyance, sale or other disposition of less than all of the Capital Stock of
a Restricted Subsidiary or the issuance by any Restricted Subsidiary of any of
its Capital Stock to any Person as long as (A) the Net Cash Proceeds from such
transfer, conveyance, sale or other disposition or issuance are applied in
accordance with the "Limitation on Sales of Assets and Subsidiary Stock"
covenant, (B) immediately after giving effect to such transaction, no Event of
Default shall have occurred and be continuing, (C) immediately after giving
pro forma effect to such transaction, as if such transaction had occurred at
the beginning of the applicable four-quarter period, the Company would be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Coverage Ratio test as set forth in paragraph (a) of the
"Limitation on Indebtedness" covenant and (D) immediately after giving effect
to such transaction, such Restricted Subsidiary remains a Restricted
Subsidiary of the Company.
Limitation on Sale and Leaseback Transactions. The Indenture will provide
that the Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company may enter into a sale and leaseback transaction if (i) the Company
could have (a) incurred Indebtedness in an amount equal to the Attributable
Debt (as defined herein) relating to such sale and leaseback transaction
pursuant to the Consolidated Coverage Ratio test set forth in paragraph (a) of
the covenant "Limitation on Indebtedness" and (b) incurred a Lien to secure
such Indebtedness pursuant to the "Limitation on Liens" covenant, (ii) the
gross cash proceeds of such sale and leaseback transaction are at least equal
to the fair market value (as determined in good faith by the Board of
Directors and set forth in an Officers' Certificate delivered to the Trustee)
of the property that is the subject of such sale and leaseback transaction and
(iii) the transfer of assets in such sale and leaseback transaction is
permitted by, and the Company applies the net proceeds of such transaction in
compliance with, the "Limitation on Sales of Assets and Subsidiary Stock"
covenant.
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MERGER AND CONSOLIDATION
The Company shall not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United States
of America, any state thereof or the District of Columbia and the Successor
Company (if not the Company) shall expressly assume, by an indenture
supplemental to the Indenture, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of the Company
under the Notes and the Indenture; (ii) immediately after giving effect to
such transaction (and treating any Indebtedness which becomes an obligation of
the Successor Company or any Restricted Subsidiary as a result of such
transaction as having been incurred by such Successor Company or such
Restricted Subsidiary at the time of such transaction), no Event of Default
shall have occurred and be continuing; (iii) immediately after giving pro
forma effect to such transaction, as if such transaction had occurred at the
beginning of the applicable four-quarter period, the Successor Company would
be permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Consolidated Coverage Ratio test set forth in paragraph (a) of the
"Limitation on Indebtedness" covenant; and (iv) the Company shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and each supplemental
indenture (if any) comply with the Indenture.
The Successor Company shall be the successor of the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due and payable, continued for 30 days,
(ii) a default in the payment of principal of any Note when due and payable at
its Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by the Company to comply with its
obligations under "--Merger and Consolidation," (iv) the failure by the
Company to comply for 30 days after notice with any of its obligations under
"--Change of Control" or under the covenants described under "Certain
Covenants" above (in each case, other than a failure to purchase Notes which
shall constitute an Event of Default under clause (ii) above), (v) the failure
by the Company to comply for 30 days after notice with its other covenants and
agreements contained in the Indenture or the Notes, (vi) Indebtedness of the
Company or any Restricted Subsidiary is not paid within any applicable grace
period after final maturity or is accelerated by the holders thereof because
of a default and the total amount of such Indebtedness unpaid or accelerated
exceeds $10.0 million or its foreign currency equivalent at the time (the
"cross acceleration provision"), (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or a Material Subsidiary (the
"bankruptcy provisions"), (viii) any judgment or decree for the payment of
money in excess of $10.0 million or its foreign currency equivalent at the
time (to the extent not covered by insurance) is entered against the Company
or a Material Subsidiary and is not discharged and either (A) an enforcement
proceeding has been commenced by any creditor upon such judgment or decree and
is not promptly stayed or (B) such judgment or decree shall remain
undischarged or unstayed for a period of 60 days following the entry of such
judgment or decree (the "judgment default provision") or (ix) the failure of
any Subsidiary Guarantee of the Notes to be in full force and effect (except
as contemplated by the terms thereof) or the denial or disaffirmation by any
Guarantor of its obligations under the Indenture or any Subsidiary Guarantee
of the Notes if such failure is not cured, or such denial or disaffirmation is
not rescinded or revoked, within 10 days. However, a default under clauses
(iv) and (v) will not constitute an Event of Default until the Trustee or the
holders of at least 25% in principal amount of the outstanding Notes notify
the Company in writing of the default and the Company does not cure such
default within the time specified in clauses (iv) and (v) hereof after receipt
of such notice.
If an Event of Default (other than an Event of Default specified in clause
(vii) above with respect to the Company) occurs and is continuing, the
Trustee, by written notice to the Company, or the holders of at least
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25% in outstanding principal amount of the Notes, by written notice to the
Company and the Trustee, may declare the principal of, and accrued and unpaid
interest on, all the Notes to be due and payable. Upon such a declaration,
such principal and interest shall be due and payable (i) if no Indebtedness is
outstanding under the Senior Credit Agreement, immediately, and (ii) if any
Indebtedness is outstanding under the Senior Credit Agreement, upon the first
to occur of (x) the acceleration of any such Indebtedness or (y) the fifth
Business Day after receipt by the Company and the Credit Agent of such written
notice of acceleration. If an Event of Default specified in clause (vii) above
occurs and is continuing, the principal of, and accrued and unpaid interest
on, all the Notes shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any
holders. Under certain circumstances, the holders of a majority in principal
amount of the outstanding Notes may rescind any such acceleration with respect
to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any trust or power under the Indenture at the
request, order or direction of any of the holders unless such holders have
offered to the Trustee indemnification satisfactory to it in its sole
discretion against all losses and expenses. Except to enforce the right of any
holder to receive payment of the principal of and interest on the Notes held
by such holder on or after the respective due dates expressed in the Notes, no
holder may pursue any remedy with respect to the Indenture or the Notes unless
(i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in outstanding principal
amount of the outstanding Notes have requested the Trustee to pursue the
remedy, (iii) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the Trustee has not
complied with such request within 60 days after the receipt of the request and
the offer of security or indemnity, and (v) the holders of a majority in
principal amount of the outstanding Notes have not given the Trustee a
direction that is inconsistent with such request within such 60 day period.
Subject to certain restrictions, the holders of a majority in outstanding
principal amount of the Notes may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or the Indenture
or, subject to the provisions of the Indenture relating to the duties of the
Trustee, that the Trustee determines is unduly prejudicial to the rights of
other holders (it being understood that, subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee shall have no
duty to ascertain whether or not such actions or forbearances are unduly
prejudicial to such holders) or would subject the Trustee to personal
liability; provided, however, that the Trustee may take any other action
deemed proper by the Trustee that is not inconsistent with such direction.
Prior to taking or refraining from taking any such action hereunder, the
Trustee shall be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by its taking or refraining
from taking such action.
The Indenture provides that if a Default or Event of Default occurs and is
continuing and if a Trust Officer has actual knowledge thereof, the Trustee
shall mail to each holder notice of the Default or Event of Default within 90
days after it occurs. Except in the case of a Default or Event of Default in
payment of principal of, or interest on, any Note (including payments pursuant
to the optional redemption or required repurchase provisions of such Note, if
any), the Trustee may withhold the notice if and so long as its board of
directors, the Executive Committee of its board of directors or a committee of
its Trust Officers in good faith determines that withholding the notice is in
the interests of the holders of the Notes. In addition, the Company is
required to deliver to the Trustee: (i) within 5 days after the occurrence
thereof, written notice in the form of an Officers' Certificate of any Event
of Default under clause (vi) above and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause
(iv), (v) or (viii), its status and what action the Company is taking or
proposes to take with respect thereto and (ii) within 120 days after the end
of each fiscal year, written notice in the form of an Officers' Certificate
indicating whether the officers signing such Officers' Certificate had actual
knowledge of any Default that occurred during such previous fiscal year.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount of the Notes then outstanding
and any past default or compliance with any provisions may
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be waived with the consent of the holders of a majority in principal amount of
the Notes then outstanding. However, without the consent of each holder of an
outstanding Note affected, no amendment may, among other things, (i) reduce
the amount of Notes whose holders must consent to an amendment, (ii) reduce
the rate of or extend the time for payment of interest on any Note, (iii)
reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce
the premium payable upon the redemption or repurchase of any Note or change
the time at which any Note may or shall be redeemed or repurchased in
accordance with the Indenture, (v) make any Note payable in money other than
that stated in the Note, (vi) modify or affect in any manner adverse to the
holders of the Notes, the terms and conditions of the obligation of the
Company for the due and punctual payment of the principal of or interest on
the Notes or (vii) make any change in the amendment provisions which require
each holder's consent or in the waiver provisions.
Without the consent of any holder, the Company and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition
to or in place of certificated Notes (provided that the uncertificated Notes
are issued in registered form for purposes of Section 163(f) of the Code, or
in a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code), to add Guarantees with respect to the Notes, to
secure the Notes, to add to the covenants of the Company for the benefit of
the holders of the Notes or to surrender any right or power conferred upon the
Company, to make any change that does not adversely affect the rights of any
holder or to comply with any requirement of the Commission in connection with
the qualification of the Indenture under the Trust Indenture Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A holder of Notes may transfer or exchange Notes in accordance with the
Indenture. The Company or the Trustee may require any Note presented for
registration of transfer, exchange, redemption or payment to be duly endorsed
by, or be accompanied by a written instrument or instruments of transfer in
form satisfactory to the Company and the Trustee duly executed by, the holder
or his attorney duly authorized in writing. The Company may require payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any exchange or registration of transfer of Notes.
No service charge may be imposed for any such transaction. The Trustee may not
be required to exchange or register a transfer of (i) any Notes for a period
of 15 days next preceding the first mailing of notice of redemption of Notes
to be redeemed or (ii) any Notes selected, called or being called for
redemption except, in the case of any Note where public notice has been given
that such Note is to be redeemed in part, the portion thereof not so to be
redeemed. The Notes will be issued in registered form and the registered
holder of a Note will be treated as the owner of such Note for all purposes.
DEFEASANCE
Subject to certain conditions and to the survival of certain of the
Company's obligations under the Indenture, the Company at any time may
terminate (i) all its obligations under the Notes and the Indenture and all
obligations of the Subsidiary Guarantors under the Subsidiary Guarantee and
the Indenture ("legal defeasance option") or (ii) its obligations under
certain covenants described under "Certain Covenants," the operation of the
cross acceleration provision and the judgement default provision described
under "Events of Default" above and the limitations contained in clauses (iii)
and (iv) under "--Merger and Consolidation" above ("covenant defeasance"). The
Senior Credit Agreement prohibits the legal defeasance and covenant defeasance
of the Notes as long as there are obligations outstanding under the Senior
Credit Agreement. However, no deposit of funds shall be effective to terminate
the obligations of the Company under the Notes or the Indenture prior to 123
days following any such deposit.
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The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default. If the Company exercises its covenant defeasance
option, payment of the Notes may not be accelerated because of an Event of
Default specified in clause (iv), (v), (vi), (viii) or (ix) under "Events of
Default" above or because of the failure of the Company to comply with clause
(iii) or (iv) under "--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal of and interest on the
Notes to maturity or redemption, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of an Opinion of
Counsel to the effect that holders of the Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance
had not occurred (and, in the case of legal defeasance only, such Opinion of
Counsel must be based on a ruling of the Internal Revenue Service or other
change in applicable federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
Notes. The Bank of New York is a lender under the Senior Credit Agreement.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflict of laws to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Restricted Subsidiary or (ii) assumed by the
Company or a Restricted Subsidiary in connection with the acquisition of
assets from such Person. Acquired Indebtedness shall be deemed to be incurred
on the date of the related acquisition of assets from any Person or the date
the acquired Person becomes a Restricted Subsidiary.
"Additional Assets" mean (i) any property or assets (other than Indebtedness
and Capital Stock) to be used by the Company or a Restricted Subsidiary in a
Related Business; or (ii) the Capital Stock of a Person that becomes a
Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Company or another Restricted Subsidiary; provided, however, that, in the
case of clause (ii), such Person is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any Person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the covenants described under "Certain Covenants--
Limitation on Sales of Assets and Subsidiary Stock", "--Limitation on
Restricted Payments" and "--Limitation on Affiliate Transactions" only,
"Affiliate" shall also mean any beneficial owner of (x) shares and (y) rights
or warrants to purchase shares (whether or not currently exercisable)
representing in the aggregate 10% or more of the total voting power (assuming
the exercise of any such rights or warrants) of the outstanding voting shares
of Capital Stock of the Company on a fully diluted basis and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
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"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Restricted Subsidiary, (ii) a
disposition of inventory in the ordinary course of business, (iii) a
disposition of obsolete or worn out equipment or equipment that is no longer
useful in the conduct of the business of the Company and its Restricted
Subsidiaries and that is disposed of in each case in the ordinary course of
business, (iv) a transfer involving assets with a Fair Market Value not in
excess of $5 million, (v) any sale of equity interests in, or Indebtedness or
other securities of, an Unrestricted Subsidiary, and (vi) a disposition of all
or substantially all of the assets of the Company in a manner permitted
pursuant to the provisions described under "--Merger and Consolidation"; and
(vii) any exchange or assignment in the ordinary course of business with any
Person engaged in a Related Business of rights to manufacture and market drugs
or other pharmaceutical products.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bayer A.G." shall mean Bayer A.G., a German corporation.
"Board of Directors" means either the Board of Directors of the Company or
any committee of such Board of Directors duly authorized to act hereunder.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close.
"Capital Stock" means (i) any and all shares, interests, participations or
other equivalents of or interests in (however designated) corporate stock,
including, without limitation, shares of preferred or preference stock, (ii)
all partnership interests (whether general or limited) in any Person which is
a partnership, (iii) all membership interests or limited liability company
interests in any limited liability company, and (iv) all equity or ownership
interests in any Person of any other type.
"Capitalized Lease Obligations" means, without duplication, all monetary
obligations of the Company or any of its Restricted Subsidiaries under any
leasing or similar arrangement which, in accordance with GAAP, would be
classified as capitalized leases and, for purposes of the Indenture, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP, and the stated maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Change of Control" means (i) any sale, lease or other transfer (other than
a bona fide pledge of assets to secure Indebtedness incurred in accordance
with the Indenture or under the Senior Credit Agreement) by the Company or any
Restricted Subsidiary of all or substantially all of the assets of the Company
to any Person as an entirety or substantially as an entirety in one
transaction or a series of related transactions; (ii) the Company consolidates
or merges with or into another Person pursuant to a transaction in which the
outstanding Voting Shares of the Company are changed into or exchanged for
cash, securities or other property, other than any such
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transaction where (a) the outstanding Voting Shares of the Company are changed
into or exchanged for Voting Shares (other than Disqualified Stock) of the
surviving corporation and (b) the holders of the Voting Shares of the Company
immediately prior to such transaction own, directly or indirectly, not less
than a majority of the Voting Shares of the surviving corporation immediately
after such transaction; (iii) a "person" or "group" (within the meaning of
Section 13(d) or 14(d)(2) of the Exchange Act), other than a Permitted Holder
or a group consisting solely of Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act) of more than 35% of all Voting Shares of the Company then outstanding;
(iv) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved
by a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or (v) the
shareholders of the Company shall approve any plan or proposal for the
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" for any period means the Consolidated Net Income of
the Company and its consolidated Restricted Subsidiaries for such period, plus
the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense; (ii) Consolidated Interest Expense; (iii)
depreciation expense; (iv) amortization expense; and (v) any other non-cash
expenses, in each case for such period.
"Consolidated Coverage Ratio," as of any date of determination, means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period
consisting of the most recent four consecutive fiscal quarters ending prior to
the date of such determination to (ii) Consolidated Interest Expense for such
period; provided, however, that (A) if the Company or any of its Restricted
Subsidiaries has incurred any Indebtedness since the beginning of such period
that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an incurrence of Indebtedness, or
both, Consolidated Cash Flow and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been incurred on the first day of
such period and the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Indebtedness as
if such discharge had occurred on the first day of such period, (B) if since
the beginning of such period the Company or any of its Restricted Subsidiaries
shall have made any Asset Disposition, Consolidated Cash Flow for such period
shall be reduced by an amount equal to the Consolidated Cash Flow (if
positive) attributable to the assets which are the subject of such Asset
Disposition for such period or increased by an amount equal to the
Consolidated Cash Flow (if negative) attributable thereto for such period, and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense attributable to any Indebtedness of
the Company or any of its Restricted Subsidiaries repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its
continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary of the
Company is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent
the Company and its continuing Restricted Subsidiaries are no longer liable
for such Indebtedness after such sale), (C) if since the beginning of such
period the Company or any of its Restricted Subsidiaries (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary of the
Company (or any Person which becomes a Restricted Subsidiary of the Company)
or an acquisition of assets, including any Investment in a Restricted
Subsidiary of the Company or any acquisition of assets occurring in connection
with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto (including the incurrence
of any Indebtedness) as if such Investment or acquisition occurred on the
first day of such period, and (D) if since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary of the Company or was
merged with or into the
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Company or any Restricted Subsidiary of the Company since the beginning of
such period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (B) or (C) above if made by the Company or a Restricted Subsidiary of
the Company during such period, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the
amount of income or earnings relating thereto and the amount of Consolidated
Interest Expense associated with any Indebtedness incurred in connection
therewith, the pro forma calculations shall be determined in good faith by a
responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if
the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries, plus, to the extent
not included in such interest expense and without duplication, (i) interest
expense attributable to Capitalized Lease Obligations, (ii) amortization of
debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-
cash interest expense, (v) commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by the Company or any such Restricted Subsidiary under
any Guarantee of Indebtedness or other obligation of any other Person, (vii)
net costs associated with Interest Rate Agreements (including amortization of
fees), and (viii) the product of (a) all Preferred Stock dividends in respect
of all Preferred Stock of Restricted Subsidiaries of the Company and
Disqualified Capital Stock of the Company held by Persons other than the
Company or a Restricted Subsidiary multiplied by (b) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of the Company, expressed
as a decimal, in each case, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such Person is not a Restricted Subsidiary,
except that subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below); (ii) any net income (loss) of
any person acquired by the Company or a Restricted Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income (loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company, except that subject to the limitations
contained in (iv) below, the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash that could have been distributed
by such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend that
could have been made to another Restricted Subsidiary, to the limitation
contained in this clause); (iv) any gain or loss realized upon the sale or
other disposition of any assets of the Company or its consolidated Restricted
Subsidiaries which are not sold or otherwise disposed of in the ordinary
course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person; (v) any extraordinary gain or
loss; (vi) the cumulative effect of a change in accounting principles; and
(vii) any loss resulting from a charge for acquired in-process research and
development expenses incurred in connection with the acquisition of any other
Person permitted under the Indenture.
"Credit Agent" means The Chase Manhattan Bank, in its capacity as issuing
bank, administrative agent and collateral agent for the lenders party to the
Senior Credit Agreement, or any successor or successors thereto.
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"Default" means any event that is or, with the passage of time or the giving
of notice or both, would be an Event of Default.
"Disqualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person which by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable) or upon the happening
of any event (i) matures or is mandatorily redeemable pursuant to a sinking
fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Capital Stock or (iii) is redeemable at the
option of the holder thereof, in whole or in part, in each case on or prior to
the first anniversary of the final Stated Maturity of the Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy as determined by the Board of
Directors in good faith and evidenced by a resolution of the Board of
Directors.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting
profession. All ratios and computations based on GAAP contained in the
Indenture shall be computed in conformity with GAAP as in effect on the date
of the Indenture.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and
any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation of any other Person (whether arising
by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor" means (i) each of the Company's Restricted Subsidiaries existing
on the date hereof and (ii) each other Person that executes a Guarantee of the
obligations of the Company under the Notes and the Indenture from time to
time, and their respective successors and assigns; provided, however, that
"Guarantor" shall not include any Person that is released from its Guarantee
of the obligations of the Company under the Notes and the Indenture.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of Indebtedness of such Person for borrowed money, (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i), (ii) and (v)) entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third business day following receipt by such
Person of a demand for reimbursement following payment on the letter of
credit), (iv) all obligations of
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such Person to pay the deferred and unpaid purchase price of property or
services (other than accounts payable to trade creditors arising in the
ordinary course of business), which purchase price is due more than six months
after the date of placing such property in service or taking delivery and
title thereto or the completion of such services, (v) all Capitalized Lease
Obligations of such Person, (vi) all Indebtedness of other Persons secured by
a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided, however, that the amount of Indebtedness of
such Person shall be the lesser of (A) the Fair Market Value of such asset at
such date of determination or (B) the amount of such Indebtedness of such
other Persons, (vii) all Indebtedness of other Persons to the extent
Guaranteed by such Person, (viii) the amount of all obligations of such Person
with respect to the redemption, repayment or other repurchase of any
Disqualified Capital Stock or, with respect to any Restricted Subsidiary of
the Company, any Preferred Stock (but excluding, in each case, any accrued
dividends), and (ix) to the extent not otherwise included in this definition,
obligations of such Person under Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and the
liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Indenture" means the Indenture as amended from time to time.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar
agreement or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital
Stock, Indebtedness or other similar instruments issued by such Person.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property, or any filing or recording of any
instrument or document in respect of the foregoing, to secure payment of a
debt or performance of an obligation or other priority or preferential
arrangement of any kind or nature whatsoever.
"Material Subsidiary" means (i) any Subsidiary of the Company which is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under
the Securities Act and the Exchange Act (as such Regulation is in effect on
the date hereof), and (ii) any other Subsidiary of the Company which is
material to the business, earnings, prospects, assets or condition, financial
or otherwise, of the Company and its Subsidiaries taken as a whole.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and
when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of (i) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all federal, state, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with
the terms of any Lien upon such assets, or which must by its terms, or in
order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds
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from such Asset Disposition, (iii) all distributions and other payments
required to be made to any Person owning a beneficial interest in assets
subject to sale or minority interest holders in Subsidiaries or joint ventures
as a result of such Asset Disposition and (iv) the deduction of appropriate
amounts to be provided by the seller as a reserve, in accordance with GAAP,
against any liabilities associated with the assets disposed of in such Asset
Disposition and retained by the Company or any Restricted Subsidiary of the
Company after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Officer" means any senior executive officer, the chief financial officer,
the principal accounting officer, the Controller, the Treasurer, the Secretary
or the Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by any senior executive
officer and by the chief financial officer, the principal accounting officer,
the Controller, the Treasurer or the Secretary or any Assistant Secretary of
the Company and delivered to the Trustee. Each such certificate shall comply
with Section 314 of the Trust Indenture Act and include the statements
provided for in the Indenture.
"Opinion of Counsel" means an opinion in writing signed by legal counsel who
may be an employee of or counsel to the Company or who may be other counsel
satisfactory to the Trustee. Each such opinion shall comply with Section 314
of the Trust Indenture Act and include the statements provided for in the
Indenture, if and to the extent required thereby.
"Permitted Foreign Company" means (a) any corporation, business trust, joint
venture, association, company or partnership formed under the laws of a
country (or any political subdivision thereof) other than the United States,
engaged primarily in any segment of the pharmaceutical or health-care industry
or ancillary thereto and at least 50% of the equity interest of which is held,
directly or indirectly, by the Company and Bayer A.G. (provided that, if
applicable local law would not permit 50% of the equity interest in such an
entity to be held by the Company and Bayer A.G., such percentage may be as low
as 49% if the Company and Bayer A.G. otherwise Control the applicable entity),
(b) any subsidiary of a Permitted Foreign Company described in clause (a)
above and (c) any wholly owned foreign subsidiary the only material assets of
which are securities of Permitted Foreign Companies described in clause (a)
above.
"Permitted Holders" means (a)(i) Marvin H. Schein; Trust established by
Marvin H. Schein under trust agreement dated September 9, 1994 (including
trustee thereunder); Trust established by Marvin H. Schein under trust
agreement dated December 31, 1993 (including trustee thereunder); Trust
established by Pamela Schein under trust agreement dated October 26, 1994
(including trustee thereunder); trust established by the trustees under
article fourth of the Will of Jacob M. Schein for the benefit of Pamela Schein
and her issue under trust agreement dated September 29, 1994 (including
trustee thereunder); Pamela Joseph; Trust established by Pamela Joseph under
trust agreement dated September 28, 1994 (including trustee thereunder);
Martin Sperber; Trust established by Martin Sperber under trust agreement
dated December 31, 1993 (including trustee thereunder); Trust established by
Martin Sperber under trust agreement dated April 28, 1995 (including trustee
thereunder); Stanley M. Bergman; Trust established by Stanley M. Bergman under
trust agreement dated April 28, 1995 (including trustee thereunder); Trust
established by Stanley M. Bergman under trust agreement dated April 14, 1995
(including trustee thereunder); and Voting Trustee under Voting Trust
Agreement dated September 30, 1994 (including trustee thereunder), (ii) any
individual forming part of the senior management of the Company on the date of
this Indenture, (iii) any trust for the benefit of any of the foregoing and/or
any member of their immediate families and (iv) the estate or personal
representative of any of the foregoing, (b) any employee benefit plan (or
related trust) for the benefit of the employees of the Company and its
Restricted Subsidiaries and (c) Bayer A.G. and any of its subsidiaries.
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"Permitted Investment" means an Investment by the Company or any of its
Subsidiaries in (i) a Restricted Subsidiary of the Company or a Person which
will, upon making such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Subsidiary of the Company;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
of its Subsidiaries, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees (other than those referred to in clause (xi) below) made
in the ordinary course of business not in excess of $2.5 million outstanding
at any time; (vii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or
any of its Subsidiaries or in satisfaction of judgments or claims; (viii)
Interest Rate Agreements which are entered into by the Company for bona fide
hedging purposes (as determined in good faith by the Board of Directors or
senior management of the Company) with respect to Indebtedness of the Company
incurred without violation of the Indenture or to customary commercial
transactions of the Company entered into in the ordinary course of business;
(ix) any Investment (other than a Temporary Cash Investment) evidenced by
securities or other assets received in connection with an Asset Disposition
pursuant to the "Limitations on Sales of Assets and Subsidiary Stock"
covenant; (x) Investments, the payment for which consists exclusively of
Equity Interests (exclusive of Disqualified Capital Stock) in the Company; or
(xi) loans to employees made in connection with the exercise by them of
options to purchase shares of the common stock of the Company, provided that
the proceeds of such loans are used to purchase such shares and that such
loans are secured by a pledge of such shares so purchased.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision hereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person under GAAP.
"Refinancing Indebtedness" means Indebtedness issued in exchange for, or the
proceeds of which are used to extend, refinance, renew, replace or refund any
Indebtedness permitted to be incurred under the "Limitations on Indebtedness"
covenant.
"Related Business" means any segment of the pharmaceutical or health-care
industry or ancillary thereto.
"Representative" for any issue of Indebtedness shall mean the Person acting
as agent, trustee or in a similar representative capacity for the holders of
such Indebtedness, provided that if, and for so long as, any issue of
Indebtedness lacks such a representative, then the Representative for such
issue of Indebtedness shall at all such times constitute the holders of a
majority in outstanding principal amount of the respective issue of
Indebtedness.
"Restricted Subsidiary" shall mean any Subsidiary other than an Unrestricted
Subsidiary.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Securities Act" means the Securities Act of 1933, as amended.
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"Senior Credit Agreement" means, collectively, the Senior Credit Agreement,
dated as of September 5, 1995, by and among the Company, the lenders named
therein, and The Chase Manhattan Bank (formerly Chemical Bank) as Credit Agent
for the lenders, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, as
such credit agreement and/or related documents may be amended, restated,
supplemented, renewed, replaced or otherwise modified from time to time
whether or not with the same agent or lenders and irrespective of any changes
in the terms and conditions thereof. Without limiting the generality of the
foregoing, the term "Senior Credit Agreement" shall include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to the Senior Credit Agreement and all refundings, refinancing
and replacements of any facility provided for therein, including any agreement
or agreements, (i) extending the maturity of any Indebtedness incurred
thereunder or contemplated thereby, (ii) adding or deleting borrowers or
guarantors thereunder, or (iii) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder to the extent permitted
under this Indenture.
"Senior Indebtedness" means all Indebtedness of the Company other than
Subordinated Indebtedness.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred) that is subordinate or
junior in right of payment to the Notes.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity (a) of which more than 50% of the total voting power
of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person or (b) that is or would otherwise be treated on a
consolidated basis with such Person under, and in accordance with, GAAP.
Unless otherwise specified herein, each reference to a Subsidiary shall refer
to a Subsidiary of the Company.
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States of America having capital, surplus and undivided profits
aggregating in excess of $500 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least
one nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act), (iii) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above, or (iv) Investments in commercial paper, maturing not
more than 180 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors Service,
Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Trust Officer" means the Chairman of the Board, President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the
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payment of which the full faith and credit of the United States of America is
pledged and which are not callable or redeemable at the issuer's option.
"Unrestricted Subsidiary" means (i) Schein Pharmaceutical (Netherlands)
B.V., Schein Pharmaceutical (Bermuda) Ltd., and Schein Farmaceutica de Peru,
and (ii) any Subsidiary (other than a Subsidiary which would constitute a
Material Subsidiary) that at the time of determination shall have been
designated an Unrestricted Subsidiary by the Board of Directors of the Company
in the manner provided below and which remains so designated at the time of
determination. The Board of Directors of the Company may, by a Board
resolution delivered to the Trustee, designate any Restricted Subsidiary of
the Company (other than a Material Subsidiary) (including any newly acquired
or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary
unless such Restricted Subsidiary owns any Capital Stock of or holds any Lien
on any property of, the Company or any Restricted Subsidiary, and provided
that no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation. The Board of Directors
of the Company may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company, provided that (i) no Default or Event of Default
shall have occurred and be continuing at the time of or after giving effect to
such designation and (ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such designation would, if
incurred at such time, have been permitted to be incurred for all purposes of
the Indenture. Any designation by the Board of Directors of the Company
pursuant to the Indenture shall be evidenced to the Trustee by promptly filing
with the Trustee a copy of the Board resolutions giving effect to such
designation and an Officer's Certificate certifying that such designation
complied with the foregoing provisions.
"voting shares" of a Person means all classes of Capital Stock of such
Person then outstanding and normally entitled to vote in the election of
directors or managers.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Capital Stock, as the case may be, at any date, the number of
years obtained by dividing (a) the sum of the products obtained by multiplying
(x) the amount of each then remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment at final
maturity, in respect thereof, by (y) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of such
payment, by (b) the then outstanding principal amount or liquidation
preference, as applicable, of such Indebtedness or Disqualified Stock, as the
case may be.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form of
one or more registered notes in global form without coupons (each a "Global
Note"). Each Global Note will be deposited on the date of the closing of the
sale of the Notes (the "Closing Date") with, or on behalf of, The Depository
Trust Company (the "Depository") and registered in the name of Cede & Co., as
nominee of the Depository, or will remain in the custody of the Trustee
pursuant to the FAST Balance Certificate Agreement between the Depository and
the Trustee. Interests in the Global Note will be available for purchase only
by "qualified institutional buyers," as defined in Rule 144A under the
Securities Act ("QIBs").
Notes that were (i) originally issued to or transferred to institutional
"accredited investors," as defined in Rule 501(a) (1), (3) or (7) under the
Securities Act ("Institutional Accredited Investors"), who are not QIBs or to
any other persons who are not QIBs or (ii) issued as described below under
"Certificated Securities," will be issued in registered definitive form
without coupons (the "Certificated Securities"). Upon the transfer to a QIB of
Certificated Securities, such Certificated Securities may, unless the Global
Note has previously been exchanged for Certificated Securities, be exchanged
for an interest in the Global Note representing the principal amount of Notes
being transferred. For a description of the restrictions on the transfer of
Certificated Securities, see "Transfer Restrictions."
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation"
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within the meaning of the Uniform Commercial Code, as amended, and (iv) a
"Clearing Agency" registered pursuant to Section 17A of the Exchange Act. The
Depository was created to hold securities for its participants (collectively,
the "Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical
transfer and delivery of certificates. The Depository's Participants include
securities brokers and dealers (including the Initial Purchaser), banks and
trust companies, clearing corporations and certain other organizations. Access
to the Depository's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. QIBs may elect to hold Notes
purchased by them through the Depository. QIBs who are not Participants may
beneficially own securities held by or on behalf of the Depository only
through Participants or Indirect Participants. Persons that are not QIBs may
not hold Notes through the Depository.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit
the accounts of Participants designated by the Initial Purchaser with an
interest in the Global Note and (ii) ownership of the Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depository (with respect to the interest of Participants),
the Participants and the Indirect Participants. The laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own and that security interests in negotiable instruments
can only be perfected by delivery of certificates representing the
instruments. Consequently, the ability to transfer Notes or to pledge the
Notes as collateral will be limited to such extent. For certain other
restrictions on the transferability of the Notes, see "Transfer Restrictions."
So long as the Depository or its nominee is the registered owner of the
Global Note, the Depository or such nominee, as the case may be, will be
considered the sole owner or Holder of the Notes represented by the Global
Note for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person
having a beneficial interest in Notes represented by a Global Note to pledge
such interest to persons or entities that do not participate in the
Depository's system or to otherwise take action with respect to such interest,
may be affected by the lack of a physical certificate evidencing such
interest.
Accordingly, each QIB owning a beneficial interest in a Global Note must
rely on the procedures of the Depository and, if such QIB is not a Participant
or an Indirect Participant, on the procedures of the Participant through which
such QIB owns its interest, to exercise any rights of a Holder under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders or
a QIB that is an owner of a beneficial interest in a Global Note desires to
take any action that the Depository, as the Holder of such Global Note, is
entitled to take, the Depository would authorize the Participants to take such
action and the Participant would authorize QIBs owning through such
Participants to take such action or would otherwise act upon the instruction
of such QIBs. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Notes by the Depository, or for maintaining, supervising or
reviewing any records of the Depository relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on
any Notes represented by a Global Note registered in the name of the
Depository or its nominee on the applicable record date will be payable by the
Paying Agent to or at the direction of the Depository or its nominee in its
capacity as the registered Holder of the Global Note representing such Notes
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payment and for any and all other purposes whatsoever. Consequently, neither
the Company nor the Trustee nor the Paying Agent (if other than the Trustee)
has or will have
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any responsibility or liability for the payment of such amounts to beneficial
owners of Notes (including principal, premium, if any, and interest), or to
immediately credit the accounts of the relevant Participants with such
payment, in amounts proportionate to their respective holdings in principal
amount of beneficial interest in the Global Note as shown on the records of
the Depository. Payments by the Participants and the Indirect Participants to
the beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Participants or the
Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes
in definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by the Depository of its Global Notes,
Certificated Securities will be issued to each person that the Depository
identifies as the beneficial owner of the Notes represented by the Global
Note. Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of such person or persons (or the nominee
of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related Notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from the
Depository for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Notes to be issued).
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The Company and the Initial Purchaser will enter into an exchange and
registration rights agreement (the "Exchange and Registration Rights
Agreement") prior to or concurrently with the issuance of the Notes offered
hereby. Pursuant to the Exchange and Registration Rights Agreement, the
Company will agree (i) to file with the Commission on or prior to 45 days
after the date of issuance of the Notes (the "Issue Date") a registration
statement (the "Exchange Offer Registration Statement"), with respect to an
offer to exchange the Notes (the "Registered Exchange Offer") for senior notes
of the Company with terms identical in all material respects to those of the
Notes ("Exchange Notes") and (ii) to use commercially reasonable efforts to
cause the Exchange Offer Registration Statement to be declared effective under
the Securities Act within the earlier of (A) 90 days after the Issue Date or
(B) 30 days after the consummation of the initial public offering of the
Company's Common Stock. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will commence the Registered Exchange
Offer to holders of the Notes who are not prohibited by any law or policy of
the Commission from participating in the Registered Exchange Offer. The
Company will keep the Exchange Offer open for not less than 30 days (or
longer, if required by applicable law) after the date notice of the Exchange
Offer is mailed to the holders of the Notes. If (i) any change in law or
applicable interpretations of the staff of the Commission does not permit the
Company to effect the Registered Exchange Offer as contemplated thereby or
(ii) the Initial Purchaser, as a holder of Notes, (A) is not eligible to
participate in the Exchange Offer or (B) participates in the Exchange Offer
and does not receive freely transferable Exchange Notes in exchange for
tendered Notes, the Company will file with the Commission and use commercially
reasonable efforts to cause to be declared effective on or prior to the latter
of (x) 120 days after the Issue Date or (y) 45 days after the publication of
the change in law or interpretation, a registration statement on an
appropriate form under the Securities Act relating to the offer and sale of
the Notes by the holders thereof, from time to time, in accordance with such
registration statement and Rule 415 under the Securities Act (the "Shelf
Registration Statement").
The Company will use commercially reasonable efforts to have the Exchange
Offer Registration Statement or, if applicable, a Shelf Registration Statement
(each a "Registration Statement") declared effective by the Commission as
promptly as practicable after the filing thereof. Unless the Registered
Exchange Offer would not be permitted by a policy of the Commission, the
Company will commence the Registered Exchange Offer and will use its
reasonable best efforts to consummate the Registered Exchange Offer as
promptly as practicable, but in any event on or prior to 150 days after the
Issue Date. If applicable, the Company will use commercially reasonable best
efforts to keep the Shelf Registration Statement effective for the earlier of
three years from the Issue Date or such shorter period that will terminate
when all the Notes covered by the Shelf Registration Statement have been sold,
subject to certain exceptions, including suspending the effectiveness thereof
as required by law or for certain valid business reasons.
Although the Company intends to file the registration statements described
above, as required, there can be no assurance that such registration
statements will be filed, or, if filed, that they will become effective. In
the event (to the extent applicable) that (i) (A) the Exchange Offer
Registration Statement is not filed on or prior to the 45th day following the
Issue Date, (B) the Exchange Offer Registration Statement is not declared
effective within the earlier of (x) 90 days after the Issue Date or (y) 30
days after the consummation of the initial public offering of the Company's
Common Stock or (C) the Registered Exchange Offer is not consummated on or
prior to the 150th day following the Issue Date or (ii) the Shelf Registration
Statement is not declared effective on or prior to the later of (x) the 120th
day after the Issue Date and (y) the 45th day after the publication of the
change in law or interpretation referred to in the second preceding paragraph,
the interest rate borne by the Notes shall be increased by one-half of one
percent per annum following, in the case of clause (i)(A) such 45-day period,
in the case of clauses (i)(B) such 90- or 30-day period, as the case may be,
or in the case of clause (i)(C), such 150-day period, or, in the case of
clause (ii), such 45- or 120-day period, as applicable. The aggregate amount
of such increase from the original interest rate pursuant to these provisions
will in no event exceed one-half of one percent per annum. Such increase will
cease to be effective on the date of filing of the Exchange Offer Registration
Statement, effectiveness of the Exchange Offer Registration Statement,
consummation of the Registered Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be.
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Any amounts of additional interest due pursuant to the preceding paragraph
will be payable in cash, on the same original interest payment dates as the
Notes. The amount of additional interest will be determined by multiplying the
applicable additional interest rate by the principal amount of the affected
Notes of such holders, multiplied by a fraction, the numerator of which is the
number of days such additional interest rate was applicable during such
period, and the denominator of which is 360.
The Exchange and Registration Rights Agreement will also provide that the
Company (i) shall cause the Exchange Offer Registration Statement to remain
continuously effective for a period of at least 20 Business Days (or longer if
required by applicable law) from its effective date, and shall supplement or
amend the prospectus contained therein to the extent necessary to permit such
prospectus (as supplemented or amended) to be delivered by broker-dealers in
connection with any resale of any such Exchange Notes and (ii) shall pay all
expenses incident to the Exchange Offer and will indemnify certain holders of
the Notes (including any broker-dealer) against certain liabilities, including
liabilities under the Securities Act. A broker-dealer that delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act, and will
be bound by the provisions of the Exchange and Registration Rights Agreement
(including certain indemnification rights and obligations).
Each holder of the Notes that wishes to exchange such Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it
will be acquired in the ordinary course of its business, (ii) it has no
arrangement with any person to participate in the distribution of the Exchange
Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or if it is an affiliate, it will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable.
If a holder is not a broker-dealer, it will be required to represent that it
is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If a holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Notes that were acquired as a result
of market making activities or other trading activities, it will be required
to acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes.
Holders of the Notes will be required to make certain representations to the
Company in order to participate in the Exchange Offer, and will be required to
deliver information to be used in connection with the Shelf Registration
Statement in order to have their Notes included in the Shelf Registration
Statement. A holder who sells Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
Exchange and Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations).
A holder whose Notes are included in a Registration Statement will be
required to agree not to effect any public sale or distribution of the issue
being registered or a similar security of the Company or any securities
convertible into or exchangeable or exercisable for such securities, including
a sale pursuant to Rule 144 under the Securities Act, during the 14 days prior
to, and during the 90-day period beginning on, the effective date of such
Registration Statement (except as part of such registration), if and to the
extent requested by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the managing Underwriter or
Underwriters in the case of an underwritten public offering.
Notwithstanding any other provision set forth above, the Company may delay
the filing of any Registration Statement for up to 90 days if (i) the Company
would, in the opinion of its counsel, be required to disclose in such
Registration Statement information not otherwise then required by law to be
publicly disclosed and (ii) in the judgment of the Board of Directors of the
Company, there is a reasonable likelihood that such disclosure, or any other
action to be taken in connection with any Registration Statement, would
adversely affect any existing or prospective material business situation,
transaction, or negotiation or otherwise materially and adversely affect the
Company.
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Unless the Company is then subject to Section 13 or 15(d) of the Exchange
Act, the Company will continue to provide to holders of the Notes and to
prospective purchasers of the Notes, for so long as the Notes are outstanding,
the information required by Rule 144A under the Securities Act ("Rule 144A"),
as such Rule may be amended, or any similar rule or regulation adopted by the
Commission. The Company will provide a copy of the Exchange and Registration
Rights Agreement to prospective purchasers of Notes identified to the Company
by the Initial Purchaser upon request.
The foregoing description of the Exchange and Registration Rights Agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the Exchange and Registration
Rights Agreement.
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TRANSFER RESTRICTIONS
Each purchaser of Notes from the Initial Purchaser, by its acceptance
thereof, will be deemed to have acknowledged, represented to and agreed with
the Company and the Initial Purchaser as follows:
1. It understands and acknowledges that the Notes have not been
registered under the Securities Act or any other applicable securities law,
and that the Notes are being offered for resale in transactions not
requiring registration under the Securities Act or any other securities
laws, including sales pursuant to Rule 144A and, unless so registered, may
not be offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities Act or any other applicable
securities laws, pursuant to any exemption therefrom or in a transaction
not subject thereto and in each case in compliance with the conditions for
transfer set forth in paragraph (4) below.
2. It is not an "affiliate" (as defined in Rule 144 under the Securities
Act) of the Company or acting on behalf of the Company and is either:
(a) a "Qualified Institutional Buyer" as defined in Rule 144A
("QIB"), and is aware that any sale of the Notes to it will be made in
reliance on Rule 144A and such acquisition will be for its own account
or for the account of another QIB; or
(b) an "Institutional Accredited Investor" within the meaning of Rule
501(a)(1), (2), (3) and (7) under the Securities Act or, if the Notes
are to be purchased for one or more accounts ("investor accounts") for
which it is acting as fiduciary or agent, each such account is an
Institutional Accredited Investor on a like basis. It is aware that the
minimum principal amount of Notes that may be purchased by an
Institutional Accredited Investor (including each investor account) is
$250,000. In the normal course of its business, it invests in or
purchases securities similar to the Notes and it has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of purchasing the Notes. It is aware
that it (or any investor account) may be required to bear the economic
risk of an investment in the Notes of an indefinite period of time and
it (or such account) is able to bear such risk for an indefinite
period.
3. It acknowledges that neither the Company, the Initial Purchaser nor
any person representing the Company or the Initial Purchaser has made any
representation to it with respect to the Company or the Offering, other
than the information contained in this Offering Memorandum, which has been
delivered to it and upon which it is relying in making its investment
decision with respect to the Notes. It has had access to such financial and
other information concerning the Company and the Notes as it has deemed
necessary in connection with its decision to purchase the Notes, including
an opportunity to ask questions of and request information from the Company
and the Initial Purchaser.
4. It is purchasing the Notes for its own account or for one or more
investor accounts for which it is acting as a fiduciary or agent, in each
case not with a view to, or for offer or sale in connection with, any
distribution thereof in violation of the Securities Act, subject to any
requirement of law that the disposition of its property or the property of
such investor account or accounts be at all times within its or their
control and subject to its or their ability to resell such Notes pursuant
to Rule 144A or any exemption from registration available under the
Securities Act. It agrees on its own behalf and on behalf of any investor
account for which it is purchasing the Notes, and each subsequent holder of
the Notes by its acceptance thereof will agree, to offer, sell or otherwise
transfer such Notes prior to the date which is two years after the later of
the date of original issue and the last date that the Company or any
affiliate of the Company was the owner of such Notes (or any predecessor
thereto) (the "Resale Restriction Termination Date") only (i) to the
Company, (ii) pursuant to a registration statement that has been declared
effective under the Securities Act, (iii) for so long as the Notes are
eligible for resale pursuant to Rule 144A, to a person it reasonably
believes is a QIB that purchases for its own account or for the account of
a QIB to whom notice is given that the transfer is being made in reliance
on Rule 144A, (iv) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act,
(v) to an Institutional Accredited Investor (as defined in Rule 501(a)(1),
(2), (3) and (7) under the Securities Act) that is
87
<PAGE>
purchasing for its own account or for the account of such an Institutional
Accredited Investor, in each case in a minimum principal amount of the
Notes of $250,000 or (vi) pursuant to any other available exemption from
the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of its
property or the property of such investor account or accounts be at all
times within its or their control. The foregoing restrictions on resale
will not apply subsequent to the Resale Restriction Termination Date. If
any resale or other transfer of the Notes is proposed to be made pursuant
to clause (v) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in the
form of Annex A hereto to the Company and the Trustee, which shall provide,
among other things, that the transferee is an Institutional Accredited
Investor that is acquiring such Notes not for distribution in violation of
the Securities Act, and for the transferee's representations to the same
effect as set forth in paragraph 5 below, with respect to the transferee's
purchase and holding of such Notes. Each purchaser acknowledges that the
Company and the Trustee reserve the right prior to any offer, sale or other
transfer prior to the Resale Restriction Termination Date of the Notes
pursuant to clauses (iv), (v) and (vi) above to require the delivery of an
opinion of counsel, certifications and/or other information satisfactory to
the Company and the Trustee. Each purchaser acknowledges that each Note
will contain a legend substantially to the following effect.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR
SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED
INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A
MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND IN THE CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE ISSUER AND THE TRUSTEE. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
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<PAGE>
5. Each purchaser, by its purchase of the Notes, shall be deemed to have
represented that (i) if it is an insurance company, the funds to be used to
purchase the Notes by it constitute (A) assets of an insurance company
general account maintained by it and the acquisition and holding of each
such Note by such account is exempt under United States Department of Labor
Prohibited Transaction Class Exemption ("PTCE") 95-60 or (B) assets of an
insurance company pooled separate account and the acquisition and holding
of each such Note by such account is exempt under PTCE 90-1, and (ii) no
part of the funds to be used to purchase the Notes to be purchased by it
constitute assets of any plan or employee benefit plan such that the use of
such assets constitutes a non-exempt prohibited transaction under ERISA or
the Code. The representation is based upon the purchaser's determination
that a statutory or administrative exemption is applicable or that the
Company and its Affiliates are not parties in interest or disqualified
persons with respect to the purchaser or holder plan or employee benefit
plan. As used in this paragraph, the terms "employee benefit plan" and
"party in interest" shall have the meanings assigned to such terms in
Section 3 of ERISA, the term "Affiliate" shall have the meaning assigned to
such term in Section 407(d)(7) of ERISA and the terms "disqualified person"
and "plan" shall have the meanings assigned to such terms in Section 4975
of the Code. If any resale or other transfer of the Notes is proposed to be
made pursuant to clause (v) of paragraph 4 above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from
the transferee to the Company and the Trustee, which shall contain a
representation of the transferee with respect to the transferee's purchase
and holding of the Notes, substantially as set forth in paragraph 3 of
Annex A hereto.
6. It acknowledges that the Company, the Initial Purchaser and others
will rely upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements and agrees that, if any of the
acknowledgments, representations or warranties deemed to have been made by
it by its purchase of Notes are no longer accurate, it shall promptly
notify the Company and the Initial Purchaser. If it is acquiring any Notes
as a fiduciary or agent for one or more investor accounts, it represents
that it has sole investment discretion with respect to each such account
and that it has full power to make the foregoing acknowledgments,
representations and agreements on behalf of each such account.
89
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the principal U.S. federal income tax
consequences resulting from the ownership and disposition of the Notes by U.S.
Holders (as defined below) that are initial purchasers of Notes. Except where
noted, it deals only with Notes held as capital assets and does not deal with
special situations, such as those of dealers in securities or currencies,
financial institutions, tax-exempt entities, life insurance companies, persons
holding Notes as part of a hedging, conversion or constructive sale
transaction or a straddle or holders whose "functional currency" is not the
U.S. dollar. Furthermore, the discussion below is based upon provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and regulations,
rulings and judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified so as to result in United
States federal income tax consequences different from those discussed below.
Persons considering the purchase, ownership or disposition of Notes should
consult their own tax advisors concerning the United States federal income tax
consequences in light of their particular situations as well as any
consequences arising under the laws of any other taxing jurisdiction.
As used herein, a "U.S. Holder" is (i) a citizen or resident of the United
States, (ii) a corporation or partnership created or organized in or under the
laws of the United States or a State thereof (including the District of
Columbia), (iii) an estate the income of which is subject to United States
federal income taxation regardless of source or (iv) a trust if (a) a U.S.
court is able to exercise primary supervision over the trust's administration
and (b) one or more U.S. persons have the authority to control all of the
trust's substantial decisions. The term also includes certain former citizens
of the United States.
ORIGINAL ISSUE DISCOUNT
For purposes of the Code, each Note will be deemed to have been issued with
original issue discount ("OID") equal to the difference between the Note's
stated redemption price at maturity (i.e., the sum of all payments to be made
on the Note other than stated interest payments) and its "issue price." U.S.
Holders of Notes should be aware that they generally must include OID in gross
income in advance of the receipt of cash attributable to that income. A U.S.
Holder must include in gross income the sum of the daily portions of OID which
accrue under a constant yield method with respect to such instrument for each
day during the accrual period (or portion of the accrual period) in which such
U.S. Holder held such Notes, regardless of the U.S. Holder's method of
accounting for tax purposes. The amount of OID which accrues in an accrual
period is an amount equal to the excess (if any) of (i) the product of the
Note's "adjusted issue price" at the beginning of such accrual period and its
yield to maturity (determined on the basis of compounding at the end of each
accrual period and appropriately adjusted to take into account the length of
the particular accrual period) over (ii) the sum of the stated interest
payments, if any, allocable to the accrual period. The daily portion of OID is
determined by allocating to each day in any accrual period a ratable portion
of OID allocable to the accrual period. The "adjusted issue price" of a Note
at the beginning of any accrual period is the sum of the issue price of such
Note plus the OID allocable to all prior accrual periods reduced by payments
on the Note other than stated interest. An "accrual period" may be of any
length and the accrual periods may even vary in length over the term of the
debt instrument, provided that each accrual period is no longer than one year
and each scheduled payment of principal or interest occurs at the end of an
accrual period. Under these rules, U.S. Holders generally will have to include
in income increasingly greater amounts of OID in successive accrual periods.
Generally, a U.S. Holder's tax basis in the debt instrument will be increased
by the amount of OID that is included in such U.S. Holder's income pursuant to
the foregoing rules through the day preceding the day of disposition and will
be decreased by the amount of any cash payments received (other than a payment
of stated interest).
Special rules apply to the calculation of OID in the case of a debt
instrument whose issuer has an intention to call the instrument before
maturity. The Company intends to take the position that under applicable
Treasury Regulations (the "OID Regulations") the special rules will not apply
to the Notes.
Under the OID Regulations, a U.S. Holder may elect to treat all interest and
discount on a Note (including stated interest and OID) as income by using the
constant yield method applicable to OID, subject to certain limitations and
exceptions. Such an election must be made for the taxable year in which the
U.S. Holder acquires the Note and may not be revoked unless approved by the
IRS.
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SALE, EXCHANGE OR REDEMPTION
A U.S. Holder's adjusted tax basis in a Note will, in general, be the U.S.
Holder's cost for the Note increased by OID. The sale, exchange or redemption
of a Note generally will be a taxable event for federal income tax purposes. A
U.S. Holder generally will recognize gain or loss on the sale, exchange or
redemption of a Note in an amount equal to the difference between (i) the
amount of cash plus the fair market value of any property received upon such
sale, exchange or redemption (other than the amount of such consideration
received in respect of accrued but unpaid interest which will be taxable as
such) and (ii) the U.S. Holder's adjusted tax basis in such Note. Such gain or
loss will be capital gain or loss. Under recently enacted legislation, capital
gains of individuals derived in respect of capital assets held for more than
one year are eligible for reduced rates of taxation which may vary depending
upon the holding period of such capital assets. Prospective investors should
consult their own tax advisors with respect to the tax consequences of the new
legislation. The deductibility of capital losses is subject to limitations.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain noncorporate U.S. Holders may be subject to backup withholding at a
rate of 31% on payments made on a Note. Backup withholding will apply only if
a U.S. Holder (i) fails to furnish its taxpayer identification number ("TIN")
which, in the case of an individual, would be his or her social security
number, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that it
has failed to properly report payments of interest and dividends or (iv) under
certain circumstances, fails to certify, under penalties of perjury, that it
has furnished a correct TIN. Amounts withheld under the backup withholding
rules are not an additional tax and may be refunded, or credited against the
U.S. Holder's United States federal income tax liability, provided that the
required information is furnished to the IRS. The Company will furnish
annually to the IRS and to certain record U.S. Holders of the Notes
information relating to the amount of OID, if any, accruing during the
calendar year. The Company's determination of OID generally is binding on a
U.S. Holder for U.S. federal income tax purposes but is not binding on the
IRS, and there can be no assurance that the IRS will not challenge such
determination.
91
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PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Purchase Agreement (the
"Purchase Agreement") by and among the Company, the Guarantors and Societe
Generale Securities Corporation (the "Initial Purchaser"), the Company agrees
to sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase, $100.0 million principal amount of the Notes.
The Purchase Agreement provides that the obligations of the Initial
Purchaser thereunder are subject to certain conditions precedent, and that the
Initial Purchaser is committed to take and pay for $100.0 million aggregate
principal amount of Notes, if any are taken. The Company will separately pay a
commission to the Initial Purchaser of 3.000% of the principal amount of the
Notes purchased. The Initial Purchaser proposes to offer the Notes at the
applicable initial offering price set forth on the cover page of this Offering
Memorandum (the "Note Offering Price"). After the Notes are released for sale,
the Note Offering Price and other selling terms may from time to time be
varied by the Initial Purchaser.
The Company and the Restricted Subsidiaries have agreed in the Purchase
Agreement to indemnify the Initial Purchaser against certain liabilities under
the Securities Act, and to contribute to payments that the Initial Purchaser
may be required to make in respect thereof.
The Initial Purchaser proposes to offer the Notes for resale in transactions
not requiring registration under the Securities Act or applicable state
securities laws, including sales pursuant to Rule 144A. The Initial Purchaser
proposes to offer the Notes for resale initially at the offering price set
forth on the cover page of this Offering Memorandum. After the initial
offering, the offering price and other selling terms may be changed at any
time without notice. The Initial Purchaser will not offer or sell the Notes
except to persons it reasonably believes to be QIBs or Institutional
Accredited Investors. Each purchaser of the Notes offered hereby in making its
purchase will, by its purchase, be deemed to have made certain
acknowledgements, representations, warranties and agreements as set forth
under "Transfer Restrictions" and, in the case of purchasers that are
Institutional Accredited Investors, will be required to complete and deliver
to the Initial Purchaser a purchaser questionnaire prior to acceptance of any
order.
The Notes have been designated eligible for trading in the PORTAL market.
The Notes have not been registered under the Securities Act and may not be
offered or sold except as set forth above. The Initial Purchaser has advised
the Company that the Initial Purchaser currently intends to make a market in
the Notes; however, it is not obligated to do so and any market making may be
discontinued by the Initial Purchaser at any time without notice. In addition,
such market making activity may be limited during the Exchange Offer described
below and the pendency of the effectiveness of the applicable Registration
Statement. Accordingly, no assurance can be given as to the liquidity of or
the trading market for the Notes.
In connection with the Offering, the Initial Purchaser may engage in
overallotment, stabilizing transactions and syndicate covering transactions.
Overallotment involves sales in excess of the offering size, which creates a
short position for the Initial Purchaser. Stabilizing transactions involve
bids to purchase the Notes in the open market for the purpose of pegging,
fixing or maintaining the price of the Notes. Syndicate covering transactions
involve purchases of the Notes in the open market after the distribution has
been completed in order to cover short positions. Such stabilizing
transactions and syndicate covering transactions may cause the price of the
Notes to be higher than it would otherwise be in the absence of such
transactions. Such activities, if commenced, may be discontinued at any time.
The Company has covenanted with the Initial Purchaser (i) that within 45
days after the Issue Date, the Company will file with the Commission an
Exchange Offer Registration Statement under the Securities Act with respect to
an issue of Exchange Notes and (ii) to use commercially reasonable efforts to
cause such Exchange Offer Registration Statement to be declared effective
under the Securities Act within the earlier of (A) 90 days after the Issue
Date or (B) 30 days after the effectiveness of the registration statement
filed in connection with an initial public offering of the Company's Common
Stock. Upon effectiveness of that Exchange Offer Registration
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Statement, the Company will offer to the holders of the Notes the opportunity
to exchange their Notes for a like principal amount of Exchange Notes, which
Exchange Notes will be issued without the legend described above under
"Transfer Restrictions" and (generally other than by an affiliate of the
Company) may be reoffered and resold by the holder without restrictions or
limitations under the Securities Act. The Company has also covenanted with the
Initial Purchaser to consummate the Registered Exchange Offer within 150 days
after the Issue Date. Additionally, the Company has covenanted that if any
change in law or applicable interpretations of the staff of the Commission
does not permit the Company to effect the Registered Exchange Offer, the
Company will file with the Commission and use commercially reasonable efforts
to cause to be declared effective a Shelf Registration Statement with respect
to the resale of Notes and to keep the Shelf Registration Statement effective
until three years from the Issue Date or such shorter period that will
terminate when all the Notes covered by the Shelf Registration Statement have
been sold. The Company shall cause such Shelf Registration Statement to be
declared effective on or prior to the latter of (x) the 120th day after the
Issue Date or (y) the 45th day after the publication of the change in law or
interpretation. See "Exchange and Registration Rights Agreement."
It is expected that delivery of the Notes will be made against payment
therefor on or about the date specified in the last paragraph of the cover
page of this Offering Memorandum, which will be the third business day
following the date hereof.
Societe Generale, an affiliate of Societe Generale Securities Corporation,
is the lender under the Senior Subordinated Loan Agreement, dated as of
December 20, 1996, as amended (the "Senior Subordinated Loan Agreement"), with
the Company and a lender under the Senior Credit Agreement. Societe Generale
and Societe Generale Securities Corporation have from time to time provided
investment banking and financial advisory services to the Company and its
affiliates, and they may continue to provide such services and/or participate
in various general financings and banking transactions with the Company and
its affiliates. The Company has agreed to pay Societe Generale Securities
Corporation a fee of $750,000 for financial advisory services rendered to the
Company in connection with the amendment of the Senior Subordinated Loan
Agreement.
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INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements of the Company included in this Offering Memorandum
have been audited by BDO Seidman LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The legality of the Notes being offered hereby will be passed upon for the
Company by Proskauer Rose LLP, New York, New York. Richard L. Goldberg, a
partner of Proskauer Rose LLP, is a member of the Board of Directors of the
Company. Certain food and drug regulatory matters will be passed upon for the
Company by King & Spalding, Washington, District of Columbia. Certain legal
matters in connection with the sale of the Notes offered hereby will be passed
upon for the Initial Purchaser by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York.
AVAILABLE INFORMATION
Immediately following the Offering, the Company will not be subject to the
periodic reporting and other informational requirements of the Exchange Act.
Until its acquisition by the Company in 1995, Marsam was subject to the
periodic reporting and other informational requirements of the Exchange Act,
and therefore, its Forms 10-K and 10-Q for periods prior to its acquisition
are available from the Commission. The Company has agreed that,
notwithstanding that it may not be subject to the reporting requirements of
Sections 13 or 15(d) of the Exchange Act, for so long as any Notes are
outstanding, the Company will furnish to the Trustee and the holders of the
Notes (i) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year and 90 days of the end of each fiscal year all
quarterly and annual financial information, as the case may be, that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-
K if the Company were required to file any such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the Company will file
a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request. Furthermore, for so long as any of the Notes remain outstanding,
the Company has agreed to make available to any prospective purchaser of the
Notes or beneficial owner of the Notes, in connection with any sale thereof,
the information required by Rule 144(d)(4) under the Securities Act.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants......................... F-2
Consolidated Balance Sheets as of December 30, 1995, December 28, 1996 and
September 27, 1997 (unaudited)............................................ F-3
Consolidated Statements of Operations for each of the years ended December
31, 1994, December 30, 1995 and December 28, 1996, and the nine-month
periods ended September 28, 1996 and September 27, 1997 (unaudited)....... F-4
Consolidated Statements of Stockholders' Equity for each of the years ended
December 31, 1994, December 30, 1995 and December 28, 1996, and the nine-
month period ended September 27, 1997 (unaudited)......................... F-5
Consolidated Statements of Cash Flows for each of the years ended December
31, 1994, December 30, 1995 and December 28, 1996, and the nine-month
periods ended September 28, 1996 and September 27, 1997 (unaudited)....... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Schein Pharmaceutical, Inc.
We have audited the accompanying consolidated balance sheets of Schein
Pharmaceutical, Inc. and subsidiaries as of December 30, 1995 and December 28,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
28, 1996. These consolidated financial statements are the responsibility of
the management of Schein Pharmaceutical, Inc. and subsidiaries. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Schein Pharmaceutical, Inc. and subsidiaries as of December 30, 1995 and
December 28, 1996, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 28, 1996
in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
February 7, 1997
F-2
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
IN THOUSANDS ------------ ------------ -------------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............ $ 7,837 $ 2,139 $ 388
Accounts receivable, less allowance
for possible losses of $3,835,
$2,434 and $2,849................... 57,212 72,261 67,574
Inventories.......................... 115,960 131,265 124,011
Prepaid expenses and other current
assets.............................. 7,598 4,070 3,792
Deferred income taxes................ 9,656 9,354 8,843
-------- -------- --------
Total Current Assets............... 198,263 219,089 204,608
Property, Plant and Equipment, net..... 108,566 107,740 107,348
Product Rights, Licenses and Regulatory
Approvals, net........................ 94,566 92,685 88,102
Goodwill, net.......................... 106,786 102,695 99,448
Other Assets........................... 14,229 22,103 21,193
-------- -------- --------
$522,410 $544,312 $520,699
======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable..................... $ 31,225 $ 31,492 $ 30,196
Accrued expenses..................... 34,939 40,755 42,758
Income taxes......................... -- 6,641 5,231
Revolving credit and current
maturities of long-term debt........ 40,078 41,090 32,943
-------- -------- --------
Total Current Liabilities.......... 106,242 119,978 111,128
Long-Term Debt, less current
maturities............................ 240,480 245,390 223,470
Deferred Income Taxes.................. 41,321 40,166 39,979
Other Liabilities...................... 8,675 8,798 9,038
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.01 par value; 529
authorized shares; issued and
outstanding 274 shares at December
30, 1995 and 273 shares at December
28, 1996 and September 27, 1997..... 3 3 3
Additional paid-in capital........... 39,832 38,876 38,876
Retained earnings.................... 86,984 88,381 92,107
Other................................ (1,127) 2,720 6,098
-------- -------- --------
Total Stockholders' Equity......... 125,692 129,980 137,084
-------- -------- --------
$522,410 $544,312 $520,699
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
IN THOUSANDS ------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............ $385,428 $391,846 $476,295 $352,172 $353,829
Cost of sales........... 237,380 250,507 320,675 236,721 240,562
-------- -------- -------- -------- --------
Gross profit.......... 148,048 141,339 155,620 115,451 113,267
Costs and expenses:
Selling, general and
administrative....... 71,416 73,250 84,366 61,149 57,950
Research and
development.......... 19,170 28,324 27,030 23,044 22,854
Amortization of
goodwill and other
intangibles.......... -- 3,399 10,195 7,713 7,722
Special compensation,
restructuring and
relocation........... 33,594 -- -- -- --
Acquired in-process
Marsam research and
development.......... -- 30,000 -- -- --
-------- -------- -------- -------- --------
Operating income........ 23,868 6,366 34,029 23,545 24,741
Interest expense,
net.................. 1,493 10,005 23,285 16,081 20,456
Other expenses
(income), net........ 579 779 4,156 1,745 (4,536)
-------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes.................. 21,796 (4,418) 6,588 5,719 8,821
Provision for income
taxes.................. 15,165 10,482 5,191 3,573 5,095
-------- -------- -------- -------- --------
Net income (loss)....... $ 6,631 $(14,900) $ 1,397 $ 2,146 $ 3,726
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 28, 1996 AND NINE MONTHS ENDED SEPTEMBER 27, 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- ------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS OTHER
IN THOUSANDS ------- ------- ------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 25,
1993................... 207 $ 207 267 $ 3 $13,685 $127,129 $(10,688)
Net income............ -- -- -- -- -- 6,631 --
Recognition of stock
compensation......... -- -- -- -- 12,965 (3,079) 8,703
Stock issued in
exchange for minority
interest............. -- -- 7 -- 13,182 (1,818) --
Restructuring
charges.............. -- -- -- -- -- (1,508) --
Redemption of
preferred stock...... (207) (207) -- -- -- (25,471) --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 430
------- ------- --- ---- ------- -------- --------
Balance, December 31,
1994................... -- -- 274 3 39,832 101,884 (1,555)
Net loss.............. -- -- -- -- -- (14,900) --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 389
Unrealized gains from
marketable
securities........... -- -- -- -- -- -- 39
------- ------- --- ---- ------- -------- --------
Balance, December 30,
1995................... -- -- 274 3 39,832 86,984 (1,127)
Net income............ -- -- -- -- -- 1,397 --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 389
Unrealized gains from
marketable
securities........... -- -- -- -- -- -- 4,293
Repurchase and
retirement of
shares............... -- -- (1) -- (956) -- --
Foreign currency
translation
adjustments.......... -- -- -- -- -- -- (835)
------- ------- --- ---- ------- -------- --------
Balance, December 28,
1996................... -- -- 273 3 38,876 88,381 2,720
(Period subsequent to
December 28, 1996 to
September 27, 1997 is
unaudited)...........
Net income............ -- -- -- -- -- 3,726 --
Amortization of
options issued as
compensation......... -- -- -- -- -- -- 292
Unrealized gains from
marketable
securities........... -- -- -- -- -- -- 3,059
Foreign currency
translation
adjustments.......... -- -- -- -- -- -- 27
------- ------- --- ---- ------- -------- --------
Balance, September 27,
1997 (Unaudited)....... -- $ -- 273 $ 3 $38,876 $ 92,107 $ 6,098
======= ======= === ==== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
IN THOUSANDS ------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Operating activities:
Net income (loss)...... $ 6,631 $ (14,900) $ 1,397 $ 2,146 $ 3,726
Depreciation and
amortization.......... 8,464 17,395 25,450 18,018 19,749
Provision for deferred
income taxes.......... (6,321) 3,084 (3,342) (985) (1,237)
Acquired in-process
Marsam research
and development....... -- 30,000 -- -- --
Special compensation... 29,039 -- -- -- --
Gain on sale of
marketable
securities............ (9,883)
Other.................. 759 694 4,360 2,192 3,530
Changes in assets and
liabilities:
Accounts receivable.... (13,224) (579) (15,743) (9,779) 4,167
Inventories............ (13,187) 69 (15,305) (30,714) 7,254
Prepaid expenses and
other assets.......... (2,056) (3,744) 2,048 572 278
Accounts payable,
income taxes, accrued
expenses and other
liabilities........... 16,064 (12,393) 11,891 9,821 (513)
-------- --------- --------- --------- ---------
Net cash provided by
(used in) operating
activities............. 26,169 19,626 10,756 (8,729) 27,071
-------- --------- --------- --------- ---------
Cash flows from
investing activities:
Capital expenditures,
net................... (16,135) (13,986) (11,309) (8,625) (8,992)
Product rights and
licenses.............. (4,190) (3,035) (4,089) (1,460) --
Acquisition of Marsam,
net of cash acquired.. -- (229,746) -- -- --
Investment in
international joint
ventures.............. -- (3,520) (2,036) (503) (150)
Proceeds from sale of
marketable
securities............ -- -- -- -- 11,575
Other, net............. (358) (1,156) (2,582) (434) (1,188)
-------- --------- --------- --------- ---------
Net cash provided by
(used in) investing
activities............. (20,683) (251,443) (20,016) (11,022) 1,245
-------- --------- --------- --------- ---------
Cash flows from
financing activities:
Principal payments on,
or repayments of,
debt.................. (67,237) (167,119) (261,078) (102,057) (143,067)
Proceeds from issuance
of debt............... 85,601 401,750 267,000 114,000 113,000
Sale (repurchase) of
other non-current
assets, net........... 1,836 (5,700) (2,360) -- --
Restructuring charges.. (1,508) -- -- -- --
Redemption of preferred
stock................. (20,678) -- -- -- --
-------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities............. (1,986) 228,931 3,562 11,943 (30,067)
-------- --------- --------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents............ 3,500 (2,886) (5,698) (7,808) (1,751)
Cash and cash
equivalents, beginning
of year................ 7,223 10,723 7,837 7,837 2,139
-------- --------- --------- --------- ---------
Cash and cash
equivalents, end of
year................... $ 10,723 $ 7,837 $ 2,139 $ 29 $ 388
======== ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 1--SUMMARY OF ACCOUNTING POLICIES
The Company and Principles of Consolidation
Schein Pharmaceutical, Inc. and its subsidiaries (the "Company") are engaged
in developing, manufacturing, marketing and distributing generic
pharmaceutical products. The Company sells to drug store chains, independent
retail pharmacies, managed care organizations, hospitals and other
institutions, both through drug wholesalers and directly, primarily in the
U.S.
In 1995, Schein Holdings, Inc. ("SHI"), the former parent holding
corporation of Schein Pharmaceutical, Inc., was merged into Schein
Pharmaceutical, Inc. The Company was the only asset held by SHI, and, as such,
the accompanying financial statements reflect the operations of the Company
for the periods reported.
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. Investments in
unconsolidated affiliated companies are accounted for on the equity method.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
Fiscal Year
The Company reports its operations on a 52-53 week basis ending on the last
Saturday of December. Of the years presented in these statements, 1994
includes 53 weeks.
Interim Financial Information
The financial statements as of September 27, 1997 and for the nine months
ended September 28, 1996 and September 27, 1997 are unaudited but reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of financial
position and results of operations. Operating results for the nine months
ended September 27, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 27, 1997.
Cash Equivalents
The Company considers all highly liquid debt instruments and other short-
term investments with an initial maturity date of three months or less from
purchase date to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out method.
Property, Plant, Equipment, Depreciation and Amortization
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed primarily under the straight-line method over
estimated useful lives. Amortization of capital leases is computed using the
straight-line method over the lease term.
F-7
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Long-Lived Assets
The Company adopted in 1995 Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of. In accordance with SFAS No. 121, the carrying
values of long-lived assets are periodically reviewed by the Company and
impairments would be recognized if the expected future operating non-
discounted cash flows derived from an asset were less than its carrying value.
Deferred Loan Fees
Costs incurred in connection with entering into or amending debt agreements
are capitalized to Other Assets and amortized to interest expense using the
effective interest method over the lives of the related debt.
Goodwill and Product Rights, Licenses and Regulatory Approvals
Goodwill is being amortized over 25 years on a straight-line basis. Product
rights, licenses and regulatory approvals are amortized on a straight-line
basis over the expected profitable and useful lives of the underlying products
and manufacturing facilities, generally for periods ranging from 10 to 20
years.
Investments in Marketable Securities
The Company's available-for-sale marketable securities are carried at fair
market value and are included in Other Assets in the accompanying balance
sheets. Unrealized gains are recorded directly to stockholders' equity, net of
applicable income taxes. The Company uses the specific identification method
of determining cost in calculating related gains and losses. The Company does
not own held-to-maturity or trading securities.
Estimated Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate fair value because of the current nature of these instruments. The
carrying amounts reported for revolving credit and long-term debt approximate
fair value because the interest rates on these instruments are subject to
changes with market interest rates.
Revenue Recognition
Revenues are recognized when products are shipped. Provisions for estimated
sales allowances, returns and losses are accrued at the time revenues are
recognized.
Research and Development Expenditures
Expenditures for research and development are expensed as incurred.
Taxes on Income
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under this standard, deferred taxes on income are
provided for those items for which the reporting period and methods for income
tax purposes differ from those used for financial statement purposes using the
asset and liability method. Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
F-8
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Foreign Currency Translations
Assets and liabilities of international affiliates are translated at current
exchange rates and related translation adjustments are reported as a component
of stockholders' equity. Income statement accounts are translated at the
average rates during the period.
Concentration of Credit Risk
The Company is potentially subject to a concentration of credit risk with
respect to its trade receivables, the majority of which are due from
wholesalers, drug store chains, and distributors. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains sufficient allowances and insurance to cover potential
or anticipated losses for uncollectible accounts.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Effect of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Statement of Accounting Standards No. 131 ("SFAS No. 131"), Disclosures
about Segments of an Enterprise and Related Information, which supersedes SFAS
No. 14, Financial Reporting for Segments of a Business Enterprise, establishes
standards for the way that public enterprises report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
asserting performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Results of operations and financial position
will be unaffected by implementation of these new standards. The Company has
not determined whether either of these two standards will have a material
impact on its financial statement disclosure.
F-9
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 2--RESTRUCTURING
As discussed in Note 1, SHI, the former parent corporation of the Company,
was merged into the Company in 1995. Prior to September 1994, in addition to
its ownership of the Company, SHI was engaged in the manufacture, distribution
and sale of dental, medical and veterinary products ("Henry Schein"). In 1992,
SHI initiated a series of transactions as part of a corporate reorganization
plan (the "Restructuring") to split off Henry Schein to certain SHI
stockholders and realign the ownership interests of SHI. In September 1994,
the series of transactions culminated when the capital stock of Henry Schein
was distributed to individuals (and certain trusts established by them) who
were holders (or beneficiaries of trusts and estates which were holders) of
SHI's common stock prior to September 30, 1994 ("Historical SHI
Stockholders").
The transactions related to the Restructuring were initiated in December
1992 when SHI contributed the net assets of Henry Schein to a newly formed
company which was owned by SHI. Schein Pharmaceutical, Inc. and Henry Schein
both issued common stock to their respective chief executive officers
("CEOs"), which were forfeitable if certain conditions were not satisfied, and
paid cash bonuses to reimburse them for the personal income tax effects of the
stock issuance and reimbursements. SHI subsequently issued shares of its
common stock in exchange for the Schein Pharmaceutical, Inc. stock issuance
and these shares were reflected in the 1992 financial statements.
The Restructuring continued in 1993, when Historical SHI Stockholders and
Company management agreed to a transaction whereby an investor would purchase
a portion of SHI's outstanding shares from Historical SHI Stockholders and
seek future strategic alliances (the "Minority Investor Transaction").
Following governmental regulatory review and Surrogate Court approval, the
closing occurred on September 30, 1994. The Restructuring transactions
recorded in 1994 are as follows:
(i) SHI distributed the shares of Henry Schein to the Historical SHI
Stockholders.
(ii) SHI issued 6,945 shares of its common stock in exchange for the
minority interest-redeemable stock in Schein Pharmaceutical, Inc.'s
subsidiaries. The $13.2 million fair value of the shares issued exceeded
the minority interest previously recorded by $7.3 million. Of this amount,
$5.5 million was classified as special compensation expense in 1994 (for
Schein Pharmaceutical, Inc. employees) and $1.8 million was recorded as a
distribution by the Company to Henry Schein (for the CEO of Henry Schein).
(iii) As a result of the Minority Investor Transaction described above,
the shares of common stock issued to the CEOs of the Company and Henry
Schein became free of the forfeiture provisions. Accordingly, the shares
were revalued using the September 30, 1994 fair value. The amounts relating
to (1) the Company's CEO totaled $18.6 million and was recorded as special
compensation expense, and (2) Henry Schein's CEO totaled $5.7 million, and
the excess of that amount over the 1992 fair value totaled $3.1 million,
which was recorded as a capital distribution.
(iv) SHI retained the services of investment banking and financial
advisory firms. Of the fees paid to these firms, $1.5 million was charged
to retained earnings, as such amount related to the Minority Investor
Transaction.
(v) SHI redeemed its outstanding preferred stock for $25.7 million,
paying $20.7 million in cash and canceling a $5.0 million loan to a
preferred stockholder.
(vi) SHI established a supplemental retirement program for its CEO and
recognized as current expense the Company's obligation under the plan,
estimated at $5.0 million. This liability is included in Other Liabilities
in the accompanying balance sheets.
F-10
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Professional fees incurred by the Company of $4.2 million in 1994 in
connection with the Restructuring were recorded as restructuring expense.
NOTE 3--ACQUISITIONS AND INVESTMENTS IN INTERNATIONAL AFFILIATES
The Company acquired all the outstanding capital stock of Marsam
Pharmaceuticals Inc. ("Marsam") in September 1995 for $245.0 million in cash.
Marsam develops, manufactures and markets generic injectable prescription
drugs. The acquisition was accounted for as a purchase. The purchase price of
$245.0 million exceeded the book value of the net assets acquired by $193.0
million. Of the excess purchase price, $92.0 million was allocated to increase
the net assets acquired to fair value, principally related to regulatory
facility and product approvals. Acquired in-process Marsam research and
development projects were valued at $30.0 million and were expensed at the
time of the acquisition. Goodwill of $108.0 million, consisting of the
remaining excess purchase price of $71.0 million and a $37.0 million deferred
tax liability resulting from the write-up of the net assets to fair value. is
being amortized over 25 years. Marsam's results of operations have been
included in the consolidated statements of operations since the date of
acquisition.
The following summarized, unaudited pro forma results of operations for 1994
and 1995 assume the acquisition occurred as of the beginning of 1994. In
preparing the pro forma data, adjustments have been made for the amortization
of goodwill and other intangibles acquired, the interest expense related to
borrowing agreements to finance the purchase price and, in 1994 only, the
write-off of acquired in-process Marsam research and development projects.
Since the valuation of Marsam's net assets and in-process research and
development projects may have differed at January 1, 1994 from amounts
recorded at September 1, 1995, the information presented is not necessarily
indicative of results of operations that would have occurred had the
acquisition been consummated at the beginning of the respective periods, or of
future results of the combined companies.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Net revenues....................................... $420,441 $417,041
Net income (loss).................................. (39,763) 5,781
</TABLE>
During 1995 and 1996, the Company invested approximately $3.5 million and
$2.0 million, respectively, and $0.2 million for the nine months ended
September 27, 1997, to acquire up to a 50% interest in each of several
international pharmaceutical businesses. These businesses are jointly owned
with subsidiaries of Bayer AG, the parent of Bayer Corp., a minority investor
in the Company. These investments are accounted for under the equity method
and are included in Other Assets in the accompanying balance sheets. The
Company recorded losses of approximately $0.3 million and $3.3 million in
fiscal 1995 and fiscal 1996, respectively, and $1.6 million and $2.7 million
for the nine months ended September 28, 1996 and September 27, 1997,
respectively, as its share of the operating results of these businesses.
Additionally, the Company incurred expenses of approximately $2.1 million and
$2.9 million in fiscal 1995 and fiscal 1996, respectively, and approximately
$2.0 million and $1.8 million for the nine months ended September 28, 1996 and
September 27, 1997, to identify, evaluate, and establish these and other
potential international business ventures. All equity losses and other
expenses resulting from the Company's investments in international businesses
in fiscal 1995 and fiscal 1996 are included in other expense, net, in the
accompanying statements of operations. The Company generally anticipates that
these international businesses will not have significant revenues or
operations for a period of two to three years, during which time the
businesses incur expenses to register products in anticipation of future
sales.
F-11
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 4--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Finished products.................... $ 47,874 $ 59,632 $ 50,223
Work in-process...................... 20,671 27,332 36,893
Raw materials and supplies........... 47,415 44,301 36,895
-------- -------- --------
$115,960 $131,265 $124,011
======== ======== ========
</TABLE>
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land................................ $ 4,725 $ 4,725 $ 4,725
Buildings and improvements.......... 60,770 63,019 63,829
Plant and office equipment.......... 85,126 97,825 100,521
Construction-in-progress............ 6,949 3,310 7,976
-------- -------- --------
157,570 168,879 177,051
Less: Accumulated depreciation and
amortization....................... 49,004 61,139 69,703
-------- -------- --------
$108,566 $107,740 $107,348
======== ======== ========
</TABLE>
Depreciation and amortization expense for property, plant and equipment
amounted to $8.3 million, $10.5 million, and $12.1 million in fiscal 1994,
fiscal 1995 and fiscal 1996, respectively, and $9.2 million and $8.5 million
for the nine months ended September 28, 1996 and September 27, 1997,
respectively.
NOTE 6--INTANGIBLE AND OTHER ASSETS
Product Rights, Licenses and Regulatory Approvals, net, consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Product rights and licenses.......... $ 8,522 $ 12,611 $ 12,522
Regulatory approvals, products....... 78,000 78,000 78,000
Regulatory approvals, facilities..... 10,000 10,000 10,000
------- -------- --------
96,522 100,611 100,522
Less: Accumulated amortization....... 1,956 7,926 12,420
------- -------- --------
$94,566 $ 92,685 $ 88,102
======= ======== ========
</TABLE>
Accumulated amortization of goodwill was $1.4 million, $5.8 million and $9.0
million at December 30, 1995, December 28, 1996 and September 27, 1997,
respectively.
F-12
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Included in Other Assets in the accompanying balance sheets are marketable
securities consisting of equity securities of:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost................................. $3,317 $ 5,660 $ 3,918
Gross unrealized gain................ 60 6,686 11,322
------ ------- -------
Fair value........................... $3,377 $12,346 $15,240
====== ======= =======
</TABLE>
Included in Other expenses (income), net for the nine months ended September
27, 1997, the Company recorded $9.9 million of realized gains of securities
sold.
NOTE 7--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable are outstanding checks of approximately $5.4
million, $6.2 million and $5.0 million as of December 30, 1995, December 28,
1996 and September 27, 1997, respectively.
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and related expenses....... $15,398 $18,300 $17,703
Profit-sharing expenses............. 1,673 8,637 8,060
Other............................... 17,868 13,818 16,995
------- ------- -------
$34,939 $40,755 $42,758
======= ======= =======
</TABLE>
NOTES 8--TAXES ON INCOME
Provisions for Federal, state and Puerto Rico income taxes consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................. $15,786 $ 5,736 $7,404
State and Puerto Rico................ 5,700 1,662 1,129
------- ------- ------
21,486 7,398 8,533
------- ------- ------
Deferred:
Federal.............................. (3,497) 2,131 (2,215)
State and Puerto Rico................ (2,824) 953 (1,127)
------- ------- ------
(6,321) 3,084 (3,342)
------- ------- ------
$15,165 $10,482 $5,191
======= ======= ======
</TABLE>
F-13
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Deferred tax assets and liabilities are classified as current and non-
current as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred Taxes, Current:
Deferred tax assets........................... $ 9,764 $ 9,354
Deferred tax liabilities...................... (108) --
-------- --------
9,656 9,354
-------- --------
Deferred Taxes, Non-Current:
Deferred tax assets........................... 6,905 8,268
Deferred tax liabilities...................... (48,226) (48,434)
-------- --------
(41,321) (40,166)
-------- --------
$(31,665) $(30,812)
======== ========
</TABLE>
Differences between the Federal statutory rate and the Company's effective
tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory rate....................... $ 7,629 $(1,546) $2,309
State and Puerto Rico................ 1,869 1,722 241
Special compensation charges......... 5,553 -- --
Amortization of goodwill............. -- 505 1,515
Effect of partially tax-exempt
operations in Puerto Rico........... -- -- (519)
Equity in net loss of unconsolidated
affiliates.......................... -- -- 1,202
Write-off of acquired in-process
Marsam research and development..... -- 10,500 --
Other, net........................... 114 (699) 443
------- ------- ------
$15,165 $10,482 $5,191
======= ======= ======
</TABLE>
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross Deferred Tax Assets:
Inventory valuation.......................... $ 4,358 $ 5,220
Accounts receivable allowances............... 3,139 2,694
Net operating loss carryforwards, state and
Puerto Rico................................. 1,700 1,880
Deferred compensation expense................ 4,238 4,806
Other........................................ 3,126 3,022
-------- --------
16,561 17,622
-------- --------
Gross Deferred Tax Liabilities:
Write-up of acquired Marsam assets to fair
value....................................... (35,361) (32,692)
Depreciation and amortization................ (12,744) (12,461)
Unrealized gains from marketable securities.. -- (2,489)
Other........................................ (121) (792)
-------- --------
(48,226) (48,434)
-------- --------
$(31,665) $(30,812)
======== ========
</TABLE>
F-14
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
NOTE 9--BORROWINGS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit and term loan
agreement......................... $280,000 $186,000 $156,000
Senior subordinated loan........... -- 100,000 100,000
Capitalized lease obligations...... 558 480 413
-------- -------- --------
280,558 286,480 256,413
Less: Current Maturities........... 40,078 41,090 32,943
-------- -------- --------
$240,480 $245,390 $223,470
======== ======== ========
</TABLE>
In September 1995, the Company entered into a secured revolving credit and
term loan agreement (as amended, the "credit agreement") with a group of banks
to provide funds for the acquisition of Marsam, the repayment of certain of
its debt, working capital and general corporate purposes. The credit agreement
provided a term loan facility of $250.0 million and a revolving credit
facility of $100.0 million. In December 1996, the Company prepaid $100.0
million of the term loan portion of the credit agreement using the proceeds
from a new senior subordinated loan (see below). As a result of this payment
and a scheduled payment, the term loan facility was reduced to $145.0 million.
Quarterly principal payments on the term loan commence in September 1998 and
end in the year 2001. The revolving credit usage was $30.0 million, $41.0
million and $26.0 million as of December 30, 1995, December 28, 1996 and
September 27, 1997, respectively. The $100.0 million revolving credit line is
available through December 2001. Amounts borrowed under the revolving credit
facility are expected to be repaid during the next year and, accordingly, are
classified as current in the accompanying balance sheets.
Borrowings under the credit agreement bear interest, which is payable at
least quarterly, at a rate equal to the bank's floating base rate plus a
premium ranging from zero to 1.50%, or at a rate equal to LIBOR plus a premium
ranging from 0.75% to 2.50%, depending on the type of borrowing and the
Company's performance against certain criteria. The effective borrowing rate
was 7.14%, 8.10% and 7.80% at December 30, 1995, December 28, 1996 and
September 27, 1997, respectively. A commitment fee ranging from 0.25% to 0.50%
per annum of the unused daily amount of the total commitment is payable
quarterly.
Borrowings under the credit agreement are secured by a mortgage on all real
property, liens on inventory and receivables and a pledge of subsidiaries'
stock. The debt is guaranteed by the Company's domestic subsidiaries.
The credit agreement contains limitations and restrictions concerning
investments, acquisitions, capital expenditures, debt, liens, transactions
with stockholders, dividend payments and borrowings. In addition, the
agreement requires the Company to maintain minimum net worth levels and
certain ratios (as defined) of leverage to EBITDA, working capital and fixed
charge coverage. Amounts available for dividends as of December 28, 1996 were
not material.
In December 1996, the Company entered into an agreement for a $100.0 million
senior subordinated loan with a lead-manager of the credit agreement. The
proceeds of the loan were used to prepay principal on the term loan of the
credit agreement. The effective borrowing rate was 9.60% and 9.72% as of
December 28, 1996 and September 27, 1997, respectively. Outstanding borrowings
under the senior subordinated loan agreement bear interest, payable quarterly,
at a rate equal to LIBOR plus 4% or the bank's floating base rate plus 3%,
through January 31, 1998. Thereafter, the principal amount of the loan will be
increased to reflect related fees due and will mature in five years. Interest
will be due semi-annually and the interest rate will be fixed at a new rate.
See Note 17--Subsequent Events.
F-15
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
In connection with entering into the credit agreement, the Company incurred
costs of $5.9 million in 1995. During 1996, the Company incurred costs of $2.3
million in connection with entering into the senior subordinated loan and
amending the credit agreement. The Company capitalized these costs, which are
included in Other Assets in the accompanying balance sheets. The amounts
amortized in 1995 and 1996 were $0.7 million and $2.6 million, respectively.
At December 28, 1996, aggregate required principal payments for the
succeeding four years, the remaining term under existing long-term debt
agreements, excluding the revolving credit facility, are $15.3 million in
1998, $38.2 million in 1999, $45.8 million in 2000 and $45.8 million in 2001.
NOTE 10--COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Operating Leases
The Company leases facilities and equipment under operating leases expiring
through 2007. Some of the leases have renewal options and most contain
provisions for passing through certain incremental costs. At December 28,
1996, future net minimum annual rental payments under the noncancelable leases
are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 5,484
1998................................................................ 4,778
1999................................................................ 4,223
2000................................................................ 3,602
2001................................................................ 3,129
2002-2007........................................................... 14,145
-------
Total minimum lease payments........................................ $35,361
=======
</TABLE>
Total rental expense for the fiscal years ended 1994, 1995 and 1996 was
approximately $3.7 million, $4.7 million and $5.4 million, respectively and
$3.9 million and $4.1 million for the nine months ended September 28, 1996 and
September 27, 1997, respectively.
The Company has an agreement to lease warehousing space through September
1999, and then purchase this property for $5.3 million in October 1999. In
1997 the Company intends to exercise its option to purchase this property. The
property consists of a building of approximately 109,800 square feet on
approximately 8.5 acres of land. The purchase price includes a $0.3 million
deposit paid in 1994.
Employee Benefit Plans
During 1996, the Company merged its defined contribution retirement plans
into one plan. The discretionary contributions to the plan vest to employees
over several years. Additionally, employees are permitted to make pre-tax
contributions to the plan with the Company making matching contributions. The
contributions to these plans which were charged to operations, as determined
by the Board of Directors, amounted to approximately $4.2 million, $4.9
million and $3.5 million for the fiscal years ended 1994, 1995 and 1996,
respectively and $3.7 million and $4.7 million for the nine months ended
September 28, 1996 and September 27, 1997, respectively.
The Company has entered into deferred compensation agreements with certain
officers of the Company. As of December 1996, obligations under these
agreements were approximately $6.6 million, assuming the officers remain with
the Company over the vesting period of four years. These agreements provide
for accelerated vesting
F-16
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
if there is a change in control of the Company and under certain other
conditions. The Company expensed $2.7 million, $2.0 million, and $4.8 million
in the fiscal years ended 1994, 1995, and 1996, respectively, and $1.7 million
and $1.1 million in the nine months ended September 28, 1996 and September 27,
1997, respectively, in connection with these agreements.
The Company established an unfunded supplemental retirement program for its
CEO during 1994. The estimated obligation of $5.0 million is included in Other
Liabilities in the accompanying balance sheets.
The Company maintains a Book Equity Appreciation Rights Program (the
"Program") to allow certain employees to benefit from an increase in the
Company's book value as calculated according to a formula defined in the
Program. All participants are fully bested in their book equity appreciation
rights ("BEARs") and the Company does not intend to make any additional grants
of BEARs. Amounts charged to results of operations were not material in any
period presented.
Product Technology Licensing and Development
On September 1, 1994, the Company entered into a worldwide technology
licensing and development agreement with a U.K.-based pharmaceutical
development company for the development of a portfolio of oral controlled
release and/or transdermal products. Under the terms of the agreement, the
Company is obligated to pay product licensing fees and development costs
totaling $32.0 million, dependent on achievement of interim milestones. In
1994, the Company incurred obligations totaling $5.3 million under the
agreement, consisting of a $5.0 million licensing fee, which was capitalized,
and $0.3 million in development costs, which were charged to research and
development expense. The Company paid and expensed $2.1 million in development
costs in 1995. In 1996, the Company incurred obligations totaling $3.0
million, consisting of a $0.5 million licensing fee, which was capitalized,
and $2.5 million in development costs which were charged to research and
development expense. The remaining commitment under the agreement as of
December 28, 1996 was $21.6 million, subject to the completion of interim
milestones.
On September 30, 1996, the Company entered into a marketing and distribution
agreement with a corporation to jointly commercialize a certain product. Under
the terms of the agreement, the Company is obligated to pay product licensing
fees and development costs of $12.0 million, dependent on the achievement of
certain milestones. In 1996, the Company paid and capitalized a $2.0 million
product license fee.
Consulting Agreement
The Company has a series of agreements (collectively, the "Consulting
Agreement") with a patent attorney (the "Consultant"). Under the Consulting
Agreement, the Consultant, together with the Company, identified certain
patents on branded pharmaceutical products which might be susceptible to a
challenge and the Consultant acted as counsel to the Company in those
instances where it decided to proceed with a patent challenge.
The Consulting Agreement generally provides that if a challenge based on an
opinion of the Consultant results in either a favorable judicial determination
which enables the Company to market a generic version of the product or in a
settlement, the Company will pay the Consultant one half of the adjusted gross
profit (as defined) from its sales of the generic versions of the patented
product (until the date on which the patent would normally have expired) or
one half of the proceeds of any settlement.
In 1994, the Company settled two such patent challenges. One of the
settlements involved a license grant to the Company to market the product
which was the subject of the challenge beginning in 1996. The other allows for
future cash payments and/or license rights to the Company. In connection with
the second settlement, the Company received revenues of $5 and $12.5 million
in 1995 and 1996, respectively, and $12.5 million and $25.0 million in the
nine months ended September 28, 1996 and September 27, 1997, which are
included in Net revenues in the accompanying statements of operations.
F-17
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
Profit-sharing expenses pursuant to the Consulting Agreement and included in
Cost of sales were $2.5 million in fiscal 1995, $14.9 million in fiscal 1996
and $9.3 million and $24.5 million for the nine months ended September 28,
1996 and September 27, 1997, respectively. In 1994, there were no related
profit-sharing expenses.
CONTINGENCIES
Litigation
The Company is a defendant in several product liability cases. These cases
are typical for a company in the pharmaceutical industry. The Company also is
involved in other proceedings and claims of various types. Management
presently believes that the disposition of all such known proceedings and
claims, individually or in the aggregate, will not have a material adverse
effect on the Company's financial position, operations or liquidity.
NOTE 11--STOCKHOLDERS' EQUITY AND STOCK OPTIONS
Common Stock
The Company has Class A Common Shares ("Class A") and Class B Common Shares
("Class B"). Each of the two classes of stock are identical except that Class
B shares are currently non-voting. Upon the earlier occurrence of an initial
public offering or May 15, 1999, each authorized share of Class B will be
automatically reclassified as and converted into one new Class A share.
Upon the closing of the Company's planned initial public offering, the Class
A and Class B will convert on a one-for-one basis to new shares of the
Company's common stock.
At December 30, 1995, December 28, 1996 and September 22, 1997, the Company
had 183,722, 183,244 and 183,244 Class A issued and outstanding, respectively.
The Company had 90,020 Class B for all periods presented.
During 1996, the Company agreed to repurchase 478 Common Shares for
approximately $1.0 million from a former executive of the Company. These
shares were retired in 1996.
Stock Option Plan
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock- Based Compensation. SFAS No. 123 encourages
entities to adopt that method in place of the provisions of Accounting
Principles Board Opinion Number 25, Accounting for Stock Issued to Employees
("APB No. 25"), for all arrangements under which employees receive shares of
stock or other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of its stock. The
Company continues to account for such transactions in accordance with APB No.
25 and, as required by SFAS No. 123, has provided pro forma information
regarding net income as if compensation cost for the Company's stock option
plan had been determined in accordance with the fair value method prescribed
by SFAS No. 123.
Under a 1993 Stock Option Plan, a 1995 Non-Employee Director Stock Option
Plan, and effective March 3, 1997, a 1997 Stock Option Plan the Company may
grant non-qualified and incentive stock options to certain officers, employees
and directors. The options expire ten years from the grant date. The options
may be exercised subject to continued service (three to five years) and
certain other conditions. Accelerated vesting occurs following a change in
control of the Company and under certain other conditions. The Company may
grant an aggregate of 55,797 shares under the plans. However, 3,503 shares
under the 1993 Stock Option Plan will not be granted.
F-18
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
The Company estimates the fair value of each stock option at the grant date
by using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1995 and 1996: no dividend yield,
expected volatility of 0.01%, risk free interest rates of 5% to 7%, expected
lives of 10 years and a discount for marketability of 25%. If compensation
cost for the Company's stock option plan had been determined in accordance
with SFAS No. 123, net income (loss) would have been reduced in 1995 and 1996
by approximately $1.0 million and $2.3 million, respectively.
The following table summarizes information about stock options outstanding
at December 28, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE PRICE
----------- ------------ -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Exercise Prices
$1,000.00............. 1,859 6.9 $1,000.00 1,749 $1,000.00
$2,000.00............. 22,156 7.8 2,000.00 13,507 2,000.00
------ --- --------- ------ ---------
24,015 7.8 $1,922.49 15,256 $1,885.59
====== === ========= ====== =========
</TABLE>
Transactions under the stock option plans and individual non-qualified
options not under the plans are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Shares under option at December 29, 1993............. 12,340 $1,838.85
Granted (at $2,000.00 per share)................... 5,094 2,000.00
Exercised.......................................... -- --
Canceled (at $2,000.00 per share).................. (1,078) 2,000.00
------ ---------
Shares under option at December 31, 1994............. 16,356 1,878.21
Granted (at $2,000.00 per share)................... 3,601 2,000.00
Exercised.......................................... -- --
Canceled (at $2,000.00 per share).................. (77) 2,000.00
------ ---------
Shares under option at December 30, 1995............. 19,880 1,900.35
Granted (at $2,000.00 per share)................... 4,887 2,000.00
Exercised.......................................... -- --
Canceled (at $1,000.00 to $2,000.00 per share)..... (752) 1,832.70
------ ---------
Shares under option at December 28, 1996............. 24,015 1,922.49
Granted (at $1,500.00 per share)................... 8,031 1,500.00
Exercised.......................................... -- --
Canceled (at $2,000.00 per share).................. (2,365) 2,000.00
------ ---------
Shares under option at September 27, 1997 (at
$1,000.00 to $2,000.00 per share)................... 29,681 $1,801.95
====== =========
Options exercisable at December
1994............................................... 8,951 $1,955.70
1995............................................... 10,780 $1,926.18
1996............................................... 15,256 $1,885.59
Weighted average fair value of options granted dur-
ing:
1995............................................... $ 915.12
1996............................................... $ 896.67
</TABLE>
F-19
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
The Company recorded deferred stock compensation of approximately $2.0
million in 1993, reflecting options granted with exercise prices at less than
fair value. This amount is being amortized over five years.
NOTE 12--SPECIAL COMPENSATION, RESTRUCTURING AND RELOCATION
Special compensation, restructuring and relocation expense in fiscal 1994
consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Special compensation--see Note 2............................. $23,582
Excess of fair value of shares exchanged or amounts paid on
exchange of minority interest............................... 5,457
Professional fees for Restructuring.......................... 4,215
Relocation of corporate headquarters......................... 340
-------
$33,594
=======
</TABLE>
NOTE 13--INTEREST EXPENSE, NET
Interest expense, net, consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest expense........ $1,875 $10,150 $23,715 $16,165 $20,536
Interest income......... (382) (145) (430) (84) (80)
------ ------- ------- ------- -------
$1,493 $10,005 $23,285 $16,081 $20,456
====== ======= ======= ======= =======
</TABLE>
NOTE 14--RELATED PARTY TRANSACTIONS
In the conduct of its business, the Company sells pharmaceutical products to
Henry Schein for distribution to its customers. Net sales to Henry Schein were
$6.4 million, $5.3 million and $8.6 million in fiscal 1994, 1995 and 1996,
respectively, and $5.5 million and $5.4 million for the nine months ended
September 28, 1996 and September 27, 1997. Included in accounts receivable at
both December 30, 1995, December 28, 1996 and September 27, 1997 are amounts
due from Henry Schein for sale of products of approximately $0.9 million, $0.9
million and $0.8 million, respectively.
In 1994, the Company entered into a 3-year co-promotion agreement with Bayer
Corp. covering a certain product of the Company. Under the terms of the
agreement, in exchange for promotional support, the Company shared with Bayer
Corp. financial results in excess of specified threshold amounts. Included in
selling, general and administrative expenses, the Company recorded selling
expenses under the agreement of approximately $3.0 million in 1996 and $2.9
million for the nine months ended September 27, 1997. There were no selling
expenses under this agreement for 1994 and 1995. Included in Accrued expenses
in the accompanying balance sheet as of December 28, 1996 and September 27,
1997 are approximately $1.3 million and $1.7 million, respectively, of selling
expenses under the agreement.
NOTE 15--SUPPLEMENTAL CASH FLOW INFORMATION
In connection with the Restructuring (see Note 2), there were certain non-
cash transactions. In 1994, non-cash transactions were 1) the issuance of SHI
common stock in exchange for all minority interests in Schein Pharmaceutical's
subsidiaries, the formula value of which approximated $6.2 million, 2) a $1.8
million
F-20
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 1997 AND FOR THE NINE-MONTHS ENDED SEPTEMBER 28,
1996 AND SEPTEMBER 27, 1997 IS UNAUDITED)
distribution to Henry Schein for the excess of the fair value of the common
stock issued in exchange for the minority interest in Schein Pharmaceutical's
subsidiaries over amounts previously recorded, 3) a distribution of $3.1
million to Henry Schein in recognition of the adjusted fair value of the
Company's stock distributed in 1992, and 4) a $5.0 million cancellation of a
preferred stock stockholder loan in connection with the redemption of
preferred stock.
The Company paid taxes of approximately $22.8 million, $8.9 million and $5.8
million for the years ended 1994, 1995 and 1996, respectively. The Company
paid interest of approximately $1.5 million, $8.0 million and $23.2 million
for the years ended 1994, 1995 and 1996, respectively.
In 1994, the Company accrued a $3 million product licensing commitment which
was paid in early 1995. The amount was capitalized under Product Rights,
Licenses and Regulatory Approvals in the accompanying balance sheets.
As discussed in Note 3, the Company acquired all the capital stock of Marsam
for $245 million in 1995. In connection with the acquisition, liabilities were
assumed as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Fair value of assets acquired.................................. $ 293
Cash paid for Marsam stock..................................... (245)
-----
Liabilities assumed............................................ $ 48
=====
</TABLE>
As discussed in Note 11, the Company accrued approximately $1.0 million as
of December 28, 1996 in connection with the repurchase of 478 Common shares.
NOTE 16--MAJOR PRODUCT AND CUSTOMERS
One product generated 16%, 17% and 19% of net revenues for fiscal 1994, 1995
and 1996, respectively, and 17% and 20% for the nine months ended September
28, 1996 and September 27, 1997, respectively.
Four customers contributed 13%, 12%, 12% and 10%, respectively, of 1994 net
revenues. Three customers generated 13%, 11% and 10%, respectively, of 1995
net revenues, respectively. Three customers contributed 16%, 15% and 11%,
respectively, of 1996 net revenues. Three customers contributed 17%, 16% and
11%, respectively, of revenues for the period ended September 27, 1997. In all
periods, these customers are nationwide wholesalers through which the majority
of the Company's products are distributed to the retail, institutional and
managed care markets.
NOTE 17--SUBSEQUENT EVENTS
In November 1997, the Company entered into a Commitment Letter with an
investment banking firm providing for the issuance and sale of $100 million of
Senior Floating Rate Notes due 2004. Interest on the notes will be due
quarterly at a LIBOR-based rate. The Company expects this offering to be
completed in December 1997, at which time the proceeds will be used to retire
the existing $100 million senior subordinated loan (Note 9).
The Company has filed a registration statement covering an initial public
offering under which it anticipates raising net proceeds of approximately $45
million upon the sale of its common stock. If the offering is consummated, the
net proceeds will be used in whole or in part to pay down the Company's debt.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Marsam Pharmaceuticals Inc.
Cherry Hill, New Jersey
We have audited the accompanying consolidated balance sheets of Marsam
Pharmaceuticals Inc. and subsidiary as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Marsam
Pharmaceuticals Inc. and subsidiary as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
Coopers & Lybrand LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 24, 1995
F-22
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $10,470,300 $ 6,836,700
Investments available-for-sale, at fair market
value............................................. 4,710,000 8,341,900
Accounts receivable, net of reserves of $1,222,400
and $574,600 at December 31, 1994 and 1993........ 6,147,800 6,567,100
Inventory.......................................... 10,830,200 9,602,300
Deferred income taxes.............................. 526,400 --
Other current assets............................... 2,111,800 741,400
----------- -----------
Total current assets............................... 34,796,500 32,089,400
Property and equipment, net of accumulated
depreciation of $7,009,200 and $5,641,300 at
December 31, 1994 and 1993........................ 20,042,100 17,039,100
Deposits for property and equipment................ 250,000 253,600
Deferred income taxes.............................. 253,200 --
Other assets....................................... 1,520,100 --
----------- -----------
Total assets..................................... $56,861,900 $49,382,100
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 2,012,500 $ 1,095,600
Accrued compensation............................... 346,800 391,300
Accrued liabilities................................ 1,342,500 337,400
Deferred revenue................................... 1,175,000 --
----------- -----------
Total liabilities................................ 4,876,800 1,824,300
=========== ===========
Long-term liabilities:
Deferred compensation.............................. 813,800 533,600
Deferred income taxes.............................. 14,500 155,900
----------- -----------
Total liabilities................................ 5,705,100 2,513,800
=========== ===========
COMMITMENTS AND CONTINGENCIES (NOTE 8)
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized 1,000,000 shares....................... -- --
Common stock, par value $.01 per share; authorized
30,000,000 shares at December 31, 1993; issued and
outstanding 11,047,562 shares at December 31, 1994
and 11,017,986 shares at December 31, 1993........ 110,500 110,200
Additional paid-in capital......................... 51,739,500 51,093,900
Retained earnings (deficit)........................ (693,200) (4,335,800)
----------- -----------
Total stockholders' equity....................... 51,156,800 46,868,300
----------- -----------
Total liabilities and stockholders' equity..... $56,861,900 $49,382,100
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................ $35,012,800 $23,500,900 $16,722,400
Cost of goods sold....................... 26,127,600 18,059,500 14,895,900
----------- ----------- -----------
Gross profit............................ 8,885,200 5,441,400 1,826,500
----------- ----------- -----------
Operating costs and expenses:
Selling, general and administrative..... 4,741,900 2,486,800 3,004,300
Research and development................ 2,536,500 2,009,100 2,702,300
----------- ----------- -----------
Total operating expenses................ 7,278,400 4,495,900 5,706,600
----------- ----------- -----------
Income (loss) from operations.......... 1,606,800 945,500 (3,880,100)
Other income, net........................ 1,903,000 1,067,400 1,034,700
----------- ----------- -----------
Income (loss) before income taxes...... 3,509,800 2,012,900 (2,845,400)
Provision for income taxes............... (132,800) 40,000 110,000
----------- ----------- -----------
Net income (loss)...................... $ 3,642,600 $ 1,972,900 $(2,955,400)
=========== =========== ===========
Net income (loss) per common and common
equivalent share........................ $ 0.33 $ 0.18 $ (0.27)
=========== =========== ===========
Weighted average common & common
equivalent
shares outstanding...................... 11,163,100 11,168,000 10,948,900
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NO. OF PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1992.......... 10,945,136 $109,500 $50,541,900 $(3,353,300)
---------- -------- ----------- -----------
Exercise of stock options.......... 10,275 100 53,800 --
Common stock grant................. 5,500 0 47,400 --
Net loss........................... -- -- -- (2,955,400)
---------- -------- ----------- -----------
BALANCES, DECEMBER 31, 1992........ 10,960,911 109,600 50,643,100 (6,308,700)
Exercise of stock options.......... 57,075 600 450,800 --
Net income......................... -- -- -- 1,972,900
---------- -------- ----------- -----------
BALANCES, DECEMBER 31, 1993........ 11,017,986 110,200 51,093,900 (4,335,800)
Exercise of stock options.......... 23,826 200 586,800 --
Common stock grant................. 5,750 100 58,800 --
Net income......................... -- -- -- 3,642,600
---------- -------- ----------- -----------
BALANCES, DECEMBER 31, 1994........ 11,047,562 $110,500 $51,739,500 $ (693,200)
========== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operations:
Net income........................... $ 3,642,600 $ 1,972,900 $ (2,955,400)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 1,367,900 1,137,700 1,085,100
Inventory write-offs................. (113,900) (155,500) 280,500
Increase in accounts receivable
reserves............................ 647,800 574,600 --
Deferred compensation expense........ 280,200 206,300 253,000
Deferred tax provision (benefit)..... (555,900) 24,800 110,000
(Gain) loss on sale of property...... -- 5,300 (4,200)
Common stock grant................... 58,900 -- 47,400
(Increase) decrease in accounts
receivable.......................... (228,500) (5,929,200) 1,629,900
(Increase) in inventory.............. (1,114,000) (2,465,700) (4,913,100)
(Increase) in other assets........... (1,370,400) (311,100) (93,800)
Increase (decrease) in accounts
payable............................. 916,900 (436,300) 324,700
Increase (decrease) in accrued
expenses............................ 505,800 (840,900) 565,000
Increase (decrease) in deferred
revenue............................. 1,175,000 -- (101,800)
----------- ----------- ------------
Net Cash provided by operating ac-
tivities.......................... 5,212,400 (6,217,100) (3,772,700)
----------- ----------- ------------
Investment activities:
Purchase of investments "available-
for-sale"........................... (500,000) (3,628,300) (4,446,800)
Sale of investments "available-for-
sale"............................... 4,131,900 4,233,200 --
Purchase of property and equipment... (3,662,500) (1,151,400) (2,080,800)
Proceeds from sale of property....... -- -- 8,800
Deposits on property and equipment... (250,000) (150,400) (202,400)
Purchase of long-term investments.... (1,520,100) -- --
----------- ----------- ------------
Net Cash used in investment activi-
ties.............................. (1,800,700) (696,900) (6,721,200)
----------- ----------- ------------
Financing activities:
Proceeds from issuance of common
stock............................... 221,900 451,400 53,900
----------- ----------- ------------
Net cash provided by financing
activities.......................... 221,900 451,400 53,900
----------- ----------- ------------
Increase (decrease) in cash and cash
equivalents........................... 3,633,600 (6,462,600) (10,440,000)
Cash and cash equivalents, beginning of
period................................ 6,836,700 13,299,300 23,739,300
----------- ----------- ------------
Cash and cash equivalents, end of
period................................ $10,470,300 $ 6,836,700 $ 13,299,300
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS:
The Company was founded in 1985 and is engaged in the business of
developing, manufacturing, marketing and distributing generic injectable
prescription drug products. The Company markets penicillin, cephalosporin and
other injectable products.
The Company, prior to 1993, operated under joint venture agreements with
E.R. Squibb & Sons, Inc. ("Squibb") and Geneva Pharmaceuticals, Inc.
("Geneva"). Both joint ventures required the Company to manufacture its
products and ship them to its joint venture partner, with the partner then
being responsible for marketing and distributing the Company's products. The
joint venture agreement with Squibb (as amended, the "Joint Agreement") was in
place from December 1985 to June 1990, and was replaced with a restructure and
release agreement (the "Restructure Agreement") which required each party to
manufacture for the other certain products through May 1993. The Restructure
Agreement was later extended to December 31, 1994.
The joint venture agreement with Geneva (the "Distribution Agreement") was
executed in June 1990 and was in place until July 1992, at which time the
Company filed a complaint against Geneva asserting certain breaches by Geneva
of its fiduciary duties to the Company and of its contractual obligations
under the Distribution Agreement. The financial statements for 1992 include
approximately $1,100,000 of costs related to the termination of the
Distribution Agreement. In July 1993 the Company and Geneva executed a
settlement agreement (the "Settlement Agreement") which resolved the
outstanding litigation between the two companies. Pursuant to the Settlement
Agreement, Geneva paid the sum of $550,000 to the Company to balance the
accounts between the parties and in full settlement of all claims and
counterclaims. In 1993, as a result of the settlement, the Company reduced
previously accrued liabilities by approximately $600,000.
In 1993 the Company began to develop its own sales and marketing force to
sell its products under the Marsam label and other private labels. The Company
markets these products to pharmaceutical wholesalers and distributors,
hospitals, home infusion companies and other medical providers. In 1994, more
than 75% of revenues were from direct sales of Marsam-label products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
The consolidated financial statements include to accounts of Marsam
Pharmaceuticals Inc. and subsidiary. All intercompany transactions are
eliminated in consolidation investments in corporate joint ventures in which
the Company has a 20 to 50 percent ownership are accounted for by the equity
method. Other investments, less than 20 percent owned, are carried at their
original cost. Equity and cost investments are included in other assets in the
consolidated financial statements.
Revenue Recognition:
Sales to Geneva in 1992 were at a price equal to the estimated production
cost per unit plus 10% for products manufactured by Marsam and the amount per
unit actually paid plus 5% for sourced injectable products ("Transfer Price").
At the time of shipment to Geneva, revenue was recognized at the Transfer
Price less one-half of the applicable 10% or 5% profit. The portion of the
profit which was deferred was recognized as revenue when Geneva shipped the
Products. Net Proceeds were earned when the products were sold by Geneva. Net
Proceeds were to generally represent Geneva's net sales of the Products less
the applicable Transfer Price and certain specific distribution and operating
costs.
Principal Customers:
Sales to Squibb were $8,090,100, $8,126,500, and $7,375,800 for each of the
years ended December 31, 1994, 1993 and 1992, respectively.
F-27
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Sales to Geneva were $578,700 and $7,297,400 for the years ended December
31, 1993 and 1992, respectively.
Sales of Marsam label products are sold predominately through pharmaceutical
wholesalers to third parties under contract with the Company; thus, no one
customer comprises a significant portion of sales.
Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, investments, and accounts receivable. The Company invests cash
and cash equivalents in savings and money market accounts of high credit
qualified financial institutions, as well as high credit commercial paper and
time deposits. Investments are placed in investment grade debt. Accounts
receivable are substantially comprised of amounts from sales to relatively few
large contract and wholesale customers. Credit limits, ongoing credit
evaluation and account monitoring procedures are utilized to minimize the risk
of loss. Collateral is generally not required.
Cash Equivalents:
Cash equivalents consist of those securities with maturities of three months
or less when purchased.
Investments:
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." There was no cumulative effect of adopting
SFAS 115 as of January 1, 1994, and prior period financial statements have not
been restated. At December 31, 1994 the Company owned current "available-for-
sale" marketable securities which are carried at fair market value on the
balance sheet. Unrealized gains or losses are recorded directly to
stockholders equity, net of applicable income taxes. At December 31, 1994,
there were no unrealized gains or losses related to these securities, as the
cost was equal to fair value on that date.
Prior to 1994, the Company recorded investments in marketable securities at
the lower of cost or fair market value. At December 31, 1993, the Company had
investments with a cost equal to their fair market value.
For the years ending December 31, 1994, 1993, and 1992, the Company realized
interest and dividend income of $732,100, $521,100 and $990,700, respectively,
which is included in other income.
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined by
the first in, first out method.
Property and Equipment:
Property and equipment is stated at cost. Depreciation of property and
equipment is computed using the straight-line method based on the estimated
useful lives of the assets, which range from five to forty years. Amortization
of leasehold improvements is recorded ratably over the remaining lease term or
useful life, if shorter.
Maintenance and repairs are charged to expense as incurred; major renewals
and improvements are capitalized. Gains or losses on the disposition of fixed
assets are reflected in income.
Income Taxes:
The Company records deferred taxes by using the asset and liability method.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets
F-28
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized. Federal tax credits are recognized as
deferred tax assets.
Net Income (Loss) per Share:
Net income (loss) per share was calculated based upon the weighted average
common and common equivalent shares outstanding. Common share equivalents
included in the calculation represent shares issuable upon assumed exercise of
stock options which would have a dilutive effect in years where there are
earnings. Equivalents had no material effect on the computation in 1994, 1993,
or 1992.
Statements of Cash Flows:
At December 31, 1994, 1993 and 1992, approximately $454,800, $85,900 and
$279,700, respectively of amounts payable relating to the acquisition of
property and equipment were excluded from the statement of cash flows. In 1994
and 1992, the Company paid income taxes of $5,200 and $5,800, respectively.
3. INVENTORY:
At December 31, 1994 and 1993, inventory consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1994 1993
----------- ----------
<S> <C> <C>
Raw materials (including components)................. $ 5,954,700 $6,294,900
Work-in-process...................................... 95,900 379,700
Finished goods....................................... 4,779,600 2,927,700
----------- ----------
$10,830,200 $9,602,300
=========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT:
At December 31, 1994 and 1993, property and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
----------- -----------
<S> <C> <C>
Land................................................ $ 548,000 $ 348,000
Building and improvements........................... 10,297,900 6,668,800
Machinery and equipment............................. 9,850,400 7,445,700
Furniture and fixtures.............................. 907,500 818,600
Vehicles............................................ 84,800 84,800
Machinery and equipment and leasehold improvements
under installation................................. 5,362,700 7,314,500
----------- -----------
27,051,300 22,680,400
Less accumulated depreciation and amortization...... 7,009,200 5,641,300
----------- -----------
$20,042,100 $17,039,100
=========== ===========
</TABLE>
F-29
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES:
The provision for (benefit from) income taxes for the years ended December
31, 1994, 1993, and 1992 includes to following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993 1992
--------- ------- --------
<S> <C> <C> <C>
Current provision:
Federal....................................... $ 423,100 $15,200 $ --
State......................................... -- -- --
Deferred provision (benefit):
Federal....................................... $(514,900) $13,900 $110,000
State......................................... (41,000) 10,900 --
--------- ------- --------
$(132,800) $40,000 $110,000
========= ======= ========
</TABLE>
In 1994 and 1993, current federal income tax expense was generated on
alternative minimum taxable income. The current federal income tax provisions
on earnings for 1994 and 1993 were offset by the utilization of federal net
operating loss carryforwards. Utilization of federal net operating loss
carryforwards in 1994, created by tax expense for employee stock options,
resulted in a $365,100 increase to additional paid-in capital. There was no
current federal income tax provision for 1992, due to the loss incurred by the
Company. A deferred federal income tax benefit arose in 1994 due to the
recognition of the Company's deferred tax assets. In the fourth quarter of
1994, a net $300,000 benefit was recognized due to a reduction in the deferred
tax asset valuation allowance. A deferred federal income tax provision arose
in 1993 and 1992 from temporary differences on which net operating loss
carryforwards could not be utilized. At December 31, 1994, the Company had
utilized the balance of its net operating loss carryforwards for federal tax
purposes. At December 31, 1994 the Company had utilized the balance of its
alternative minimum tax net operating loss carryforwards and had available
alternative minimum tax credit carryforwards of $198,600 which do not expire.
The current state income tax provisions for 1994 and 1993 were offset by
utilization of state net operating loss carryforwards. There was no current
state income tax provision for 1992 due to the loss incurred by the Company.
In 1994, a deferred state income tax benefit arose from the recognition of the
Company's deferred tax assets. In 1993, a deferred state income tax provision
arose from temporary differences on which net operating loss carryforwards
could not be utilized. At December 31, 1994, the Company had available state
net operating loss carryforwards of $1,877,600 to offset future state taxable
income. The state net operating loss carryforwards expire 1996 through 1999.
F-30
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the net deferred income tax asset (liability) at December
31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
---------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards
Federal.......................................... $ -- $ 1,523,900
State............................................ 169,000 391,100
Federal tax credits............................... 936,600 402,100
Accounts receivable, inventory and other
reserves......................................... 624,300 339,400
Deferred revenue.................................. 399,500 --
Other............................................. 462,900 322,100
---------- -----------
2,592,300 2,978,600
Valuation allowance............................... (867,400) (2,630,900)
---------- -----------
Deferred tax assets.............................. 1,724,900 347,700
---------- -----------
Deferred tax liabilities:
Depreciation...................................... 529,400 390,500
Other............................................. 430,400 113,100
---------- -----------
Deferred tax liabilities......................... 959,800 503,600
---------- -----------
Net deferred income tax asset (liability)........ $ 765,100 $ (155,900)
========== ===========
</TABLE>
6. SETTLEMENT AGREEMENT WITH GREAT LAKES CHEMICAL CORPORATION:
On July 18, 1994, the Company and Great Lakes Chemical Corporation ("GLCC")
executed a comprehensive settlement agreement which resolved the outstanding
litigation between them concerning the failure of GLCC to supply the Company
certain raw materials in accordance with the agreement between them. Under the
terms of the settlement, GLCC paid $2.35 million to the Company and agreed to
begin supplying the Company with an inhaled anesthetic raw material commencing
upon the availability of production quantities from its existing facility and
continuing for at least five years after completion of a new, larger
production facility. The payment received by the Company on July 19, 1994, is
being ratably recognized as income during the period of July 1, 1994 through
June 30, 1995, the period during which the Company expected to market the
product but will be unable to market because of GLCC'S failure to supply the
raw material. For the year ended December 31, 1994, the Company recognized
$1,175,000, of the $2.35 million received from GLCC, as other income. The
balance of $1,175,000 is included as deferred revenue at December 31, 1994.
If GLCC fails to deliver agreed quantities of product by specified dates, or
if the product does not receive FDA approval by July 15, 1995, the Company is
entitled to be reimbursed for lost profits associated with the inability of
the Company to market the product. Such payments can be received until January
15, 1998.
7. INVESTMENT IN BUSINESS:
On September 23, 1994, the Company purchased, for $1,500,000, a minority
equity interest in Sabratek Corporation ("Sabratek"), a medical device
manufacturer. The Company received one million shares of cumulative
convertible preferred stock of Sabratek in return for its investment. The
Company has committed to an additional investment of $500,000 provided that
Sabratek achieves certain goals. The Company has also received warrants to
purchase an additional 1.5 million shares of Sabratek. The Company accounts
for this investment under the cost method, as the Company has a less than 20%
interest in Sabratek.
F-31
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
Purchase Commitments:
At December 31, 1994 and 1993, commitments for capital expenditures
approximated $638,000 and $1,592,000, respectively, relating to the purchase
of equipment for the Company's manufacturing facilities.
In January 1994, the Company entered into an agreement to lease warehousing
space on an adjacent property for a 3 year term (67,800 square feet for the
first two years and 109,800 square feet for the final year), expiring February
28, 1997. Future minimum rental payments under the lease are $158,500,
$252,800 and $45,200 in 1995, 1996 and 1997, respectively. The Company has
agreed to purchase this property, which consists of a building of
approximately 109,800 square feet on approximately 8.8 acres of land, in March
1997. The purchase price is $5,319,000 and includes a $250,000 deposit which
was paid during 1994, and two installment payments of $3,000,000 in March 1997
and $2,069,000 in October 1997.
Total rent expense for the years ended December 31, 1994, 1993, and 1992
aggregated $166,700, $78,300 and $70,700.
Product Liability:
The Company has product liability insurance for $5 million per occurrence,
$5 million in the aggregate on a claims made basis. Management is not aware of
any occurrences which could give rise to a product liability claim.
9. CAPITAL TRANSACTIONS:
Stock Option Plan:
On December 6, 1986, the Company adopted a Stock Option Plan (the "1986
Stock Option Plan"), under which an aggregate of 675,000 shares of Common
Stock could have been issued pursuant to nonqualified and incentive stock
options granted to certain officers, employees, directors, consultants and
advisors. Options were granted at an exercise price not less than the fair
market value of the shares on the date of grant. Such options generally became
exercisable in equal installments over a four-year period. Options issued
prior to 1992 expire 5 years from the date of grant. Subsequent options expire
10 years from the date of grant.
On May 26, 1993, the Company adopted a new Stock Option Plan (the "1993
Stock Option Plan"), under which an aggregate of 750,000 shares of Common
Stock may be issued pursuant to nonqualified and incentive stock options
granted to certain officers, employees, directors, consultants and advisors.
All options granted May 26, 1993 and later are from the 1993 Stock Option
Plan. Options under the 1993 Stock Option Plan may be granted at an exercise
price not less than the fair market value of the shares on the date of grant.
Such options generally become exercisable in equal installments over a four-
year period. Options expire 10 years from the date of grant.
F-32
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of share transactions under the Company's Stock Option Plans
follows:
<TABLE>
<CAPTION>
1993 PLAN 1986 PLAN
--------- ---------
<S> <C> <C>
Balances at December 31,
1991 ($4.33-13.75 per
share).................. -- 129,975
Granted ($8.63-14.00 per
share).................. -- 356,250
Exercised ($4.33-10.00
per share)............. -- (10,275)
Canceled ($8.00-14.00
per share)............. -- (8,125)
------- -------
Balances at December 31,
1992 ($4.33-14.00 per
share).................. -- 467,825
Granted ($9.00-22.00 per
share)................. 301,800 102,800
Exercised ($4.33-14.00
per share)............. -- (57,075)
Canceled ($4.33-16.25
per share)............. (3,500) (22,775)
------- -------
Balances at December 31,
1993 ($8.00-22.00 per
share).................. 298,300 490,775
Granted ($11.00-20.25
per share)............. 142,000 --
Exercised ($8.00-14.00
per share)............. -- (23,826)
Canceled ($8.63-19.88
per share)............. (11,700) (4,500)
------- -------
Balances at December 31,
1994 ($8.00-22.00 per
share).................. 428,600 462,449
======= =======
</TABLE>
Total options exercisable under both plans at December 31, 1994 were
292,987. The total number of shares available for option under both plans were
321,400, 451,700 and 132,700 as of December 31, 1994, 1993 and 1992,
respectively.
F-33
<PAGE>
MARSAM PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net revenues......................................... $ 21,310,900 $ 15,619,000
Cost of goods sold................................... 15,589,100 11,337,900
------------ ------------
Gross profit....................................... 5,721,800 4,281,100
------------ ------------
Operating costs and expenses:
Selling, general and administrative................ 2,789,000 2,266,100
Research and development........................... 1,818,100 1,079,500
------------ ------------
Total operating expenses......................... 4,607,100 3,345,600
------------ ------------
Income from operations........................... 1,114,700 935,500
Other income, net.................................... 1,587,000 304,300
------------ ------------
Income before income taxes....................... 2,701,700 1,239,800
Provision for income taxes....................... 810,400 40,000
------------ ------------
Net income......................................... $ 1,891,300 $ 1,199,800
============ ============
Net income per common & common equivalent share...... $ 0.17 $ 0.11
============ ============
Fully diluted weighted average common & common
equivalent shares outstanding....................... 11,454,800 11,158,200
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
MARSAM PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1995
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 8,131,600
Investments available-for-sale, at fair market value........... 7,010,000
Accounts receivable, net of reserves of $1,867,400............. 5,958,800
Inventory...................................................... 14,871,300
Deferred income taxes.......................................... 473,800
Other current assets........................................... 2,054,000
-----------
Total current assets......................................... 38,499,500
Property and equipment, net of accumulated depreciation of
$7,857,600.................................................... 20,691,700
Deposits for property and equipment............................ 431,300
Deferred income taxes.......................................... 208,400
Other assets................................................... 1,482,700
-----------
Total assets................................................. $61,313,600
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 4,501,300
Accrued compensation........................................... 508,700
Accrued liabilities............................................ 1,811,900
Deferred revenue............................................... --
-----------
Total current liabilities.................................... 6,821,900
Long-term liabilities:
Deferred compensation.......................................... 966,600
Deferred income taxes.......................................... 49,400
-----------
Total liabilities............................................ 7,837,900
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
1,000,000 shares.............................................. --
Common stock, par value $.01 per share; authorized
30,000,000 shares; issued and outstanding 11,083,487.......... 110,800
Additional paid-in capital..................................... 52,166,800
Retained earnings.............................................. 1,198,100
-----------
Total stockholders' equity..................................... 53,475,700
-----------
Total liabilities and stockholders' equity................... $61,313,600
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
MARSAM PHARMACEUTICALS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operations:
Net income....................................... $ 1,891,300 $ 1,199,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 848,400 617,400
Deferred compensation expense.................... 152,800 108,000
Deferred tax provision........................... 132,300 16,000
Decrease in accounts receivable.................. 189,000 1,533,100
(Increase) in inventory.......................... (4,041,100) (738,500)
(Increase) (decrease) in other assets............ 95,200 (807,800)
Increase in accounts payable..................... 2,424,000 2,951,400
Increase in accrued expenses..................... 631,300 181,800
(Decrease) in deferred liabilities............... (1,175,000) --
------------ ------------
Net cash provided by operating activities...... 1,148,200 5,061,200
------------ ------------
Investment activities:
Purchase of investments available-for-sale....... (2,800,000) --
Sale of investments available-for-sale........... 500,000 1,325,400
Purchase of property and equipment............... (1,433,200) (351,500)
Deposits on property and equipment............... (181,300) (1,128,400)
------------ ------------
Net cash used in investment activities......... (3,914,500) (154,500)
------------ ------------
Financing activities:
Proceeds from issuance of common stock........... 427,600 213,200
------------ ------------
Net cash provided by financing activities...... 427,600 213,200
------------ ------------
Increase (decrease) in cash and cash equivalents... (2,338,700) 5,119,900
Cash and cash equivalents, beginning of period..... 10,470,300 6,836,700
------------ ------------
Cash and cash equivalents, end of period........... $ 8,131,600 $ 11,956,600
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
MARSAM PHARMACEUTICALS INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Marsam
Pharmaceuticals Inc. and Subsidiary have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the applicable regulations of the Securities and Exchange Commission.
Accordingly, the accompanying unaudited consolidated financial statements do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, reference is made to the financial statements and
footnotes thereto included herein.
The consolidated financial statements include the accounts of Marsam
Pharmaceuticals Inc. and Subsidiary. All intercompany transactions are
eliminated in consolidation. Investments in corporate joint ventures in which
the Company has a 20 to 50 percent ownership are accounted for by the equity
method. Other investments, less than 20 percent owned, are carried at their
original cost. Equity and cost investments are included in other assets in the
consolidated financial statements.
2. INVENTORY
At June 30, 1995, inventory consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, 1995
-------------
<S> <C>
Raw Materials (including components)......................... $ 7,623,200
Work-in-process.............................................. 366,800
Finished goods............................................... 6,881,300
-----------
$14,871,300
===========
</TABLE>
3. SETTLEMENT AGREEMENT WITH GREAT LAKES CHEMICAL CORPORATION
On July 18, 1994, the Company and Great Lakes Chemical Corporation (GLCC)
executed a comprehensive settlement agreement which resolved the outstanding
litigation between them concerning the failure of GLCC to supply the Company
certain raw materials. Under the terms of the settlement, GLCC paid $2.35
million to the Company and agreed to begin supplying the Company with the
inhaled anesthetic raw material commencing upon the availability of production
quantities from its existing facility and continuing for at least five years
after completion of a new, larger production facility. The payment, received
by the Company on July 19, 1994, was ratably recognized as income during the
period of July 1, 1994 through June 30, 1995, the period during which the
Company originally expected to launch the product. For the three and six-month
periods ended June 30, 1995, the Company recognized $587,500 and $1,175,000,
respectively, of the $2.35 million received from GLCC, as other income.
If GLCC fails to deliver agreed quantities of product by specified dates the
Company is entitled to be reimbursed for lost profits associated with the
inability of the Company to market the product. Such payments can be received
until January 15, 1998.
4. INCOME TAXES
The provision for income tax expenses is based on an estimated full year
effective income tax rate. The rate reflects the Company's utilization of
certain federal tax credits and its federal and state net operating loss
carryforwards during 1995. The provision for income tax for the same periods
in 1994 was insignificant due to the availability of federal and state net
operating loss carryforwards.
F-37
<PAGE>
MARSAM PHARMACEUTICALS INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
5. NET INCOME PER SHARE
Net income per share is based on fully diluted weighted average common and
common equivalent shares outstanding for the three and six-month periods ended
June 30, 1995 and 1994.
F-38
<PAGE>
ANNEX A
FORM OF TRANSFEREE LETTER OF REPRESENTATION
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
Attn: Chief Financial Officer
Ladies and Gentlemen:
This certificate is delivered to request a transfer of $ principal
amount of the Senior Floating Rate Notes Due 2004 (the "Notes") of Schein
Pharmaceutical, Inc. (the "Company").
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Name: _________________________________________________________
Address: ______________________________________________________
Taxpayer ID Number: ___________________________________________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1),(2),(3) or (7) under the Securities Act of 1933, as amended (the
"Securities Act")) purchasing for our own account or for the account of such
an institutional "accredited investor" at least $250,000 principal amount of
the Notes, and we are acquiring the Notes not with a view to, or for offer or
sale in connection with, any distribution in violation of the Securities Act.
We have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risk of our investment in the Notes
and we invest in or purchase securities similar to the Notes in the normal
course of our business. We and any accounts for which we are acting are each
able to bear the economic risk of our or its investment.
2. We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted
in the following sentence. We agree on our own behalf and on behalf of any
investor account for which we are purchasing Notes to offer, sell or otherwise
transfer such Notes prior to the date which is two years after the later of
the date of original issue and the last date on which the Company or any
affiliate of the Company was the owner of such Notes (or any predecessor
thereto) (the "Resale Restriction Termination Date") only (a) to the Company,
(b) pursuant to a registration statement which has been declared effective
under the Securities Act, (c) in a transaction complying with the requirements
of Rule 144A under the Securities Act, to a person we reasonably believe is a
qualified institutional buyer under Rule 144A (a "QIB") that purchases for its
own account or for the account of a QIB and to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) pursuant to offers and
sales that occur outside the United States within the meaning of Regulation S
under the Securities Act, (e) to an institutional "accredited investor"
(within the meaning of Rule 501(a)(1),(2),(3), or (7) under the Securities
Act) that is purchasing for its own account or for the account of such an
institutional "accredited investor", in each case in a minimum principal
amount of Notes of $250,000 or (f) pursuant to any other available exemption
from the registration requirements of the Securities Act, subject in each of
the foregoing cases to any requirement of law that the disposition of our
property or the property of such investor account or accounts be at all times
within our or their control and in compliance with any applicable state
securities laws. The foregoing restrictions on resale will not apply
subsequent to the Resale Restriction Termination Date. If any resale or other
transfer of the Notes is proposed to be made pursuant to clause (e) above
prior to the Resale Restriction Termination Date, the transferor shall deliver
a letter from the transferee substantially in the form of this letter to the
Company and the Trustee, which shall provide, among other things, that the
transferee is an institutional "accredited investor" (within the meaning of
Rule 501(a)(1),(2),(3) or (7) under the Securities Act) that is acquiring such
Notes for investment purposes and not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Company and the Trustee
reserve the right prior to any offer, sale or other transfer prior to the
Resale Termination Date of the Notes pursuant to clause (d),(e) or (f) above
to require the delivery of an opinion of counsel, certifications and/or other
information satisfactory to the Company and the Trustee.
A-1
<PAGE>
3. We agree on our own behalf and on behalf of any investor account for
which we are purchasing the Notes that (i) if it is an insurance company, the
funds to be used to purchase the Notes by it constitute (A) assets of an
insurance company general account maintained by it and the acquisition and
holding of each such Note by such account is exempt under United States
Department of Labor Prohibited Transaction Class Exemption ("PTCE") 95-60 or
(B) assets of an insurance company pooled separate account and the acquisition
and holding of each such Note by such account is exempt under PTCE 90-1, and
(ii) no part of the funds to be used to purchase the Notes to be purchased by
it constitute assets of any plan or employee benefit plan such that the use of
such assets constitutes a non-exempt prohibited transaction under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or the Internal
Revenue Code of 1986, as amended (the "Code"). The representation is based
upon the purchaser's determination that a statutory or administrative
exemption is applicable or that the Company and its Affiliates are not parties
in interest or disqualified persons with respect to the purchaser or holder
plan or employee benefit plan. As used in this paragraph, the terms "employee
benefit plan" and "party in interest" shall have the meanings assigned to such
terms in Section 3 of ERISA, the term "Affiliate" shall have the meaning
assigned to such term in Section 407(d)(7) of ERISA and the terms
"disqualified person" and "plan" shall have the meanings assigned to such
terms in Section 4975 of the Code.
TRANSFEREE: _________________________
By: _________________________________
Name:
Title:
A-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Offering Memorandum, and,
if given or made, such information or representations must not be relied upon
as having been authorized. This Offering Memorandum does not constitute an
offer to sell or the solicitation of an offer to buy any securities other than
the securities to which it relates or any offer to sell or the solicitation of
an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Offering Memorandum nor
any offer or sale made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Offering Memorandum Summary............................................... 1
Risk Factors.............................................................. 9
The Company............................................................... 18
Use of Proceeds........................................................... 18
Capitalization............................................................ 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 30
Management................................................................ 44
Certain Transactions...................................................... 52
Description of Certain Indebtedness....................................... 57
Description of Notes...................................................... 58
Exchange and Registration Rights Agreement................................ 84
Transfer Restrictions..................................................... 87
Certain Federal Income Tax Consequences................................... 90
Plan of Distribution...................................................... 92
Independent Public Accountants............................................ 94
Legal Matters............................................................. 94
Available Information..................................................... 94
Index to Consolidated Financial Statements................................ F-1
Form of Transferee Letter of Representation............................... A-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$100,000,000
[LOGO] SCHEIN PHARMACEUTICAL
SENIOR FLOATING RATE NOTES
DUE 2004
------------------
OFFERING MEMORANDUM
------------------
SOCIETE GENERALE
SecuritiesCorporation
December 19, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.8
LEASE
THIS LEASE, made as of the 30th day of March, 1992, by and between
HAROLD LEPLER, an individual having an office in care of Covington Management
Company (Attn: Harold Lepler) at Millbrooke Office Centre, Route 22 and
Milltown Road, Brewster, New York 10509. (hereinafter referred to as
"Landlord"), and SCHEIN PHARMACEUTICAL, INC., a corporation organized and
existing under the laws of the State of New York, having an office at 26 Harbor
Park Drive, Port Washington, New York 11050 (hereinafter referred to as
"Tenant").
W I T N E S S E T H
ARTICLE 1
DEMISED PREMISES
----------------
1.1 Landlord hereby leases to Tenant, and Tenant hereby takes from
Landlord, upon and subject to the terms, covenants and conditions hereinafter
set forth, that certain parcel of land (hereinafter referred to as the "Land")
described on Exhibit A attached hereto and outlined on the plot plan attached
hereto as Exhibit B, located in Mt. Ebo Corporate Park (hereinafter referred to
as the "Park") in the Town of Southeast, County of Putnam and State of New York,
together with the building (hereinafter referred to as the "Building") on the
Land, together with all other improvements, and all other easements,
improvements, tenements, appurtenances, hereditaments and rights and privileges
appurtenant thereto, and any and all machinery and equipment installed in said
Building (all such items together with the Land and Building are hereinafter
collectively referred to as the "Demised Premises").
SUBJECT, only, however, to the title and site plan conditions
described on Exhibit C attached hereto (the foregoing being hereinafter referred
to as the "Permitted Encumbrances"), provided the same do not prevent the use of
the Demised Premises for the purposes initially specified in Article 4 hereof.
TO HAVE AND TO HOLD the Demised Premises for the term and at the rents
and upon the covenants, conditions and agreements hereinafter provided.
Tenant hereby expressly covenants to keep, perform and observe all of
the covenants, conditions and agreements contained herein on its part to be
kept, performed and observed.
Landlord hereby expressly covenants to keep, perform and observe all
of the covenants, conditions and agreements contained herein on its part to be
kept, performed and observed.
<PAGE>
ARTICLE 2
TERM
----
2.1 The term (hereinafter referred to as the "Term") of this Lease
shall commence on the Commencement Date (as hereinafter defined) and shall be
for fifteen (15) years, plus the fractional month, if any, between the fifteenth
(15th) anniversary of the Commencement Date, if it falls on a day other than the
first day of a month, and the last day of the month in which the fifteenth
(15th) anniversary of the Commencement Date occurs; otherwise, if the
Commencement Date is the first day of the month, then the Term shall end on the
last day of the month immediately preceding the month in which the fifteenth
(15th) anniversary of the Commencement Date falls; unless the Term of this Lease
is sooner terminated or extended, as hereinafter provided. Tenant shall have
options to renew the Term in accordance with Article 33 hereof.
2.2 Landlord and Tenant have, contemporaneously herewith, entered
into a certain Agreement of even date herewith with respect to the construction
of the Demised Premises (the "Development Agreement").
2.3 Landlord hereby covenants and agrees, at Landlord's sole cost and
expense, to perform the work and all other obligations on the part of the
Developer to be performed under the Development Agreement in accordance with the
terms and conditions thereof ("Landlord's Work"). Landlord agrees to perform
Landlord's Work in a manner which shall cause the least possible interference to
Tenant in the performance of Tenant's Work (as defined in the Development
Agreement) and Tenant's use and enjoyment of the Demised Premises. Landlord
shall continuously keep Tenant fully informed of the progress of Landlord's
Work; and Tenant's representatives at all times shall have access to the Demised
Premises during Landlord's Work for purposes of inspection. In addition,
Landlord shall cooperate with Tenant so that Tenant is able to commence
preparing the Demised Premises for Tenant's use and occupancy.
Tenant is hereby permitted to enter the Demised Premises for the
purpose of doing Tenant's Work and making the same ready for Tenant's occupancy.
Provided that all "Conditions" on the part of Developer to be satisfied pursuant
to and as defined in the Development Agreement have been satisfied in full,
Tenant agrees promptly to commence Tenant's Work and to use due diligence and
continuity to complete Tenant's Work, subject to unavoidable delays caused by
events beyond the control of Tenant. Tenant and Landlord agree that:
(a) Tenant will employ contractors approved by Landlord, which
approval Landlord agrees not to unreasonably withhold;
2
<PAGE>
(b) Except to the extent that any of Tenant's Work shall constitute a
portion of the Demised Premises with respect to which Landlord shall have an
obligation to maintain or repair in accordance with another provision of this
Lease, Landlord shall not be responsible for any materials installed or
delivered, or any work performed, in connection with Tenant's Work;
(c) Landlord and Tenant will cooperate with each other to coordinate
the schedule of the performance of Tenant's Work and Landlord's Work so that the
installation or delivery of such materials or work performed shall not interfere
with the other's work or the other's workmen;
(d) Any materials so installed or work performed by Tenant shall be
made in conformity with all Laws and Ordinances (as hereinafter defined), shall
not violate any permit issued to Landlord (which Landlord has identified to
Tenant and Tenant's architect) and shall be made after Tenant obtains any
permits required for such materials and work;
(e) Tenant and Landlord shall cooperate with each other to coordinate
the employment of labor for the performance of any work required to be done by
Tenant or Landlord, which is compatible with the labor employed by the other so
as to avoid any labor dispute or work stoppage and agrees to cease work promptly
upon notice from the other if any is threatened; and
(f) Tenant shall, during such period, perform and comply with all the
terms, covenants and conditions of this Lease to be performed by Tenant other
than the payment of any charges for rent or additional rent required to be paid
by Tenant hereunder.
2.4 For the purposes of this Lease, the Commencement Date shall mean
the date on which the last of all the following shall have occurred or have been
performed:
(i) Landlord shall have Substantially Completed Landlord's
Work and Tenant shall have been provided with at least ninety (90) days from the
date on which Landlord has Substantially Completed Landlord's Work to perform
Tenant's Work. As used in this Lease, "Substantially Completed" or "Substantial
Completion" shall mean completed or completion except for details of
construction, decoration and mechanical, electrical or other adjustments, which
do not materially interfere with Tenant's use of the Demised Premises;
(ii) All utilities have been connected in the Building and are
in good working order;
(iii) A temporary or permanent certificate of occupancy shall
have been obtained by Landlord from the
3
<PAGE>
appropriate local authority indicating that the Demised Premises may be lawfully
occupied for the purposes set forth herein;
(iv) Landlord shall have delivered to Tenant the "Commencement
Date Certificate and Agreement" in the form annexed hereto as Exhibit D;
(v) Landlord shall have obtained from any mortgagee of the
Demised Premises, a Non-Disturbance Agreement, as such term is defined herein;
and
(vi) All other Conditions under and as defined in the
Development Agreement on the part of the Developer thereunder to be satisfied
have been satisfied in full.
In the event that the Commencement Date occurs prior to Landlord's
having obtained a permanent certificate of occupancy, Landlord shall be
obligated to perform all work and supply all material necessary to obtain a
permanent certificate of occupancy prior to the expiration of the temporary
certificate of occupancy.
2.5 Within one hundred twenty (120) days after the Substantial
Completion of the Demised Premises, Tenant shall deliver to Landlord a statement
or statements setting forth the items of work to be performed by Landlord
hereunder, if any, which have not been completed or which are defective.
Landlord agrees to complete such items with reasonable diligence. Landlord shall
not be relieved of its responsibility with respect to Landlord's Work as a
result of Tenant's failure to identify defects in Landlord's Work, unless Tenant
has not notified Landlord of such defects within twelve (12) months from the
Commencement Date of this Lease. Defects which are not reasonably apparent from
Tenant's contemplated use of the Demised Premises shall not be subject to such
twelve (12) month limitation. Landlord agrees to assign to Tenant any warranty
and/or guaranty of work and/or materials from any contractor and/or materialmen
at the end of such twelve (12) month period and shall cooperate with Tenant in
enforcing all such warranties and/or guaranties. Landlord shall not be
obligated to repair or restore any damage to Demised Premises caused by Tenant,
or Tenant's employees or contractors.
2.6 Within thirty (30) days after the request of either party hereto
after the Commencement Date of this Lease shall have been determined, Landlord
and Tenant shall execute, acknowledge and deliver to each other duplicate
originals of an instrument in form and content reasonably satisfactory to them
setting forth such date. The failure of either party to promptly execute and
deliver such instrument shall in no way affect the commencement of the term
hereof.
4
<PAGE>
At the request of either party, Landlord and Tenant shall promptly
execute, acknowledge and deliver a memorandum with respect to this Lease
sufficient for recording, which Tenant may record at Tenant's cost and expense.
Such memorandum shall not in any circumstance be deemed to change or otherwise
affect any of the obligations or provisions of this Lease.
2.7 Anything set forth in this Lease to the contrary notwithstanding,
this Lease shall not be effective, nor shall Tenant have any obligations to
perform hereunder, unless and until all Conditions under and as defined in the
Development Agreement on the part of the Developer thereunder to be satisfied
have been satisfied in full. In the event that Tenant elects to terminate the
Development Agreement in accordance with the terms thereof, this Lease will
automatically terminate without the necessity of any additional action on the
part of either Landlord or Tenant hereunder.
ARTICLE 3
RENTAL
------
3.1 Tenant agrees to pay to Landlord a fixed minimum rent
(hereinafter referred to as the "Fixed Minimum Rent") at the rates set forth on
Exhibit E attached hereto. Monthly installments of Fixed Minimum Rent, shall be
paid in advance on the first day of each and every calendar month, and, together
with all other amounts payable by Tenant to Landlord hereunder, shall be paid at
the offices of Landlord set forth above, or at such other place or to such other
entity or entities as Landlord may from time to time designate by notice to
Tenant, without notice or demand therefor and without deduction, abatement or
set-off except as herein permitted.
3.2 All costs, charges and expenses which Tenant is obligated to pay
to Landlord pursuant to the provisions of this Lease shall be deemed additional
rent ("Additional Rent"), and in the event of nonpayment thereof, after Tenant's
receipt of notice of nonpayment and the expiration of ten (10) days without
payment (provided that, if Tenant disputes in good faith its obligation to make
all or any portion of such payment, such ten (10) day period shall be extended
with respect to the disputed portion of such payment during the period of such
dispute), Landlord shall have all the rights and remedies with respect thereto
as is provided for herein or by applicable law in case of non-payment of rent
(Fixed Minimum Rent and Additional Rent are sometimes hereinafter collectively
referred to as "Rental"). If the Commencement Date shall be a date other than
the first day of a calendar month, the Fixed Minimum Rent and other charges
shall be prorated for the portion of the calendar month in which the
Commencement Date occurs, and shall be paid by Tenant promptly after being
billed therefor.
5
<PAGE>
Tenant covenants to pay the Fixed Minimum Rent and Additional Rent as
in this Lease provided, when due, and in lawful money of the United States which
shall be legal tender for payment of all debts and dues, public and private, at
the time of payment. From and after the expiration of the applicable notice and
grace period provided in this Lease, all unpaid sums due and payable as Fixed
Minimum Rent and Additional Rent shall bear interest at the rate of two (2%)
percent per annum over the prime rate of interest announced, from time to time,
by The Chase Manhattan Bank, N.A., New York, New York, or any successor thereto,
to corporate borrowers of the highest credit standing for 90-day unsecured
commercial loans, but in no event more than the maximum permitted by law
(hereinafter referred to as the "Default Charge"), and such interest shall be
deemed to be Additional Rent; provided, however, that no further interest shall
be payable upon such interest.
3.3 If at any time or times during the Term, the Fixed Minimum Rent,
Additional Rent or other charges payable by Tenant hereunder shall not be fully
collectible by reason of any Laws and Ordinances (including, without limitation,
rent control or stabilization laws), then for the period prescribed by such Laws
and Ordinances, Tenant shall pay to Landlord the maximum amounts permitted
pursuant thereto. Upon the expiration of the applicable period of time during
which such amounts shall be uncollectible, Tenant shall pay to Landlord as
Additional Rent, within fifteen (15) days after demand, all such uncollected
amounts that would have been payable for the period absent such legal
restrictions; provided, however, that the retroactive collection thereof shall
then be lawful.
Tenant shall remain obligated under this Lease in accordance with its
terms and shall not take any action to terminate, rescind or avoid this Lease,
notwithstanding any bankruptcy, insolvency, reorganization, liquidation,
dissolution or other proceeding affecting Landlord or any assignee of Landlord
or any action with respect to this Lease which may be taken by any trustee,
receiver or liquidator or by any court.
ARTICLE 4
USE
---
4.1 Tenant initially shall use: (i) the Building for administrative,
executive and general business offices, warehousing of finished goods, raw
materials and packaging components, and distribution, in the conduct of its
pharmaceutical business (the "Initial Building Use") and (ii) the Land, other
than that occupied by the Building, for parking and landscaping as shown on the
final approved site plan; and thereafter the Demised Premises may be used for
any lawful purposes, which are not prohibited by the Permitted Encumbrances and
the other provisions of this Lease (a "Subsequent Building Use").
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4.2 Tenant shall not suffer or permit the Demised Premises or any
part thereof to be used in any manner, or anything to be brought into or kept
therein, which would in any way: (i) cause structural injury to the Building or
any part thereof; (ii) constitute a public or private nuisance; (iii) impair the
appearance, character or reputation of the Building and/or the Park; or (iv)
violate any of Tenant's other obligations under this Lease.
4.3 For purposes hereof the term "Insurance Companies and Boards"
shall mean the companies writing the insurance policies required pursuant to the
provisions of this Lease and the New York Board of Fire Underwriters, or any
other body having similar jurisdiction and any body establishing insurance
premium rates.
ARTICLE 5
COMPLIANCE WITH LAWS
--------------------
5.1 A. Landlord agrees that Landlord's Work in constructing the
Demised Premises shall comply with all Laws and Ordinances on the Commencement
Date and shall permit Tenant's initial use of the Demised Premises.
B. Landlord shall, at its sole cost and expense, comply with all
present and future laws, orders, ordinances and regulations, including, without
limitation, all environmental, health and safety laws and regulations, of all
state, federal, municipal and local governments, departments, commissions and
orders of any public officer pursuant to law, all orders, rules and regulations
of the Board of Fire Underwriters or a similar body ("Laws and Ordinances") and
all requirements of Insurance Companies and Boards applicable to the Building or
the Demised Premises (other than matters for which Tenant is responsible under
the provisions of this Section). Tenant shall, at its sole cost and expense,
comply with all Laws and Ordinances and all requirements of applicable Insurance
Companies and Boards to the extent that such compliance is necessitated by
reason of Tenant's Specific Use (as hereinafter defined) of the Demised
Premises. Anything in this Lease to the contrary notwithstanding, it is hereby
understood and agreed that compliance with Laws and Ordinances: (i) which are of
general applicability to office buildings, warehouses and distribution
facilities, and (ii) which do not arise as a result of Tenant's Specific Use,
shall not be the responsibility of Tenant. For purposes hereof, "Tenant's
Specific Use" shall mean (i) the specific nature of the Initial Building Use of
the Demised Premises by Tenant, (ii) the specific nature of a Subsequent
Building Use of the Demised Premises by Tenant and (iii) the conversion of the
Building from its then existing use to a Subsequent Building Use.
C. If any structural repair or alteration to the Demised
Premises or the Building shall be required under this
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Article 5 and Tenant shall not be obligated to make the same pursuant to the
provisions hereof, such repair or alteration shall be made by Landlord, at
Landlord's sole cost and expense and in such manner so as to not unreasonably
interfere with Tenant's business or reduce the amount of useable space available
to Tenant.
D. In the event that Landlord pays the cost of any capital
expenditure required to be paid by Landlord by reason of any Laws and Ordinances
or the requirements of applicable Insurance Companies and Boards which become
effective after the Commencement Date, then Tenant shall pay to Landlord on the
first day of each calendar month during the period commencing with the calendar
month following completion of such capital expenditure and ending on the earlier
the expiration (inclusive of any Extended Terms elected by Tenant pursuant to
Article 33 below) or earlier termination of this Lease and the date upon which
such capital expenditure has been fully reimbursed by Tenant to Landlord, an
amount equal to the cost of such capital expenditure divided by the number of
months of the useful economic life of such capital expenditure.
5.2 Landlord agrees to remedy, at Landlord's sole cost and expense,
all environmental problems, other than those caused by Tenant, and shall
indemnify, defend and hold Tenant harmless against all loss, liability, damages,
costs and expenses, including reasonable attorneys' fees, relating to any
Hazardous Materials, as hereinafter defined, found in the Demised Premises
during the term of this Lease that are not caused by Tenant. Tenant shall be
responsible to remedy, at its sole cost and expense, all environmental problems
caused by Tenant during the Term, and shall indemnify, defend and hold Landlord
harmless against all losses, liability, damages, costs and expenses, including
reasonable attorneys' fees, relating to any Hazardous Materials found in the
Demised Premises during the term of this Lease that are caused by Tenant.
Without limiting the generality of the provisions of Section 5.lB, Tenant agrees
not to use, generate, manufacture, produce, store, release, discharge or dispose
of (or permit any of the same) or permit to exist on the Demised Premises or
transport (or permit to be transported) to or from the Demised Premises any
hazardous substances, hazardous materials, toxic substances or solid waste as
defined in the Clear Air Act, the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), the Resource Conservation and
Recovery Act ("RCRA") and the Hazardous Materials Transportation Act ("HMTA"),
any substances or materials listed as hazardous or toxic in the United States
Department of Transportation Table, by the Environmental Protection Agency or
any successor agency or under any federal, state or local laws or regulations
(collectively, "Hazardous Materials"), except in the ordinary course of its
business and in compliance with all Laws and Ordinances, including, without
limitation, the Clean Air Act, CERCLA, RCRA and HMTA. Tenant
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will immediately remove or cause to be removed from the Demised Premises any
Hazardous Materials not used, stored, generated, manufactured, produced,
released or discharged in the ordinary course of its business. Landlord
expressly acknowledges that Tenant shall from time to time, in the ordinary
course of its business, cause certain Hazardous Materials to be stored or
otherwise be present in the Demised Premises and agrees that such storage or
presence of Hazardous Materials shall be permitted by the terms of this Lease
provided Tenant complies with all applicable Laws and Ordinances relating
thereto.
In the event any Laws and Ordinances, as applied to Tenant's Specific
Use, shall require Tenant to follow special procedures for such emissions or
discharges, whether into the atmosphere, the ground, the water systems and/or
the sewage system, including but not limited to, the pretreatment of sewage
and/or the installation of a monitoring well(s), Tenant shall be responsible for
full compliance therewith and all of the costs and expenses thereof. Landlord
hereby covenants to cooperate with Tenant, to the extent necessary to enable
Tenant to comply with such procedures. Tenant agrees to deliver to Landlord any
and all certifications, affidavits and other documents which may be required
pursuant to Laws and Ordinances during the Term and after the expiration of the
Term, indicating compliance by Tenant with the provisions thereof. Without
limiting the generality of the foregoing, Tenant shall not intentionally
discharge into the sewer systems any Hazardous Materials stored in containers
situated in the Demised Premises.
5.3 If Tenant receives written notice of any violation of any Laws
and Ordinances applicable to the Demised Premises, or any recommendations by any
Insurance Companies and Boards, Tenant shall give prompt notice thereof to
Landlord.
5.4 Tenant, after notice to Landlord, may contest by appropriate
legal proceedings, without cost or expense to Landlord, the validity of any Law
or Ordinance, and may defer compliance therewith; provided, however, that (a)
such noncompliance shall not constitute a crime on the part of Landlord;
(b) Tenant shall diligently prosecute such contest to a final determination by a
court, department or governmental authority or body having final jurisdiction;
(c) Tenant shall indemnify Landlord against any and all liability, loss and
damage which Landlord may sustain by reason of Tenant's failure or delay in
complying therewith; and (d) Tenant shall keep Landlord advised as to the status
of such proceeding. Landlord agrees to cooperate reasonably with Tenant, and to
execute any documents or pleadings reasonably required for the purpose of any
such contest; provided, however, that the same shall be without cost or expense
to Landlord. Provided that Tenant chooses not to initiate a contest pursuant to
this paragraph, Landlord shall have the right, but not the obligation, to
contest by appropriate
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legal proceedings, at Landlord's expense, any such Law or Ordinance.
5.5 Tenant shall, at its own cost and expense, keep in full force and
effect any and all necessary permits, licenses, certificates or other
authorizations required in connection with Tenant's lawful and proper use,
occupancy, operation and management of the Demised Premises, and Tenant shall
obtain any and all necessary permits, licenses, certificates or other
authorization required in connection with Tenant's Specific Use of the Demised
Premises, provided however that nothing in this Section 5.5 shall increase,
enlarge or otherwise affect Tenant's obligations under Section 5.1 above.
5.6 Subject to the provisions of Articles 8, 12 and 17 of this Lease,
no abatement, diminution or reduction of the Fixed Minimum Rent, or of any
Additional Rent or other charges required to be paid by Tenant pursuant to the
terms of this Lease, shall be claimed by, or allowed to, Tenant for any
inconvenience, interruption, cessation or loss of business or otherwise caused
directly or indirectly by any present or future Laws and Ordinances, or by
priorities, rationing or curtailment of labor or materials, or because of civil
commotion, strikes or riots, or any matter or thing resulting therefrom, nor
shall this Lease be affected by any such causes, except for any act, omission or
gross negligence of Landlord; provided, however, that Tenant shall in no event
have any right of offset against the Rental under this Lease, except as provided
in Section 17.2 hereof. Tenant however, may bring a separate action against
Landlord, subject to the limitations set forth in Article 27 hereof, and
provided further that nothing herein contained is intended to affect the
coverage of Landlord as additional insured under the policies of liability
insurance to be maintained by Tenant.
ARTICLE 6
MAINTENANCE AND REPAIRS
AND COVENANT AGAINST WASTE
--------------------------
6.1 Except with respect to replacements, repairs and restorations
which are the obligation of Landlord pursuant to an express provision of this
Lease, including without limitation Section 6.2 and Articles 5, 8 and 12 hereof,
Tenant shall, throughout the Term and at no expense whatsoever to Landlord, take
good care of the Demised Premises and shall not do or suffer any waste with
respect thereto, and Tenant shall promptly make all repairs and replacements to
the Demised Premises necessary to keep the Demised Premises (including the
heating, plumbing, electrical, ventilating and air-conditioning systems) in good
and lawful order and condition, ordinary wear and tear excepted. Tenant shall
keep and maintain all exterior areas of the Demised Premises in a clean and
orderly condition, reasonably free of accumulation of ice, snow, dirt and
rubbish. Tenant agrees to use chemicals for de-icing which are not harmful to
the Demised
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Premises. Tenant agrees not to place a load upon any floor of the Building
which exceeds the load per square foot which such floor was designed to carry
and which is allowed by law.
6.2 Anything to the contrary set forth in this Lease notwithstanding,
during the Term of this Lease and any renewals thereof, Landlord shall, upon
reasonable notice from Tenant, make all necessary structural repairs to the
Building (but excluding the exterior and interior of all windows, doors, plate
glass and signs) and all repairs to the roads and drives located on, or
providing access to, the Demised Premises which roads and drives are owned by
Landlord. In addition, (i) during the first five (5) years and the last two (2)
years of the Term, Landlord agrees to make all replacements and repairs to the
heating, plumbing, electrical, ventilating and air conditioning systems (other
than such routine repairs as are necessary, in the course of Tenant's
maintenance of such systems, to keep such systems in good order and condition)
and (ii) during the first five (5) years of the Term, Landlord agrees to make
all replacements and repairs to the parking areas located on the Demised
Premises. Tenant shall be responsible for the restriping of the parking lots
throughout the Term.
Landlord shall not be required to do any of the work or supply any of
the materials required pursuant to this Section 6.2 in the event any damage is
caused by gross negligence of Tenant or Person Within Tenant's Control (as
hereinafter defined).
6.3 Tenant shall promptly reimburse Landlord for expenditures made by
Landlord pursuant to Section 6.2 above during the last two (2) years of the
Initial Term or any Extended Term if (i) Landlord's obligation to make such
expenditures arises only during the last two (2) years of the Term and (ii)
Tenant thereafter exercises its option to extend the Term.
ARTICLE 7
INSURANCE
---------
7.1 (a) Tenant, at Tenant's cost and expense, will maintain
insurance on the Demised Premises as follows:
(i) Insurance on an all-risk form insuring against the perils
of fire and extended coverage and physical loss or damage, including, without
duplication of coverage, theft, vandalism, malicious mischief, collapse, false
work, temporary buildings and debris removal, in amounts sufficient to prevent
Mortgagee, Landlord or Tenant from becoming a co-insurer of any loss, but in any
event in amounts not less than the actual replacement value of the Demised
Premises, exclusive of foundations, footings and excavations. The policies to be
provided pursuant to this Section 7.l(a)(i) shall be subject to such deductibles
as Tenant may elect, provided that, in the event of a loss covered by any such
policy, Tenant shall be obligated
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to provide from its own funds a sum equal to the amount of such deductible
(which sum to be provided by Tenant shall, for purposes of Article 8 hereof, be
deemed "insurance proceeds").
The actual replacement value of the Demised Premises shall be
determined from time to time, but not more often than once in every two (2)
years, at Landlord's request, by an appraiser designated by an insurer of the
Demised Premises and if the insurance company does not so designate an
appraiser, then by an appraiser designated by Landlord, at Landlord's cost and
expense, except that no such appraisal shall be required for the first two (2)
years of the Term. Appraisals which are requested by the insurer shall be
conducted at the expense of the insurer or Tenant. Notwithstanding the
foregoing provisions of this Section 7.1(a)(i), no appraisals of the Demised
Premises shall be required by Landlord as long as coverage of at least $30
million is provided with respect to the Demised Premises (by Tenant's blanket or
excess coverage policies, or otherwise).
(ii) Rent insurance with the standard extended coverage
endorsements issued in connection with fire insurance policies covering property
similar to the Demised Premises in an amount equal to the aggregate of the Fixed
Minimum Rent, Impositions (as hereinafter defined) and all other charges payable
by Tenant pursuant to this Lease for a period of one (1) year, except that
Tenant may at its election provide such insurance by an appropriate endorsement
to its business interruption policy.
(iii) General comprehensive public liability insurance with
respect to the Demised Premises and its appurtenances in the combined aggregate
amount of not less than Five Million ($5,000,000.00) Dollars with respect to
death and/or injuries suffered in any one accident, including property damage.
Such limits shall be increased from time to time (but not more often than once
every five (5) years) as may be reasonably required by Landlord based upon the
limits which are customary for similar buildings in the general vicinity of the
Building.
(iv) Workers' compensation insurance to the extent required by
the law of the State in which the Demised Premises are located and to the extent
necessary to protect Landlord and the Demised Premises against Workers'
compensation claims.
(v) Such other insurance reasonably requested by Landlord, in
such amounts and against such risks, as is commonly obtained in the case of
property similar in use to the Demised Premises and located in the vicinity of
the Demised Premises are located, with due regard to the height and the type of
the Building, its construction, use and occupancy.
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The insurance described in this Section 7.1(a) shall be written by
companies of nationally recognized good financial standing legally qualified to
issue such insurance and shall name Tenant as insured party and Mortgagee and
Landlord as additional insureds, as their interests may appear.
(b) Every such policy (other than any comprehensive liability or
workers' compensation policy) shall bear a mortgagee endorsement in favor of
Mortgagee; and such policies shall provide that the loss, if any, shall be
adjusted and payable to Landlord to be held and applied by Landlord or Mortgagee
for reconstruction of the Demised Premises. Every policy referred to in this
section (other than the workers' compensation policy) shall not be canceled or
materially altered except after 30 days' written notice to Landlord and the
Mortgagee and the policies referred to in Section 7.1(a)(i) and (ii) shall not
be invalidated by any act or neglect of Landlord or Tenant, nor by occupancy of
the Demised Premises for purposes more hazardous than permitted by such policy,
nor by any foreclosure or other proceedings relating to the Demised Premises,
nor by change in title to the Demised Premises. Tenant will immediately deliver
to the Landlord copies of any notices of cancellation received with regard to
any insurance maintained pursuant to this Article.
(c) Tenant shall deliver to Landlord and Mortgagee original
certificates which set forth the major policy provisions and limits of liability
relating to the Demised Premises (together with such other reasonable
information as may be requested by Landlord or Mortgagee to correctly evidence
the insurance coverage of Tenant covering the Demised Premises) of insurers,
reasonably satisfactory to Mortgagee, evidencing the existence of all insurance
which is required to be maintained by Tenant hereunder, such delivery to be made
(i) promptly after the execution and delivery hereof, and (ii) within ten (10)
days prior to the expiration of any such insurance. Tenant shall have the right
to pay such premiums in installments. Tenant shall not obtain or carry separate
insurance concurrent in form or contributing in the event of loss with that
required by this Article. Any insurance required hereunder may be provided
under blanket policies or excess coverage (umbrella) policies, provided that the
policies otherwise comply with the provisions of this Lease and allocate to the
Demised Premises the specific coverage, without possibility of reduction or
coinsurance by reason of, or damage to, any other property named therein.
7.2 Each insurance policy insuring the Demised Premises and Tenant's
fixtures and contents against loss, shall be written in a manner so as to
provide that the insurance company waives all right of recovery by way of
subrogation against Landlord and Mortgagee in connection with any loss or damage
covered by any such policies, provided that such waiver is available at no
additional cost to Tenant. If an additional charge is imposed to obtain such
waiver, Landlord may elect to
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pay such charge. Landlord and Mortgagee shall not be liable to Tenant, to the
extent of the insurance proceeds actually collected and retained by Tenant, for
any loss or damage caused by fire or any of the risks enumerated in such
policies provided such waiver was in effect with respect to such policies at the
time of such loss or damage. If the release of either Landlord or Mortgagee
shall contravene the provisions of any insurance policy or any law with respect
to exculpatory agreements, the liability of the party in question shall be
deemed not released but no action or rights shall be sought or enforced against
such party unless and until all rights and remedies against such party's insurer
are exhausted and such party shall be unable to collect such insurance proceeds.
ARTICLE 8
FIRE AND OTHER CASUALTY
-----------------------
8.1 (a) Subject to the provisions of Section 8.1(b), Section 8.2,
Section 8.3 and Section 8.4 hereof, if the Building or the Demised Premises
shall be damaged by any casualty, Tenant shall notify Landlord of the same and
if an election to terminate this Lease shall not have been made pursuant to this
Article 8, Landlord shall repair said damage and restore and rebuild the
Building and/or Demised Premises (excluding Tenant Work and the personal
property of Tenant). In such event, the Fixed Minimum Rent payable hereunder
shall be reduced, until such time as the repair and restoration work is
Substantially Completed, Tenant has had an opportunity to Substantially Complete
restoration of Tenant's Work, and Tenant is not prevented by the condition of
the Demised Premises from occupying the Demised Premises for the normal conduct
of its business, in proportion to the extent that the Demised Premises are
rendered unusable for the normal conduct of the business then conducted on the
Demised Premises, and Landlord shall be entitled to receive the proceeds of rent
insurance maintained pursuant to Section 7.1(a)(ii) hereof. Such repair and
restoration work shall be diligently commenced and prosecuted by Landlord until
full completion thereof. It is acknowledged that a casualty affecting a portion
of the Warehouse (as hereinafter defined) may, as a consequence of Tenant's
Specific Use thereof, render the entire Warehouse unusable for the normal
conduct of the business conducted therein by Tenant. The terms of the rent
insurance maintained pursuant to Section 7.1(a)(ii) hereby shall acknowledge
the foregoing.
(b) If the insurance proceeds available to Landlord (or Landlord's
mortgagee) are not adequate to pay for the full cost of such repair and
restoration work, then (i) Landlord shall not be obligated to pay such
deficiency if within thirty (30) days of the date of such casualty, Landlord
sends written notice to Tenant (the "Insurance Deficiency Notice") advising
Tenant of the amount of such deficiency and that Landlord elects not to pay such
deficiency, and (ii) in the event that Landlord delivers the Insurance
Deficiency Notice to Tenant within such thirty (30) day
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period, Tenant shall have the right, at its option, to terminate this Lease by
sending written notice of such termination to Landlord within ninety (90) days
after Tenant's receipt of the Insurance Deficiency Notice, which termination
shall be effective as of any date designated by Tenant, which effective date
shall not be more than twelve (12) months from the date of such termination
notice, or if Tenant does not terminate this Lease as aforesaid, Tenant shall
pay such deficiency. Notwithstanding the preceding sentence, Tenant shall pay
any deficiency attributable to Tenant's failure to maintain in effect any
insurance required to be maintained by Tenant pursuant to this Lease, and, in
such event, Tenant shall not have the right to terminate this Lease (it being
understood that Tenant shall not be responsible for any deficiency that would
not have been paid pursuant to normal policy exclusions). Landlord shall apply
all insurance proceeds received with respect to any insurance required to be
maintained by Tenant hereunder (other than the insurance to be provided pursuant
to Section 7.1(a) (ii) above) for the purposes of fully repairing and replacing
the damage unless an election to terminate this Lease is made pursuant to this
Article 8.
8.2 If the Building and/or Demised Premises shall be damaged by
casualty, to the extent that the portion of the Demised Premises used by Tenant
as a warehouse and distribution facility (the "Warehouse") is rendered unusable
for the normal conduct of Tenant's business then conducted in the Warehouse, and
a reputable contractor selected by Landlord and reasonably approved by Tenant
estimates that the repair of the Warehouse (including Tenant's Work, but
excluding the personal property of Tenant) cannot be Substantially Completed
within seven (7) months after the date of such casualty, Tenant may terminate
this Lease by notice to Landlord given within sixty (60) days of the date of
such casualty. Upon such notice, this Lease shall terminate (and Tenant shall
not be responsible for paying any deficiency pursuant to Section 8.1(b));
provided, however, that the provisions of this Lease which are designated to
cover matters of termination and the period thereafter shall survive the
termination of this Lease. Landlord shall use reasonable efforts to cause such
contractor's estimate to be rendered and delivered to Tenant within thirty (30)
days after the casualty.
8.3 If the Building and/or the Demised Premises shall be damaged by
casualty, to the extent that the portion of the Demised Premises used by Tenant
for office purposes (the "Offices") is rendered unusable for the normal conduct
of Tenant's business then conducted in the Offices, and a reputable contractor
selected by Landlord and reasonably approved by Tenant estimates that the repair
of the Offices (including the leasehold improvements, but excluding the personal
property of Tenant) cannot be Substantially Completed within twelve (12) months
after the date of such casualty, Tenant may terminate this Lease by notice to
Landlord given within sixty (60) days of the date of such casualty. Upon such
notice this Lease shall terminate (and
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Tenant shall not be responsible for paying any deficiency pursuant to Section
8.1(b)), provided, however, that the provisions of this Lease which are
designated to cover matters of termination and the period thereafter shall
survive the termination of this Lease. Landlord shall use reasonable efforts to
cause such contractor's estimate to be rendered and delivered to Tenant within
thirty (30) days after the casualty. Notwithstanding the foregoing, Tenant shall
not have a right to terminate this Lease pursuant to this Section 8.3 in the
event that Landlord is able to provide to Tenant, within thirty (30) days of the
casualty and upon terms reasonably acceptable to Tenant, substitute office
facilities in the immediate vicinity of the Building, which are reasonable
acceptable to Tenant, and which will be available to Tenant during the period
that the repair and restoration work to the offices is being completed.
8.4 If a casualty occurs during the last two (2) years of the Term
and if any portion of the Demised Premises shall be so damaged by such casualty
that the cost of repair or replacement would exceed twenty-five percent (25%) of
the replacement cost of the Building as estimated by a reputable contractor
selected by Landlord and reasonably approved by Tenant, Tenant may terminate
this Lease by notice to Landlord given within sixty (60) days of the date of
such casualty and upon such notice, this Lease shall terminate; provided,
however, that the provisions of this Lease which are designated to cover matters
of termination and the period thereafter shall survive the termination of this
Lease. If Tenant does not choose to terminate this Lease in accordance with
this paragraph within such sixty (60) day period, Landlord may, at its option,
terminate this Lease by notice to Tenant given within ten (10) days of the
expiration of such sixty (60) day period. Landlord shall use reasonable efforts
to cause such contractor's estimate to be rendered and delivered to Tenant
within thirty (30) days after the casualty.
8.5 No damages, compensation, or claim shall be payable by Landlord
for inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the Demised Premises, the leasehold improvements,
or the Building. Landlord shall use reasonable efforts to have such repairs for
which it is responsible made promptly so as not to unnecessarily interfere with
Tenant's occupancy.
8.6 In the event of the termination of this Lease pursuant to the
provisions of Section 8.1(b), Section 8.2, Section 8.3 or Section 8.4, this
Lease, the Term and the estate hereby granted shall expire as of the date of
such termination in the same manner and with the same effect as if it were the
date set for the normal expiration of the Term, and Fixed Minimum Rent shall be
apportioned as of the date of termination.
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8.7 (a) If any of the insurance monies paid to Landlord shall remain
after the completion of the repair and restoration, the excess shall be paid to
Tenant, or if Tenant and Landlord funded any deficiency in the insurance
proceeds in order to complete the repair and restoration work, any excess shall
be shared by Landlord and Tenant proportionately to the amount of the deficiency
contributed by each party.
(b) Tenant understands that Landlord will not carry insurance of any
kind on Tenant's furniture or furnishings or on any fixtures or equipment
removable by Tenant under the provisions of this Lease, including Tenant's Work,
and that Landlord shall not be obligated to repair any damage thereto or replace
the same.
8.8 Landlord and Tenant each agrees that it will cooperate with the
other, to such extent as such other party may reasonably require, in connection
with the prosecution or defense of any action or proceeding arising out of, or
for the collection of, any insurance monies that may be due in the event of any
loss or damage, and that they each will execute and deliver to the other party
such instruments as may be reasonably required to facilitate the recovery of any
insurance monies.
8.9 Tenant agrees to give prompt notice to Landlord with respect to
all fires and other casualties occurring in, on, at or about the Demised
Premises.
ARTICLE 9
UTILITIES
---------
9.1 After the Substantial Completion of Landlord's Work, Tenant
agrees that Landlord is not, nor shall it be, required to furnish to Tenant or
any other occupant of the Demised Premises any gas, water, sewer, electric, heat
or any other utility, facility, equipment, labor, materials, services or trash
removal of any kind whatsoever (collectively referred to in this Article as
"Utilities and Services").
9.2 Tenant agrees to obtain all Utilities and Services and to pay all
charges therefor. Provided that Landlord performs all of its obligations under
Article 6 in a timely manner, Tenant expressly agrees that Landlord shall not be
responsible for the failure of supply to Tenant of any of such Utilities and
Services, or any other utility or services, whether similar or dissimilar to
those enumerated in this Article.
9.3 Tenant agrees to limit its consumption of water at the Demised
Premises to not more than l0~000 gallons per day.
9.4 Notwithstanding the foregoing provisions of this Article 9, as
long as water and sewer service is provided to the Demised Premises by an
affiliate of Landlord, unless the water
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and sewer rates are regulated by a state or municipal agency, Tenant's
obligation to pay for water and sewer service shall be limited to the amount
that is computed based upon the average rates approved by the state or municipal
agency then applicable to the provision of water to facilities comparable to the
Demised Premises in the vicinity thereof.
ARTICLE 10
MECHANIC'S LIENS
----------------
10.1 Tenant shall not suffer or permit any liens to be filed against
the Park, Demised Premises or any part thereof or against Tenant's leasehold
estate therein by reason of any work, labor, services or materials done for, or
supplied, or claimed to have been done for, or supplied to, Tenant or any one
holding the Demised Premises or any part thereof through or under Tenant. If
any such lien shall at any time be filed against the Park, the Demised Premises
or any part thereof or against Tenant's leasehold estate therein, Tenant shall
cause the same to be discharged of record within forty-five (45) days after the
date of notice thereof to Tenant, by either payment, deposit, bond or otherwise.
If Tenant shall fail to discharge any such lien within such period, then, in
addition to any other right or remedy of Landlord, Landlord may, but shall not
be obligated to, procure the discharge of the same either by paying the amount
claimed to be due by deposit in court or by bonding, and/or Landlord shall be
entitled, if Landlord so elects, to compel the prosecution of an action for the
foreclosure of such lien by the lienor and to pay the amount of the judgment, if
any, in favor of the lienor with interest, costs and allowances. Any amount
paid or deposited by Landlord for any of the aforesaid purposes, and all legal
and other expenses of Landlord, including reasonable attorneys' fees, in
defending any such action or in or about procuring the discharge of such lien,
with all necessary disbursements in connection therewith, together with the
Default Charge thereon, shall become due and payable forthwith by Tenant to
Landlord.
10.2 Nothing in this Lease shall be deemed to be, or construed in any
way as constituting, the consent or request of Landlord, expressed or implied,
by inference or otherwise, to any person, firm or corporation for the
performance of any labor or the furnishing of any materials for any
construction, rebuilding, alteration or repair of or to the Demised Premises or
any part thereof, nor as giving Tenant any right, power or authority to contract
for or permit the rendering of any services or the furnishing of any materials
which might in any way give rise to the right to file any lien against
Landlord's interest in the Demised Premises.
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ARTICLE 11
ALTERATIONS
-----------
11.1 For the purposes of this Article the term "Alterations" shall
include, without limitation, decorations, installations, changes, restorations,
replacements, additions, improvements and betterments. An alteration shall be
deemed to be structural if it involves or affects (a) the exterior (or the
exterior appearance) of the Building other than landscaping or the restriping of
the parking areas located on the Demised Premises or the other areas of the
Demised Premises outside the Building other than landscaping or the restriping
of the parking areas located on the Demised Premises, or the roof or foundations
of the Building, (b) the supporting members or structural elements of the
Building, or (c) any of the Building systems in a material and adverse manner.
After the completion of Tenant's Work, Tenant shall make no
Alterations in or to the Demised Premises, whether structural or non-structural,
without Landlord's prior written consent, except as follows:
(a) Tenant may make non-structural Alterations in each instance
costing less than Fifty Thousand ($50,000) Dollars and decorative Alterations
costing less than One Hundred Thousand ($100,000) Dollars without obtaining
Landlord's consent.
(b) Landlord agrees that it shall not unreasonably withhold or delay
its consent to any other Alterations to the Demised Premises requested to be
made by Tenant.
(c) No structural Alterations in or to the Demised Premises shall be
made by Tenant without obtaining Landlord's prior consent in each case, which
consent shall not be unreasonably withheld or delayed.
All Alterations: (i) shall be done at Tenant's sole expense; (ii) may
be made at all hours and days; (iii) shall in all events comply with all Laws
and Ordinances and all orders, rules and regulations of Insurance Boards; (iv)
shall be made in a good workmanlike manner using materials comparable in quality
to the quality of the existing materials in the Demised Premises; and (v) shall,
in the case of structural Alterations, non-structural Alterations costing in
excess of Fifty Thousand ($50,000) Dollars and decorative Alterations costing in
excess of One Hundred Thousand ($100,000) Dollars, be made only by contractors
or mechanics approved by Landlord (which approval Landlord agrees not to
unreasonably withhold or delay).
11.2 Prior to commencing any Alterations, Tenant shall furnish to
Landlord, and obtain Landlord's prior written consent (unless said consent is
not required pursuant to subparagraph (a) of Section 11.1) to:
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(i) Plans and specifications (to be prepared by and at the
expense of Tenant), in detail, of such proposed Alterations, and Landlord agrees
that provided Tenant otherwise complies with the provisions of this Article 11,
Landlord shall not unreasonably withhold or delay its consent to plans and
specifications in connection with Alterations, provided that Tenant shall not be
obligated to provide such plans and specifications for non-structural
Alterations costing less than Fifty Thousand ($50,000) Dollars, or decorative
Alterations costing less than One Hundred Thousand ($100,000) Dollars;
(ii) A certificate evidencing that Tenant (or Tenant's
contractors) has (have) procured and paid for workmen's compensation and
employer liability insurance covering all persons employed in connection with
the work who might assert claims for death or bodily injury against Landlord,
Tenant, the Land or the Building;
(iii) Such additional personal injury and property damage
insurance (over and above the insurance required to be carried by Tenant
pursuant to the provisions of Article 7) and builder's risk fire and other
casualty insurance as Landlord may reasonably require in connection with the
work to be done by Tenant; and
(iv) Such permits, authorizations or consents as may be
required by any applicable Law or Ordinance, all of which shall be obtained at
Tenant's expense; provided, however, that no plans, specifications or
applications shall be filed by Tenant with any governmental authority without
first obtaining Landlord's consent (which Landlord agrees not to unreasonably
withhold or delay to the extent provided elsewhere in this Article), except to
the extent authorized under subparagraph (a) of Section 11.1. Landlord agrees to
cooperate with Tenant's efforts to obtain such permits, authorizations and
consents. Without limiting the generality of the foregoing, Landlord shall
execute and deliver and/or join in the execution and delivery of any building or
alteration permit applicable requested by Tenant.
11.3 (Except for the property described in Section 11.5 which Tenant
may remove at the end of the Term) in no event shall any material or equipment
be incorporated in the Demised Premises in connection with any such Alteration
which is subject to any lien, encumbrance, chattel mortgage, security interest,
charge of any kind whatsoever, or is subject to any conditional sale or other
similar or dissimilar title retention agreement.
11.4 Upon the termination of this Lease, Tenant shall be required to
remove all Alterations with respect to which (i) Tenant was required to obtain
Landlord's consent pursuant to subparagraph (a) of Section 11.1 hereof, and (ii)
Landlord notified Tenant, at the time of Landlord's consent to the installation
of such Alteration, that Tenant would have to remove
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the same from the Demised Premises at the termination of this Lease.
11.5 Where furnished by or at the expense of Tenant (except where
same is a replacement of an item theretofore furnished and paid for by Landlord
or against which Tenant has received a credit), all movable property, furniture,
furnishings, trade fixtures and equipment (including such trade fixtures and
equipment which may be attached to the Building due to the nature of Tenant's
business) shall remain the property of Tenant, and may be removed by Tenant on
or before the expiration of the Term, and, in case of damage by reason of the
removal, Tenant shall restore the Demised Premises to good order and condition,
normal wear and tear excepted. If Tenant shall fail to remove such property,
Landlord may remove such property, and dispose of it or place it in storage. Any
of such property not removed by Tenant shall, at the election of Landlord, be
deemed to be abandoned by Tenant, and Landlord may return or dispose of such
property as Landlord shall elect, without any liability to Tenant.
11.6 Except as provided in Sections 11.4 and 11.5, all of Landlord's
Work and all of Tenant's Work shall become the property of Landlord and shall
remain upon, and be surrendered with, said Demised Premises, as a part thereof,
at the end of the Term. Except as provided in Sections 11.4 and 11.5, all
Alterations upon the Demised Premises, made by either party subsequent to
Landlord's Work and Tenant's Work, affixed to the realty shall become the
property of Landlord and shall remain upon, and be surrendered with, said
Demised Premises, as a part thereof, at the end of the Term. Except as provided
in Sections 11.4 and 11.5, in no event shall Tenant be required or permitted to
remove (a) the original installations made by Landlord as part of Landlord's
Work or Tenant as part of Tenant's Work, or (b) Alterations, made by Tenant. Any
Alteration which is not removed by Tenant from the Building at the end of the
Term shall be deemed abandoned by Tenant to Landlord, and Landlord may remove
the same from the Demised Premises.
ARTICLE 12
CONDEMNATION
------------
12.1 In the event that all of the Demised Premises are taken or
condemned for any public purpose, this Lease shall terminate as of the date of
such taking; provided, however, that those provisions of this Lease which are
designated to cover matters of termination and the period thereafter shall
survive the termination hereof.
12.2 In the event that any portion of the Warehouse or more than
twenty percent (20%) of the Offices shall be taken or condemned for any public
purposes, or in the event of any taking or condemnation which prevents Tenant
from having access to any portion of the Warehouse or at least eighty percent
(80%) of the
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Offices or which reduces the number of parking spaces available to Tenant below
ninety percent (90%) of the number of parking spaces available to Tenant
immediately prior to such taking or condemnation, then Tenant shall have the
option, exercisable within thirty (30) days after Tenant receives notice of such
taking or condemnation, to terminate this Lease effective as of the date
specified by Tenant in its notice of termination, which effective date shall not
be more than one (1) year after the date of Tenant's notice of termination;
provided, however, that those provisions of this Lease which are designated to
cover matters of termination and the period thereafter shall survive the
termination hereof; and provided further that Landlord may negate Tenant's
option to terminate this Lease pursuant to Section 12.2 by reason of any taking
of any portion of the Offices or any parking spaces if Landlord provides to
Tenant, in a location and condition satisfactory to Tenant, similar office space
of the same dimensions of those taken or condemned or an equal number of
substitute parking spaces in the immediate vicinity of the Building.
12.3 In the event that a portion, but less than all, of the Demised
Premises shall be taken or condemned for any public purpose or such taking or
condemnation shall result in a denial of access to a portion, but less than all,
of the Demised Premises, then this Lease shall terminate as of the date of such
taking as to the portion of the Demised Premises so taken or denied access, and,
unless Tenant exercises its option to terminate this Lease pursuant to Section
12.2 hereof, this Lease shall remain in full force and effect as to the
remainder of the Premises. In such event, the Fixed Minimum Rent will be
diminished by an amount representing the part thereof applicable to the portion
of the Demised Premise so taken, and Landlord shall restore the balance of the
Demised Premises to an architecturally complete unit with reasonable promptness.
12.4 In the event of the termination of this Lease pursuant to the
provisions of Sections 12.1 and 12.2, the Lease shall expire as of the date of
such termination in the same manner and with the same effect as if that were the
date set for the normal expiration of the Term, and Fixed Minimum Rent shall be
apportioned as of the date of termination. The provisions of this Section shall
apply in the same manner to any partial termination of this Lease pursuant to
the provisions of this Article 12.
12.5 Landlord may appear in any condemnation proceeding or action or
taking to negotiate, prosecute and adjust any claim for an award thereunder.
Landlord shall be entitled to receive the entire award in any condemnation
proceeding or action for taking, without deduction therefrom for any estate
vested in Tenant by this Lease; provided that nothing herein contained shall
prohibit Tenant from seeking severance damages, moving
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expenses or any other award so long as any such award does not reduce the award
payable to Landlord.
12.6 If the temporary use or occupancy of all or any part of the
Demised Premises shall be condemned or taken for any public or quasi-public use
during the Term, this Lease shall be and remain unaffected by such condemnation
or taking and Tenant shall continue to pay the full Fixed Minimum Rent payable
hereunder and Tenant shall be entitled to receive the entire amount of any award
made for such taking, whether paid as damages, rent or otherwise, provided,
however, that in the event that: (i) any such temporary taking involves any
portion of the Warehouse or more than twenty percent (20%) of the Offices or
prevents Tenant from having access to any portion of the Warehouse or at least
eighty percent (80%) of the Offices or reduces the number of parking spaces
available to Tenant below ninety percent (90%) of the number of parking spaces
available to Tenant immediately prior to such taking, and (ii) such taking is
for a period of more than six (6) months, Tenant may elect to terminate this
Lease by notifying Landlord of such election within thirty (30) days after
Tenant receives notice of such taking, in which event this Lease shall terminate
as of the date specified in Tenant's notice of termination, which effective date
shall not be later than one (1) year after the date of Tenant's notice of
termination; provided, however, that the provisions of this Lease which are
designated to cover matters of termination and the period thereafter shall
survive the termination hereof. For purposes hereof, Offices and/or parking
spaces shall be deemed available to Tenant if alternative Offices and/or
substitute parking spaces are provided to Tenant in accordance with the
requirements of Section 12.2.
ARTICLE 13
ACCESS TO DEMISED PREMISES
--------------------------
13.1 Tenant shall permit Landlord and the authorized representatives
of Landlord, upon notice of not less than fifteen (15) days (except in
emergency), to enter the Demised Premises at all reasonable times during usual
business hours for the purpose of making any repairs required to be made by
Landlord to fulfill Landlord's obligations under this Lease, or inspecting the
Demised Premises, and after the notice and the expiration of the grace period
provided for in this Lease, for the purpose of curing any defaults on the part
of Tenant in the making of any necessary repairs to the Demised Premises, or in
the performance of any work therein that may be necessary to comply with any
Laws and Ordinances, or that may be necessary to prevent waste or deterioration
in connection with the Demised Premises. No prior notice of such entry shall be
necessary in the case of emergency, but Landlord agrees to provide Tenant with
written notice of its entry as soon thereafter as practicable. Nothing in this
section 13.1 shall imply any duty upon the part of Landlord to cure any such
defaults or to do any such work. The performance thereof by
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Landlord shall not constitute a waiver of Tenant's default in failing to perform
the same. Landlord shall be liable for all damage to Tenant's property caused
by Landlord or Landlord's agents or employees in connection with the making of
repairs or the performance of any work in the Demised Premises or on account of
bringing materials, supplies and equipment into or through the Demised Premises
during the course thereof. Landlord must use its best efforts to minimize any
inconvenience or damage caused by Landlord in connection with the making of
repairs or performance of any work on the Demised Premises and to coordinate the
scheduling of such repairs, maintenance, or work with Tenant.
For a period commencing six (6) months prior to the end of the Term,
Landlord shall have reasonable access to the Demised Premises for the purposes
of exhibiting the same to prospective tenants and for posting any "To Let" or
"To Lease" signs upon the Demised Premises. The size and location of such signs
shall be subject to Tenant's approval, which approval may not be unreasonably
withheld.
ARTICLE 14
ASSIGNMENT, SUBLETTING, MORTGAGING
----------------------------------
14.1 Tenant covenants and agrees that neither this Lease nor the Term
and estate hereby granted, nor any part hereof or thereof, will be assigned,
mortgaged, pledged, encumbered or otherwise transferred, by Tenant or by
operation of law or otherwise, and that neither the Demised Premises, nor any
part thereof, will be sublet or occupied, by anyone other than Tenant, or for
any purpose other than as set forth in this Lease, without the prior written
consent of Landlord in every case, except as expressly provided in subparagraph
(c) hereinbelow.
Notwithstanding the foregoing provisions of this Section 14.1:
(a) Prior to the agreement by Tenant to any assignment or subletting,
Tenant shall submit to Landlord in writing: (1) the name of the proposed
assignee or subtenant; (2) a copy of the proposed written agreement including
all of the terms and conditions of the proposed assignment or subletting,
stating that such agreement shall not become effective unless Landlord hereunder
shall consent thereto in writing and which shall contain a provision complying
with Section 14.4; (3) the nature and character of the business of the proposed
assignee or subtenant and any other information reasonably requested by
Landlord; (4) a financial statement of the proposed assignee or subtenant,
certified to by a certified public accountant as of a date not more than twelve
(12) months prior thereto or if not available, such other financial information
as may be reasonably acceptable to Landlord; and (5) an agreement by Tenant to
indemnify, defend and hold Landlord harmless against any claim or liability for
real estate brokerage commission payable with
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respect to any sublease or assignment by Tenant in accordance with this Article.
Provided Tenant is not in default hereunder (after notice from
Landlord if any be required hereunder and the expiration of any applicable grace
period)1 Landlord's consent to any such proposed assignment or subletting shall
not be "unreasonably" withheld or delayed, in accordance with paragraph (b).
This paragraph (a) shall apply to each and every proposed assignment and
sublease during the Term hereof, and if Tenant fails to consummate any proposed
assignment or sublease to which Landlord shall have consented within one hundred
eighty (180) days after granting such consent, this paragraph (a) shall again
apply to said proposed assignment or sublease.
(b) In determining reasonableness, Landlord may take into
consideration all relevant factors surrounding the proposed sublease or
assignment, including, without limitation, the following:
(i) the financial stability and business reputation of the
proposed assignee or subtenant;
(ii) the nature of the business and the proposed use of the
Demised Premises by the proposed assignee or subtenant in relation to the
majority of other tenants in the Park;
(iii) the proposed assignee or subtenant shall not be a
tenant of other space in the Park, and shall not be entitled directly or
indirectly to diplomatic or sovereign immunity; and
(iv) not more than two (2) unrelated entities shall occupy
the Demised Premises at any time.
(c) Notwithstanding any contrary provision of this Lease, provided
Tenant shall not be in default hereunder (which continues after notice and the
expiration of any applicable grace period), this Lease may be assigned at any
time without the consent of Landlord, to any corporation into which or with
which Tenant may be merged or consolidated, or to any corporation which shall
purchase all or substantially all of the assets of Tenant, or assigned or sublet
in whole or in part to any subsidiary or affiliate of Tenant, provided each of
the following conditions shall be complied with:
(i) If such assignment shall be to a successor by merger or
consolidation, or by acquisition of assets, such successor shall have acquired
all or substantially all of the assets of the assignor;
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(ii) If such assignment or sublease shall be to a subsidiary
or affiliate, such subsidiary or affiliate shall have assumed all of the
liabilities hereunder of the assignor, and the assignor shall have expressly
agreed to continue to remain jointly and severally liable as Tenant hereunder;
(iii) The assumptions and agreement referred to in
subparagraphs (i) and (ii) above, shall be set forth in written instruments
complying with the provisions of Section 14.4 of this Lease; and
(iv) The assignee or sublessee shall at all times use the
Demised Premises for a purpose permitted by Article 4 hereof; and
(v) Subdivision (iv) of paragraph (b) above shall apply.
For the purposes of this paragraph, a corporation shall be deemed to
be a subsidiary of Tenant if fifty (50%) percent or more of its voting stock
shall be owned by Tenant, and a corporation or other person or entity shall be
deemed to be an affiliate of Tenant if it directly or indirectly controls, is
controlled by or is under common control with Tenant.
(d) Notwithstanding the provisions of subparagraphs (b) and (c)
above, Tenant shall obtain, at Tenant's cost and expense, all necessary
governmental consents and approvals for the occupancy of the Demised Premises,
or any portion thereof, by such permitted assignee or sublessee.
(e) In the event of the sale or other disposition of all or
substantially all of the assets of Tenant during the Term of this Lease, the
transferee of assets shall be deemed to have assumed all obligations, covenants
and responsibilities of Tenant under this Lease. Upon request of Landlord, the
transferee of assets shall deliver to Landlord an instrument in recordable form
evidencing the aforesaid assumption of this Lease.
14.2 If this Lease is assigned or if the Demised Premises is sublet
or occupied by anyone other than Tenant, and if Tenant is in default (after
notice from Landlord if any be required hereunder and the expiration of any
applicable grace period), Landlord may collect Fixed Minimum Rent, Additional
Rent and other charges from the assignee, sublessee or occupant, and apply the
net amount collected to the Fixed Minimum Rent, Additional Rent and other
charges herein provided, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of the covenant by Tenant under Section
14.1, nor shall the same be deemed the acceptance of the assignee, sublessee or
occupant as a tenant, or a release of Tenant from the further performance of the
covenants and agreements contained in this Lease on the part of Tenant to be
performed.
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14.3 The consent by Landlord to an assignment or subletting shall not
relieve Tenant, the assignee or subtenant from obtaining the express consent in
writing of Landlord to any further assignment or subletting required pursuant to
this Article 14.
14.4 Each permitted assignee or transferee of this Lease shall assume
and be deemed to have assumed this Lease and shall be and remain liable jointly
and severally with Tenant for the payment of the Fixed Minimum Rent, Additional
Rent and other charges, and for the due performance of and compliance with all
of the terms, covenants, conditions and agreements contained in this Lease on
Tenant's part to be performed or complied with for the Term. No assignment,
sublease or transfer shall be binding on Landlord unless such assignee,
subtenant or transferee of Tenant shall deliver to Landlord a duplicate original
of the instrument of assignment, sublease or transfer which (i) contains a
covenant of assumption by the assignee or transferee (other than a subtenant) of
all of the obligations aforesaid, (ii) contains a confirmation that Landlord
shall have all of the rights set forth in this Article as to any further
assignment or subletting superior to and preemptive of any rights of sublessor
thereunder, and (iii) in every case, other than pursuant to Section 14.1(c)
hereof Landlord shall have consented thereto in advance in writing as required
hereunder. In the event of Tenant's failure to comply with the provisions of
this Article, Landlord may elect to treat such purported assignee, subtenant or
transferee as having assumed this Lease jointly and severally with Tenant,
without in any way or to any extent binding Landlord to consent to such
purported assignment, sublease or transfer.
14.5 If Landlord shall for any reason or cause recover or come into
possession of said Demised Premises before the date hereinbefore fixed for the
expiration of the Term, Landlord shall have the right at its option to take over
any and all subleases or subletting of the Demised Premises or any part or parts
thereof made or granted by Tenant and to succeed to the rights and privileges of
Tenant with respect to said subleases and subletting or such of them as it may
elect to take over and assume, and Tenant hereby expressly assigns and transfers
to Landlord such of the subleases and subletting as Landlord may elect to take
over and assume at the time of such recovery of possession, and Tenant shall
upon request of Landlord execute, acknowledge and deliver to Landlord such
further assignments and transfers as may be necessary, sufficient and proper to
vest in Landlord the then existing subleases and subletting. By its acceptance
of and entry- into a sublease, subtenant thereunder shall be deemed to have
thereby agreed that, at Landlord's election, such subtenant shall be bound to
Landlord for the balance of the term of such sublease and shall attorn to
Landlord, as its landlord, under all of the terms, covenants and conditions of
such Sublease.
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ARTICLE 15
SIGNS. ETC.
----------
15.1 Tenant shall not erect any signs on the Demised Premises without
Landlord's prior written consent, which consent Landlord agrees not to
unreasonably withhold. All such signs must conform to all Laws and Ordinances.
ARTICLE 16
IMPOSITIONS
-----------
16.1 Tenant agrees to pay to the appropriate taxing authority, all
Impositions (as hereinafter defined) and to provide Landlord with proof of the
payment thereof upon Landlord's request. Such Impositions shall be paid prior
to delinquency. If, at Tenant's option, Tenant pays the Impositions to Landlord
rather than to the appropriate taxing authority, Landlord agrees to pay or cause
to be paid all such monies to the appropriate authorities prior to delinquency.
16.2 As used herein the term "Impositions" shall mean: (a) all taxes,
assessments, levies, fees, water and sewer rents and charges, and all other
governmental charges, general and special, ordinary and extraordinary, and
whether or not the same shall have been within the express contemplation of the
parties hereto, together with any interest and penalties thereon, which are
imposed or levied upon or assessed against (i) all or any part of the Demised
Premises, (ii) the Fixed Minimum Rent, Additional Rent or other charges payable
by Tenant hereunder, or (iii) this Lease or the leasehold estate created hereby;
(b) any gross receipts, gross income, rental income or similar taxes which fail
to take into account deductions with respect to the Demised Premises such as
depreciation, interest, taxes or ordinary and necessary business expenses,
imposed or levied upon, assessed against or measured solely by the Fixed Minimum
Rent, Additional Rent or other charges to be paid by Tenant hereunder and
without regard to other income of Landlord; (c) all sales and use taxes which
may be levied or assessed against or be payable by Landlord or Tenant on account
of the leasing or use of all or any part of the Demised Premises; and (d) all
other taxes and charges in the same or similar categories. Tenant shall not be
required to pay any franchise, corporate, capital levy, estate, inheritance,
succession, transfer, federal, state, municipal or other income, profit or
revenue or similar taxes assessed or imposed against Landlord, the Demised
Premises, this Lease or any Fixed Minimum Rent or Additional Rent or other
charges due hereunder (other than any gross receipts, gross income or similar
taxes which fail to take into account deductions with respect to the Demised
Premises such as depreciation, interest, taxes or ordinary and necessary
business expenses, imposed or levied upon, assessed against or measured solely
by the Fixed Minimum Rent, Additional Rent or other charges to be paid by Tenant
hereunder, and without regard to other income of Landlord).
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16.3 To the extent that the same may be permitted by law, Tenant
shall have the right to apply for the conversion of any assessment for local
improvements assessed during the term of this Lease to be payable in annual
installments over the maximum time permitted by the municipal authority imposing
the same and upon such conversion Tenant shall be responsible for the payment of
only such installments thereof as shall be allocable to the term of this Lease.
Impositions, whether or not a lien upon the Demised Premises, shall be
apportioned between Landlord and Tenant at the beginning and end of the term of
this Lease; it being intended that Tenant shall pay only that portion of the
Impositions as is allocable to the term of this Lease; provided, however, that
Landlord need not make any apportionment in Tenant's favor if the term of this
Lease shall be terminated by reason of a default on the part of Tenant hereunder
unless and until such default is cured.
16.4 Tenant, at its own expense, may contest any Impositions,
including a proceeding to reduce the assessed value of the Demised Premises
through tax certiori proceedings, in any manner permitted by law, in Tenant's
name, and whenever necessary in Landlord's name. Landlord agrees that if
requested by Tenant, Landlord will remit Tenant's payments for Impositions to
the appropriate authority under protest. Landlord will cooperate with Tenant
and execute any documents or pleadings reasonably required for such purpose;
provided, however, that the same shall be without cost, liability or expense to
Landlord. Such contest may include appeals from any judgment, decree or order
until a final determination is made by a court or governmental department or
authority having final jurisdiction in the matter. However, notwithstanding
such contest, Tenant shall promptly pay the contested Impositions in the manner
provided for in this Article, if at any time the Demised Premises or any part
thereof shall, as a result of the deferment of such payment, be subject to
forfeiture or if Landlord shall be subject to any criminal liability by reason
of the non-payment thereof. Any tax refund with respect to any Imposition paid
by Tenant shall, to the extent thereof, be the property of Tenant. Landlord, at
its expense, may contest any Imposition only in the event that Tenant is not
actively contesting any such Imposition, provided that Landlord provides Tenant
with written notice of its intention to contest such Imposition prior to the
commencement thereof.
ARTICLE 17
RIGHT TO CURE DEFAULTS
----------------------
17.1 If Tenant shall fail to comply fully with any of its obligations
under this Lease (including without limitation, its obligations to make repairs,
maintain insurance, comply with all laws, ordinances and regulations and pay all
bills for utilities) after receipt of written notice of such failure from
Landlord and the expiration of any applicable grace periods, then Landlord shall
have the right, at its option, to cure such breach
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at Tenant's expense. Tenant agrees to reimburse Landlord for all costs and
expenses incurred as a result thereof together with the Default Charge which
Default Charge shall not begin to accrue until the date that Tenant receives a
written demand for such reimbursement from Landlord.
17.2 Without limiting any rights granted to Tenant under Article 20.3
hereof, and notwithstanding any contrary provision of this Lease, if Landlord
shall fail to fully comply with any of its obligations under this Lease
(including without limitation, its obligations to make repairs or restoration in
connection with a casualty) and such failure shall continue for thirty (30) days
after receipt of written notice of such default from Tenant, Tenant shall
thereafter, upon notice to Landlord, have the right to cure such default at
Landlord's expense; provided, however, that if the said default shall be of a
nature that the same cannot be completely cured or remedied within said thirty
(30) day period and if Landlord shall commence the curing of such default
promptly, then the time of Landlord within which to cure the same shall be
extended for such period as may be necessary to complete the same with all due
diligence. Landlord agrees to promptly reimburse Tenant for any costs and
expenses incurred as a result thereof, together with interest thereon at the
Default Charge. If Landlord does not reimburse Tenant within ten (10) business
days of its receipt of a written request thereof from Tenant, Tenant shall be
entitled to offset and deduct such expenses from the next Fixed Minimum Rent
payment due hereunder.
ARTICLE 18
BANKRUPTCY
---------
18.1 This Lease may be canceled by Landlord after the happening of
any one or more of the following events: (1) the commencement of a case in
bankruptcy or under the laws of any State naming Tenant as the debtor; or (2)
the making by Tenant of an assignment or any other arrangement for the benefit
of creditors under any State statute. Landlord, (a) at any time after receipt of
notice of the occurrence of any such event, or (b) if such event occurs without
the acquiescence of Tenant, at any time after the event continues for one
hundred twenty (120) days, may give Tenant a notice of intention to end the Term
of this Lease at the expiration of five (5) days from the date of service of
such notice of intention and, upon the expiration of said five (5) day period,
this Lease and the Term and estate hereby granted shall terminate with the same
effect as if that date were expressly set forth in this Lease, but Tenant shall
remain liable for damages as hereinafter provided. Neither Tenant nor any person
claiming through or under Tenant, or by reason of any statute or order of court,
shall thereafter be entitled to possession of the Demised Premises but shall
forthwith quit and surrender the Demised Premises.
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18.2 It is stipulated and agreed that in the event of the termination of
this Lease pursuant to Section 18.1, Landlord shall forthwith, notwithstanding
any other provisions of this Lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the excess of the rent
reserved hereunder for the unexpired portion of the Term demised over the then
fair and reasonable rental value of the Demised Premises for the same period. In
the computation of such damages the difference between any installment of rent
becoming due hereunder after the date of termination and the fair and reasonable
rental value of the Demised Premises for the period for which such installment
was payable shall be discounted to the date of termination at the annual rate of
interest payable with respect to the first mortgage encumbering the Demised
Premises. Nothing herein contained shall limit or prejudice the right of the
Landlord to prove for and obtain as liquidated damages (in lieu of other
damages) by reason of such termination, an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, such damages are to be proved, whether or not such amount
be greater, equal to or less than the amount of the difference referred to
above.
ARTICLE 19
DEFAULT
-------
19.1 If Tenant shall: (a) (i) default in the payment of the Fixed Minimum
Rent or any other item of Rental reserved herein payable on a regular monthly
basis for ten (10) days after Tenant's receipt of written notice of such
default, or (ii) in the payment of any other obligation involving the payment of
money within ten (10) business days after receipt of written notice from
Landlord; or (b) default in the observance of any of the other terms, covenants
and conditions of this Lease (except those expressly enumerated in this Section
19.1) and such default shall continue for more than thirty (30) business days
after written notice of such default, provided, however, that if the said
default shall be of a nature that the same cannot be completely cured or
remedied within said thirty (30) business day period and if Tenant shall
commence the curing of such default promptly, then the time of Tenant within
which to cure the same shall be extended for such period as may be necessary to
complete the same with all due diligence; or (c) if the Demised Premise shall be
occupied by someone other than Tenant in violation of the provisions of this
Lease and such occupancy shall continue for thirty (30) business days after
Tenant's receipt of written notice of such violation, or (d) if this Lease shall
be assigned or pass to or devolve upon one other than Tenant, except as herein
permitted; (e) if a receiver or trustee of Tenant and/or its property shall be
appointed in any proceedings other than bankruptcy proceedings and such
appointments, if made in proceedings instituted by or against Tenant, shall not
be vacated within one hundred twenty (120) business days after it has been
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made; or (f) Tenant shall vacate the Demised Premises or any substantial portion
of the Demised Premises for any consecutive period in excess of eighteen (18)
months, it being agreed that Tenant shall not be in default under this Lease if
Tenant vacates the Demised Premises or any substantial portion of the Demised
Premises for a consecutive period of less than eighteen (18) months provided
that Tenant fulfills all of its obligations under this Lease (including, but not
limited to, the obligations contained in Article 7 hereof) during such period,
and provided further that Tenant provides Landlord with reasonable assurances
that Tenant will continue to fulfill its obligations hereunder, then upon the
happening of any one or more of the defaults or events above mentioned in this
Article and the continuance thereof beyond the applicable cure period, this
Lease and the Term hereof shall upon the date specified in a notice, which date
shall be not less than five (5) business days after the date of sending of such
notice by Landlord to Tenant, wholly cease and expire, with the same force and
effect as though the date so specified were the date hereinabove first set forth
as the date of the expiration of the Term (but Tenant shall remain liable to
Landlord as hereinafter provided); and thereupon, or at any time thereafter,
Landlord may recover possession thereof in the manner prescribed by the statute
relating to summary proceedings, or similar statutes (but Tenant shall remain
liable to Landlord as hereinafter provided), it being understood that no demand
for reentry for condition broken and no notice to quit possession or other
notices prescribed by statute shall be necessary to enable Landlord to recover
such possession but that all right to any such demand and any such re-entry and
any notice to quit possession or other statutory notices or prerequisites are
hereby expressly waived by Tenant to the extent such waiver is permitted by law.
19.2 Notwithstanding any other provision in this Article, no termination,
re-entry, or dispossess by summary proceedings or otherwise, no termination by
operation of law or otherwise, and no reletting of the Demised Premises shall
relieve Tenant of its liabilities and obligations hereunder, all of which shall
survive such termination, re-entry, repossession or reletting.
19.3 In case of any such termination, re-entry, or dispossess by summary
proceedings or otherwise, the Fixed Minimum Rent, Additional Rent and all other
charges required to be paid by Tenant hereunder shall thereupon become due and
be paid up to the time of such termination, re-entry or dispossess, and Tenant
shall also pay to Landlord all reasonable expenses which Landlord may then or
thereafter incur for attorneys' fees, brokerage commissions, and all other costs
paid or incurred by Landlord for recovering and restoring the Demised Premises
to good order and condition and for preparing the same for re-letting. Landlord
may, at any time and from time to time, re-let the Demised Premises, in whole or
in part, either in its own name or as agent
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of Tenant, for a term or terms which at Landlord's option, may be for the
remainder of the Term of this Lease or for any longer or shorter period, and
(unless the statute or rule of law which governs or shall govern the proceeding
in which such damages are to be proved, limits or shall limit the amount of such
claim capable of being so proved and allowed, in which case Landlord shall be
entitled to prove as and for liquidated damages and have allowed an amount equal
to the maximum allowed by or under any such statute or rule of law) Tenant shall
be obligated to and shall pay to Landlord as damages, upon demand, and Landlord
shall be entitled to recover from Tenant damages (payable in monthly
installments, in advance, on the first day of each calendar month following such
termination, re-entry or dispossess, and continuing until the date originally
fixed herein for the expiration of the Term) in an amount or amounts equal to
the excess, if any, of the sum of the aggregate expenses paid by Landlord during
the month immediately preceding such calendar month for all such items as, by
the terms of this Lease, are required to be paid by Tenant, plus an amount equal
to the amount of the installment of Fixed Minimum Rent which would have been
payable by Tenant hereunder in respect of such calendar month, had this Lease
and the Term not been so terminated, or had Landlord not so re-entered, over the
rents, if any, collected by Landlord in respect of such calendar month pursuant
to such reletting (provided that if Landlord acted unreasonably in connection
with such reletting, given the market conditions then existing, Landlord shall
be deemed to have collected the fair market rental value of the Demised Premises
in respect of such calendar month), and any suit or action brought to collect
the amount of the deficiency for any month shall not prejudice in any way the
rights of Landlord to collect the deficiency for any subsequent month by a
similar proceeding. Provided that Landlord acts reasonably and in good faith,
(i) Landlord shall in no event be liable in any way whatever for failure to re-
let the Demised Premises and Landlord shall have no obligation or affirmative
duty to re-let or attempt to re-let the Demised Premises, nor to accept a new
tenant suggested by or supplied by Tenant and (ii) in the event that the Demised
Premises are re-let, Landlord shall not be liable for failure to collect the
rent thereof under such re-letting.
19.4 Landlord, at Landlord's option, may make such alterations, repairs,
replacements and/or decorations in the Demised Premises as Landlord, in
Landlord's sole reasonable judgment, considers advisable and necessary for the
purpose of reletting the Demised Premises; and the making of such alterations
and/or decorations shall not operate or be construed to release Tenant from
liability hereunder.
19.5 In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions of this Lease, Landlord shall have the right to seek an
injunction and the right to invoke any remedy allowed at law or in equity as if
reentry,
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summary proceedings and other remedies were not herein provided for. Mention in
this Lease of any particular remedy shall not preclude Landlord from any other
remedy, in law or in equity.
19.6 No receipt of Rental by Landlord from Tenant after the termination in
any way of this Lease or after giving any notice, shall reinstate, continue or
extend the Term, or affect any notice. No receipt of Rental after the
commencement of suit, or after final judgment for possession of the Demised
Premises, shall reinstate, continue or extend the Term or affect said suit or
said judgment.
ARTICLE 20
SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
---------------------------------------------
20.1 This Lease, at the option of Landlord or any Mortgagee or
Overlandlord, shall be or shall become subject and subordinate, to all
Overleases, and to all Mortgages, and all advances thereon, which may now or
hereafter affect this Lease or the Demised Premises, and to all renewals,
modifications, consolidations, participations, replacements and extensions of
such Overleases and/or Mortgages; provided, however, any such Mortgagee or
Overlandlord must execute and deliver to Tenant an agreement substantially in
the form of Exhibit F attached hereto (a "Non-Disturbance Agreement") containing
provisions to the effect that, as long as Tenant is not in default under the
terms, covenants and conditions of this Lease beyond any grace period provided
in this Lease for remedying the same, in any action or proceeding to terminate
the Overlease, or to foreclose the Mortgage, Tenant will not be made a party
defendant, that Tenant's possession of the Demised Premises will not be
disturbed, and that Tenant's leasehold estate and its rights and remedies
hereunder will not be affected, impaired or terminated by any such action or
proceeding or by any judgment or order rendered therein. The term "Mortgages" as
used herein shall be deemed to include trust indentures and deeds of trust.
In the event that Landlord, any Mortgagee or any Overlandlord elects to
subject and subordinate this Lease as mentioned in the preceding paragraph, then
Landlord or its Mortgagee or Overlandlord shall give Tenant notice to such
effect, and provided that such Mortgagee or Overlandlord shall have duly
executed and delivered to Tenant a Non-Disturbance Agreement, immediately
thereafter the aforesaid provisions shall be self-operative and no further
instrument of subordination shall be required. In the event Landlord or any
Overlandlord or any Mortgagee desires confirmation of such subordination, Tenant
shall execute promptly a confirmatory certificate in form reasonably acceptable
to Tenant upon Landlord's request.
20.2 Tenant agrees that neither the cancellation nor the termination of
any Overlease, nor any foreclosure of any Mortgage, nor any proceeding to
recover possession of the Demised
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Premises shall by operation of law or otherwise result in the cancellation or
termination of this Lease or the obligations of the Tenant hereunder. Tenant
covenants and agrees that upon delivery of a duly executed Non-Disturbance
Agreement, it shall attorn to any Mortgagee or Overlandlord or to the purchaser
of the Demised Premises in foreclosure or the sale of the Overlease, or any of
their respective successors or assigns or any other person claiming by or
through any such Mortgagee, or the Overlandlord, or by or through any
foreclosure proceeding of any such Mortgage, or any proceeding with respect to
such Overlease, who shall succeed to the rights of Landlord under this Lease;
and Tenant shall recognize such successor as Tenant's landlord under this Lease.
Upon such attornment this Lease shall continue in full force and effect as a
direct lease between Tenant and such successor landlord, upon and subject to all
of the terms, covenants and conditions of this Lease with the same force and
effect as if this Lease had originally been entered into by such successor
landlord and Tenant; except that such successor landlord and each succeeding
landlord shall not be: (a) liable for any act or omission of any prior landlord
(including Landlord); (b) subject to any offset, defense or counterclaim which
Tenant might have against any prior landlord (including Landlord); (c) bound by
any prepayments of more than one (1) month's Fixed Minimum Rent or additional
rent which Tenant may have paid to any prior landlord (including Landlord); or
(d) bound by any amendment or modification of this Lease made without its
consent. The provisions of this Article shall be self-operative, and no
instrument of attornment shall be required or needed. In confirmation of any
such attornment, Tenant shall promptly execute and deliver such instruments as
may be reasonably required.
20.3 In the event of any act or omission by Landlord which would give
Tenant the right to terminate this Lease or claim a partial or total eviction,
or, except pursuant to Section 17.2, make any claim against Landlord for the
payment of money, Tenant will not exercise such right until it has given written
notice of such act or omission to
(i) the Landlord; and
(ii) the Mortgagee and the Overlandlord as to whom Landlord has
instructed Tenant to give copies of all of Tenant's notices to Landlord,
and unless Landlord shall not have remedied such act or omission within thirty
(30) days from its receipt of such written notice, or, if such act or omission
cannot be remedied by the payment of money and is not capable of being remedied
within said thirty (30) day period, Landlord shall not have commenced the remedy
of such act or omission within said thirty day period or shall not diligently
pursue the completion of such remedy. Nothing herein contained shall be deemed
to create any rights in Tenant not
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specifically granted in this Lease or under any applicable provision of law.
ARTICLE 21
SURRENDER OF DEMISED PREMISES
-----------------------------
21.1 On the last day or sooner termination of the Term, Tenant shall quit
and surrender the Demised Premises broom clean, in good condition and repair
(reasonable wear and tear, casualty and condemnation excepted), as provided in
Sections 11.4, 11.5 and 11.6 of this Lease. If the Demised Premises be not
surrendered as and when aforesaid and such failure to surrender shall continue
for three (3) months thereafter, Tenant shall indemnify Landlord against loss or
liability directly resulting from the delay by Tenant in so surrendering the
Demised Premises, including, without limitation, any claims made by any
succeeding occupant or prospective occupant of the Demised Premises founded upon
such delay. Upon expiration of the then current term of this Lease, without
premature termination, for the number of days that Tenant remains in possession
of the Demised Premises, without the execution of a new lease, Tenant shall be
deemed to be occupying said Demised Premises at a Rental equal to 125% of the
amount of the Rental (Fixed Minimum Rent), and 100% of the additional charges
herein provided for each month or part thereof and otherwise be subject to all
the conditions, provisions, and obligations of this Lease insofar as the same
are applicable to a month-to-month tenancy.
Tenant's obligations under this Article 21 shall survive the expiration or
sooner termination of the Term.
ARTICLE 22
CERTIFICATES AND FINANCIAL STATEMENTS
-------------------------------------
22.1 Tenant shall, without charge, at any time and from time to time
hereafter but not more often than four (4) times each year, within twenty (20)
days after written request of Landlord, certify by a written instrument duly
executed and acknowledged to any mortgagee or purchaser, or proposed mortgagee
or proposed purchaser, or any other person, firm or corporation specified in
such request: (a) as to whether this Lease has been supplemented or amended and
if so the substance and manner of such supplement or amendment; (b) as to the
validity and force and effect of this Lease, in accordance with its tenor as
then constituted; (c) as to the existence of any default by Landlord hereunder
known to Tenant; (d) as to the existence of any offsets, counterclaims or
defenses thereto on the part of Tenant known to Tenant; (e) as to commencement
and expiration dates of the Term; and (f) as to any other matters as may
reasonably be so requested. Any such certificate may be relied upon by Landlord
and any other person, firm or corporation to whom the same may be exhibited or
delivered; and the contents of such certificate shall be binding on Tenant.
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22.2 Landlord shall, without charge, at any time and from tine to time
hereafter but not more often than four (4) times each year, within twenty (20)
days after written request of Tenant, certify by a written instrument duly
executed and acknowledged to any mortgagee, sublessee or assignee or proposed
mortgagee, proposed sublessee or proposed assignee, or any other person, firm or
corporation specified in such request: (a) as to whether this Lease has been
supplemented or amended and if so the substance and manner of such supplement or
amendment; (b) as to the validity and force and effect of this Lease, in
accordance with its tenor as then constituted; (c) as to the existence of any
default by Tenant hereunder known to Landlord; (d) as to the existence of any
counterclaims or defenses thereto on the part of Landlord known to Landlord; (e)
as to commencement and expiration dates of the Term; and (f) as to any other
matters as may reasonably be so requested. Any such certificate may be relied
upon by Tenant and any other person, firm or corporation to whom the same may be
exhibited or delivered; and the contents of such certificate shall be binding on
Landlord.
22.3 In addition to the provisions of Section 22.1 of this Lease, Tenant
agrees to furnish directly to Landlord's proposed lender upon Landlord's
request, within six (6) months from the end of each of Tenant's fiscal years,
Tenant's consolidated financial statements prepared by independent certified
public accountants. Landlord agrees to keep such financial information
confidential; and to deliver such statements only to the party proposing to give
such financing and/or proposing to purchase the Demised Premises or the Park and
only if such party agrees, in a manner reasonably acceptable to Tenant, to
preserve such confidentiality.
ARTICLE 23
WAIVER OF TRIAL BY JURY
-----------------------
23.1 It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connection with this Lease, the relationship of Landlord and Tenant, Tenant's
use or occupancy of the Demised Premises, and/or any claim of injury or damage.
ARTICLE 24
QUIET ENJOYMENT
---------------
24.1 Landlord covenants and agrees with Tenant that upon Tenant paying the
Rental and observing and performing all the terms, covenants and conditions on
Tenant's part to be observed and performed, Tenant may peaceably and quietly
enjoy the Demised Premises without hindrance or ejection by Landlord or
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any persons claiming under Landlord; subject, however, to the terms of this
Lease.
ARTICLE 25
BROKER
------
25.1 Tenant covenants, warrants and represents that Tenant has not dealt
with any broker in connection with this Lease, other than Landlord's broker,
Spectra Realty, and any other person or entity identified by Tenant in writing
to Landlord. Tenant agrees to hold Landlord harmless against any liability or
expense arising out of a misrepresentation by Tenant in the preceding sentence.
Landlord agrees to be responsible for any brokerage commissions which may be
payable to Spectra Realty, and hereby agrees to indemnify Tenant from any claims
of Spectra Realty or any other person or entity claiming a commission in
connection with this Lease, including all costs and expenses in connection
therewith.
ARTICLE 26
PARTIES BOUND
-------------
26.1 The obligations of this Lease shall bind and benefit the successors
and assigns of the parties with the same effect as if mentioned in each instance
where a party is named or referred to, except that no violation of the
provisions of Article 14 shall operate to vest any rights in any successor or
assignee of Tenant and that the provisions of this Article shall not be
construed as modifying the provisions of Article 14. All covenants and
agreements of this Lease shall run with the Land. The term "Landlord" as used in
this Lease means only the owner or the mortgagee in possession for the time
being of the Demised Premises so that in the event of any sale of said Demised
Premises or an assignment of this Lease Landlord shall be and hereby is entirely
freed and relieved of all obligations of Landlord hereunder and it shall be
deemed without further agreement between the parties and such purchaser(s) or
assignee(s) that the purchaser or assignee has assumed and agreed to observe and
perform all obligations of Landlord hereunder, subject to the exculpation
provisions of the immediately following paragraph.
Notwithstanding anything to the contrary provided in this Lease, it is
understood and agreed that, except in the case of fraud or intentional
misconduct by Landlord in connection with this Lease or the misapplication of
any funds, insurance proceeds or condemnation awards received by Landlord under
or in connection with this Lease, there shall be no personal liability on the
part of Landlord or any officer, director, shareholder or agent of Landlord (or
any successor corporate landlord or any partner of any limited or general
partnership which may become Landlord or any individual or other entity) to
Tenant with respect to any of the terms, covenants and conditions of this
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Lease except to the extent of the Demised Premises and the proceeds thereof, and
Tenant agrees that it shall look solely to the Demised Premises and the proceeds
thereof for the satisfaction of any claims, debts, demands or judgments of
Tenant in the event of breach or default by Landlord under the terms of this
Lease, except in the case of fraud or intentional misconduct by Landlord in
connection with this Lease or the misapplication of any funds, insurance
proceeds or condemnation awards received by Landlord under or in connection with
this Lease. No other property or assets of Landlord shall be subject to
judgment, levy, execution or other enforcement procedure for the satisfaction of
Tenant's remedies under or with respect to this Lease, the relationship of
Landlord and Tenant hereunder or Tenant's use or occupancy of the Demised
Premises. The foregoing shall not limit or restrict Tenant's right to obtain as
against Landlord affirmative or negative injunctive relief or any other relief
similar to such injunctive relief.
ARTICLE 27
NOTICES
-------
27.1 Any notice, consent or approval provided for herein must be in
writing and shall be deemed duly given by the sender thereof to the addressee
thereof only if mailed to such addressee by registered or certified mail,
postage prepaid, or by sending the same via Federal Express, Purolator Courier
or other overnight courier service which delivers only upon signed receipt of
the addressee, return receipt requested, to the addressee as set forth on page 1
of this Lease. If such writing is addressed to Tenant, it shall be to the
attention of General Counsel; and a copy shall be sent in a similar manner to:
Proskauer Rose Goetz & Mendelsohn, 1585 Broadway, New York, New York 10036,
Attention: Perry A. Cacace, Esq. If such writing is addressed to Landlord, it
shall be sent to the attention of Harold Lepler; and a copy shall be sent in a
similar manner to Theodore J. Malvin, Suite 2101, Eleven Pennsylvania Plaza, New
York, New York 10001. The time of the giving of any notice shall be the time of
receipt thereof by the addressee or any agent of the addressee, except that in
the event the addressee or such agent of the addressee shall refuse to receive
any notice given by registered mail or certified mail as above provided the time
of the giving of such notice shall be the time of such refusal. If the sender of
any notice to any addressee shall have previously been given notice by said
addressee of a change of address of said addressee, such changed address shall
thereafter as to such sender be deemed the address to which future notices shall
be sent.
ARTICLE 28
EASEMENTS
---------
28.1 Tenant hereby grants to Landlord an easement or easements for
Landlord or any designee of Landlord in, to, or through all areas of the Demised
Premises, except the Building,
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for the installation, repair, maintenance and replacement of pipes, cables,
conduits and wires at reasonable times and upon reasonable written notice to
Tenant to the extent that Landlord may now or hereafter deem to be necessary or
appropriate for the proper operation and maintenance of the Demised Premises or
any other portion of the Park or which may be required by Laws and Ordinances,
provided that Tenant shall have the right to approve the location of such pipes,
cables, conduits and wires and provided further that Landlord's installation,
repair, maintenance or replacement thereof does not substantially interfere with
any of the parking spaces located on the Demised Premises. Landlord agrees to
cause the least interference with Tenant's use of the Demised Premises. All such
work shall be done in such manner as to cause the least interference with
Tenant's use of the Demised Premises, and Landlord shall repair and replace all
areas of the Demised Premises damaged by such installation, repair, maintenance
and replacement to the same condition as existed immediately prior to the
commencement of such work.
ARTICLE 29
OFFICE PARK
-----------
29.1 Landlord and owners of other property intend to develop, or cause to
be developed, a first class corporate/industrial park; but nothing herein
contained shall be deemed a representation by Landlord (or a requirement that
Landlord) construct any portion of the Park or the size of the Park nor shall
Landlord be limited from time to time in changing the size thereof. Tenant
agrees to keep the Land clean of unsightly objects or debris. Tenant shall
maintain the landscaping on the Demised Premises as set forth in the final
approved subdivision plan and as initially installed by Landlord. All
landscaping areas shall be maintained in good order and condition, including
watering when necessary for continued growth and cutting; and no weeds or
underbrush nor unsightly growth of any kind shall be permitted. There shall be
no outside storage, except for adequately screened garbage dumpsters, provided
same are permitted by Laws and Ordinances.
ARTICLE 30
MISCELLANEOUS
-------------
30.1 One or more waivers of any covenant or condition by Landlord shall
not be construed as a waiver of a subsequent breach of the same or any other
covenant or condition, and the consent or approval by Landlord to or of any act
by Tenant requiring Landlord's consent or approval shall not be construed to
waive or render unnecessary Landlord's consent or approval to or of any
subsequent similar act by Tenant. Landlord's failure to prepare any of the bills
for Impositions or any other bills or statements shall not in any way cause
Landlord to forfeit or surrender its rights to collect any of such items of
additional
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rent that may have become due during the Term; which right shall survive the
termination of this Lease.
30.2 This Lease (together with the Development Agreement) contains the
entire agreement of the parties with respect to the subject hereof, and no oral
statement or prior written matter (other than the terms of the Development
Agreement) shall have any force of effect. No waiver of any provision of this
instrument shall be effective unless in writing, signed by the waiving party.
Tenant agrees that it is not relying on any representations or agreements other
than those contained in this Lease and the Development Agreement. This Lease
shall not be modified except by a writing subscribed by Landlord and Tenant, nor
canceled by Tenant except with the written consent of Landlord, unless otherwise
specifically provided herein.
30.3 If any provision of this Lease shall be invalid or unenforceable in
whole or in part, the remainder of this Lease shall not be affected thereby and
each and every provision of this Lease shall be enforceable to the fullest
extent permitted by Laws and Ordinances. This Lease shall be interpreted in
accordance with and be governed by the Laws and Ordinances of the State of New
York.
30.4 Tenant waives any and all rights of redemption conferred by statute
or otherwise, to the maximum extent permitted by Laws and Ordinances, upon the
expiration or sooner termination of the Term, or upon the entry of final
unappealable judgment for recovery of possession through any action or
proceeding.
30.5 Wherever herein the singular number is used, the same shall include
the plural, and the masculine gender shall include the feminine and neuter
genders. The paragraph headings used herein are for reference and convenience
only, and shall not enter into the interpretation of this Lease. The words
"reenter" and "reentry" as used herein are not restricted to their technical
legal meaning.
30.6 Nothing in this Lease shall cause Landlord in any way to be construed
as a partner, joint venturer, or an associate of Tenant in the operation of the
Demised Premises.
ARTICLE 31
NON-BINDING EFFECT
------------------
31.1 This Lease is transmitted for examination only and does not
constitute an offer to lease, and, subject to the provisions of Section 2.7
above, this Lease shall become effective only upon execution and unconditional
delivery thereof by both parties hereto.
41
<PAGE>
ARTICLE 32
REPRESENTATIONS AND COVENANTS
-----------------------------
32.1 The execution and delivery of this Lease by either of the parties
hereto shall be deemed to be a representation that this Lease has been duly
authorized and the party executing the same has the proper authority. Each party
shall supply the other reasonable evidence of such proper authorization.
32.2 Tenant agrees to cooperate with Landlord and, at Landlord's sole cost
and expense supply all necessary materials and testimony, including, but not
limited to, expert witnesses, which may be required in order to obtain the
necessary approvals (such as final site plan) for Tenant's Specific Uses of the
Demised Premises.
ARTICLE 33
OPTION TO RENEW
---------------
33.1 Tenant shall have an option to extend the Initial Term for a period
of five (5) years (hereinafter referred to as the "First Extended Term"), upon
the following terms and conditions: (a) said option shall be exercised by
written notice to Landlord given no later than twelve (12) months prior to the
expiration of the Initial Term; (b) there shall not be any uncured defaults (of
which notice has been given to Tenant and with respect to which the applicable
cure periods have expired) by Tenant hereunder at the time of the exercise of
said option or the commencement of the First Extended Term; (c) upon such First
Extended Term taking effect, this Lease shall continue for such additional
period of five (5) years
All of the terms, covenants and conditions of this Lease shall continue in
force and effect during the First Extended Term, except that the Fixed Minimum
Rent shall be at the rates set forth on Exhibit E attached hereto and made a
part hereof.
33.2 Provided Tenant shall have exercised the option for the First
Extended Term, Tenant shall have an additional option to extend the Term for a
period of five (5) years, (hereinafter referred to as the "Second Extended
Term") upon the following terms and conditions: (a) said option shall be
exercised by written notice to Landlord given no later than twelve (12) months
prior to the expiration of the First Extended Term; (b) there shall not be any
uncured defaults (of which notice has been given to Tenant and with respect to
which the applicable cure periods have expired) by Tenant hereunder at the time
of the exercise of said option or the commencement of the Second Extended Term;
and (c) upon such Second Extended Term taking effect, this Lease shall continue
for such additional period of five (5) years.
42
<PAGE>
All of the terms, covenants and conditions of this Lease shall continue in
force and effect during the Second Extended Term, except that the Fixed Minimum
Rent shall be at the rates set forth on Exhibit E attached hereto and made a
part hereof.
33.3 Provided Tenant shall have exercised the options for the First
Extended Term and the Second Extended Term, Tenant shall have an additional
option to extend the Term for a period of five (5) years (hereinafter referred
to as the "Third Extended Term") upon the following terms and conditions: (a)
said option shall be exercised by written notice to Landlord given no later than
twelve (12) months prior to the expiration of the Second Extended Term; (b)
there shall not be any uncured defaults (of which notice has been given to
Tenant and with respect to which the applicable cure periods have expired) by
Tenant hereunder at the time of the exercise of said option or the commencement
of the Third Extended Term; (c) upon such Third Extended Term taking effect,
this Lease shall continue for such additional period of five (5) years; and (d)
there shall be no further right to extend the Term.
All of the terms, covenants and conditions of this Lease shall continue in
force and effect during the First Extended Term, except that the Fixed Minimum
Rent shall be at the rates set forth on Exhibit E attached hereto and made a
part hereof.
33.4 In the event Tenant exercises one or more of the options granted
herein, the word "Term" shall include such option period(s); the period of time
referred to in Section 2.1 of this Lease is sometimes referred to as the
"Initial Term", and each or all, as the case may be, of the option periods are
sometimes referred to as the "Extended Term".
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first above written.
/s/ Harold Lepler
--------------------------------
HAROLD LEPLER(Landlord)
SCHEIN PHARMACEUTICAL, INC. (Tenant)
By: [SIGNATURE APPEARS HERE], VP - OPERATIONS
---------------------------------------------
43
<PAGE>
EXHIBITS
--------
Exhibit A - Description of Land
Exhibit B - Plot Plan
Exhibit C - Permitted Encumbrances
Exhibit D - Commencement Date Certificate
Exhibit E - Rent Schedule
Exhibit F - Non-Disturbance Agreement
44
<PAGE>
[MAP APPEARS HERE]
SURVEY OF PROPERTY
OF
SECTION ONE
MT. EBO CORPORATE CENTER
PREPARED PER
ROBERT ARNOW
SITUATED IN
TOWN OF SOUTHEAST, PUTNAM CO. NY
MARCH 17, 1992
<PAGE>
Exhibit A
Terry Bergendorff Collins
Professional Land Surveyor
Mt. Ebo Corporate Park
Putnam Lake Road
BREWSTER, NEW YORK 10509
(914) 279-4261 FAX (914) 279-6838
Mt. Ebo Corporate Center
Site 2A - 11.421 Acres
March 19, 1992
All that certain plot, piece or parcel of land situate, lying and
being in the Town of Southeast, County of Putnam and State of New York being a
portion of Site 2 as shown on a filed map entitled "Section One of Mt. Ebo
Corporate Center" filed in the Putnam County Clerk's Office September 13, 1982
as filed map no. 1888 and being more particularly described as follows:
Beginning at the northeasterly corner of the parcel herein described which point
is distant on a curve to the right having a radius of 50.00, a central angle of
103-57-33 and a length of 90.72, S 0-41-52 E 126.51, S 7-00-00 W 391.19 and on a
curve to the left having a radius of 600.00, a central angle of 13-36-03
and a length of 142.43 from the intersection of the southerly side of Putnam
Lake Road and the westerly side of Road "A" as shown on the aforementioned
filed map no. 1888; thence from said point of beginning through lands of Site 2
as shown on said filed map no. 1888 on a curve to the left having a radius of
600.00, a central angle of 7-11-08 and a length of 75.25 to a point: thence S
13-47-11 E 455.96 to a point on a curve to the right: thence along said curve to
the right having a radius of 275.00, a central angle of 44-14-06 and a length of
212.31 to a point: thence still through lands of Site 2 S 30-26-55 W 102.78 to
the southeasterly corner of the parcel herein described and the northerly line
of lands now or formerly Hipotronics: thence along the northerly line of
lands now or formerly Hipotronics and along the mean centerline of a stonewall N
4-10-20 W 28.35, S 87-03-00 W 91.38 and S 80-53-00 W 338.51 to lands now or
formerly Presbyterian Church; thence, along lands now or formerly Presbyterian
Church and continuing along the mean centerline of a stonewall N 1-09-00 W
52.13, N 14-17-00 W 35.79, N 85-03-00 W 90.86, N 77-52-00 W 137.07, N 62-08-00 W
91.06 and N 62-08-00 W 30.40 to the centerline of Old Route 22: thence along the
centerline of Old Route 22 N 3-10-47 W 335.93 to the easterly side of New York
State Route 22; thence along the easterly side of New York State Route 22 N
9-30-12 E 21.68 to a point: thence partly along lands now or formerly Brewster
Properties N 86-58-00 E 222.24 and N 3-02-00 W 100.00 to a point on the
southerly boundary of Site 3 as shown on the aforementioned filed map no. 1888;
thence along the southerly boundary of said Site 3 N 86-57-33 E 201.47 and N 61-
00-00 E 373.52 to the point and place of beginning. Containing within said
bounds 11.421 acres more or less.
<PAGE>
EXHIBIT C
none
<PAGE>
EXHIBIT D
COMMENCEMENT DATE CERTIFICATE AND AGREEMENT
-------------------------------------------
THIS COMMENCEMENT DATE CERTIFICATE AND AGREEMENT, dated the day
---
of, 199 , is by a [general/limited] partnership organized
- ---------------------
and existing under the laws of the State of New York, having an office in care
of Covington Management Company (Attn: Harold Lepler) at Millbrooke Office
Centre, Route 22 and Milltown Road, Brewster, New York 10509 ("Landlord")
WITNESSETH:
WHEREAS Landlord and Schein Pharmaceutical, Inc. ("Tenant") have
entered into that certain Agreement dated as of , 1992 (the
----------
"Development Agreement") whereby Landlord agreed, inter alia, to construct the
----- ----
Building pursuant to the terms thereof;
WHEREAS, upon satisfaction of certain Conditions described in the
Development Agreement, Tenant agreed to lease the Demised Premises from
Landlord, and Landlord agreed to lease the Demised Premises to Tenant pursuant
to the terms of that certain Lease dated as of the day of , 1992 (the
-- ------
"Lease"); and
WHEREAS, the Lease provides that the Commencement Date of the Lease
shall not occur until, inter alia, Landlord shall have delivered this
----- ----
Commencement Date Certificate and Agreement to Tenant.
<PAGE>
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, and as an inducement to Tenant to commence the
performance of its obligations under the Lease, Landlord hereby represents,
warrants and agrees that:
1. The Demised Premises, and the use thereof permitted under the
Lease, complies with all Laws and Ordinances and all requirements of the
Insurance Companies and Boards.
2. The certificate of occupancy issued for the Building (the
"Certificate of Occupancy") bears number , is dated , and
---------- -------------
has not been modified by the relevant municipal authorities. The Certificate of
Occupancy is in effect as of the date hereof and does not prohibit the use of
the Demised Premises for the purposes permitted under the Lease.
3. The Building and Land currently comply with all Laws and
Ordinances, fire insurance regulations and floor load restrictions.
4. The Land, the Building and the Demised Premises are in compliance
with all applicable Laws and Ordinances relating to Hazardous Materials and the
Land and the Building do not contain Hazardous Materials.
2
<PAGE>
5. Except for the Permitted Encumbrances, there are no easements,
restrictions or other exceptions to title affecting the Demised Premises.
6. There are no common area maintenance or similar charges relating
to the Park payable with respect to the Demised Premises except
.
- -------------------------------
7. Landlord hereby agrees to indemnify, defend and hold Tenant
harmless with respect to any and all loss, liability, damages, costs and
expenses (including reasonable legal fees) which may be incurred by Tenant
arising out of or in connection with any breach by Landlord of the
representations and warranties set forth in this Certificate and Agreement.
Any capitalized terms used herein and not otherwise herein defined
shall be given the meanings ascribed to such terms in the Lease.
IN WITNESS WHEREOF, the undersigned has caused this Commencement Date
Certificate and Agreement to be executed as of the date set forth above.
-------------------------------
(Landlord)
By:
----------------------------
3
<PAGE>
EXHIBIT E
---------
The Fixed Minimum Rent to be paid by Tenant pursuant to the provisions
of this Lease for the first year of the Term shall be computed based upon an
annual rate of $7.945 per square foot of space in the Building (adjusted in
accordance with the provisions of Section 6.02 of the Development Agreement),
and shall be increased for each subsequent year of the Term (including each year
of each Extended Term elected by Tenant) by 2.15% of the Fixed Minimum Rent
payable for the preceding lease year.
<PAGE>
EXHIBIT F
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
----------------------------------------
THIS AGREEMENT, made this day of l99 , by and among
---- ---------- -
SCHEIN PHARMACEUTICAL, INC., a New York Corporation, having an office at
(hereinafter referred
- --------------------------------------------------------
to as "Tenant"), and , a , having its
----------------------------- ----------
principal place of business at
----------------------------------------
(hereinafter referred to as "Mortgagee").
WITNESSETH:
----------
WHEREAS, Harold Lepler, as landlord ("Landlord") entered into a
certain Lease with Tenant dated as of , 1992 (the "Lease"), relating
-----------
to a warehouse and office facility located in the Mt. Ebo Office Park in the
Town of Southeast, County of Putnam, State of New York (the "Demised Premises");
and
WHEREAS, Landlord is about to execute a first Mortgage to Mortgagee
dated of even date herewith (the "Mortgage") securing a loan in the amount of
($ ), and Mortgagee has
- -------------------------------------- -------------
refused to make said loan unless it is secured by a mortgage prior in right and
interest to the Lease and the interests of Tenant under the Lease; and
WHEREAS, Tenant has agreed that the Lease shall be subject and
subordinate to mortgages affecting the Demised
<PAGE>
Premises provided that the mortgagee thereunder delivers to Tenant an agreement
in the form of this Agreement.
NOW, THEREFORE, in consideration of the Premises and ONE DOLLAR
($1.00) paid to Tenant, the receipt and sufficiency of which are hereby
acknowledged and intending to be legally bound, Tenant and Mortgagee covenant
and agree as follows:
1. Mortgagee agrees that, for as long as Tenant is not in default
beyond any applicable notice and/or grace period under any of the terms,
covenants or conditions of the Lease, if any action or proceeding is commenced
by Mortgagee for the foreclosure of the Mortgage, Tenant shall not be named as a
party therein, and the right of possession of Tenant to the Demised Premises
shall not be affected or disturbed, and upon the sale of the Demised Premises in
any such action or proceeding, the Mortgagee or other purchaser of the premises
shall accept the attornment of Tenant and recognize the rights of Tenant under
the Lease.
2. In the event that Mortgagee or such other purchaser shall succeed
to the interests of Landlord under the Lease as aforesaid, Tenant agrees to
attorn to and accept Mortgagee or such other purchaser as its landlord under the
Lease for the balance of the term thereof and Mortgagee or such other purchaser
shall be bound to Tenant under all the terms, covenants and conditions of the
Lease and Tenant shall, from and after such event, have the same remedies
against Mortgagee or such other
2
<PAGE>
purchaser for the breach of an agreement contained in the Lease that Tenant
might have had under the Lease against Landlord if Mortgagee or such other
purchaser had not succeeded to the interest of Landlord; provided, however, that
Mortgagee or such other purchaser shall not be:
(i) bound by any payment of rent or additional rent made by
Tenant for more than one month in advance;
(ii) bound by any amendment or modification of the Lease, dated
subsequent to this Agreement, made without the consent of Mortgagee;
(iii) liable for any previous act or omission of any prior
landlord, including Landlord, under the Lease; or
(iv) subject to any offset or counterclaim or defense which shall
theretofore have accrued to Tenant against any prior landlord, including
Landlord, under the Lease.
3. Tenant agrees to give prompt written notice to Mortgagee of any
default of Landlord in the obligations of Landlord under the Lease, if such
default is of such nature as to give Tenant a right to terminate the Lease,
reduce rent or to credit or offset any amounts against future rents. It is
further agreed that such notice will be given to any successor in interest of
Mortgagee in said Mortgage provided that prior to any such default of Landlord
such successor in interest shall have given written notice to Tenant of its
acquisition of Mortgagee's
3
<PAGE>
interest therein, and designated the address to which such notice is to be
directed. Tenant further agrees that notwithstanding any provision of the Lease
to the contrary, no notice of cancellation thereof shall be effective unless
Mortgagee, or such successor in interest, has received such notice of default
within thirty (30) days of the date thereof (or if the default cannot be cured
within thirty (30) days in the exercise of reasonable diligence, has had the
opportunity to commence the cure thereof within said thirty (30) day period) and
thereafter completes the cure with reasonable diligence.
4. All notices and other communications provided for or contemplated
by this Agreement shall be in writing and shall be delivered by hand or
commercial courier guaranting overnight delivery, or mailed by registered or
certified mail, postage prepaid, return receipt requested1 addressed as follows:
If to the Tenant, in all cases to it at:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
Attention:
---------------------
If to Mortgagee, in all cases to it at:
-------------------------------
-------------------------------
4
<PAGE>
-------------------------------
-------------------------------
Attention:
---------------------
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if hand delivered or delivered by overnight courier, or five
days after posting if sent by registered or certified mail, postage prepaid,
return receipt requested, in each case addressed to such party as provided in
this Section. Each party hereto may change its address by providing express
notice of such change to the other in accordance with this Section.
5. The agreements herein contained shall bind and inure to the
benefit of the successors in interest of the parties hereto, and, without
limiting such, the agreement of Mortgagee shall specifically be binding upon any
purchaser of all or any portion of the Mortgagee's interest in the Mortgage, or
of the Demised Premises at a sale foreclosing the Mortgage, or of the Demised
Premises at a sale in lieu of such foreclosure.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the execution
hereof as of the date first above written.
SCHEIN PHARMACEUTICAL, INC. (Tenant)
By:
---------------------------
Its:
------------------------------
By:
---------------------------
Its:
[NOTE: THIS FORM SHALL BE CONFORMED AS APPROPRIATE IN THE EVENT THAT IT IS
INTENDED TO APPLY TO AN OVERLEASE RATHER THAN A MORTGAGE]
6
<PAGE>
MORTGAGEE
- ---------
STATE OF )
) ss.:
COUNTY OF )
On the _____ day of ___________________, 19__, before me personally
came , to me known, who, being by me duly sworn, did depose and say that he
resides at that he is the ___________________________ of __________________, the
corporation described in and which executed the foregoing instrument, and that
he signed his name thereto by order of the Board of Directors of said
corporation.
--------------------------------------
Notary Public
TENANT
- ------
STATE OF )
) ss.:
COUNTY OF )
On the ____ day of ______________, 19__ , before me personally came
_____________________________________________, to me known, who, being by me
duly sworn, did depose and say that he resides at _________________
_____________________________________________________________; that he is the
___________________________________ of ________________________________________
_______________________________, the corporation described in and which executed
the foregoing instrument, and that he signed his name thereto by order of the
Board of Directors of said corporation.
7
<PAGE>
EXHIBIT 10.9
LEASE
-----
Between
RONALD G. ROTH
--------------
as Lessor
and
SCHEIN PHARMACEUTICAL, INC.
---------------------------
as Lessee
<PAGE>
SCHEIN PHARMACEUTICAL INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph No. Heading Page No.
<S> <C> <C>
1 PARTIES 1
2 PREMISES 1
3 RENT 1,2
4 TERM AND OPTION 2,3,4,5
5 SECURITY DEPOSIT 5
6 USE OF PREMISES 5,6
7 MAINTENANCE, REPAIRS AND ALTERATIONS 7,8,9
8 INSURANCE AND INDEMNITY 9,10,11
9 DAMAGE OR DESTRUCTION 12,13,14
10 REAL PROPERTY TAXES 15,16
11 UTILITIES 16
12 ASSIGNMENT AND SUBLETTING 16,17
13 DEFAULTS; REMEDIES 18,19,20
14 CONDEMNATION 20,21
15 BROKER'S FEE 21
16 ESTOPPEL CERTIFICATE 21
17 LESSOR'S LIABILITY 21,22
18 SEVERABILITY 22
19 INTEREST ON PAST DUE OBLIGATIONS 22
20 TIME IS OF THE ESSENCE 22
21 ADDITIONAL RENT 22
22 INCORPORATION OF PRIOR AGREEMENTS;
AMENDMENTS 22
23 NOTICES 22,23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Paragraph No. Heading Page No.
<S> <C> <C>
24 WAIVERS 23
25 RECORDING 23
26 HOLDING OVER 23
27 CUMULATIVE REMEDIES 23
28 COVENANTS AND CONDITIONS 23
29 BINDING EFFECT; CHOICE OF LAW 23
30 SUBORDINATION 23,24
31 ATTORNEY'S FEES 24
32 LESSOR'S ACCESS 24
33 AUCTIONS 24
34 SIGNS 24
35 CONSENTS 25
36 GUARANTOR 25
37 QUIET POSSESSION 25
38 OPTIONS 25,26
39 MULTIPLE TENANT BUILDING 26
40 SECURITY MEASURES 26
41 EASEMENTS 26
42 PERFORMANCE UNDER PROTEST 27
43 AUTHORITY 27
44 INSURING PARTY 27
</TABLE>
- 2 -
<PAGE>
LEASE
1. PARTIES. This LEASE, dated, for reference purposes only, this 16th day
of February, 1990, is made by and between RONALD G. ROTH, an unmarried man whose
address is 4515 S. McClintock Dr., Suite 220, Tempe, Arizona 85282 (hereafter
called "LESSOR") and SCHEIN PHARMACEUTICAL, INC., a Delaware Corporation whose
present address is 26 Harbor Park Drive, Port Washington, New York 11050
(hereafter called "LESSEE").
2. PREMISES. Lessor hereby leases to Lessee, and Lessee leases from
Lessor, for the term, at the rental and upon all the conditions set forth
herein, that certain real property situated in the County of Maricopa, State of
Arizona, commonly known as ABCO/43RD AVE. DISTRIBUTION BLDG, PH II, Phoenix,
Arizona, and described as an approximate 171,187 square feet of to be
constructed multi-tenant industrial space, together with certain improvements to
be constructed therein at Lessor's sole cost and expense, (see Exhibits
"A" through "E" attached hereto). Office improvements are to be constructed by
Lessor at its sole cost and expense, as shown on Exhibit "B" attached hereto.
The building tenant improvements and the parking lot improvements are
hereinafter collectively referred to as "Tenant Improvements." Lessor hereby
agrees to use its best efforts to complete the premises for Tenant fixturization
by July 15, 1990.
The building is located at 1825 S. 43rd Avenue, Phoenix, Arizona (see
Exhibit "C" for legal description), hereinafter referred to as the "Real
Property".
The building shall be in conformity with plans and specifications that have
been, or will be, approved jointly by Lessor and by Lessee.
Lessee shall have designated and/or defined exclusive use of specific
parking facilities on the Real Property, as reflected on Exhibit "D".
The square footage of the building space being leased under the terms
hereof, is approximately 81,514 square feet.
Any improvements to the Premises, in addition to the Tenant Improvements
described above, which may be desired by Lessee from time to time during the
Term of this Lease, as may be extended, shall be constructed or installed by
Lessor if requested by Lessee, and provided that Lessor agrees to do so. In the
event Lessor agrees to construct or install such improvements, all costs of such
construction and/or installation shall be paid by Lessee to Lessor at such
times, and in such amounts as may be reasonably agreed to by Lessor and Lessee.
Such real property, including land and improvements, and the parking
facilities, as above described, are hereafter called "the Premises".
3. RENT
3.1 Lessee shall pay to Lessor as Rent for the Premises during the
Initial Term of 120 months, the following amounts:
(a) For the 1st through the 36th months of the Initial Term of
<PAGE>
the Lease, the Rent shall be $22,354.21 per month, plus taxes, if any, imposed
upon such rent by any taxing authority, excluding Federal and State Income Tax.
(b) For the 37th through the 60th months of the Initial Term
of the Lease, the Rent shall be $24,356.91 per month, plus taxes, if any,
imposed upon such rent by any taxing authority, excluding Federal and State
Income Tax.
(c) During the 61st through the 96th months of the Initial Term
of the Lease, the rent shall be $25,812.52 per month, plus taxes, if any,
imposed upon such rent by any taxing authority, excluding Federal and State
Income Tax.
(d) For the 97th through the 120th months of the Initial Term of
the Lease, the rent shall be the sum of $28,086.12 per month, plus taxes, if
any, imposed upon such rent by any taxing authority, excluding Federal and State
Income Tax.
All rent due shall be paid on or before the first day of the month for
which such rent is due during the term of this Lease, and during any extended
term of this Lease if the Option to Extend (Par. 4.5) is exercised.
3.2 The Monthly Rental, during the First Extended Option Term,
(defined as Years 11 through 15) shall be as follows:
(a) During the 60 months of the First Extended Option Term, the
monthly rent shall be $29,566.25 per month, plus taxes, if any, imposed upon
such rent by any taxing authority, excluding Federal and State Income Tax.
3.3 The Monthly Rental during the Second Extended Option Term,
(defined as Years 16 through 20) shall be as follows:
(a) During the 60 months of the Second Extended Term of the
Lease, the monthly rental shall be the sum of $31,079.26 per month, plus taxes,
if any, imposed upon such rent by any taxing authority, excluding Federal and
State Income Tax.
3.4 The Monthly Rental during the Third Extended Option Term,
(defined as Years 21 through 25) shall be as follows:
(a) During the 60 months of the Third Extended Term of the
Lease, the monthly rental shall be the sum of $33,941.15 per month, plus taxes,
if any imposed upon such rent by any taxing authority, excluding Federal and
State Income Tax.
4. TERM AND OPTION.
4.1 The TERM of the INITIAL LEASE PERIOD shall be for One Hundred
Twenty (120) months, commencing on the thirtieth day after the Lessee has use of
the Premises, the "Lease Commencement Date".
4.2 If the Lease Commencement Date occurs on other than on the first
day of the month, the Lessee will pay a pro rata rental for the portion of the
month that the Premises are occupied by Lessee, based upon a full month's
- 2 -
<PAGE>
rental for a month containing 30 days.
4.3 It is anticipated that Lease Commencement date shall be
approximately August 15, 1990. The Occupancy Date (approximately July 15, 1990)
shall be established when a Certificate of Occupancy (temporary or final) is
issued; or upon initial occupancy of premises by Tenant for Tenant
fixturization, whichever occurs first. The representatives of Lessor and Lessee
shall mutually agree to a date that occupancy will commence (or had commenced)
and a letter executed by representatives of both Lessor and Lessee shall be
appended to the Lease.
4.4 In the event Lessor has not completed the premises for Tenant
fixturization by August 30, 1990, then Lessee shall have the right to (i)
complete the Tenant Improvements pursuant to the plans and specifications
therefor, in which event all costs incurred by Lessee in connection with such
work shall be paid to Lessee by Lessor immediately upon demand therefor, (ii)
terminate this Lease, which termination shall be effective thirty (30) days
after notice of termination is delivered to Lessor by Lessee. Notwithstanding
the foregoing, if the Lessor has diligently expended efforts to deliver
possession of the premises, but was precluded by delays outside of his control,
the above dates shall be reasonably extended.
4.5 Lessor does hereby grant to Lessee the Option to Extend the Term
of this Lease for three (3) additional 60 month periods, commencing upon the
expiration of the Initial 120 month Term, upon the following terms and
conditions:
(a) Lessee shall give Lessor written notice at least 240 days
prior to the expiration of the Initial Term, or any extended Term of this Lease,
as applicable. Failure to give such written notice shall extinguish and make
null and void the Option to Extend.
(b) The Option(s) are expressly conditioned upon Lessee's not
being in default at the time notice of election to exercise the option(s) is
given. Such default refers to any requirement under this entire Lease, which
remains uncured by Lessee at the time notice is given, and for which the time in
which to cure such default has expired on the date notice is given.
(c) During the First, Second, and Third Extended Option Term(s),
all the terms and conditions of this Lease shall control the occupancy of the
Premises by Lessee.
(d) Notwithstanding the above, it is understood by Lessor and
Lessee that the 121st through 300th month period is an Option Period and said
rents shall be required only if Option is exercised by Lessee, as required and
set forth herein.
4.6 During the Initial Term of this Lease, and during any Extended
Term, Lessor shall not enter into any Lease affecting any additional space
within the PHASE II (contemplated as PH.IIA & IIB) building which is contiguous
to the Premises, which may from time to time be vacant, without first offering
Lessee an opportunity to lease such space on the terms and conditions Lessor is
willing to lease such space to a third party, except that the Monthly Rental
shall be as set forth below; and the Tenant improvements to be
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installed by Lessor shall include only: demising walls, lighting, evaporative
cooling and ventilating facilities (the "Standard Warehouse Improvements").
Lessor shall offer such opportunity to lease to Lessee by notifying Lessee in
writing of the proposed terms and conditions thereof, or at Lessor's option, by
submitting to Lessee a copy of such offer to lease. If, within ten (10) business
days of the date of receipt of such notice, Lessor has received written notice
from Lessee of its election to lease such space on the same terms and conditions
of such proposed lease, except for Monthly Rental and the Standard Warehouse
Improvements, then Lessor shall not enter into a lease with the Third Party and
Lessor and Lessee shall promptly enter into a separate lease, or addendum
hereto, on the same terms and conditions as set forth in proposed Lease. The
term of such lease or addendum shall correspond with the Term of the Third Party
Proposal, and the Monthly Rental shall be as set forth below. If Lessor has not
received Lessee's written election to lease such space within the 10 business
day period, Lessor shall be free to execute a proposed lease with the Third
Party.
<TABLE>
<S> <C>
Lease Months 0l - 36 (Initial Term) - $.192/SF/MO - NNN
Lease Months 37 - 60 (Initial Term) - $.210/SF/MO - NNN
Lease Months 61 - 96 (Initial Term) - $.222/SF/MO - NNN
Lease Months 97 - 120 (Initial Term) - $.242/SF/MO - NNN
Lease Months 0l - 60 (First Extended Term) - $.255/SF/MO - NNN
Lease Months 0l - 60 (Second Extended Term) - $.287/SF/MO - NNN
Lease Months 0l - 60 (Third Extended Term) - $.323/SF/MO - NNN
</TABLE>
Note: Lease Month 0l (Initial term), corresponds to Initial Lease
Commencement Date.
4.7 Notwithstanding Lessee's right of first refusal as set forth in
Section 4.6 above, Lessee shall have the right at any time during the Initial
Term of this Lease, or any Extended Term, to lease from Lessor any available
contiguous space in the Phase II building, at the rental rate set forth in Par.
4.6; provided, however, that unless otherwise agreed by Lessor and Lessee, (i)
the improvements to be installed by Lessor in such additional space shall
include only the Standard Warehouse Improvements, and (ii) if Lessee notifies
Lessor in the last twenty-four months of the Initial Term, or any Extended Term,
as applicable, that it desires to lease any such additional space, Lessee must
also elect to extend the term of this Lease for at least one Extended Term, as
provided in Section 4.5. For all such additional space, the Monthly Rental shall
be as set forth in Par. 4.6, unless the type and development of the space
differs from same, the proposal, or supplemental proposals, will provide the
basis to establish the Rent.
4.8 In the event that a Lessee's requirements for additional/expansion
space cannot be provided by the Lessor in the subject facility, or the adjacent
facility, within a time frame of nine (9) months, the Lessor shall be obligated
to accomodate Lessee in any other available existing facility, or facilities,
owned by the Lessor. The Lessor may elect to develop and build a new facility to
accomodate the additional growth expansion, or a facility for a total
consolidated facility, at Lessor's option. If the Lessee and Lessor enter into a
Lease for a consolidated facility, this Lease shall terminate upon the
Commencement of the Lease in the new facility.
Notwithstanding the foregoing, the Lessor shall not be obliged to
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provide a consolidated expansion facility, if the Lessee has within a fifteen
(15) month period prior to the request, rejected additional space (of near
equivalent area to the requirement contemplated herein), as set forth in Par.
4.6.
The Rate for any expansion area space shall be as set forth in Par.
4.6. The Rate for a consolidated facility shall be as established within this
Lease for the primary space, and as established in Par. 4.6 expansion space
portion.
4.9 The Lessor shall not for a period of four (4) months after the date
of this lease, proceed with development and/or construction of the Phase IIB
building improvements, which constitutes the space set forth in Par. 4.6 and
4.7, without notice to Lessee.
5. SECURITY DEPOSIT. In lieu of security deposit, first month's rent
payment shall be made at signing of this Lease Agreement.
6. USE OF PREMISES.
6.1 USE. The Premises shall be used and occupied for warehousing
and distribution of pharmaceutical compounds (including controlled substances),
materials required for manufacture of pharmaceuticals, and medical related
products, and any lawful purpose which does not violate any applicable zoning
ordinance, restrictive covenant, or other restriction upon the use of the
Premises.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease occupancy commences, does not violate any
covenant or restrictions of record or any applicable building code, regulation
or ordinance in effect on such Occupancy Date. If it is determined that this
warranty has been violated, then it shall be the obligation of the Lessor, after
written notice from Lessee, to promptly and with due diligence, at Lessor's sole
cost and expense, rectify any such violation.
If, during the terms of the Lease, it is determined that there
has been a violation of the warranty of Lessor, Lessee, upon learning of such
breach of warranty, shall give notice of such breach of warranty to Lessor
within 10 days after learning of same, by written notice of such breach, and
thereafter Lessor, at Lessor's sole cost and expense, shall cure such breach. If
such breach cannot be cured by Lessor after notice, and by reason thereof Lessee
is unable to continue its ordinary business upon the Premises, Lessee may
thereupon terminate this lease and be entitled to recover any rent paid and
unearned as of the date of such termination, or Lessee may elect to cure
Lessor's breach, in which event all costs incurred by Lessee in effecting such
cure shall be paid by Lessor to Lessee immediately upon Lessor's receipt of
demand therefor;
(b) Except as provided in paragraph 6.2 (a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covenants, and restrictions of record if any, and
requirements in effect during the term, or any part of the term hereof,
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regulating the use by Lessee of the Premises. Lessee shall not use, nor permit
the use of, the Premises in any manner that will tend to create trash or waste
at the exterior portions of the Premises, or a nuisance, or if there shall be
more than one tenant in the building containing the Premises, the use by Lessee
shall not unreasonably disturb the use of other portions of the building by
other tenants.
(c) If a statute, ordinance, rule or regulation or order is
promulgated by a governmental subdivision having jurisdiction over the Premises
which renders it impractical for Lessee to continue the occupancy of the
Premises, then thereupon Lessee shall have the right to terminate this Lease
upon 90 days written notice of its election to so terminate. Such notice shall
cite to Lessor the statute, ordinance, rule, regulation, or order that makes
occupancy impractical, and shall further state the reason for the impracticality
of continued occupancy. Lessor represents and warrants that there are no
covenants and restrictions of record, as of the date of this Lease, that will
require Lessee to incur an expense other than as is herein specifically provided
for in this Lease Agreement.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free
of debris and in a safe condition on the Lease Commencement Date, and Lessor
further warrants to Lessee that the plumbing, lighting, mechanical systems, and
loading doors, in and on the Premises, shall be in new, or operating condition
on the Lease Occupancy Date. If it is determined that the warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee, setting forth with specificity the nature of the violation,
to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to
give such written notice to Lessor within 60 days after the Lease Commencement
Date, or within thirty (30) days after occupancy by Tenant of an expansion
phase(s), shall create the conclusive presumption that Lessor has complied with
all of Lessor's obligations under this Subparagraph 6.3(a). By reason of the
Premises being a newly constructed building, or as applicable to expansion
phase(s), Lessee shall have the benefit of any continuing warranties with
respect to equipment, and a one year warranty with respect to all new
construction. The Lessor shall provide Lessee, within 30 days of commencement
date, a list of subcontractors, suppliers, and related warranties thereto in
effect.
(b) Except as otherwise provided in this Lease, and subject to
Lessor's Warranties set forth in 6.2(a), 6.3(a), and 7.1, Lessee accepts the
Premises in their condition existing as of the Lease Commencement Date, or the
date that Lessee takes possession of the Premises, whichever is earlier, subject
to all applicable zoning, municipal, county and State Laws, ordinances and
regulations governing and regulating the use of the Premises and any covenants
or restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto, provided,
however, that Lessor does hereby expressly warrant that there will be no
violations of any such matters on such Lease Commencement Date. If, subsequent
to occupancy, Lessee discovers that a violation of any such matter has occurred,
and that such violation was in existence at the date of the commencement of the
occupancy of the Premises, then such violation shall be cured at the sole cost
and expense of Lessor. Written notice of any such
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<PAGE>
violation shall be given by Lessee to Lessor within 10 days after obtaining
knowledge of such violation.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATION. Lessee shall keep in good order, condition
and repair, the nonstructural portion of the Premises, and the mechanical
systems utilized for the Premises occupied by Lessee. Any structural repairs,
including, but not limited to, the roof framing (beams and plywood sheeting),
foundation, exterior walls, the floor structural section, as pertains to
settling (not including surface), and portions of the Premises not accessible to
Lessee, shall be maintained at the sole cost and expense of Lessor throughout
the term, and any extended term of the Lease, provided, however, that if there
is damage to the Premises by any act of omission or commission on the part of
the Lessee which causes a structural defect that requires repairs, then in that
event the cost of such repairs shall be paid by Lessee. Lessee shall maintain
plumbing, mechanical, and ventilating systems, electrical, and lighting
facilities, and any other equipment located within the Premises occupied by
Lessee, at Lessee's sole cost and expense. Lessee shall maintain the non-
warehouse area ceilings, floors (except structural defect), windows, doors,
plate glass and skylights located within the leased Premises. Notwithstanding
the foregoing, Lessor shall fully warrant the total Premises, including all
Tenant Improvements installed by Lessor, for a period of twelve (12) months from
the Lease Commencement Date, and for any items covered for extended periods by
manufacturers warranties for the time period of such extended warranties.
Landscaping, driveways, parking lots and fences located adjacent to
the Premises, and the roofing of the building, in which the Premises are
located, shall be maintained by Lessor, the reasonable cost of such maintenance
to be paid by Lessee, on pro rata basis of space leased by Lessee, as compared
to total leasable space in the building, except for maintenance costs
attributable to Lessee's exclusive parking area which shall be the sole
responsibility of Lessee, subject to allocation as may be applicable.
7.2 REPAIR OR SURRENDER. On the last day of the term hereof, or on
any sooner termination, Lessee shall surrender the Premises to Lessor in the
same condition as when received, ordinary wear and tear and construction defects
excepted, and the Premises shall be clean and free of debris. Lessee shall
repair any damage to the Premises occasioned by the installation or removal of
Lessee's trade fixtures, furnishings and equipment.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this Paragraph 7, or under any other paragraph of this Lease, Lessor may
at its option (but shall not be required to) enter upon the Premises after ten
(10) days prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof shall become due and payable as additional rental to Lessor together
with Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Paragraph 6.2 (a) and 6.3 (a) (relating to Lessor's warranty), Paragraph 9
(relating to destruction of the Premises) Paragraph 14 relating to
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<PAGE>
condemnation of the Premises), and Paragraph 7.1 (relating to structural
repairs), it is intended by the parties hereto that Lessor have no obligation in
any manner whatsoever, to repair and maintain the Premises, nor the building
located thereon, nor the equipment therein, whether structural or nonstructural,
except as expressly provided in this Lease, and particularly as set forth in
Paragraph 7.1 above.
If Lessor, for any reason, fails to perform its obligations under this
Paragraph 7, as it relates to other provisions of this Lease in respect to
Lessor's obligations regarding repairs of the Premises, (i) after 10 days
written notice, or in an emergency, immediately then in that event, Lessee may
make such repairs and deduct the cost thereof from the next monthly rental due
under the terms of this Lease, or due under the terms of the extended term of
this Lease, or (ii) after 30 days written notice Lessee may terminate this Lease
immediately upon written notice to Lessor.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent,
which shall not be unreasonably withheld, make any alterations, improvements,
additions or Utility Installations in, on, or about the Premises, except for
nonstructural alterations not exceeding $5,000 in cumulative costs during any
six month period, during the term of this Lease. In any event, whether or not in
excess of $5,000 in cumulative costs, Lessee shall make no change or alteration
to the exterior of the Premises, nor the exterior of the building on the
Premises, without Lessor's written consent. As used in Paragraph 7.5, the term
"Utility Installations" shall mean airlines, power panels, electrical
distribution systems, mechanical systems, plumbing, and fencing. Lessor may
require that Lessee remove any or all of said alterations, improvements,
additions or Utility Installations at the expiration of the term and restore the
Premises to their prior condition.
(b) Any alterations, improvements, additions or Utility
Installations in, or about the premises that Lessee shall desire to make, which
require the consent of the Lessor, shall be presented to Lessor in written form,
with proposed preliminary or detailed plans. Lessor shall either approve, or
disapprove with reasonable cause, Lessee's request within ten (10) business days
after receipt of Lessee's request. If Lessor has not responded within said
10-day period, Lessor shall be deemed to have approved Lessee's request. If
Lessor shall give its consent, the consent shall be deemed conditioned upon
Lessee acquiring a permit to do so from appropriate governmental agencies, the
furnishing of a copy thereof to Lessor prior to the commencement of the work and
the compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished, or alleged to have been furnished to or for Lessee at or
for use in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days notice prior to the commencement of any
work on the Premises, and Lessor shall have the right to post notices of
nonresponsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense, defend itself and Lessor against the same
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<PAGE>
and shall pay and satisfy any such adverse judgement that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises, upon
the condition that if Lessor shall require, Lessee shall furnish to lessor a
surety bond satisfactory to Lessor in an amount equal to such contested lien
claim or demand, indemnifying Lessor against liability for the same and holding
the Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys' fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in
Paragraph 7.5 (a), all alterations, improvements, additions and Utility
Installations which may be made on the Premises, shall become the property of
Lessor and remain upon and be surrendered with the Premises at the expiration of
the term. Notwithstanding the provisions of this Paragraph 7.5 (d), Lessee's
machinery, trade fixtures, and equipment, other than that which is affixed to
the Premises so that it cannot be removed without material damage to the
Premises, which damage is incapable of being repaired within ten (10) days after
removal of Lessee's equipment, shall remain the property of Lessee and may be
removed by Lessee, subject to the provisions of Paragraph 7.2.
8. INSURANCE AND INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring
party" shall mean the party to this Lease who has the obligation to obtain the
particular insurance described in each of the subsections of this Paragraph 8,
with respect to Property Damage to the Premises, Public Liability, and property
damage to property of another, by reason of conduct involving the Premises,
which are the subject of this Lease.
All insurance, as hereafter provided, and any that is required to be
procured by Lessor, shall be at the cost and expense of Lessee, on a pro rata
basis as hereafter provided. The Lessor shall maintain a comprehensive general
liability policy to insure against loss by reason of the ownership of the
property, involving personal injury or property damage to another, however, the
Lessee shall be responsible only for a policy up to a maximum coveage of one
million dollars ($1,000,000) per occurrence. If the Lessor determines to procure
insurance for liability in excess of one million dollars per occurrence, the
cost of such additional coverage shall be paid solely by Lessor. Any such
liability insurance procured by Lessor shall not reflect the Lessee as an
additional insured under such policy.
All insurance that is procured by Lessor, except as to liability
insurance in excess of $1,000,000, shall be at the expense of Lessee and any
other tenants of the building within which the Premises are located, and the
land upon which such building is located. The cost shall be prorated among all
Lessees of any portion of the Real Property, or the building, and the proration
shall be on the basis of the square footage of space occupied by Lessee, as that
bears to the total number of square feet of building occupied by all tenants, or
available for occupancy of tenants, of the real property and building.
8.2 LIABILITY INSURANCE.
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Lessee shall, at Lessee's expense, obtain, pay for directly, and keep
in force during the term of this Lease, a policy of Combined Single Limit,
Bodily Injury and Property Damage Insurance, insuring Lessor and Lessee against
any liability arising out of the ownership, use occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $1,000,000 per occurrence. Lessee
shall have the right to provide such insurance coverage, pursuant to blanket
policies obtained by Lessee.
The policy shall insure performance by Lessee of the indemnity pro-
visions of Paragraph 8. The limits of said insurance shall not, however, limit
the liability of Lessee hereunder.
8.3 PROPERTY INSURANCE.
(a) The Lessor shall procure and obtain, and keep in force during the
term of this Lease, at Lessee's expense, a policy or policies of insurance
covering loss or damage to the Premises, in the amount of the full replacement
value thereof, as the same may exist from time to time. The replacement value is
$2,100,000, but in no event less than the total amount required by lenders
having liens on the Premises, against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood,
(in the event same is required by a lender having a lien on the Premises), and
special extended perils ("All Risk" as such term is used in the insurance
industry). Said insurance shall provide for payment of loss thereunder to Lessor
or to the holders of mortgages or deeds of trust on the Premises. A stipulated
value or agreed amount endorsement deleting the coinsurance provision of the
policy shall be procured with said insurance as well as an automatic increase in
insurance endorsement, causing the increase in annual property insurance
coverage by 1% per quarter, or as may be determined from time to time as based
on the cumulative change in CPI, from Lease Commencement. If Lessor shall fail
to procure and maintain said insurance, the Lessee may, but shall not be
required to, procure and maintain the same, but at the expense of Lessee. If
such insurance coverage has a deductible clause, the deductible. amount shall
not exceed $5,000 per occurrence, and Lessee shall be liable for such deductible
amount, in the same proportion as Lessee is liable for the cost of insurance
under the formula set forth above.
(b) The Lessor shall, in addition, obtain and keep in force at
Lessee's expense during the term of this Lease, a policy of rental value
insurance (Loss of Rents) covering a period of one year, with loss payable to
Lessor which insurance shall also cover all real estate taxes and insurance
costs for said period.
(c) If the Premises are part of a larger building, or if the Premises
are part of a group of buildings owned by Lessor which are adjacent to the
Premises, then Lessee shall pay for any increase in the property insurance of
such other building or buildings if said increase is caused by Lessee's acts,
omissions, or use of occupancy of the Premises.
(d) If the Lessor is the insuring party, the Lessor will not insure
Lessee's fixtures, equipment, or tenant improvements unless the tenant
improvements have become a part of the Premises under Paragraph 7 hereof.
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Lessee shall insure its fixtures, equipment, and tenant improvements which have
not become a part of the Premises.
8.4 INSURANCE POLICIES. The insuring party shall deliver to the other
party, copies of policies or such insurance certificates evidencing the
existence and amounts of such insurance, with loss payable clauses as required
by this Paragraph 8. No such policy shall be cancellable or subject to reduction
of coverage, or other modification, except after thirty (30) days prior written
notice to Lessor. If Lessee is the insuring party, Lessee shall at least (30)
days prior to the expiration of such policies, furnish Lessor with renewals or
"binders" thereof, or Lessor may order such insurance and charge the cost
thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee
shall not do, or permit to be done, anything which shall invalidate the
insurance policies referred to in Paragraph 8.3. If Lessee does or permits to be
done, anything which shall increase the cost of the insurance policies referred
to in Paragraph 8.3, then Lessee shall forthwith upon Lessor's demand, reimburse
Lessor for any additional premiums attributable to any act or omission of
operation of Lessee causing such increase in the cost of insurance. If Lessor is
the insuring party, and if the insurance policies maintained hereunder cover
other improvements, in addition to the Premises, Lessor shall deliver to Lessee
a written statement setting forth the amount of any such insurance cost increase
and showing in reasonable detail the manner in which it has been computed.
Insurance required hereunder shall be with companies holding a "General
Policyholders Rating" of at least B plus, or such other rating as may be
required by a lender having a lien on the Premises, as set forth in the most
current issue of "Best's Insurance Guide".
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils required to be
insured against hereunder, which perils occur in, on, or about the Premises,
whether due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from
and against any and all claims arising from Lessee's use of the Premises, or
from the conduct of Lessee's business, or from activity, work or other things
done, permitted or suffered by Lessee in or about the Premises, or upon the real
property where such Premises are located and shall further indemnify and hold
harmless Lessor from and against any and all claims arising from any breach or
default in the performance of any obligation on Lessee's part to be performed
under the terms of this Lease, or arising from any negligence of the Lessee or
any of Lessee's agents, contractors or employees, and from and against all
costs, attorneys' fees, expenses and liabilities incurred thereon; and in case
any action or proceeding be brought against Lessor by reason of any such claim.
Lessee, upon notice from Lessor, shall defend the same at Lessee's expense.
Lessee, as a material part of the consideration of Lessor, hereby assumes all
risks of damage to property or injury to persons in, upon or about Premises,
arising from any cause, except for any loss, or claim attributable to a breach
of this Lease on the part of the Lessor, or an
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intentional act of coumission or an intentional act of omission or a negligent
act of omission or commission on the part of Lessor, Lessor's employees, agents
or contractors, from which Lessor shall defend, indemnify and hold harmless
Lessee.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom, or for damages to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises, nor shall Lessor be liable for injury to the person of
Lessee, Lessee's employees, agents or contractors (except as may be caused by
negligence by engineering design), and whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, mechanical systems, or lighting fixtures, or from any
other cause, whether the said damage or injury results from conditions arising
upon the Premises, or upon other portions of the building of which the Premises
are a part, or from other sources or places unless the cause of such damage or
injury or the means of repairing the same is inaccessible to Lessee. In
connection with Lessor's repairs, alterations, replacements or improvements to
the Premises, Lessor shall not suspend any utility services to the Premises
during Lessee's normal business hours, except as may be necessary in an
emergency. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE OR DESTRUCTION.
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is less than
50% of the then replacement cost of the Premises. "Premises Building Partial
Damage" shall herein mean damage or destruction to the building of which the
Premises are a part to the extent that the cost of repair is less than 50% of
the then replacement cost of such building as a whole.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the then replacement cost of the Premises. "Premises Building Total
Destruction" shall herein mean damage or destruction to the building of which
the Premises are a part to the extent that the cost of repair is 50% or more of
the then replacement cost of such building as a whole.
(c) "Insured Loss" shall herein mean damage or destruction which
was caused by an event required to be covered by the insurance described in
Paragraph 8.
9.2 INSURED LOSS. Subject to the provisions of Paragraphs 9.4, 9.5
and 9.6, if at any time during the term of this Lease there is damage which is
an insured loss and which falls into the classification of Premises Partial
Damage or Premises Building Partial damage, then Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements unless the same have become a part of the Premises pursuant to
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Paragraph 7.5 hereof, within ninety (90) days after the occurence of such
damage, and this Lease shall continue in full force and effect. In the event
such damage is not capable of being repaired by Lessor, working with due
diligence, within said 90 day period, Lessor shall notify Lessee of such fact in
writing within 15 business days after the occurrence of the damage, and Lessee
shall have the right to terminate this Lease by providing written notice of such
termination to Lessor within 10 days after receipt of Lessor's notice. In the
event Lessee elects not to terminate this Lease as provided herein, Lessor shall
repair the Premises with diligence and best efforts. Should Lessor have a
problem acquiring material for repairs, a reasonable extension shall be granted
upon Lessee's receipt of notice of the delay.
9.3 PARTIAL DAMAGE - UNINSURED LOSS.
(a) Subject to the provisions of Paragraphs 9.4, 9.5, and 9.6,
if at any time during the term of this Lease there is damage which is not an
insured loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage, of Lessor's
intention to cancel and terminate this Lease, as of the date of the occurrence
of such damage.
(b) Provided, however, that Lessor shall only have the right to
terminate this Lease if the damage is greater than 5% of the then-replacement
cost of the building or Premises, as applicable. In the event Lessor elects to
give such notice of Lessor's intention to cancel and terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's intention to repair such
damage at Lessee's expense, without reimbursement from Lessor, in which event
this Lease shall continue in full force an effect, and Lessee shall proceed to
make such repairs as soon as reasonably possible. If Lessee does not give such
notice within such 10-day period, this Lease shall be cancelled and terminated
as of the date of the occurrence of such damage, and the rental shall abate.
9.4 TOTAL DESTRUCTION. Subject to the provisions of Paragraph 9.5, if
at any time during the term of this Lease (including any extensions and
renewals) there is damage, which is an Insured Loss (including destruction
required by any authorized public authority) falling into the classification of
Premises Total Destruction or Premises Building Total Destruction, the Lease
shall continue in full force and effect. Lessor shall proceed to make such
repairs as soon as reasonably possible and shall use its best efforts to
complete such repairs within 120 days after date of destruction. If Lessor
shall fail to complete such repairs within 120 days after the date of
destruction, Lessee may terminate this Lease. If at any time during the term of
this Lease there is damage which is not an Insured Loss and falls into the
classification of Premises Total Destruction or Premises Building Total
Destruction, this Lease shall automatically terminate as of the date of such
total destruction.
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9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last eight months of the term of
this Lease, or an extended term of this Lease, there is damage, whether or not
an insured loss, which falls within the classification of Premises Partial
damage, Lessor or Lessee may at Lessor's or lessee's option, cancel and
terminate this lease as of the date of occurrence of such damage by giving
written notice to the other of their election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding Paragraph 9.5(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than 30 days after occurrence of an
insured loss falling within the classification of Premises Partial damage during
the last eight months of the term of this Lease. If Lessee duly exercises such
option during said 30 day period, Lessor shall, at Lessor's expense, repair such
damage as soon as reasonably possible, and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option during 30 day period,
then Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 30 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 30 day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraphs 9.2 or 9.3,
and Lessor or Lessee repairs or restores the Premises, pursuant to the
provisions of this Paragraph 9, the rent payable hereunder for the period during
which such damage, repair or restoration continues shall be abated in proportion
to the degree to which Lessee's use of the Premises is impaired. Except for
abatement of rent, if any, Lessee shall have no claim against Lessor for any
damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9, and shall not commence such
repair or restoration within 60 days after such obligations shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event, this Lease shall terminate as of the
date of such notice.
9.7 TERMINATION - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Rent payments made by Lessee to Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
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10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Beginning upon the date of Commencement of the
Lease, Lessee shall pay the real property tax, as defined in Paragraph 10.2,
applicable to the square footage leased by Tenant as a portion of the total
Premises during the term of this Lease. All such payments shall be made at least
ten (10) days prior to the delinquency date of such payment. Lessee shall
promptly furnish Lessor with satisfactory evidence that such taxes have been
paid. If any such taxes paid by Lessee shall cover any period of time prior to
or after the expiration of the term hereof, Lessee's share of such taxes shall
be equitably prorated to cover only the period of time within the tax fiscal
year during which this Lease shall be in effect, and Lessor shall reimburse
Lessee to the extent required. If Lessee shall fail to pay any such taxes,
Lessor shall have the right to pay the same, in which case Lessee shall repay
such amount to Lessor with Lessee's next rent installment, together with any
penalties and interest imposed by the taxing authority, plus default interest
pursuant to Section 19.
The real property tax that Lessee will be required to pay under this
provision will be that portion of the real property taxes on the real property
and the building located thereon, as set forth in Exhibits "A" and "B", which is
occupied by Lessee, and the ratio shall be determined by the number of square
feet leased by Lessee that bears to the total number of square feet of leasable
space in the entire building. If any additional improvements are made to a
portion of the building not occupied by the Lessee, any increase in taxes
attributable to such addition will be the liability of someone other than Lessee
under this Lease. If Lessor installs additional improvements upon the real
property in addition to the building in which Lessee is located, then the amount
of taxes that will be required to be paid by Lessee shall be in a ratio that is
determined by the number of square feet occupied by Lessee, as that bears to the
total number of square feet of revised building area and improvements on the
real property.
If Lessor is required to pay impounds for taxes to any lending
institution holding a lien on the real property, Lessee will pay his
proportionate share of such impounds, based upon the ratio as above described,
as and when required to be paid by Lessor, under the Deed of Trust or mortgage
securing the Lessee.
The Lessee reserves the right to appeal directly or assist in the
appeal process of the assessment of Property Taxes, by the governing authority.
10.2 DEFINITION of Real Property Tax. As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Premises by any authority having
the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, as against any legal or equitable interest
of Lessor in the Premises or in the real property of which the Premises are a
part, as against Lessor's right to rent or derive other income therefrom, and as
against Lessor's business of leasing the Premises;
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provided, however, that with respect to any special assessments which may be
paid in a lump sum or in periodic installments, Lessee shall only be required to
pay such assessments in periodic installments and only for the remainder of the
Term, as may be extended. The term "real property tax" shall also include any
tax, fee, levy, assessment or charge (i) in substitution of, partially or
totally, any tax, fee, levy, assessment, or charge hereabove included within the
definition of "real property tax", or (ii) the nature of which was hereinbefore
included within the definition of "real property tax", or (iii) which is imposed
for a service or right not charged prior to August, 1990, or, if previously
charged, has been increased since August, 1990, or (iv) which is imposed as a
result of a transfer, either partial or total, of Lessor's interest in the
Premises or which is added to a tax or charge hereinbefore included within the
definition of real property by reason of such transfer (except for any sales tax
on a transfer of the property), or (v) which is imposed by reason of this
transaction, any modifications or changes hereto, or any transfers hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately Lessee's
liability shall be a portion of the real property taxes for land and
improvements included within the tax parcel assessed.
The amount of taxes to be paid by Lessee shall be an amount based upon
the ratio of the number of square feet of the building included in the Premises
occupied by the Lessee as that bears to the total amount of area within the
building that is available for use by Lessor or another tenant. If additional
improvements are placed upon the land whereon the building is located from which
the Premises are delineated, any increase in taxes by reason of such
improvements shall not be a liability of Lessee unless such improvement is
placed specifically upon that portion of the building constituting a part of the
Premises which is occupied by the Lessee, in which event Lessee will pay for all
such additional taxes.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay, prior to delinquency, all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within 10 days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly to the appropriate agency, for
all water, gas, heat, light, power, telephone and other utilities and services
supplied to the Premises, together with any taxes thereon. If any such services
are not separately metered to Lessee, Lessee shall pay a reasonable proportion,
as determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
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12.1 LESSOR' S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law, assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder within
fifteen (15) days after Lessor's receipt of Lessee's request therefor, and in
the event Lessor fails to respond within said 15-day period, Lessor shall be
deemed to have consented to such assignment or sublease. Any attempted
assignment, transfer, mortgage, encumbrance or subletting without such consent
shall be void, and shall constitute a breach of this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of Paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion
thereof, without Lessor's consent, to any corporation, partnership, or other
entity, which controls, is controlled by or is under common control with Lessee,
or to any corporation, partnership, or other entity, resulting from merger or
consolidation with Lessee, or to any person or entity which acquires all the
assets of Lessee as a going concern of the business that is being conducted on
the Premises, provided that said assignee assumes, in full, the obligations of
Lessee under this Lease. Any such assignment shall not, in any way, affect or
limit the liability of Lessee under the terms of this Lease even if after such
assignment or subletting, the terms of this Lease are materially changed or
altered with the consent of Lessee, the consent of whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be waiver by Lessor or any
provision hereof. Consent to assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of default by
any assignee of Lessee or any successor of Lessee, in the performance of the
terms hereof, Lessor may proceed directly against Lessee without the necessity
of exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, and without obtaining its or their consent
thereto and such action shall not relieve Lessee of liability under this Lease;
provided that Lessor delivers written notice of such subsequent assignment,
sublease, amendment or modification to Lessee.
If there is an assignment or subletting of the rights under this Lease
with the consent of Lessor, and thereafter a default occurs on the part of such
assignee, Lessor shall give Lessee notice of such default, and Lessee shall have
ten days within which to cure or commence to cure such default before this Lease
shall be terminated.
12.4 ATTORNEYS' FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting, or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do,
then Lessee shall pay Lessor's reasonable attorneys' fees incurred in connection
therewith, such attorneys' fees not to exceed $1,000 for each such request.
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13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee.
(a) The vacating or abandonment of the Premises by the Lessee,
provided however, that if Lessee continues to pay the rent and other amounts
required under this Lease, such abandonment or vacating will not constitute a
default.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of ten (10) days after receipt of
written notice thereof from Lessor to Lessee. In the event that Lessor serves
with a Notice to Pay Rent or Quit pursuant to applicable unlawful detainer
statutes, such Notice to Pay Rent or Quit shall also constitute the notice
required by this subparagraph.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this lease to be observed or performed by
Lessee, other than described in Paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice thereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30 day period
and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in U.S.C. 101, or any successor statute thereto (unless, in the case of
a petition filed against Lessee, the same is dismissed within 60 days) (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not by execution or other judicial seizure of substantially
all of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within 30 days. Provided, however,
in the event that any provision of this Paragraph 13.1 (d) is contrary to any
applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given
to Lessor by Lessee was materially false at the time given to Lessor; provided
however, that Lessee had actual knowledge of the existence of such falsity and
that such materially false financial statement shall not constitute a default so
long as Lessee remains liable under the terms of this Lease and continues to pay
all amounts required to be paid by Lessee under the terms of this Lease.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default or breach, choose any or all of the following:
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(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate, and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event,
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15,
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event, Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate than allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than ten (10) days after receipt of written notice by Lessee to
Lessor, and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to Lessee
in writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance, then Lessor shall not be in
default if Lessor commences action within such 30 day period and thereafter
diligently prosecutes the same to completion.
Notwithstanding any other provision in this Lease to the contrary or
which provides separate and/or additional remedies for Lessee, in the event
Lessor fails to perform its obligations or fails to initiate performance of its
obligations within said 30-day period, Lessee shall have the right, but not the
obligation, to perform Lessor's obligations, the cost of which shall either be
paid to Lessee by Lessor immediately upon demand therefor, or an offset against
future rentals. In the event Lessee elects not to cure Lessor's failure to
perform and Lessor's failure continues for thirty (30) days after Lessor's
receipt of Lessee's notice, Lessee shall have the right to terminate this Lease
effective immediately upon delivery of written notice of such termination to
Lessor. In the event of such termination by Lessee, each party shall be relieved
of all respective duties and obligations hereunder.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall
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not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a LATE CHARGE equal to the late charge imposed by any
lender of Lessor in connection with the Premises, or 5%, whichever is less, of
such overdue amount. The parties hereby agree that such LATE CHARGE represents
a fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's default with respect to such overdue amount,
nor prevent Lessor from exercising any of the other rights and remedies granted
hereunder.
13.5 IMPOUNDS. If a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of rent, within any Lease
Term, or any other monetary obligations of Lessee under the terms of this Lease,
Lessee shall pay to Lessor, in addition to any other payments required under
this Lease, a monthly advance installment, payable at the same time as the
monthly rent, for real property taxes and insurance expenses on the Premises,
which are payable by Lessee to Lessor under the terms of this Lease. Such
monthly impound shall be an amount equal to 1/12 of the real property tax for
the last taxable year, and 1/12 of the insurance premium for the preceding
insurance year during which insurance premiums were paid for the insurance
required to be paid for by Lessee under the terms of this Lease. Such funds
shall be established to insure payment when due before delinquency of any and
all such real property taxes and insurance premiums. If the amounts paid to
Lessor by Lessee under the provisions of this Paragraph 13.5 are insufficient to
discharge the obligations of Lessee to pay such real property taxes and
insurance premiums as the same become due, Lessee shall pay to Lessor, upon
Lessor's demand, such additional sums necessary to pay such obligations. All
monies paid to Lessor under this Paragraph 13.5 may be intermingled with other
monies of Lessor and shall not bear interest. In the event of a default in the
obligation of Lessee to perform under this Lease, then any balance remaining
from the funds paid to Lessor under the provisions of this Paragraph 13.5, may
at the option of Lessor be applied to payment of any monetary default of Lessee
in lieu of being applied to the payment of real property tax and insurance
premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken
under the power of eminent domain, or sold under the threat of the exercise of
said power (all of which are herein called "condemnation"), and such
condemnation renders the Premises unsuitable for Lessee's use, as reasonably
determined by Lessee, this Lease shall terminate as to the part so taken as of
the date of condemning authority takes title or possession, whichever first
occurs. If more than 10% of the floor area of the building on the Premises, or
more than 25% of the land area of the Premises, or a majority of the parking
area designated for Lessee's use, which is not occupied by any building, is
taken by condemnation, or if such condemnation renders the Premises unsuitable
for Lessee's use or adversely affects Lessee's use of the Premises, as
reasonably determined by Lessee, Lessee may at Lessee's option, to be exercised
in writing only within ten (10) days after Lessee's receipt of written notice of
such taking (or in the absence of such notice, within (10) days after the
condemning authority shall have taken possession) terminate this Lease as of the
date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises
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remaining, except that the rent shall be reduced in the proportion that the
floor area of the building taken bears to the total floor area of the building
constituting the Premises. Any award for the taking of all or any part of the
Premises under which the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any award for loss of or damage to
Lessee's trade fixtures and removable personal property. In the event that this
Lease is not terminated by reason of such condemnation, Lessor shall, in the
exercise of due diligence, repair any damage to the Premises caused by such
condemnation except to the extent that Lessee has been reimbursed therefor by
the condemning authority.
15. BROKER'S FEE.
(a) Upon the execution of this Lease by both parties, Lessor
shall be responsible for all Broker's Fees connected with this Lease, and in
accord with separate agreement(s) for same. This paragraph is set forth for
information purposes only, and has no binding obligation on the part of Lessee.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time, within fifteen (15) days after
written notice from Lessor, execute, acknowledge and deliver to lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults
if any are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such
statement within such time shall be conclusive upon Lessee (i) that this Lease
is in full force and effect, without modification except as may be represented
by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and
(iii) that not more than one month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor, such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three years' financial statements of Lessee. All such financial
statements shall be received by Lessor, such lender or purchaser in confidence
and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY
The term "Lessor" as used herein shall mean only the owner or
owners at the time in question of the fee title or a Lessee's interest in a
ground Lease of the Premises, and except as expressly provided in Paragraph 15,
in the event of any transfer of such title or interest, Lessor herein
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named (and in case of any subsequent transfers then the grantor) shall be
relieved from and after the obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease is
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Lessor not paid when due shall bear interest at the
rate equal to First Interstate Bank of Arizona's "Prime Rate" as announced from
time to time, plus 2%, from the due date. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME IS OF THE ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor
under the terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS.
This Lease, including the Exhibits attached hereto, contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective,
except for Lease Proposal Documents and letters, which are incorporated herein
by reference. This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification. Except as otherwise stated in this
Lease, Lessee hereby ackknowledges that neither the real estate broker listed in
Paragraph 15 hereof, nor any cooperating broker on this transaction, nor the
Lessor or any employees or agents of any of said person has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of said Premises, and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery, certified mail, or
overnight delivery, and if given personally or by mail, shall be deemed
sufficiently given if addressed to Lessee or to Lessor at the address noted
below the signature of the respective parties, as the case may be. Either party
may by notice to the other specify a different address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
The notices herein provided for shall be deemed given upon the date
- 22 -
<PAGE>
the personal delivery is made, and a receipt for such notice is signed by an
authorized agent of Lessor or Lessee. If notice is given by certified mail, it
shall be return receipt requested, and shall be deemed given upon the date
indicated as having been delivered by the United States Postal Department on the
return receipt.
Notices to LESSEE shall be sent to:
26 Harbor Park Drive
Port Washington, New York 11050
Notices to LESSOR shall be sent to:
4515 S. McClintock Drive,
Suite 220 Tempe, Arizona 85282
24. WAIVERS. No waiver by Lessor of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Lessee of the same or any other provision. Lessor's consent to or approval of
any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
rent so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the
other, execute, acknowledge and deliver to the other a "short form" memorandum
of this Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in
possession of the Premises or any part thereof after the expiration of the term
hereof, or the extended term, such occupancy shall be a tenancy from month to
month upon all the provisions of this Lease pertaining to the obligations of
Lessee, but all options and rights of first refusal, if any, granted under the
terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease per-
formable by Lessee and Lessor shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
Paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any
- 23 -
<PAGE>
ground lease, mortgage, deed of trust, or any other hypothecation or security
now or hereafter placed upon the real property of which the Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this lease assigned, the
Lessor shall give written notice thereof to Lessee, this Lease shall be deemed
prior to such mortgage, deed of trust or ground lease, whether this Lease is
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof. Upon any subordination, the Lessee
hereunder shall continue to be entitled to peaceable possession of the Premises
so long as Lessee is not in default under any of the terms of this Lease.
(b) Lessee agrees to execute any documents reasonably required to
effectuate an attornment, a subordination or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be.
Lessee's failure to execute such documents within 10 days after receipt of
written demand shall constitute a material default by Lessee hereunder, unless
the subordination agreement or document does not provide for the continued
peaceable possession of Lessee when not in default under the terms of this
Lease.
31. ATTORNEY'S FEES. If either party named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court.
32. LESSOR 'S ACCESS. Lessor and Lessor's agents shall have the
right to enter the Premises at reasonable times and for upon twenty-four (24)
hours' prior notice to Lessee, or as otherwise agreed to from time to time
between the parties, for the purpose of inspecting of the same, showing the same
to lenders, prospective purchasers, or prospective lessees, and making such
alterations, repairs, improvements or additions to the Premises as Lessor may
deem necessary or desirable. Lessor may not at any time place on or about the
Premises any ordinary "For Sale" signs; without receiving prior written
permission from Lessee, Lessor may at any time during the last 180 days of the
term or extended term hereof place on or about the Premises any ordinary "For
Lease" signs, without receiving prior written permission from Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in the Lease, Lessor shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises
without Lessor's prior written consent, which shall not unreasonably be
withheld, if in conformity with sign ordinances applicable thereto, and
commensurate with the tenant's signs located on the property and in the
neighborhood,
- 24 -
<PAGE>
except that Lessee shall have the right without the prior permission of Lessor,
to place ordinary and usual For Rent or Sublet signs thereon.
35. CONSENTS. Wherever in this Lease the consent of one party is
required to an act of the other party, such consent shall not be unreasonably
withheld or delayed.
36. GUARANTOR. In the event that there is a guarantor of this Lease,
an addendum or modification to the Lease, defining the scope and/or limitations
of the guarantor, shall be set forth.
37. QUIET SESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof, and extended term,
subject to all of the provisions of this Lease. The individual(s) executing this
Lease on behalf of Lessor, represent and warrant to Lessee that they are fully
authorized and legally capable of executing this Lease on behalf of Lessor and
that such execution is binding upon all parties holding an ownership interest in
the Premises.
38. OPTIONS.
38.1 DEFINITION. As used in this paragraph the word "OPTIONS" has
the following meaning: (1) the right or option to extend the term of this Lease
or to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease, or right
of first refusal to lease the Premises, or the right of first offer to lease the
Premises, or the right of first refusal to lease other property of Lessor or
the right of first offer to lease other property of Lessor.
38.2 OPTIONS ASSIGNABLE ONLY WITH ASSIGNMENT OF LEASE. Each
Option granted to Lessee in this Lease are personal to Lessee and may not be
exercised or be assigned, voluntarily or involuntarily, by or to any person or
entity other than Lessee, provided however, the Option may be exercised by or
assigned to any assignee of Lessee approved by Lessor, pursuant to Paragraph
12.1 of this Lease, or by any Lessee Affiliate as defined in Paragraph 12.2 of
this Lease. The Options herein granted to Lessee are not assignable separate and
apart from this Lease.
38.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease, a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
38. EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to Paragraph 13.1 (b) or 13.1 (c) and continuing until the default
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due
- 25 -
<PAGE>
from Lessee and unpaid and continuing until the obligation is paid, or (iii) at
any time after an event of default described in Paragraphs 13.1 (a), 13.1 (d),
or 13.1 (e) (without any necessity of Lessor to give notice of such default to
Lessee).
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of Paragraph 39.4 (a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due, or (ii) Lessee fails
to commence to cure a default specified in Paragraph 13.1 (c) within 30 days
after the date that Lessor gives notice to Lessee of such default and/or Lessee
fails thereafter to diligently prosecute said cure to completion, or (iii)
Lessee commits a default described in Paragraph 13.1 (a), 13.1 (d), or 13.1 (e)
(without the necessity of Lessor to give notice of such default to Lessee), or
(iv) Lessor gives to Lessee three or more notices of default under Paragraph
13.1 (b), where a late charge becomes payable under Paragraph 13.4 for each
such default, or Paragraph 13.1 (c), except where the defaults are cured.
39. MULTIPLE TENANT BUILDING. In the event that the Premises are part
of a larger building or group of buildings, then Lessee agrees that it will
abide by, keep and observe all reasonable rules and regulations which Lessor may
make from time to time for the management, safety, care, and cleanliness of the
building and grounds, the parking of vehicles and the preservation of good order
therein as well as for the convenience of other occupants and tenants of the
building; provided, however, that any such Rules and Regulations must apply
uniformly to all tenants in the building and, provided further, that such Rules
and Regulations do not abrogate in any way Lessee's rights under this Lease. The
material violation of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee. If Lessor deems Lessee in breach of this
Paragraph 40, notice of such breach shall be given and a reasonable time to
correct the same on the part of Lessee shall be granted not to exceed 30 days
unless correction cannot reasonably be made within such period of time.
40. SECURITY MEASURES. Lessee hereby acknowledges that the rental
payable to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the overall protection of
Lessee, its agents, and invitees from acts of third parties.
41. EASEMENTS. Lessor reserves to itself the right, from time to
time, to grant such easements, rights and dedications that Lessor deems
necessary or desirable, and to cause the recordation of Parcel Maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not in any way affect Lessee's access to the Premises, or
unreasonably interfere or otherwise adversely affect Lessee's use of and
enjoyment of the Premises. Provided such easements, rights, dedications, maps
and restrictions comply with the foregoing, Lessee shall sign any of the
- 26 -
<PAGE>
aforementioned documents upon request of Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise
as to any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof said party shall be entitled to recover such
sum or part thereof, as it was not legally required to pay under the provisions
of this Lease, together with such party's attorneys' fees and court costs to be
fixed by the Court.
43. AUTHORITY. If Lessee is a corporation, trust, or a general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity. If Lessee is a corporation, trust,
or partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. INSURING PARTY. The Insuring Party under this Lease shall be the
Lessor. Lessee shall be responsible to insure its own property, and the contents
of the Premises to the extent Lessee desires to insure same and to carry such
liability insurance as Lessee may determine is appropriate, and as subject only
to the requirements of Paragraph 8 above.
- 27 -
<PAGE>
The parties hereto have executed this Lease at the place on the dates specified
in the acknowledgments hereto.
LESSEE LESSOR
SCHEIN PHARMACEUTICAL, INC. RONALD G. ROTH
26 Harbor Park Drive 4515 S. McClintock Drive, Suite 220
Port Washington, New York 11050 Tempe, Arizona 85282
By /s/ Martin Sperber By /s/ Ronald G. Roth
------------------------------- ----------------------------
Chairman
------------------------------- ----------------------------
Title Title
Date: 3/29/90 Dated: Mar. 28, 1990
---------------------------- ------------------------
By /s/ Paul Kleutghen
-------------------------------
VP - Operations
-------------------------------
Title
Dated: 3/26/90
---------------------------
STATE OF NEW YORK, COUNTY OF NASSAU:
On the 27th day of March, 1990, before me personally came Paul Kleutghen to me
known, who, being by me duly sworn, did depose and say that he resides in
Suffolk County, New York, that he is the Vice President-Materials Operations of
Schein Pharmaceutical, Inc. the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation, and that he signed his name
thereto by like order.
/s/ David S. Weinstock
DAVID S. WEINSTOCK
Notary Public, State of New York
No. 4690529
Qualified in Nassau County
Commission Expires April 30, 1991
STATE OF NEW YORK, COUNTY OF NASSAU:
On the 27th day of March, 1990, before me personally came Martin Sperber to me
known, who, being by me duly sworn, did depose and say that he resides in Nassau
County, New York, that he is the Chairman of Schein Pharmaceutical, Inc. the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he signed his name thereto by like order.
/s/ David S. Weinstock
DAVID S. WEINSTOCK
Notary Public, State of New York
No. 4690529
Qualified in Nassau County
Commission Expires April 30, 1991
- 28 -
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 28th day of
March, 1990, by Ronald G. Roth.
/s/ Lynette M. Campagna
------------------------------
Notary Public
[NOTARY SEAL APPEARS HERE]
My Commission Expires:
December 8, 1990
------------------------------
- 29 -
<PAGE>
[WAREHOUSE FLOOR PLAN APPEARS HERE]
EXHIBIT "A"
Attached to that certain Lease dated February 16, 1990
<PAGE>
[EAST AND WEST WING OFFICE FLOOR PLAN APPEARS HERE]
EXHIBIT "B"
Attached to that certain Lease dated February 16, 1990
<PAGE>
EXHIBIT "C"
Attached to that certain Lease dated
February 16, 1990
LEGAL DESCRIPTION
PHASE ONE AND TWO A
A portion of the Northwest quarter, Section 15, Township 1 North, Range 2 East,
Gila and Salt River Base and Meridian, Maricopa County, Arizona; more
particularly described as follows:
Commencing at the West quarter corner of said Section 15. Thence North (assumed)
along the West line of the Northwest quarter of said Section 15 a distance of
648.46 Ft. to the South line of a parcel of land as recorded in Docket 9581,
page 180, Maricopa County Recorders Office. Thence S-89(degrees)50'00" E along
said South line a distance of 388.29 Ft. to the point of beginning.
Thence continuing S-89(degrees)50'00" E along said South line a distance of
918.99 Ft. to the Southeast corner of said parcel; said corner also being on the
centerline of the Southern Pacific Transportation Company drill track. Thence
S-00(degrees)01'00" E along said centerline of drill track a distance of 251.80
Ft. to a point of curve. Thence Southeasterly along said curve, being concave
Northeasterly having a radius of 294.18 Ft., a central angle of 89(degrees)
37'00", a distance of 459.57 Ft. Thence S-00(degrees)01'00" E along a non-
tangent line, leaving said centerline a distance of 10.00 Ft. to the North right
of way line of the Roosevelt Irrigation District canal; said North right of way
line being 99.00 Ft. North as measured at right angles from the East-West mid
section line of Section 15. Thence N-89(degrees)38'00" W along said North right
of way line a distance of 1214.91 Ft. Thence N-00(degrees)22'00" W leaving said
right of way line a distance of 550.80 Ft. to the point of beginning.
529,882 Sq. Ft.
12.1644 Acres +/- Gross
Includes 15 Ft. for railroad purposes
[REGISTERED LAND
SURVEYOR SEAL
APPEARS HERE]
<PAGE>
[SITE PLAN APPEARS HERE]
EXHIBIT "D"
Attached to that certain Lease dated February 16, 1990
<PAGE>
[EAST WING FLOOR PLAN APPEARS HERE]
EXHIBIT "E"
Attached to that certain Lease dated February 16, 1990
<PAGE>
SECOND ADDENDUM TO LEASE
------------------------
SECOND ADDENDUM TO LEASE made and entered into this 20th day of August 1990
by and between RGR DEVELOPMENT CORPORATION "Lessor", and SCHEIN PHARMACEUTICAL,
INC. "Lessee".
WHEREAS, SCHEIN PHARMACEUTICAL, INC., entered into a Lease dated February
16, 1990, with RONALD G. ROTH, subsequently assigned to RGR DEVELOPMENT
CORPORATION as of May 15, 1990.
WHEREAS, SCHEIN PHARMACEUTICAL, INC. has requested certain additional
Tenant Improvements, and the Parties have amended the size and scope of
improvements connected therewith, hereby agree to the following revisions:
NOW, therefore the Lease is modified as follows:
PAR 2. PREMISES. - fifth paragraph - The square footage of the building
space being leased under the terms hereof, is approximately 81,775 square
feet.
PAR. 3. RENT - revise the RENT amount(s) as follows:
Par. 3.1(a) $24,732.34
Par. 3.1(b) $26,922.97
Par. 3.1(c) $28,514.49
Par. 3.1(d) $30,953.44
Par. 3.2(a) $28,983.65
Par. 3.3(a) $30,738.17
Par. 3.4(a) $33,531.86
All other terms and conditions of the Lease, except as specifically
modified herein, or by Addendum, shall remain in full force and effect.
LESSEE LESSOR
SCHEIN PHARMACEUTICAL, INC. RGR DEVELOPMENT CORPORATION
26 Harbor Park Drive 4515 S. McClintock Drive, Suite 220
Port Washington, New York 11050 Tempe, Arizona 85282
By /s/ Martin Sperber By /s/ Ronald G. Roth
------------------------------- ----------------------------
Chairman President
------------------------------- ----------------------------
Title Title
Date: August 27th, 1990 Dated: Aug. 21, 1990
---------------------------- ------------------------
By /s/ Paul Kleutghen
-------------------------------
VP - Operations
-------------------------------
Title
<PAGE>
STATE OF NEW YORK, COUNTY OF NASSAU:
On the 27th day of August, 1990, before me personally came Martin Sperber to me
known, who, being by me duly sworn, did depose and say that he resides in Nassau
County, New York, that he is the Chairman of Schein Pharmaceutical, Inc., the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he signed his name thereto by like order.
/s/ Norma Olszewski
----------------------
Notary Public
NORMA OLSZEWSKI
NOTARY PUBLIC, State of New York
No. 41-4914787
Qualified in Queens County
Certificate Filed in Nassau County
Commission Expires Dec. 14, 1991
STATE OF NEW YORK, COUNTY OF NASSAU:
On the 27th day of August, 1990, before me personally came Paul P. Kleutghen to
me known, who, being by me duly sworn, did depose and say that he resides in
Nassau County, New York, that he is the VP - Operations of Schein
Pharmaceutical, Inc., the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation, and that he signed his name
thereto by like order.
/s/ Norma Olszewski
----------------------
Notary Public
NORMA OLSZEWSKI
NOTARY PUBLIC, State of New York
No. 41-4914787
Qualified in Queens County
Certificate Filed in Nassau County
Commission Expires Dec. 14, 1991
STATE OF ARIZONA )
)ss.
County of Maricopa )
The foregoing instrument was acknowledged before me the 21st day of August, 1990
by Ronald G. Roth.
[NOTARY SEAL APPEARS HERE]
/s/ Tina M. Koester
-----------------------------
Notary Public
My Commission Expires:
-----------------------------
<PAGE>
THIRD ADDENDUM TO LEASE
-----------------------
THIRD ADDENDUM TO LEASE made and entered into this 25th day of September
1990 by and between RGR DEVELOPMENT CORPORATION "Lessor", and SCHEIN
PHARMACEUTICAL, INC. "Lessee".
WHEREAS, SCHEIN PHARMACEUTICAL, INC., entered into a Lease dated February
16, 1990, with RONALD G. ROTH, subsequently assigned to RGR DEVELOPMENT
CORPORATION as of May 15, 1990.
WHEREAS, the parties to the Lease mutually agree to formally establish the
Lease Commencement Date.
NOW, therefore the Lease is modified as follows:
PAR. 4.3 - Revise to: The Lease Commencement Date is herewith established
as being November 1, 1990. The Occupancy Date of the premises is herewith
established as being September 1, 1990.
Early Move-In - The parties herewith agree that the month of October, 1990,
shall be considered as an Early Move-In/additional month for tenant
fixturization, and a monthly rental (Rent) consideration shall be paid
Lessor, as established in Par. 3.1(a)- Second Addendum.
All other terms and conditions of the Lease, except as specifically
modified herein, or by Addendum, shall remain in full force and effect.
LESSEE LESSOR
SCHEIN PHARMACEUTICAL, INC. RGR DEVELOPMENT CORPORATION
26 Harbor Park Drive 4515 S. McClintock Drive, Suite 220
Port Washington, New York 11050 Tempe, Arizona 85282
By /s/ Martin Sperber By /s/ Ronald G. Roth
------------------------------- ----------------------------
Chairman President
------------------------------- ----------------------------
Title Title
Date: October 11, 1990 Dated: 10-3-90
---------------------------- ------------------------
By /s/ Paul Kleutghen
-------------------------------
Vice President, Operations
-------------------------------
Title
Dated: October 11, 1990
---------------------------
<PAGE>
STATE OF NEW YORK, COUNT OF NASSAU:
On the 11th day of October, 1990, before me personally came Martin Sperber to me
known, who, being by me duly sworn, did depose and say that he resides in Nassau
County, New York, that he is the Chairman of Schein Pharmaceutical, Inc., the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he signed his name thereto by like order.
/s/ Christina Shevchenko
----------------------------------
Notary Public
CHRISTINA SHEVCHENKO
Notary Public, State of New York
No. 30-4810282
Qualified in Nassau County
Commission Expires June 30, 1991
STATE OF NEW YORK, COUNTY OF NASSAU:
On the 11th day of October, 1990, before me personally came Paul Kleutghen to me
known, who, being by me duly sworn, did depose and say that he resides in Nassau
County, New York, that he is the Vice President-Materials Operations of Schein
Pharmaceutical, Inc., the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation, and that he signed his name
thereto by like order.
/s/ Christina Shevchenko
----------------------------------
Notary Public
CHRISTINA SHEVCHENKO
Notary Public, State of New York
No. 30-4810282
Qualified in Nassau County
Commission Expires June 30, 1991
STATE OF ARIZONA )
)ss.
County of Maricopa )
The foregoing instrument was acknowledged before me the 3rd day of October, 1990
by Ronald G. Roth.
/s/ Patty A. Chasey
------------------------------
Notary Public
My Commission Expires:
------------------------------
[NOTARY SEAL APPEARS HERE]
<PAGE>
EXHIBIT 10.10
MEMORANDUM OF LEASE
-------------------
PLEASE TAKE NOTICE, that on the 1st day of December, 1995, Albert J.
Salame, P.O. Box 766, Danbury, Connecticut ("Landlord") did lease to Danbury
Pharmacal, Inc., 131 West Street, Danbury, Connecticut ("Tenant") space in
buildings located at 131 West Street pursuant to a written lease agreement (the
"Agreement"). The property upon which the buildings are located is described in
Exhibit "A" attached hereto and incorporation herein by reference (the
"Property"). The term of the lease is for ten (10) years commencing January 1,
1996 and terminating on December 31, 2005 and contains an option to extend the
term for an additional ten (10) years. A copy of the agreement is on file at
the office of the Landlord located at 131 West Street, Danbury, Connecticut.
WITNESSES LANDLORD
/s/ /s/
- ------------------------- ---------------------------
/s/
- -------------------------
WITNESSES TENANT
Danbury Pharmacal, Inc.
/s/ /s/
- ------------------------- ---------------------------
/s/ By: SENIOR VICE PRESIDENT AND GENERAL
- --------------------------- MANAGER
---------------------------------
its duly authorized
<PAGE>
State of Connecticut )
) ss. Danbury
County of Fairfield )
The foregoing instrument was acknowledged before me this 1st day of
December, 1995 by Albert J. Salame.
--------------------------
Commission of the Superior
Court
State of New York )
) ss.
County of Putnam )
The foregoing instrument was acknowledged before me this 1st day of
December, 1995 by Jay Cayadd as Senior Vice President and General MGR. of
Danbury Pharmacal, Inc.
--------------------------
Commission of the Superior
Court/Notary Public
Nancy M. Perez
Notary Public, State of New York
No. 4968581
Qualified in Putnam County
Commission Expires July 2, 1996
<PAGE>
EXHIBIT A
127-131 West St., Danbury, CT
All those certain pieces or parcels of land with the buildings and improvements
located thereon, situated in the City of Danbury, County of Fairfield and State
of Connecticut located on West Street and as shown on a certain map entitled
"BOUNDARY MAP - AREA = 5.5436 ACRES MAP PREPARED FOR ALBERT J. SALAME SHOWING
PROPERTY SITUATED AT 127 - 131 WEST STREET, DANBURY, CONNECTICUT SCALE 1" =
40' JAN. 29, 1993", certified substantially correct by Sydney A. Rapp, Jr.,
R.L.S., which map is to be filed with the Office of the Town Clerk of the City
of Danbury.
<PAGE>
Lease
Lease dated as of the 1st day of December, 1995 between Albert J. Salame,
having a mailing address at Salame Plaza, P.O. Box 766, Danbury, Connecticut
06813 ("Landlord"), and Danbury Pharmacal Inc., 131 West Street, Danbury, CT
06810, ("Tenant").
1. DEMISED PREMISES; ENTIRE PREMISES: Landlord hereby Leases to Tenant and
---------------------------------
Tenant hereby Leases from Landlord, subject to the provisions of this Lease, the
following premises (the "demised premises"), being certain buildings owned by
Landlord and located on at 131 West Street, in the City of Danbury, County of
Fairfield, State of Connecticut. All prior leases and agreements between the
parties are terminated effective commencement date of this Lease.
The premises containing 87,680 square feet more or less in the buildings
designated A, B, C, D, and E as shown on the site plan attached hereto as
Exhibit A.
(a) Entire Premises: The term "Entire Premises" shall mean the land
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described in Schedule A-1 hereto attached, together with the building and Common
Facilities from time to time situated thereon.
2. COMMON FACILITIES: the Common Facilities of the Entire Premises shall
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consist of all those portions of the Entire Premises which are not, from time to
time, Leased to any tenant and are intended for use in common by all tenants,
and those having business with them in the Entire Premises, as facilities for
automobile parking, vehicular and pedestrian access. The general term "Common
Facilities" includes, without limitation, all parking areas, aisles, driveways,
entrances, exits, sidewalks, access ramps of all kinds (whether for regular
pedestrian use, for use by handicapped persons) or otherwise, lighting
facilities of all types and wherever located, if used to illuminate any of the
Common Facilities, surface drainage facilities, pavement striping, traffic
control signs, which exist in the Entire Premises from time to time, and any
plantings and landscaped areas which Landlord elects. The foregoing
notwithstanding Landlord assumes no obligation with respect to nor shall the
term "Common Facilities" include any fence, gate, privacy or security fence or
barrier constructed by Tenant which shall remain the property of the Tenant or
the common area reserved for the exclusive use of the Tenant resulting from the
location of such fence or barrier or other areas privately maintained by Tenant.
Tenant will indemnify and hold Landlord harmless, absolutely from and against
any and all claims, suits,
<PAGE>
actions, damages, costs, expenses including reasonable attorney's fees by reason
of any actual or claimed injury to person or property, or loss of life sustained
in connection with the construction and use by Tenant of any such fence or
barrier.
(a) During the term of this Lease, Landlord hereby grants to Tenant a
nonexclusive license and the right for Tenant, its guests, customers, invites,
employees, and agents in common with Landlord and all persons conducting
business within the Entire Premises and their respective customers, guests,
invites, employees and agents to use those portions of the Entire Premises shown
on Exhibit A-1 hereto as automotive parking areas, pedestrian and vehicular
accessways, sidewalk and passageways, and ingress and egress areas for
pedestrian and vehicular ingress and egress, parking and all purposes for which
such areas would customarily be utilized. Specific parking spaces shall be
designated for Tenants exclusive use on a new site to be prepared by Landlord
subject to the mutual agreement of the parties.
3. TERM: The term of the Lease as modified shall begin on the
----
Commencement date as defined in subsection (a) and shall terminate on
December 31, 2005.
(a) Commencement Date: The "Commencement Date" shall vary with respect to
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the Demised Premises as follows:
(i) Buildings A, B, C, and D - January 1, 1996
(ii) Building E - (a) as to any portion of the building not requiring
the Landlord's work set forth in paragraph 34 of this lease, January 1, 1996;
(b) as to any portion of the building requiring said work, upon substantial
completion of that work, or the date that work would have been substantially
complete but for Tenant delays. Substantial completion shall mean the work
has been completed in accordance with the work letter referenced in Paragraph
34 excluding any utility relocation work required of Northeast Utilities and the
installation of the asphalt pavement overlay. In the event the work has been
substantially completed on any portion of the Building, then the Lease will
commence as to that portion of the Building even though work remains to be
completed on the remaining portion of the building. In the event the lease
commences on a portion(s) of the building, but not simultaneously on the entire
building, the rent shall be prorated as to that portion(s) on a square foot
basis pending commencement on the entire building. Although the Lease Term as
to Building E may commence on varying dates, it will terminate on December 31,
2005.
(b) The term "Lease Year" shall mean each of the successive periods of
twelve (12) calendar months which fall in the term, beginning with the first
day of the first month following the Commencement Date (or beginning with the
Commencement date, if that is the first day of the month, but if this Lease ends
on a day other than the last day of a Lease Year as defined above) the last
Lease Year shall end on the termination date.
4. RENT: Tenant shall pay the Landlord without demand, a minimum net rental as
----
follows:
(a) With respect to Building A, consisting of 24,000 square feet, a
minimum net rental of $102,470.00 per annum payable in equal monthly
installments of $8,539.l7.
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<PAGE>
(b) With respect to Building B, consisting of 23,000 square feet, a minimum
net rental of $202,000.00 times the percentage increase in the Consumer Price
Index for the Northeast Region for the previous 12 months per annum payable
in equal monthly installments.
(i) At the end of the first Lease Year and on each Lease Year
anniversary date thereafter, the minimum net rental the Tenant shall pay for the
next succeeding Lease Year shall be the minimum net rental for the previous
Lease Year plus the CPI increase. The CPI increase is an amount equal to the
minimum net rental of the previous year times the percentage increase in the
Consumer Price Index for the Northeast Region for that year. Providing,
however, in no one year shall the increase be greater than seven (7%) percent or
less than two and one-half (2.5%) percent.
(c) With respect to Building C, consisting of 12,000 square feet, a minimum
net rental of $105,400.00 times the percentage increase in the Consumer Price
Index for the Northeast Region for the previous 12 months per annum payable
in equal monthly installments.
(i) At the end of the first Lease year and on each Lease Year
anniversary date thereafter, the minimum net rental the Tenant shall pay for the
next succeeding Lease Year shall be the minimum net rental for the previous
Lease Year plus the CPI increase. The CPI increase is an amount equal to the
minimum net rental of the previous year times the percentage increase in the
Consumer Price Index Northeast Region for that year. Providing, however, in no
one year shall the increase be greater than seven (7%) percent or less than two
and one-half (2.5%) percent.
(d) With respect to Building D, consisting of 3,680 square feet, a minimum
net rental of $27,650.00 times the percentage increase in the Consumer Price
Index for the Northeast Region for the previous 12 months per annum payable
in equal monthly installments.
(i) At the end of the first Lease Year and on each Lease Year
anniversary date thereafter, the minimum net rental the Tenant shall pay for the
next succeeding Lease Year shall be the minimum net rental for the previous
Lease Year plus the CPI increase. The CPI increase is an amount equal to the
minimum net rental of the previous year times the percentage increase in the
Consumer Price Index Northeast Region for that year. Providing, however, in no
one year shall the increase be greater than seven (7%) percent or less than two
and one-half (2.5%) percent.
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<PAGE>
(e) With respect to Building E, consisting of 25,000 square feet, the
minimum net rental for the first twelve (12) months shall be $143,750.00 per
annum payable in equal monthly installments of $11,979.17.
(i) Commencing on the thirteenth month, the minimum net rental shall
be $162,500.00 per annum payable in equal monthly installments of $13,541.67.
(ii) Commencing January 1, 1998, the minimum net rental shall be
determined by multiplying the square footage of Building E times the minimum net
rental per square foot of Building D for that year.
(iii) Commencing January 1, 1999, and on each anniversary date
thereafter, the minimum net rental the Tenant shall pay for the next succeeding
year shall be the minimum net rental for the previous year plus the CPI
increase. The CPI increase is an amount equal to the minimum net rental of the
previous year times the percentage increase in the Consumer Price Index
Northeast Region for that year. Providing, however, in no one year shall the
increase be greater than seven (7%) percent or less than two and one-half (2.5%)
percent.
(f) Pending determination of the additional amounts to be paid by the
Tenant as a result of a Consumer Price Index adjustment, the Tenant shall
continue to pay the minimum annual rental due Landlord as of the last adjustment
date or in the case of the first year, the amounts stipulated in this Lease and
when the additional amount has been determined, the Tenant, on the first day of
the month immediately following the furnishing by Landlord to Tenant of the
computation thereof shall pay to the Landlord the increased amount from the
commencement of the Lease Year in question up to and including the first day of
such month.
5. SECURITY DEPOSITS: INTENTIONALLY OMITTED
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6. UTILITIES: Tenant shall, at its own cost and expense pay all charges when
---------
due for water, gas, electricity, heat, sewer and water rentals or charges and
any other utility charges incurred in the use of the Demised Premises except as
or otherwise provided in this Lease.
7. USE OF PREMISES: Tenant agrees to use the Leased Premises for
---------------
pharmaceutical related businesses. Any other unrelated use is prohibited
without the written approval of the Landlord which approval shall not be
unreasonably withheld.
8. CONDITION OF PREMISES, ORDINANCES AND VIOLATIONS:
------------------------------------------------
(a) The Tenant shall make no alteration, addition or improvement in the
premises in excess of $25,000 without the prior
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<PAGE>
written consent of Landlord and in any event only be contractors or mechanics
approved by Landlord, which consent or approval shall not be unreasonably
withheld or delayed;
(b) Throughout the term of this Lease, Landlord agrees to make structural
repairs to the premises which shall be deemed to mean repairs to the structural
frame, exterior of the premises, to the roof and to utilities and facilities
servicing the premises to the extent that they are located outside of the Leased
Premises, as well as to the common areas of the Landlord's premises, except as
previously noted, all at Landlord's expense unless such repairs are necessitated
by the act of Tenant or any of it's employees or business invites. All other
non-structural repairs shall be done by the Tenant at Tenant's expense. All
repairs and replacements shall be at least equal in quality of workmanship and
materials to that existing in Leased Premises at the commencement of this Lease.
Tenant shall indemnify the Landlord against all costs, expenses, liabilities,
losses, damages, suits, fines, penalties, claims and demands, including
reasonable attorney's fees, because of Tenant's failure to comply with the
foregoing covenant. The Landlord shall in no event be required to make any
repair, alteration or improvement to the Leased Premises except as set forth
above. If, upon notice from Tenant, Landlord fails to make any such required
repairs, which affect the habitability of any portion of the demised premises,
Tenant may but shall not be required to make those repairs and deduct the cost
of same from future installments of rent.
(c) The necessity for and adequacy of repairs and replacements to
the Leased Premises shall be measured by the standard which is appropriate
for improvements of similar construction and class, provided that Tenant
shall in any event make all repairs necessary to comply with the building,
health and fire codes of Danbury, Connecticut. Tenant shall not be obligated to
make any repairs or replacements which are structural in nature and are outside
the Leased Premises and generally serve the entire building.
(d) Upon the last day or sooner termination of the term hereof, Tenant
shall surrender to Landlord the Demised Premises in broom clean condition.
All alterations, additions and improvements, whether temporary or permanent
in character, which may be made upon the premises, either by the Landlord or the
Tenant, shall be surrendered with the premises as a part thereof upon the
termination of this Lease without compensation to the Tenant. Tenant may
remove its trade fixtures provided however it shall restore the premises to
substantially the same conditions as existed prior to their installation.
(e) Subject to Landlord's obligations set forth in subpara-
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<PAGE>
graph (b) above, Tenant shall: Suffer no waste or injury to Demised Premises;
give prompt notice to the Landlord of any damage that may occur; execute and
comply with all laws, rules, orders, ordinances and regulations at any time
issued or in force, applicable to the Demised Premises or to the Tenant's use
and occupancy thereof, of the City, State and Federal Governments and Landlord,
and of each and every department, bureau and official thereof, and of the Board
of Fire Underwriters having jurisdiction thereof. An adequate fire protection
system will be installed on the premises and during the term of this lease,
Tenant agrees to maintain a service or maintenance agreement on said system
consistent with the manufacturer's recommendation or to pay its prorata share of
a master maintenance agreement if applicable.
9. ASSIGNMENT: The Tenant shall not assign, mortgage or encumber this Lease in
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whole or in part, or subject all or any part of the Leased premises to a sub-
lease without the prior written consent of the Landlord which consent shall not
be unreasonably withheld and in the event of a sale or merger of Tenant's
business to a entity of financial ability similar in all respects to Tenants as
of the commencement of this Lease, Landlord shall be notified but its consent
shall not be required. The consent by Landlord to any assignment or subletting
shall not constitute a waiver of the necessity for such consent to any
subsequent assignment or subletting. This prohibition against assigning or
subletting shall be construed to include a prohibition against assigning or
subletting by operation of law. If this Lease be assigned or if the Leased
premises or any part thereof be occupied by anybody other than the Tenant,
Landlord may collect rent from the assignee, or occupant and apply the net
amount collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of this
provision or the acceptance of the assignee, under Tenant or occupant as lessee,
or as a release of Tenant from the further performance by it of the provisions
on its part to be observed or performed herein. Notwithstanding any assignment
or sub-lease, Tenant shall remain fully liable and shall not be released from
performing any of the terms of this Lease except where the assignment is a
result of a sale or merger of Tenant's business.
10. FIRE AND OTHER CASUALTY: If during the term of this Lease any of the
-----------------------
buildings comprising the Demised Property shall be partially or totally
destroyed by fire or other casualty or peril then the following shall be
applicable:
(a) If, in Landlord's reasonable opinion (to be given to Tenant not later
than ten (10) days after notice to Landlord by Tenant of the happening of such
damage or destruction), the building or buildings cannot be repaired or restored
within a period of one hundred eighty (180) days from the date of such opinion,
then either Landlord or Tenant may, within ten (10) days
<PAGE>
next succeeding the giving of such opinion by Landlord, terminate this Lease by
giving notice to the other of such termination. In that event, this Lease shall
terminate as to that building or buildings but shall remain in effect as to the
remaining building or buildings (unless the only other remaining building is
Building A in which event Tenant may terminate this Lease) and the rent and all
other payments for which Tenant may be liable under the terms of this Lease
shall be prorated and paid in full to the date of such destruction or damage.
If neither Landlord nor Tenant so terminate this Lease, then Landlord shall
repair or restore the building or buildings with reasonable diligence and the
rent shall abate on each damaged building from the date of the happening of such
damage or destruction until that building has been repaired or restored to the
extent reasonably necessary to enable Tenant to again use and occupy the
building, and Landlord shall repair or restore the building with reasonable
diligence. Provided Landlord is proceeding with reasonable diligence to repair
or restore the building, Landlord shall not be responsible for any delays beyond
the reasonable control of Landlord which prevent such repair or restoration from
being completed within such one hundred eighty (180) day period.
(b) If, in Landlord's reasonable opinion (to be given to Tenant not later
than ten (10) days after notice to Landlord by Tenant of the happening of such
damage or destruction), the building or buildings can be repaired or restored
as set forth is subparagraph (b) above within one hundred eighty (180) days from
the date of such opinion, and the damage or destruction is such that a building
is capable of being partially used by Tenant, then, until such damage has been
repaired or restored, the rent shall abate in the proportion which that part of
the building which is rendered unfit for occupancy bears to the whole of the
building, and Landlord shall repair or restore the building with reasonable
diligence. Providing Landlord is proceeding with reasonable diligence to
repair or restore the building, Landlord shall not be responsible for any delays
beyond the reasonable control of Landlord which prevent such repair or
restoration from being completed without such one hundred eighty (180) day
period.
(c) Landlord and Tenant shall fully cooperate with each other regarding the
settlement and adjustment of insurance claims. If Landlord is to repair or
restore any building, Tenant, at Tenant's sole cost and expense, shall remove
any machinery, equipment, furniture, inventory, or other items of personal
property from that building as shall be required by Landlord in order to repair
or restore the Improvements constituting a part of the building.
Also, Landlord shall have the free and uninterrupted right to possession of the
building to repair and restore the Improvements constituting a part of the
building, and such right shall extend to Landlord's employees, contractors,
subcontractors, laborers and suppliers.
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<PAGE>
(d) Notwithstanding anything to the contrary contained herein, Landlord
shall not be obligated to repair or restore any damage to or destruction of the
Demised Property if the costs of repair or restoration, in Landlord's reasonable
opinion, exceeds the amount of insurance proceeds payable to Landlord by reason
of such damage or destruction. In that event, Tenant shall have the option of
either (1) terminating this Lease as it applies to such damaged or destroyed
building or buildings or (2) requiring Landlord to repair or restore the damaged
property in which event Tenant shall assume responsibility for the payment of
all costs and expenses to repair or restore in excess of the insurance proceeds
due Landlord. In the event Tenant elects the latter option and requires
Landlord to repair or restore it shall give written notice to Landlord of that
election within sixty (60) days of the damage or destruction and
contemporaneously with the giving of notice provide Landlord with adequate
security for the payment (based on written estimates) of all excess costs and
expenses. The excess costs incurred by Tenant shall be divided by the years
remaining in the Lease term and the annual rental due in each of the remaining
years shall be reduced by the resulting figure. Anything herein to the
contrary notwithstanding, Landlord shall not be responsible for repairing
or restoring any alterations, additions or improvements made to the Demised
Property by Tenant. Furthermore, in no event shall Landlord be liable for any
loss of or damage to any of Tenant's property.
(e) In the event that the partial destruction or casualty to the entire
Demised Premises is more than fifty percent (50%), the Landlord in its sole
discretion shall determine whether or not to repair the Demised Premises. In
the event that the Landlord decides not to repair the Demised Premises, then and
in that event, this Lease shall cease and be terminated provided however should
such destruction or casualty occur in the final Lease year, Tenant may terminate
this Lease as it applies to the building or buildings so impacted upon notice to
Landlord.
11. INDEMNITY AND INSURANCE: From and after the commencement of this Lease,
-----------------------
Tenant will indemnify and hold landlord harmless absolutely from and against any
and all claims, suits, actions, damages, costs, expenses or judgement, by
reason of any actual or claimed injury to person and/or property or loss of life
sustained in the Demised Premises during the term hereof except for such injury,
property damage or loss of life caused by negligence by Landlord, its employees
or agents. If Landlord is made party to any litigation instituted against
Tenant, to which the foregoing indemnity may relate, Tenant will pay all
expenses, costs, damages, judgement and reasonable fees for counsel incurred
by or imposed on Landlord in connection therewith or as a result thereof.
Without limiting the foregoing and other indemnification provisions herein
contained, Tenant agrees, at Tenant's sole cost and expense, throughout the term
of this Lease, but for the mutual benefit of Landlord and Tenant, to maintain
general public liability insurance against claims for bodily injury or death, or
injury to property, occurring upon or in the Demised Premises, such insurance to
afford protection to the limit of not less than Two Million and 00/100
($2,000,000.00) Dollars in respect of any one accident, and not less than Two
Hundred Thousand and 00/100 ($200,000.00) Dollars in respect to property damage.
All insurance provided for in this paragraph shall name Landlord as owner
and the Landlord's mortgagee as additional
-8-
<PAGE>
insureds as well as Tenant as insured, as their respective interests may appear,
and shall be effected under valid and enforceable policies issued by insurers
licensed to do business in the State of Connecticut. Tenant may carry the
insurance required under this paragraph under a blanket policy. Upon the
commencement of the term of this Lease and thereafter prior to the expiration
dates of the expiring policies thereto-fore furnished pursuant to this
paragraph, original certificates thereof issued by the respective insurers shall
be delivered by Tenant to Landlord. Tenant agrees to pay the cost of any such
insurance and to furnish Landlord, if requested, with evidence satisfactory to
Landlord of such payment. All such policies shall, to the extent obtainable,
contain an agreement by the insurers that such policies shall not be canceled
without at least forty-five (45) days prior written notice to Landlord.
Tenant agrees that if it shall at any time fail to take out, pay for,
maintain or deliver any of the insurance policies as provided for in this
paragraph, or to make any other payment or perform any other act on the part of
Tenant to be made or performed, then Landlord may, but shall not be obligated to
do so, and on not less than fifteen (15) days notice to or demand upon Tenant
(and unless Tenant shall comply with such 15-day period) and without waiving or
releasing Tenant from any obligations of Tenant in this Lease contained, (i)
take out, pay for, maintain or deliver any of the insurance policies provided
for in this paragraph, or
(ii) make any other payment or perform any other act on Tenant's part
to be made or performed as in this Lease provided. All sums so paid by Landlord
and all necessary incidental costs and expenses in connection with the
performance of any such act by Landlord, together with interest thereon at the
rate of twelve (12%) percent per annum from the date of the making of such
expenditure by Landlord, at the option of Landlord, shall be payable to Landlord
on demand or shall be added to any rent then due or thereafter becoming due
under this Lease, and Tenant agrees to pay any such sum or sums with interest as
aforesaid. All sums which may become payable to Landlord by Tenant, as in this
paragraph provided, and all sums payable by Tenant pursuant to any other
provision of this Lease, shall be deemed obligations of Tenant hereunder and
Landlord shall have (in addition to any other right or remedy) the same rights
and remedies in the event of nonpayment of any such sums by Tenant as in the
case of default by Tenant in the payment of rent. The notice provided for herein
shall not in any way affect the other notice provisions of this Lease.
Each party agrees to use diligent efforts to include in each of its
policies insuring against loss, damage or destruction by fire or other insured
casualty a waiver of the insurer's right of
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<PAGE>
subrogation against the other party or, should such waiver be unobtainable (i)
an express agreement that such policy shall not be invalidated if the insured
waives or has waived before the casualty the right of recover against any party
responsible for a covered casualty or (ii) any other form of permission for the
release of such responsible party. If such waiver, agreement or permission
shall not be, or shall cease to be, obtainable without additional charge or at
all, the insured party shall so notify the other party promptly after notice
thereof. If the other party shall agree in writing to pay the insurer's
additional charge therefor, such waiver, agreement or permission shall (if
obtainable) be included in the policy.
As long as Landlord's fire insurance policies include the waiver of
subrogation or agreement or permission to release liability referred to in the
previous paragraph, and the coverage is in amounts sufficient to cover any
claim being made then, Landlord waives, for itself and those claiming through or
under it, any right of recovery against Tenant, any other permitted occupant or
subtenant of the Premises and any of their employees, agents or contractors with
respect to that claim, occasioned by fire or other insured casualty. If at any
time any of Landlord's policies shall not include such or similar provisions,
the waiver set forth in the foregoing sentence shall be of no further force or
effect.
As long as Tenant's fire insurance policies include the waiver of
subrogation or agreement or permission to release liability previously referred
to, Tenant waives for itself and those claiming through or under it, any right
of recovery against any of their employees, agents or contractors, for any loss
occasioned by fire or other insured casualty. If at any time any of Tenant's
policies shall not include such or similar provisions, the waiver set forth in
the foregoing sentence shall upon (20) days notice given by Tenant to Landlord,
be of no further force or effect from and after the giving of such notice.
12. PROPERTY LOSS OR DAMAGE: Landlord or its agents shall not be liable for
-----------------------
any damage to property of Tenant, its employees or of others entrusted to Tenant
except damage caused by the negligence of Landlord, its employees or agents nor
the loss or damage to any property of Tenant by theft or otherwise. Furthermore,
the Landlord or its agents shall not be liable for any injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain or snow, or leaks from any part of the building housing
the Demised Premises or from the pipes, appliances or plumbing works or from the
roof, street or sub-surface or from any other place or by dampness or by any
other cause of whatsoever nature, unless caused by or due to the negligence of
Landlord, its agents, servants or employees.
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<PAGE>
Landlord or its agents shall not be liable for any such damages caused by
other Tenants or persons in said building or caused by operations in
construction of any private, public or quasi-public work. Tenant shall give
immediate notice to Landlord in case of fire or accidents in the Demised
Premises or in the building, or of defects therein or in any building fixtures
or equipment. If Tenant shall move any safe, machinery, equipment, freight bulky
matter or fixtures which require special handling, Tenant agrees to employ only
persons holding a license to do said work and all work in connection therewith
shall comply with any regulations, law or ordinance affecting such work. Tenant
shall indemnify Landlord for, and hold Landlord harmless and free from damages
sustained by person or property for any damages or monies paid out by Landlord
in settlement of any claims or judgements related to the preceding as well as
for all expenses and reasonable attorney fees incurred in connection therewith
and all cost incurred in repairing any damage to the building or appurtenances.
13. ACCESS: Upon notice to Tenant, and without causing an unreasonable
------
intrusion, the Landlord, its servants and agents, including representatives of
the insurance company or companies carrying insurance on the building containing
the Demised Premises, shall have the right to enter upon the said premises at
any time for inspection of the premises or for repairs to building or equipment
or without notice in an emergency or to take preventative measures to protect
and preserve the property of the Landlord.
Upon notice to Tenant, and without causing an unreasonable intrusion,
Landlord shall have the right to enter the premises during business hours for
purposes of showing the premises to any prospective mortgagee or purchaser of
the premises or during the last twelve (12) months of the Lease for purposes of
reletting the premises.
14. CONDEMNATION: In the event of a condemnation of the premises, which shall
------------
include a taking of all or a substantial part of the building on the premises,
this Lease shall, at the option of either party, terminate upon the completion
of such taking. The rent shall be apportioned as of that date. The condemnation
award shall belong solely to the Landlord. Tenant shall be entitled to
relocation costs, if any, provided said costs may be separately determined as an
element of the award and not included in the determination of the value of the
interest of the Landlord in the Leased Premises. In the event of a partial
taking of the premises in such manner that the Tenant is able to continue
without substantial modifications, the operation then being conducted on the
Demises Premises, then this Lease shall remain in full force and effect and the
Landlord and Tenant shall agree upon an equitable rent adjustment reflecting
such partial taking. Any
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<PAGE>
award for partial taking shall belong solely to the Landlord. Nothing herein
shall be construed to deprive Tenant of its rights upon condemnation as set
forth in the Connecticut General Statutes.
15. SUBORDINATION: This Lease is subject and subordinate to all mortgages
-------------
which may now or hereafter affect such Leases or the real property of which the
Demised Premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be self-
operative and no further instrument of subordination shall be required by any
mortgage. In confirmation of such subordination, Tenant shall execute promptly
any certificate that Landlord may request. Tenant hereby constitutes and
appoints Landlord as the Tenant's attorney-in-fact to execute any such
certificate or certificates for and on behalf of the Landlord. Landlord,
however, covenants and agrees that it will obtain from all future mortgagees
holding a mortgage on the premises written assurance that so long as the Tenant
is not in default under the terms and conditions of this Lease, Tenant's use,
occupation and possession of the premises and all rights of Tenant under this
Lease shall not be affected or disturbed by the bringing of any action to
foreclose or otherwise enforce any such mortgage.
16. ESTOPPEL CERTIFICATES: The Landlord and the Tenant shall, without charge,
---------------------
at any time, and from time to time, as the same shall be reasonably requested,
within ten (10) days after a written request by the other, certify by a written
instrument to the other, or any person, firm or corporation specified by the
other:
(a) That there is no default under this Lease, that this Lease is
unmodified and in full force and effect, or if there have been any
modifications, that the same is in full force and effect as modified and stating
the modifications.
(b) Whether or not there are then existing any setoffs or defenses against
the enforcement of any of the agreements, terms, covenants, or conditions
contained herein and any modifications hereof upon the part of the Tenant to be
performed or complied with, and if so, specifying the same.
(c) The date, if any, to which the rent and other charges hereunder have
been paid.
(d) That prior to the date of the issuance of the certificate required
hereby, to the best of the knowledge of the signer thereof, there has been no
violation or breach which would constitute a default under this Lease.
17. DEFAULT:
-------
(a) The occurrence of any of the following shall constitute an event of
default:
-12-
<PAGE>
(i) Delinquency in the payment of any rent including supplemental
or additional rent payable under this Lease continuing for a period of ten (10)
days after notice.
(ii) Delinquency by the Tenant in the performance of or compliance
with any of the conditions contained in this Lease other than those referred to
in the foregoing subparagraph (1), for a period of thirty (30) days after
written notice thereof from the Landlord to the Tenant, except for any default
not susceptible of being cured within such thirty (30) day period, in which
event the time permitted to the Tenant to cure such default shall be extended
for as long as shall be necessary to cure such default, provided the Tenant
commences promptly and proceeds diligently to cure such default, and provided
further that such period of time shall not be so extended as to jeopardize the
interest of the Landlord in this Lease or so as to subject the Landlord or the
Tenant to any civil or criminal liabilities.
(iii) Filing by the Tenant in any court pursuant to any statute,
either of the United States or any state, of a petition in bankruptcy or
insolvency, or for reorganization, or for the appointment of a receiver or
trustee of all or a portion of the Tenant's property, or an assignment by the
Tenant for the benefit of creditors.
(iv) Filing against the Tenant in any court pursuant to any statute,
either of the United States or of any state, of a petition in bankruptcy or
insolvency, or for reorganization or for appointment of a receiver or trustee of
all or a portion of the Tenant's property, if within ninety (90) days after the
commencement of any such proceeding against the Tenant such petition shall not
have been dismissed.
(b) Upon the occurrence of an event of default, the Landlord at any time
may give written notice to the Tenant specifying such event of default and
stating that this Lease shall expire on the date specified in such notice, which
shall be at least thirty (30) days after the giving of such notice, and upon the
date specified in such notice this Lease and all rights of the Tenant hereunder
shall terminate.
(c) Upon the expiration of this Lease pursuant to subparagraph 17 (b)
above, the Tenant shall peacefully surrender the Leased property to the Landlord
and the Landlord, upon or at any time after any such expiration, may without
further notice reenter the Leased property and repossess it by summary
proceedings, ejectment, or otherwise, and may dispossess the Tenant and remove
the Tenant and all other persons and property from the Leased property and may
have, hold and enjoy the Leased property and the right to receive all rental
income therefrom.
<PAGE>
(d) At any time after such expiration, the Landlord may relet the Leased
property or any part thereof for such term and on such conditions as the
Landlord, in its uncontrolled discretion, may determination and may collect and
receive the rent therefor. The Landlord shall in no way be responsible or
liable for any failure to relet the Leased property or any part thereof, or for
any failure to collect any rent due upon any such reletting.
(e) No such expiration of this Lease shall relieve the Tenant of its
liability and obligations under this Lease, and such liability and obligations
shall survive any such expiration. In the event of any such expiration, whether
or not the Leased property or any part thereof shall have been relet, the Tenant
shall pay to the Landlord the rent and supplemental and additional rent required
to be paid by the Tenant up to the time of such expiration, and thereafter the
Tenant, until the end of what would have been the term of this Lease in the
absence of such expiration, shall be liable to the Landlord for, and shall pay
to the Landlord, as and for liquidated and agreed current damages for the
Tenant's default;
(i) the equivalent of the amount of the rent and additional rent which
would be payable under this Lease by the Tenant if this Lease were still in
effect, less
(ii) the net proceeds of any reletting effected pursuant to the
provisions of subparagraph 17(d) above, after deducting all the Landlord's
expenses in connection with such reletting, including, without limitation,
all repossession costs, brokerage commissions, legal expenses, reasonable
attorney's fees, alteration costs and expenses of preparation for such
reletting.
(f) The Tenant shall pay such current damages, called deficiency, to the
Landlord monthly on the days on which the rent, supplemental, and additional
rent would have been payable under this Lease if this Lease were still in
effect, and the Landlord shall be entitled to recover from the Tenant each
monthly deficiency as such deficiency shall arise. At any time after such
expiration, whether or not the Landlord shall have collected any monthly
deficiency, the Landlord shall be entitled to recover from the Tenant, and the
Tenant shall pay to the Landlord, on demand, as and for liquidated and agreed
final damages for the Tenant's default, an amount equal to the difference
between the rent and supplemental and additional rent reserved hereunder for the
unexpired portion of the Lease term and the then fair and reasonable rental
value of the Leased property for the same period. If the Lease property or any
part thereof is relet by the Landlord for the unexpired term of this Lease, or
any part thereof, before presentation of proof of such liquidated damages to any
court, commission, or tribunal, the amount of rent reserved upon such
-14-
<PAGE>
reletting shall be deemed prima facie to be the fair and reasonable rental value
for the part or the whole of the Leased property so relet during the term of the
reletting. Nothing herein contained shall limit or prejudice the right of the
Landlord to prove for and obtain as liquidated damages by reason of such
termination an amount equal to the maximum allowed by any statute or rule of law
in effect at the time when, and governing the proceedings in which, such damages
are to be proved.
(g) The Tenant hereby expressly waives, so far as permitted by law, the
service of any notice of intention to reenter provided for in any statute, or of
the institution of legal proceedings to that end. The Tenant, for and on behalf
of itself and all persons claiming through or under the Tenant, also waives any
right of redemption or reentry or repossession or to restore the operation of
this Lease in case the Tenant shall be dispossessed by a judgement or by warrant
of any court or judge or in case of reentry or repossession by the Landlord. In
case of any expiration of this Lease, the Landlord and the Tenant, so far as
permitted by law, waive trial by jury in any action, proceeding, or counterclaim
brought by either of the parties hereto against the other on any matter arising
out of or in any way connected with this Lease, the relationship of Landlord and
Tenant, the Tenant's use or occupancy of the Leased property, or any claim or
injury or damage. The terms "enter", "reenter", "entry", or "reentry", as used
in this Lease are not restricted to their technical legal meaning.
18. COSTS AFTER DEFAULT: The Tenant shall pay and indemnify the Landlord
-------------------
against all legal costs and charges, including counsel fees lawfully and
reasonably incurred, in obtaining possession of the Demised Premises after a
default of the Tenant or after the Tenant's default in surrendering possession
upon the expiration of earlier termination of the term of the Lease or enforcing
any covenant of the Tenant herein contained. In any action between the parties
under this Lease the prevailing party shall be entitled to recover its
reasonable attorney's fees.
19. SIGNS: The Tenant may place and maintain a sign on said Demised Premises
-----
in a location designated by Landlord, which sign shall first be approved by said
Landlord, which approval shall not be unreasonably withheld, and shall be
subject to the approval of the local zoning officer.
20. NOTICES: Notices and demands required herein or permitted to be sent to
-------
those listed hereunder shall be sent either by first class mail, postage
prepaid, Federal Express or other reputable overnight courier services, or shall
be hand delivered and shall be deemed to have given upon delivery or refusal of
delivery. All notices shall be sent or hand delivered to the following
addresses:
-15
<PAGE>
LANDLORD: Albert J. Salame Company
P.O. Box 766
Danbury, CT 06813
TENANT: Danbury Pharmacal Inc.
131 West Street
Danbury, CT 06810
Attention: Anthony DiMasso
----------------------------
or as such other addresses requested, in writing, by either party upon fifteen
(15) days notice to the other party.
21. CHANGE OF ADDRESS: The persons and places to which notices are to be
-----------------
mailed may be changed from time to time by Landlord or Tenant upon written
notice to the other.
22. SHORT FORM: Either party may request the other to execute a
----------
memorandum of Lease suitable for recording containing information
required by Section 47-19 of the Connecticut General Statutes (Rev.
1958) but specifically excepting the rental provisions hereof.
23. INTERPRETATION: In construing this Lease, the singular shall include the
--------------
plural and the plural the singular, and the neuter gender shall include the
masculine and feminine genders, and vice versa, as the context may require.
If there is more than one party tenant, the covenants of the Tenant shall
be the joint and several obligations of each such party. If the Tenant is a
partnership, the covenants of the Tenant shall be the joint and several
obligations of each of the partners and the obligation of the firm.
24. CAPTIONS: The captions of this agreement are inserted for convenience in
--------
reference only and do not constitute a part of this agreement and shall not be
construed as defining or limiting in any way the scope or intent of the
provisions hereof.
25. SUCCESSORS: This Lease shall be binding upon the parties hereto, and the
----------
respective successors, assigns, heirs, and legal representatives of the parties
hereto.
26. MODIFICATION: This Lease contains the entire agreement between the
------------
parties and shall not be modified in any manner except by an instrument in
writing executed by the parties. If any term or provision of this Lease or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Lease shall not be invalid and
be enforced to the fullest extent permitted by law.
27. WAIVERS OF LIEN: Landlord herein reserves the right to
---------------
-16-
<PAGE>
request from the Tenant Waivers of Lien in the event Tenant shall commence to do
interior repairs to said premises. In the event the Landlord requests such
Waivers of Lien, he shall supply the same to the Tenant and the Tenant shall
have the same executed by all suppliers of material and labor to said Demised
Premises prior to the commencement of said work.
28. ADDITIONAL RENT - OTHER IMPOSITIONS: Tenant shall bear and pay as
-----------------------------------
additional rent its proportionate share (unless usage is metered or charged
directly to the Demised Premises in which event Tenants will pay such charges
directly) as hereinafter set forth, of all charges for water supplied to the
Entire Premises, including sewer rents, any expenses of any municipal
assessments that may be levied on the land and buildings to the extent that such
assessments are and become due and payable in full or in installments during the
term and any extension of this Lease. The proportionate share to be paid by the
Tenant shall be computed on the basis of the total rentable floor area of the
Demised Premises as it bears to the total rentable floor area of the Entire
Premises. Upon receipt of each bill for such taxes, assessments, or charges,
Landlord shall notify Tenant of the portion thereof payable by Tenant and
enclose a copy of the bill and computation and Tenant shall within fifteen (15)
days thereafter pay such portion to Landlord. The Landlord and Tenant agree that
Tenant's proportionate share of the buildings shall be sixty-five (65%) percent.
Said figure is based upon Tenant's rentable floor area of 87,680 square feet,
and the total rentable floor area in the Entire Premises of 135,000 square feet.
(a) Additional Rent - Common Area: Tenant agrees that it will pay to the
-----------------------------
Landlord as and when bills are rendered therefore, the allocated share taking
into account any costs and maintenance assumed directly by Tenant for area
reserved to its exclusive use of all operating costs excluding mortgage interest
and amortization payments for maintenance of the Common Facilities as herein
defined, including but not limited to the following costs incurred: parking lot
and common area lighting including the replacement of non-functioning or
malfunctioning bulbs; common area and parking lot cleaning and general
maintenance and landscaping; garbage removal; snow and ice removal; premiums on
liability insurance policies for any common area in parking lot; policing and
maintaining of the parking area, walks and ways and for areas common to all
Tenants of the buildings as may be necessary from time to time including
restriping the paved area. Tenant shall contract, maintain, and pay for its own
garbage removal if required by Landlord. Any extraordinary costs or expense
attributable to Tenant's use shall be the sole responsibility of Tenant.
(b) Additional Rent - Real Estate Taxes: Tenant agrees to
-----------------------------------
-17-
<PAGE>
pay as additional rent its proportionate share, as hereinafter set forth, of all
real estate taxes assessed against the land and buildings. The proportionate
share of the cost to be paid by the Tenant shall be computed on the basis of the
total rentable floor area of the Demised Premises as it bears to the total
rentable floor area of the Entire Premises. The Landlord and Tenant agree that
Tenant's proportionate share of the buildings shall be sixty-five (65%) percent.
Said figure is based upon Tenant's rentable floor area of 87,680 square feet,
and the total rentable floor area in the Entire Premises of 135,000 square feet.
Real estate taxes for the buildings will be determined from the assessment of
the land and buildings times the established mill rate. In the event real
estate taxes are assessed separately against any of the demised buildings during
the term of the Lease, the Landlord and Tenant agree the Tenant shall pay its
proportionate share as hereinbefore set forth of the taxes attributable to the
land and shall pay all of the taxes attributable to each separately assessed
Demised Building.
(c) Additional Rent Insurance: Tenant agrees it will pay to the Landlord,
-------------------------
its proportionate share of the costs of all hazard, fire, liability and rental
value insurance incurred for the buildings in which the Demised Premises are
located and also for the Entire Premises. Said insurance shall be for the
minimum of the fair replacement value of said buildings and public liability
insurance in an amount not less than two million and shall be in the form of an
extended coverage policy. The proportionate share of the costs to be paid by
Tenant shall be computed on the basis of the total floor area of the Demised
Premises as it bears to the total floor area of the buildings, and the same
shall be deemed additional rent under this Lease. The Landlord and Tenant agree
that Tenant's proportionate share of the buildings shall be sixty-five (65%)
percent. Said figure is based upon Tenant's rentable floor area of 87,680
square feet which amount may be changed after verification and certification by
Landlord, and the total rentable floor area in Entire Premises of 135,000 square
feet. Notwithstanding the above, in the event the rating of said buildings is
increased because of the use of said buildings by a particular tenant, then in
such event that increase in the insurance premium shall be attributable to the
Tenant.
(d) Payment of Additional Rent: Notwithstanding any other paragraph to the
--------------------------
contrary, Tenant shall pay its additional rent as determined by this paragraph
30 on a monthly basis, on the first day of each month, in addition to the
minimum guaranteed rental. This monthly payment to be determined prior to the
commencement date shall be an estimate based on a total annualized figure per
square foot divided into 12 equal payments. On February 1st of each year during
the Lease term that additional rent is due, the Landlord will compute any over-
payment or under-payment of said
-18-
<PAGE>
additional rent, and shall bill the Tenant within thirty (30) days or shall
credit the Tenant accordingly.
(e) Net Lease: All rent shall be absolutely net to Landlord, so that this
---------
Lease shall, except as hereinbefore provided to the contrary, yield net to the
Landlord the rent, to be paid in each year during the term of this Lease and
any renewal term. Accordingly, the Tenant's proportionate share of all costs,
expenses and obligations of every kind or nature whatsoever, relating to the
Demised Premises or the Entire Premises, or any improvements thereon, which may
arise or become due during the term of this Lease shall be paid by the Tenant,
and the Landlord shall be indemnified and saved harmless by the Tenant from and
against same. Nothing herein contained shall be deemed to require the Tenant to
pay or discharge any liens or mortgages of any character whatever which may
hereafter be placed upon the Demised Premises by the affirmative act of the
Landlord. The Landlord and Tenant agree that Tenant's proportionate share of the
buildings shall be sixty-five (65%) percent.
(f) Landlord agrees to maintain complete records of all costs reimbursable
by Tenant under the terms of this Lease. All such records shall be maintained in
accordance with generally accepted accounting practices and shall be retained
for a period of four (4) years following the date on which such costs were
charged to Tenant. Tenant shall have the right, through its representatives, to
examine, at the Landlord's office, such records at all reasonable times.
(g) If Landlord and Tenant cannot reach agreement on all costs reimbursable
by Tenant under the Lease, then Landlord and Tenant agree the matter shall be
determined by arbitration.
(i) Landlord and Tenant shall each appoint an arbitrator by written
notice given to the other party not later than twenty (20) days after Landlord
and Tenant have failed to agree. If either Landlord or Tenant shall have
failed to appoint an arbitrator within such period of time and, thereafter,
shall have failed to do so by written notice given within a period of ten (10)
days after notice by the other party requesting the appointment of such
arbitrator, then such arbitrator shall be appointed by the American Arbitration
Association or its successor (the branch office of which is located in or
closest to the Premises) upon request of the party who shall have timely
appointed an arbitrator.
(ii) The two (2) arbitrators shall attempt to reach agreement on the
matter at issue. In the event they are unable to reach agreement within
thirty (30) days after their joint appointment, they shall appoint a third
(3rd) arbitrator (the "Referee") by written notice given to both Landlord and
Tenant, and, if they fail to do so by written notice given within thirty
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<PAGE>
(30) days after their appointment, the Referee shall be appointed by the
American Arbitration Association or its successor upon request of Landlord or
Tenant.
(iii) The Referee, selected as aforesaid, shall within thirty (30)
days after his appointment render his decision, which decision shall be strictly
limited to choosing one of the two determinations made by the two arbitrators
chosen by Landlord and Tenant with respect to the matter. The decision of such
arbitrators or the Referee, as the case may be, shall be binding upon Landlord
and Tenant. Duplicate original counterparts of such decision shall be sent
forthwith by the arbitrators or the Referee, as the case may be, by certified
mail, return receipt requested, to both Landlord and Tenant.
29. SURRENDER OF PREMISES: Notwithstanding anything to the contrary in this
---------------------
Lease on the last day of the term hereof, or on any sooner termination, Tenant
shall surrender the Premises to Landlord in the same condition as received,
clean and free of debris, but obsolescence, ordinary wear and tear and damage by
fire or the elements excepted. Tenant shall repair any damage to the Premises
occasioned by the installation or removal of its trade, fixtures, furnishings
and equipment.
30. HOLDING OVER: If Tenant, with Landlord's consent, remains in possession of
------------
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease with fifty (50%) percent premium paid to Landlord, unless other
arrangements are made with Tenant at Leased sale option, pertaining to the
obligations of Tenant.
31. LATE CHARGE: There shall be assessed against the Tenant at the Landlord's
-----------
option in addition to the Landlord's other remedies named herein, a late charge
for rent not received by the Landlord by the end of fifteen (15) days after the
date it is due in the amount of five (5%) percent of the monthly payment.
32. MAINTENANCE OF HVAC SYSTEM: Tenant agrees to maintain during the term of
--------------------------
this Lease and any renewals or extensions thereof, a service or maintenance
agreement in connection with the HVAC system with a company acceptable to the
Landlord for at least a semiannual servicing of said equipment.
33. QUIET ENJOYMENT: The Landlord covenants to the Tenant, subject to the
---------------
conditions and covenants herein contained on paying the rent and performing the
covenants aforesaid, that the Tenant shall and may peaceably and quietly have,
hold and enjoy the Demised Premises for the term aforesaid.
-20-
<PAGE>
34. LANDLORD'S WORK: Landlord at Landlord's sole cost and expense, shall
---------------
perform and complete the construction work set forth in the work letter signed
by the parties and attached hereto as Exhibit B and will apply for and prosecute
any permits and governmental approvals required. All exterior work shall comply
with the requirements of the Americans with Disabilities Act.
35. HAZARDOUS WASTE: The Tenant agrees that the storage or use of any
---------------
hazardous waste substance or petroleum product material shall be in compliance
with all federal, state or local laws or regulations. The Tenant further
agrees that it shall be responsible for all costs, damages or liability that
may be incurred in connection with its hazardous waste discharge, spillage, or
any other violation of any law in connection with its storage or use of
hazardous waste materials or petroleum products. Tenant agrees to notify
Landlord within twenty-four (24) hours of its having any notice, whether actual
or implied, of any hazardous waste or petroleum products discharge or violation
of this paragraph.
The Tenant agrees that it shall be responsible for the cleanup of any
discharge or spillage caused by Tenant. In the event of Tenant's hazardous
waste discharge or spillage, if necessary, the Tenant shall immediately have
said soil tested by a firm specializing in said work and enter into a
contract for the removal of said soils and replacing of soils with clean fill
and for the replacing of any areas disturbed because of said discharge or
spillage. All of said work shall take place within one hundred twenty (120)
days of knowledge of said discharge or spillage.
In the event Tenant fails to perform said work as set forth in this
paragraph, then, in such event, the Landlord may cause the same to be completed
and the Tenant shall be responsible for the payment of same within ten (10) days
after presentation of bill to Tenant for the work performed, together with all
reasonable costs incurred by Landlord in the performance of said work and
repairing any damage to the entire Premises and including any reasonable
attorneys' fees incurred. Any monies paid by Landlord in connection
herewith shall be repaid to Landlord together with interest at the rate of
twelve percent (12%) per annum until paid.
Landlord shall be responsible for any claims, judgments, damages,
penalties, fines, costs, liabilities (including sums paid in settlements of
claims) or loss including attorneys' fees, consultant fees, and expert fees
which arise during or after the term from or in connection with the presence or
suspected presence of toxic or hazardous substances in the soil, groundwater or
soil vapor on or under Building E, as of the Commencement Date of this Lease
unless the toxic or hazardous substances are present solely as a result of the
actions or omissions of Tenant, its officers, employees or agents.
-21-
<PAGE>
36. TENANT ALLOWANCE: Landlord agrees Tenant shall be entitled
-----------------
during each year of the lease to FIVE THOUSAND ($5,000.00) DOLLARS worth of
improvements to the exterior of the premises. All requests for such
improvements shall be submitted in writing to the Landlord prior to the
expiration of each lease year.
In the event Tenant elects to forego the FIVE THOUSAND ($5,000.00) DOLLAR
entitlement in any year or years during the lease term then that year or years
entitlement shall be added to the next succeeding year the intent of the parties
being that the FIVE THOUSAND ($5,000.00) DOLLARS be cumulative during the lease
term providing however, the total entitlement shall not exceed FIFTY THOUSAND
($50,000.00) DOLLARS nor shall Tenant have the right to accelerate any years
entitlement prior to its accrual.
37. RIGHT OF FIRST REFUSAL: Should the Landlord, during the lease term or any
----------------------
extension thereof, elect to sell all or any portion of the leased premises,
whether separately or as a part of the larger parcel, known as 131 West Street,
Danbury, Connecticut, the Tenant shall have the right of first refusal to meet
any bona fide offer of sale on the same terms and conditions of such offer.
Upon the Tenant's failure to meet such bona fide offer within 30 days after
notice thereof from the Landlord, the Landlord shall be free to sell the
premises or portion thereof to such third person in accordance with the terms
and conditions of his offer.
38. OPTION TO EXTEND: The Tenant shall have an option to extend
-----------------
this Lease on the entire 87,680 square feet of demised premises for an
additional ten (10) years.
The minimum net rental per annum on the buildings designated B, C, D, and E
as shown on the site plan attached hereto as Exhibit A in the initial and
succeeding Lease years during the extended Lease term shall be adjusted annually
and shall be the minimum net rental for the previous Lease year times the
percentage increase in the Consumer Price Index for the Northeast Region for the
previous 12 months payable in monthly installments. Providing, however, that in
any one year the increase shall not be greater than seven (7%) percent or less
than two and one-half (2.5%) percent.
The minimum net rental per annum with respect to Building A during the
extended lease term will be $102,470 times the cumulative percentage
increase in the Consumer Price Index for the Northeast Region during the
previous ten (10) years (The Initial Lease Term) payable in equal monthly
installments.
All other terms and conditions of this Lease, except to the extent
modified by this paragraph, shall remain the same and in full force and effect
during the extended term. The Option to Extent must be exercised in writing by
sending written notice thereof to the Landlord not later than one (1) year prior
to the expiration of the original lease term.
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<PAGE>
39. LANDLORD LIABILITY: It is expressly understood and agreed by Tenant that
------------------
none of Landlord's covenants, understandings or agreements are made or intended
as personal covenants, undertakings or agreements by Landlord, and any liability
for damage or breach of non-performance by Landlord shall be collectible only
out of Landlord's interest in the buildings and land and no personal liability
is assumed by, nor at any time may be asserted against Landlord or his heirs, or
legal representatives, all such liabilities, if any, being expressly waived and
released by Tenant. Provided, however, if Tenant obtains a final judgement
against Landlord based upon breach by Landlord of his covenants, warranties,
undertakings or agreements contained in this Lease, and if Landlord does not
satisfy such judgement within thirty (30) days after entry thereof, Tenant may,
successively if necessary (and in addition to all other rights and remedies
provided at law or in equity or elsewhere herein) set off the amount of such
judgement against the rent or any other amounts payable to Landlord by Tenant
hereunder next due under the provisions of this Lease. Anything herein to the
contrary notwithstanding, the waiver of Landlords personal liability set forth
in this Paragraph 39 shall not apply to any liabilities of Landlord arising
pursuant to Paragraph 35, Hazardous Waste, or for over-payment of any rent by
Tenant.
It is further expressly understood and agreed by Tenant that Landlord
reserves the right, at any time during the Lease Term, to transfer title to the
demised premises free from any Right of First Refusal set forth in Paragraph 37
to a Limited Liability Company or other limited liability entity providing
Landlord retains a controlling interest in said company or entity.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals and to a duplicate of the same tenor and date, this 1st day of December,
1995.
Signed, sealed and delivered LANDLORD:
/s/ /s/
- ------------------------- -------------------------
ALBERT J. SALAME
TENANT:
DANBURY PHARMACAL INC.
BY: /s/
- ------------------------- -------------------------
Its: SENIOR VICE PRESIDENT AND GENERAL
MANAGER
---------------------------------
Duly Authorized
State of Connecticut)
) ss. Danbury
County of Fairfield )
On the 1st day of December, 1995, before me personally came Albert J.
Salame to me known or satisfactorily proven to be the individual described in
and who executed the foregoing document in my presence and acknowledged said
signature as a true and free act and deed, before me.
------------------------------
Commissioner of the Superior Court
<PAGE>
State of New York )
) ss.
County of Putnam )
On the 1st day of December 1995, before me personally came Jay Cayado,
who being by me duly sworn did depose and say that he is the Senior Vice
President and General Manager of Danbury Pharmacal, Inc., the corporation
described in which executed the foregoing document, and that he as such Senior
Vice President and General Manager being authorized so to do, executed the
document for the purposes therein contained by signing the name of the
corporation by himself as
/s/ Nancy M. Perez
------------------------------
Notary Public
My Commission Expires
NANCY M. PEREZ
NOTARY PUBLIC, STATE OF NEW YORK
NO. 4968581
QUALIFIED IN PUTNAM COUNTY
COMMISSION EXPIRES JULY 2, 1996
<PAGE>
EXHIBIT A
[MAP APPEARS HERE]
<PAGE>
EXHIBIT A-1
127-131 West St., Danbury, CT
All those certain pieces or parcels of land with the buildings and improvements
located thereon, situated in the City of Danbury, County of Fairfield and State
of Connecticut located on West Street and as shown on a certain map entitled
"BOUNDARY MAP - AREA = 5.5436 ACRES MAP PREPARED FOR ALBERT J. SALAME SHOWING
PROPERTY SITUATED AT 127 - 131 WEST STREET, DANBURY, CONNECTICUT SCALE 1" = 40'
JAN. 29, 1993", certified substantially correct by Sydney A. Rapp, Jr., R.L.S.,
which map is to be filed with the Office of the Town Clerk of the City of
Danbury.
<PAGE>
EXHIBIT B
DANBURY PHARMACAL INC.
131 WEST STREET
DANBURY, CT.
LEASE RENEWAL WORK LETTER
- -------------------------
Albert J. Salame Company will perform the following work listed hereafter, in
connection with Danbury Pharmacal's lease renewal agreement. The work may be
performed in stages on portion(s) of the building.
1) The Dandy Distributor space will be emptied of inventory, furniture,
fixtures and equipment. The space will be cleaned and all remnants of food
processing, handling and/or storage will be removed.
2) Utilities now serving the space are to remain intact along with standard
lighting and heating facilities.
3) Interior partition walls, insulation and refrigerant lines as shown on the
enclosed Existing Floor Plan print dated August 18, 1994, and marked
Attachment (A), will be removed, leaving the space clear and open as
possible except where walls are supporting past structures or are acting as
fire protection dividers.
4) Meat room floor to be purged of all food processing residue and thoroughly
disinfected.
5) New EPDM roofing will be installed on the buildings occupied by Danbury
Pharmacal, in accordance with material and installation specifications and
warranty standards provided by major manufacturers of roofing materials,
e.g., Goodyear, Firestone, Carlisle and/or equal.
6) The Landlord will close in the existing loading dock including the
construction of an architectural feature glass front entry area and leveling
of existing concrete floor. The Landlord and Tenant shall agree on the final
design for these facade improvements.
7) All trees, brush and other vegetation and debris will be removed, to ground
level, from behind the expansion building, to the rear property line.
8) The Tenant and Landlord will jointly pursue state and/or Northeast Utilities
participation in an effort to relocate exisitng overhead utilities
underground, eliminate existing utility poles and pad mount existing pole
mounted transformers.
<PAGE>
9) A new 1 1/2" to 2 1/2" thick asphalt pavement overlay will be installed in
the Danbury Pharmacal parking areas, from the rear (Kingswood Kitchen) gate
to the front landscaped island, to both improve the condition and
appearance of the parking surface and to facilitate positive drainage.
<PAGE>
EXHIBIT A
RESOLVED, that the filing of an application for State financial assistance
from the Department of Economic Development of the State of Connecticut by
the Company in an amount not to exceed $500,000 is hereby approved and
that each of Javier (Jay) A. Cayado, the Senior Vice President and General
Manager of the Company and Anthony J. DiMasso, the Controller of the
Company is directed to execute and file such application with the
Connecticut Department of Economic Development, to provide such additional
information, to execute such other documents as may be required, to
execute an Assistance Agreement with the State of Connecticut for State
financial assistance if such an agreement is offered, to execute any
amendments, recisions, and revisions thereto, and to act as the authorized
representative of the Company;
RESOLVED, that the officers of the Company, or any of them, are hereby
authorized to take such additional actions and execute and deliver such
additional documents or instruments, in the name and on behalf of the
Company, as such officer shall approve as necessary or desirable in order
to give effect to the foregoing resolutions, any such execution and/or
delivery, or the taking of any such action, to be conclusive evidence of
such approval and of the approval of the Board of Directors of the
Company.
<PAGE>
CERTIFIED RESOLUTIONS
I, PAUL FEUERMAN, SECRETARY OF DANBURY PHARMACAL, INC., a Delaware corporation
(the "Corporation"), do hereby certify that the resolutions attached hereto as
Exhibit A were duly adopted by the unanimous written consent of the Board of
Directors of the Corporation as of November 1, 1995, and that said resolutions
have not been rescinded, amended or modified and are in full force and effect as
of the date hereof.
IN WITNESS WHEREOF, I have executed this certificate and affixed the corporate
seal of the Corporation.
Dated as of November 8, 1995 /s/ Paul Feuerman
-----------------
Secretary
Corporate Seal
<PAGE>
EXHIBIT 10.11
AGREEMENT OF LEASE
between
SAMMIS MORRISTOWN ASSOCIATES,
Landlord
and
SCHEIN PHARMACEUTICAL, INC.
Tenant
PARK AVENUE AT MORRIS COUNTY
FLORHAM PARK, NEW JERSEY
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Preamble (Basic Provisions and Definitions)................................ 1
1. Premises, Term and Purpose ........................................... 2
2. Rent ................................................................. 4
3. Operating Expenses ................................................... 4
4. Completion of Improvements and Commencement
of Rent ............................................................. 10
5. Covenants as to Condition of Premises
and Compliance with Laws ............................................ 11
6. Tenant Improvements, Alterations and
Installations ....................................................... 11
7. Various Negative Covenants by Tenant ................................. 12
8. Various Affirmative Covenants of Tenant .............................. 13
9. Building Directory and Signage ....................................... 13
10. Casualty and Insurance ............................................... 14
11. Indemnification ...................................................... 16
12. Non-Liability of Landlord ............................................ 16
13. Remedies and Termination Upon Tenant Default ......................... 16
14. Remedies Cumulative; Non-Waiver ...................................... 17
15. Services; Electric Energy ............................................ 18
16. Subordination ........................................................ 20
17. Curing Tenant's Defaults ............................................. 20
18. Notices .............................................................. 20
19. Quiet Enjoyment ...................................................... 21
20. Security Deposit ..................................................... 21
21. Inspection and Entry by Landlord ..................................... 22
22. Brokerage ............................................................ 22
23. Parking .............................................................. 23
24. Renewal Option ....................................................... 23
25. Landlord's Inability to Perform ...................................... 24
26. Condemnation ......................................................... 24
27. Assignment and Subletting ............................................ 26
28. Environmental Laws ................................................... 27
29. Parties Bound ........................................................ 28
30. Miscellaneous ........................................................ 29
31. Hold Over Tenancy .................................................... 30
32. Tenant's Expansion Options ........................................... 30
33. Right of First Offer ................................................. 32
34. Satellite Dish Antenna ............................................... 32
35. Cafeteria ............................................................ 33
36. Utility Rebates ...................................................... 33
</TABLE>
LIST OF EXHIBITS
----------------
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
A Floor Plan
A-1 Site Plan of Building
A-2 Site Plan of Complex
B and B-1 Work Letter to Lease
C Rules and Regulations
D Cleaning Services
E Subordination, Non-Disturbance and Attornment Agreement
F Option Space A Floor Plan
G Option Space B Floor Plan
H Operating Expense Statement
I Security Services
</TABLE>
-i-
<PAGE>
INDEX OF DEFINED TERMS
----------------------
<TABLE>
<CAPTION>
TERMS PARAGRAPH
----- ---------
<S> <C>
Additional Rent .................................................... Pgh 2(a)
Additional Insureds ................................................ Pgh 10(b)
Building Common Areas .............................................. Pgh 1(d)
Building ........................................................... Preamble
Building Holidays .................................................. Preamble
Building's Proportionate Share of Complex Expenses ................. Preamble
Commencement Date .................................................. Pgh 1(b)
Common Areas ....................................................... Pgh 1(d)
Complex Common Areas ............................................... Pgh 1(d)
Complex Land ....................................................... Pgh 1(a)
Complex ............................................................ Preamble
Complex Expenses ................................................... Pgh 3(a)
Demised Premises ................................................... Preamble
Designated Broker .................................................. Preamble
ECRA ............................................................... Pgh 28
Exclusive Space .................................................... Preamble
Expense Projection ................................................Pgh 3(c)(2)
Expenses ........................................................... Pgh 3(a)
Expiration Date .................................................... Preamble
Fair Market Value .................................................. Pgh 24(a)
Final Plans .........................................Exhibit B, Section 3.1(a)
Fixed Rent ......................................................... Preamble
Hazardous Substance ................................................ Pgh 28(c)
Improvements ....................................................... Pgh 1(e)
Initial Year ....................................................... Pgh 3(a)
Land ............................................................... Pgh 1(a)
Landlord ........................................................... Pgh 30(c)
Late Charge ........................................................ Preamble
Laws ............................................................... Pgh 5(b)
Lease Year ......................................................... Pgh 3(a)
Monthly Fixed Rent ................................................. Preamble
NJDEPE ............................................................. Pgh 28
Non-Exclusive Spaces ............................................... Preamble
Option Space A .................................................. Pgh 32(a)(1)
Option Space B ..................................................... Pgh 32(b)
Permitted Use ...................................................... Preamble
Preliminary Plans ......................................Exhibit B, Section 2.1
Prime Rate ......................................................... Preamble
Projected Expense Increase ...................................... Pgh 3(c) (2)
Real Estate Taxes .................................................. Pgh 3(a)
Renewal Term ....................................................... Preamble
Security Deposit ................................................... Preamble
Tenant Delay ...........................................Exhibit B, Section 3.2
Tenant Improvements .................................Exhibit B, Section 2.1(a)
Tenant's Construction Cost ..........................Exhibit B, Section 2.1(a)
Tenant's Proportionate Share ....................................... Preamble
Term ............................................................... Preamble
Third Floor Offer Space ............................................ Pgh 33(a)
</TABLE>
-ii-
<PAGE>
LEASE AGREEMENT DATED APRIL 16, 1993
BETWEEN SAMMIS MORRISTOWN ASSOCIATES, a California general partnership
("Landlord"), having an office address c/o Gale & Wentworth, 100 Campus Drive,
Florham Park, New Jersey, 07932 AND SCHEIN PHARMACEUTICAL, INC., a New York
corporation ("Tenant"), having an address at 1800 Northern Boulevard, Roslyn,
New York 11576.
PREAMBLE
--------
BASIC LEASE PROVISIONS AND DEFINITIONS.
In addition to other terms elsewhere defined in this Lease, the
following terms whenever used in this Lease should have only the meanings set
forth in this Preamble, unless such meanings are expressly modified, limited or
expanded elsewhere herein.
1. Premises or Demised Premises: The Demised Premises are outlined
----------------------------
in red on the floor plan annexed hereto and made a part hereof as Exhibit A,
consisting of approximately 40,899 square feet of gross rentable area of office
space located on the third floor, together with all fixtures, equipment,
improvements and installations attached thereto, in the building situated on
the Land (as defined in Paragraph 1(a) of this Lease) located at One Hundred
Campus Drive, in the Borough of Florham Park, Morris County, New Jersey, as
shown on the site plan attached hereto and made a part hereof as Exhibit A-1
(hereinafter referred to as the "Building"), the Building being part of an
office complex presently consisting of two office buildings known as Park Avenue
at Morris County, as shown on the plan attached hereto and made part hereof as
Exhibit A-2 (hereinafter referred to as the "Complex") situated on the Complex
Land (as defined in Paragraph 1(a) of the Lease).
2. Term: Twelve (12) years.
----
3. Expiration Date: Midnight on the last day of the calendar month
---------------
occurring twelve (12) years after the Commencement Date or, to the extent that
Tenant exercises the renewal options contained in Paragraph 24 of this Lease,
the last day of the last Renewal Term.
4. Renewal Term: Three (3) Renewal Terms of five (5) years each.
------------
5. Permitted Use: General office use, including, without
-------------
limitation, executive, sales, administrative and data processing offices.
6. Fixed Rent: Twenty-five Dollars ($25.00) per square foot of
----------
gross rentable area of office space per annum, being a total of One Million
Twenty-two Thousand Four Hundred Seventy-five Dollars ($1,022,475) per annum
from the Commencement Date until the day prior to the sixth (6th) anniversary of
the Commencement Date; Twenty-seven Dollars and Seventy-five Cents ($27.75) per
square foot of gross rentable area of office space per annum, being a total of
One Million One Hundred Thirty-Four Thousand Nine Hundred Forty-seven Dollars
and Twenty-five Cents ($1,134,947.25) per annum from the sixth (6th) anniversary
of the Commencement Date until the Expiration Date, subject, however, to the
Rent Abatement provided for in Paragraph 2(d) of this Lease; and Ninety-five
percent (95%) of Fair Market Value, as defined in Paragraph 24 of this Lease,
during the three (3) Renewal Terms.
7. Monthly Fixed Rent: One-Twelfth of Fixed Rent, being Eighty-
------------------
five Thousand Two Hundred Six Dollars and Twenty-five Cents ($85,206.25) per
month from the Commencement Date until the day prior to the sixth (6th)
anniversary of the Commencement Date and being Ninety-four Thousand Five Hundred
Seventy-eight Dollars and Ninety-four Cents ($94,578.94) per month from the
sixth (6th)
<PAGE>
anniversary of the Commencement Date until the Expiration Date, subject, however
to the Rent Abatement provided for in Paragraph 2(d) of this Lease; and One-
Twelfth of the Fixed Rent during the three (3) Renewal Terms.
8. Late Charge: Three percent (3%) of the amount of the payment
-----------
due, subject to the provisions of Paragraph 2(c) of this Lease.
9. Tenant's Proportionate Share: Eleven and Forty-nine hundredths
----------------------------
percent (11.49%) arrived at by dividing the gross rentable area of the Demised
Premises (which for the purposes of this Lease is agreed to be 40,899 square
feet) by the gross rental area of the Building (which at the time of this Lease
Landlord represents is 356,102 square feet).
10. Building's Proportionate Share of Complex Expenses:
--------------------------------------------------
Sixty-Four and Fifty-Nine Hundredths percent (64.59%) determined by dividing the
gross rentable area of the Building (356,102 square feet) by the gross rentable
area of the Complex (which at the time of this Lease Landlord represents is
551,302 square feet, but which may increase from time to time as additional
buildings are constructed by Landlord as part of the Complex).
11. Security Deposit: An amount equal to twice the Monthly Fixed
----------------
Rent, subject to the provisions of Paragraph 20 of this Lease.
12. Tenant's S.I.C. Code (as per most recent S.I.C. Manual as
---------------------------------------------------------
pub1ished by the United States Office of Management & Budget): 2834.
- -------------------------------------------------------------
13. Designated Broker: Alexander Summer Co.
-----------------
14. Number of Tenant Allocated Parking Spaces: One hundred sixty-
-----------------------------------------
four (164) spaces, consisting of six (6) exclusive spaces located in the
Building's executive garage ("Exclusive Spaces") and one hundred fifty-eight
(158) non-exclusive spaces ("Non-Exclusive Spaces"). Parking spaces are subject
to the further provisions of Paragraph 23 of this Lease.
15. Building Holidays: President's Day; Good Friday; Memorial Day;
-----------------
Independence Day; Labor Day; Thanksgiving Day and the day after; Christmas Day
and New Year's Day, the Monday before or the Friday after if Christmas Day, New
Year's Day or Independence Day fall on Tuesday or Thursday; and the Monday after
or the Friday before if Christmas Day, New Year's Day or Independence Day fall
on Saturday or Sunday.
16. Prime Rate: The prime commercial lending rate on ninety (90)
----------
day loans announced by Citibank, N.A. as it "prime or base rate."
The parties hereby agree to the following terms and conditions:
1. Premises. Term and Purpose.
--------------------------
(a) Landlord does hereby lease to Tenant, and Tenant does
hereby lease from Landlord, the Demised Premises located in the Building,
together with the non-exclusive easement and right to use any pedestrian
easements and/or vehicular easements which may exist from time to time for the
benefit of tenants of the Building over any portion of the Complex Land,
together with an easement and non-exclusive right of access to and use of all
other Common Areas, as defined in Paragraph 1(d), for the Term commencing on the
Commencement Date, as defined in subparagraph (b) of this Paragraph 1, and
ending on the Expiration Date, or such earlier date upon which the Term may
expire, or be terminated pursuant to the provisions of this Lease or pursuant to
Law. The
- 2 -
<PAGE>
parcel of land on which the Building is located (hereinafter called the "Land"),
is known and designated as Lot 7, Block 1201 on the tax maps of the Borough of
Florham Park. The parcels of land on which the Complex is located (hereinafter
called the "Complex Land") consist of approximately 135.9 acres, and is known
and designated as Lots 5, 6 and 7, Block 1201 on the tax maps of the Borough of
Florham Park.
(b) For purposes of this Lease the "Commencement Date" shall be
August 1, 1993, subject to the provisions of Paragraph 4(b).
(c) The Demised Premises shall be used by Tenant for the
Permitted Use and for no other use or purpose. The Permitted Use shall not be
deemed to include the following uses which are expressly prohibited:
governmental offices, drive-up facilities, educational, training or similar
classes for members of the general public, union offices, medical or similar
treatments, barber or beauty parlor, gaming or political activities,
pornographic, employment, recruiting or placement activities (except executive
search), retail or wholesale sale and delivery of goods, and repairing,
servicing or receiving for repair or service, and any other use or uses which
are of the same or similar nature or character. Tenant shall not use or occupy
the Demised Premises or any part thereof for any purpose deemed unlawful,
disreputable, or extra-hazardous on account of fire or other casualty, or for
any purposes which shall impair the character of the Building. Tenant, at its
sole cost and expense shall obtain any consents, licenses, permits or approvals
required or obtainable in normal course to conduct its business at the Demised
Premises, other than the certificate of occupancy for the Tenant Improvements,
which shall be the Landlord's responsibility to obtain. Landlord shall enforce
the foregoing use restrictions against all tenants in the Complex in a uniform
and non-discriminatory manner.
(d) The "Common Areas" shall consist of the "Building Common
Areas", as defined herein, and the "Complex Common Areas", as defined herein.
(i) The "Building Common Areas" shall be those parts of the Building and other
improvements designated by Landlord from time to time for the common use of all
tenants of the Building, including among others, facilities, halls, lobbies,
elevators, delivery passages, drinking fountains, public toilets, and the like,
or similar improvements operated, owned or maintained, in whole or in part, by
Landlord with respect to the Building. (ii) The "Complex Common Areas" shall be
those parts of the Complex exterior to the Building and other buildings in the
Complex designated by the Landlord from time to time for the common use of all
tenants in the Complex, including but not limited to, parking lots, service
buildings, parkways, drives, greenspaces, parks, fountains, detention or
retention ponds, or other facilities owned, operated or maintained, in whole or
in part, by Landlord or the owner or operator from time to time of same, for use
by all tenants of the Complex and/or such other owners and operators. The Common
Areas shall be operated and maintained by Landlord and/or such other owners or
operators for the benefit of all tenants in a first class manner. The use of the
Common Areas shall be in common with Landlord, other tenants of the Building and
the Complex and other persons entitled to use the same. Landlord shall not alter
or diminish the Common Areas in any way that has a materially negative impact on
Tenant's ability to conduct its business at the Demised Premises.
(e) For purposes of this Lease the term "Improvements" shall
mean and include all improvements on the Land, whether existing now or in the
future, including the Building, and/or appurtenant structures or improvements of
any kind on the Land, including, without limitation, loading areas, canopies,
walls, waterlines, sewer, electrical and gas distribution facilities, parking
facilities, walkways, streets, curbs, roads, rights of way, fences, hedges,
exterior plantings, poles, and signs. Although
- 3 -
<PAGE>
additional office buildings are planned for the Complex, no new office
buildings will be constructed on the Land.
2. Rent.
----
(a) The rent reserved under this Lease for the Term hereof shall
be and consist of (a) the Fixed Rent payable in equal monthly installments in
advance, on the first day of each and every calendar month during the Term
(except that Tenant shall pay the first monthly installment on the execution of
this Lease); plus (b) such additional rent ("Additional Rent") in an amount
equal to Tenant's Proportionate Share of Expenses (as such terms are defined in
Paragraph 3 of this Lease) and all charges for services and utilities pursuant
to Paragraph 15 hereof, and any other charges as shall become due and payable
hereunder, including, without limitation, all expenses incurred by Landlord in
the enforcement of any of the agreements, covenants and obligations of Tenant
under this Lease, and including reasonable legal fees that may accrue in the
event suit for rent or dispossess proceedings are necessary to obtain the
possession of the Demised Premises or to collect the rent (if Landlord prevails
in any such suit or proceedings), which Additional Rent shall be payable as
hereinafter provided, all to be paid to Landlord at its office stated above, or
such other place within the continental United States as Landlord may designate,
in lawful money of the United States of America; provided, however, that if
the Commencement Date shall occur on a date other than the first calendar day of
a month, the rent for the partial month commencing on the Commencement Date
shall be appropriately pro-rated on the basis of the monthly rent payable during
the first year of the Term.
(b) Tenant does hereby covenant and agree promptly to pay the Fixed
Rent, Additional Rent and any other charges herein reserved as and when the same
shall become due and payable, without demand therefor, and without any set-off,
recoupment or deduction whatsoever, except as expressly set forth in this Lease.
All Additional Rent and other charges payable hereunder, which are not due and
payable on a monthly basis during the Term, unless otherwise specified herein,
shall be due and payable within twenty (20) days of delivery by Landlord to
Tenant of notice to pay the same.
(c) In the event that any payment of Fixed Rent, Additional Rent or
any other charges shall be paid more than five (5) business days after the due
date for same provided herein, Tenant shall pay, together with such payment, the
Late Charge and a like additional Late Charge for each thirty (30) days or
portion thereof that such payment shall remain unpaid; provided, however, that
notwithstanding the foregoing, Tenant shall be permitted to make one payment
during each Lease Year of the Term, and any renewals thereof, including the
Initial Year, as hereinafter defined, after the due date without being assessed
a Late Charge unless such payment is more than thirty (30) days late.
(d) Notwithstanding anything to the contrary contained in this
Paragraph 2, Tenant shall not be required to pay to Landlord the Monthly Fixed
Rent attributable to the second (2nd) through the tenth (10th) months of the
Term ("Rent Abatement") but Tenant shall be required to pay Additional Rent
during said nine (9) month period (other than Tenant's Proportionate Share of
any increase in Expenses which Tenant shall not be required to pay until after
the Initial Year, as set forth in Paragraph 3 of this Lease).
3. Operating Expenses.
------------------
(a) For purposes of this Paragraph, the following definitions
shall apply:
- 4 -
<PAGE>
"Initial Year" shall mean the calendar year
------------
1994.
"Lease Year" shall mean each calendar year subsequent to
----------
the Initial Year.
"Real Estate Taxes" shall mean the taxes and assessments
-----------------
now or hereafter imposed upon the Land and the Improvements. Real Estate Taxes
shall not include any interest or penalties thereon, provided that the same are
not incurred as a result of any default of Tenant. If, due to a change in the
method of taxation or assessment, any franchise, income, profit or other tax,
however designated, shall be substituted by the applicable taxing authority, in
whole or in part, for the Real Estate Taxes now or hereafter imposed on the Land
or the Improvements, such franchise, income, profit or other tax shall be deemed
to be included in the term "Real Estate Taxes". Landlord represents that it has
not received notice of any pending assessments for municipal improvements
"Expenses" shall mean (i) Real Estate Taxes; (ii) the total
--------
of all the costs and expenses paid or incurred by Landlord with respect to the
management, operation, maintenance, and repair of the Building, the Land and any
other of the Improvements and the services provided tenants therein, [excepting
electrical energy expenses paid directly by tenants (including Tenant) to
Landlord or the applicable utility supplying said service pursuant to Paragraph
15 of this Lease and equivalent provisions of other leases,] including, but not
limited to, the costs and expenses incurred for and with respect to: all
utilities, including without limitation, water, electricity, gas, lighting,
sewer and waste disposal; air conditioning, ventilation and heating (subject to
the deduction hereinafter described); lobby maintenance and cleaning;
maintenance of elevators; protection and security; lobby plantings and interior
landscape maintenance which are appropriate for the continued operation of the
Building in a first class manner; maintenance and painting of non-tenant areas;
fire, all risk, boiler and machinery, sprinkler, apparatus, public liability and
property damage, rent and plate glass insurance; supplies; wages, salaries,
disability benefits, pensions, hospitalization, retirement plans (but excluding
unfunded retirement liabilities), group insurance, workmen's compensation
insurance, payroll, social security, unemployment and other similar taxes with
respect to employees of Landlord to the extent and in such proportion that the
services of such employees are allocable to the management, operation and
maintenance of the Building and/or the Land; uniform and workers clothes for
such employees and the cleaning thereof and other similar employee benefits and
expenses imposed on Landlord pursuant to law or to any collective bargaining
agreement with respect to such employees to the extent and in such proportion
that the services of such employees are dedicated to the operation of the
Building, up to and including the Building manager; the cost for a bookkeeper
and for an accountant and any other professional and consulting fees, including
legal and auditing fees to the extent and in such proportion that the services
of such professionals and consultants are dedicated to the operation of the
Building; association fees or dues; the expenses, including payments to
attorneys and appraisers, incurred by Landlord in connection with any
application or proceeding wherein Landlord obtains or seeks to obtain reduction
or refund of the Real Estate Taxes payable or paid (but only to the extent of
any refund or reduction actually obtained); reasonable management fees of the
Building; and any other expenses of any other kind whatsoever reasonably
incurred in managing, operating, maintaining and repairing the Building, the
Land and any other of the Improvements; and (iii) the Building's Proportionate
Share of Complex Expenses. Expenses shall not include any cost borne by any
other tenant or as to which any other tenant is required to pay the entire cost
of same, whether or not as additional rent.
- 5 -
<PAGE>
"Complex Expenses" shall mean the total of all the costs
----------------
and expenses paid or incurred by Landlord and/or others to the extent such costs
incurred by others are chargeable to Landlord or contributable to by Landlord
with respect to the management, operation, maintenance and repair of the Complex
Common Areas and the services provided tenants of the Complex therein (excepting
those Expenses described in the immediately preceding subparagraph or otherwise
borne by any other tenant or as to which any other tenant is required to pay the
entire cost of same, whether or not as additional rent) and including, but not
limited to, the cost and expenses incurred for and with respect to: all
utilities, including but not limited to, exterior lighting, electricity and
waste disposal (excepting those utility expenses described in the immediately
preceding subparagraph or otherwise borne by any other tenant or as to which any
other tenant is required to pay the entire cost of same, whether or not as
additional rent); protection and security; maintenance, painting and cleaning of
the Complex Common Areas; exterior landscape maintenance; snow removal, parking
lot maintenance, striping and repairs, maintenance and repairs of the roads,
streets, driveways, utilities, detention and retention ponds and drainage
facilities; all risk, public liability and property damage insurance (excepting
those insurance expenses described in the immediately preceding subparagraph or
otherwise borne by any other tenant or as to which any other tenant is required
to pay the entire cost of same, whether or not as additional rent); supplies;,
wages, salaries, disability benefits, pensions, hospitalization, retirement
plans (but excluding unfunded retirement liabilities), group insurance,
workmen's compensation insurance, payroll, social security, unemployment and
other similar taxes with respect to employees of Landlord to the extent and in
such proportion that the services of such employees are allocable to the
management, operation and maintenance of the Complex Common Areas; uniforms and
working clothes for such employees and the cleaning thereof; and other similar
employee benefits and expenses imposed on Landlord and/or others pursuant to law
or to any collective bargaining agreement with respect to such employees, to the
extent and in such proportion that the services of such employees are dedicated
to the operation of the Complex Common Areas, up to and including the Complex
manager; the cost for a bookkeeper and for an accountant and for any other
professional and consulting fees, including legal and auditing fees to the
extent and in such proportion that the services of such professionals and
consultants are dedicated to the operation of the Complex and not to any
particular buildings therein; association fees or dues; the expenses and
reasonable management fees of the Complex to the extent consistent with market
conditions and any other expenses of any other kind whatsoever reasonably
incurred in managing, operating, maintaining and repairing the exterior areas of
the Complex, Complex Common Areas and Complex Land.
Landlord agrees that with respect to all maintenance, repair,
replacement and improvement expenses referred to in the two immediately
preceding paragraphs involving contracts or individual expenditures exceeding
Twenty-five Thousand Dollars ($25,000.00), other than emergency repairs,
Landlord shall obtain at least two competitive bids and shall utilize the lowest
responsible bidder for such work.
No expenses shall be included as both Expenses and Complex
Expenses, it being the intention of this Paragraph 3(a) (1) that there shall be
no duplication of charges in the calculation of Real Estate Taxes, Expenses or
Complex Expenses hereunder. Expenses and Complex Expenses shall exclude or have
deducted from them, as the case may be and as shall be appropriate:
(i) leasing commissions and expenses for leasing or
renovating space for tenants;
- 6 -
<PAGE>
(ii) salaries for executives above the grade of Building
manager, with regard to Expenses, or Complex manager, with respect to Complex
Expenses;
(iii) Building and Complex start-up or opening expenses;
(iv) except as provided hereinbelow, expenditures for capital
improvements or other expenses which are capital in nature, as determined
pursuant to generally accepted accounting principles consistently applied except
for those de minimis amounts that are expensed;
(v) advertising, marketing and promotional expenditures;
(vi) legal fees and other professional fees for lease
negotiations and disputes with tenants;
(vii) as a deduction, amounts received by Landlord through
proceeds of insurance to the extent the proceeds are compensation for expenses
which were previously included as Expenses hereunder;
(viii) the cost of repairs or replacements incurred, by reasons
of fire or other casualty, or caused by the exercise of the right of eminent
domain, or compensable to Landlord by virtue of Landlord's insurance;
(ix) expenses for painting, redecorating or other work which
Landlord, at its expense, performs for Tenant or for any other tenant in leased
areas of the Building or the Complex other than painting, redecorating or other
work which is standard for or periodically performed in the Building or the
Complex; and
(x) interest and amortization payments or other payments
(except escrows for items included in Expenses) on any mortgages and rental
under any ground or underlying leases.
If Landlord and/or others shall purchase any item of capital
equipment or make any capital expenditures designed to result in savings or
reductions in Expenses or Complex Expenses, then the costs for same shall be
included in Expenses or Complex Expenses. The costs of capital equipment or
capital expenditures are to be included in Expenses or Complex Expenses for the
calendar year in which the costs are incurred and subsequent calendar years on a
straight line basis amortized over such period of time as reasonably can be
estimated as the time in which such savings or reductions in Expenses or Complex
Expenses are expected to equal Landlord's costs for such capital equipment or
capital expenditure with an interest factor equal to the Prime Rate at the time
of Landlord's having actually incurred said costs. If Landlord and/or others
shall lease any such item of capital equipment designed to result in savings or
reductions in Expenses, then the rentals and other costs paid pursuant to such
leasing shall be included in Expenses or Complex Expenses for the calendar year
in which they were incurred.
If during all or part of any calendar year, including the
Initial Year, Landlord and/or others shall not furnish any particular item(s) of
work or service which would constitute an Expense or Complex Expense hereunder
to portions of the Building or the Complex due to the fact that construction of
the Building or the Complex is not completed, or such portions are not occupied
or leased, or because such item of work or service is not required or desired by
the tenant of such portion, or such tenant is itself obtaining and providing
such item of work or service, or for other reasons, for the purposes of
computing the Additional Rent payable hereunder the amount of the Expenses or
Complex Expenses for such item for such period shall be increased by an amount
equal to the
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additional operating and maintenance expenses which would reasonably have been
incurred during such period by Landlord and/or others if it or they had at its
or their own expense furnished such item of work or service to such portion of
the Building or Complex; it being the intention of this provision that
Landlord's determination of any increase in Expenses not be biased by any
increase attributable solely to an increase in occupancy or the provision of new
services or the like.
(b) In the event (i) that the Commencement Date shall occur on
other than the first day of a calendar year, or (ii) that the Expiration Date or
other termination of this Lease shall be a day other than the last day of a
calendar year, or (iii) of any abatement of the Fixed Rent payable hereunder
pursuant to any provision of this Lease for any period of time not equal to a
full calendar year, or (iv) of any increase or decrease in the gross rentable
area of the Demised Premises or any increase in the gross rentable area of the
Building or the Complex, then in each such event in applying the provisions of
this Article 3 with respect to such calendar year in which such event shall have
occurred, appropriate adjustments shall be made to Tenant's Proportionate Share
of Expenses payable pursuant to Paragraph 3(c) so as to apportion such payment
on the basis of (i) the pro rata portion of the calendar year during which such
payment is to be made and/or (ii) the increase or decrease in Tenant's
Proportionate Share of Expenses by virtue of the changes in any such gross
rentable area.
(c) Tenant shall be responsible for Tenant's Proportionate
Share of any increase in Expenses paid or incurred by Landlord in each Lease
Year during the Term over the Expenses paid or incurred by Landlord during the
Initial Year, as hereinafter provided. Attached hereto as Exhibit H is a true
copy of the statement of Expenses for the Building for the calendar years 1991
and 1992.
(1) During each Lease Year Tenant shall pay to Landlord
monthly, on the first day of each calendar month, as Additional Rent, Landlord's
good faith estimate of Tenant's Share of any increase in Expenses paid or
incurred by Landlord in each Lease Year over the Expenses paid or incurred by
Landlord during the Initial Year.
(2) Prior to the end of the Initial Year and thereafter
for each successive Lease Year, or part thereof, Landlord shall send to Tenant a
statement of the projected increase in Expenses, ("Projected Expense Increase")
for the applicable Lease Year, if any, broken down by categories as set forth in
Exhibit H (an "Expense Projection") and shall indicate what the estimated amount
of Tenant's Proportionate Share of said increase in Expenses shall be, said
amount to be paid in equal monthly installments (rounded to the nearest whole
dollar) in advance on the first day of each month by Tenant as Additional Rent,
commencing January 1st of the applicable Lease Year.
(3) If during the course of any Lease Year, Landlord shall
have reason to believe that the increase in Expenses shall be higher than that
upon which the aforesaid Expense Projection was originally based, as set forth
in subparagraph (c) (2) above, then Landlord shall be entitled to advise Tenant
of an adjustment in future monthly projection amounts to the end result that
Landlord's Projected Expense Increase shall be on a reasonably current basis
each Lease Year.
(4) Within ninety (90) days following the end of each
Lease Year, Landlord shall send to Tenant a statement of the actual increase in
Expenses incurred for the prior Lease Year showing Tenant's Proportionate Share
of the increase in Expenses due from Tenant, which statement shall be certified
as being accurate by Landlord, and which shall show Expenses broken down by
categories as set forth in Exhibit H. In the event that the amount
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prepaid by Tenant exceeds the amount that was actually due based upon actual
year end cost, then Landlord shall pay to Tenant an amount equal to the
overcharge. In the event that Landlord has undercharged Tenant, then Landlord
shall provide Tenant with an invoice stating the additional amount due, which
amount shall be paid in full by Tenant within twenty (20) days of receipt.
(5) Tenant shall have the right, for a period of four (4)
months following the receipt of each statement of the actual Expenses incurred
for the prior Lease Year, to audit the records of Landlord in support of such
statement at the offices of Landlord during regular business hours on a date and
at a time reasonably satisfactory to Landlord and upon at least fourteen (14)
days prior notice to Landlord. Upon the completion of such audit, Tenant shall
file any written objections to the statement with Landlord within said four (4)
month period. In response to the filing of any objections, the parties shall
confer and a final amount shall be agreed upon between the parties within thirty
(30) days thereafter. Upon such settlement, or in the event of the passage of
the period for review by Tenant, the determination shall be final and binding
upon the parties and no further adjustments shall be made with reference to such
Lease Year. If despite good faith efforts, the parties are unable to reach a
complete settlement of any objections filed by Tenant, the parties agree to
refer any unsettled objections to a mutually acceptable independent accountant
with experience in the real estate industry, whose determination shall be
binding on both parties. If the parties are unable to agree on a mutually
acceptable independent accountant, each party shall appoint an independent
accountant acceptable to it and the two independent accountants so appointed
shall appoint the independent accountant to whom the objections matter shall be
referred.
(d) Each and every of the aforesaid Expense Projection amounts
shall for all purposes be treated and considered as Additional Rent and the
failure of Tenant to pay the same as and when due in advance and without demand
shall have the same effect as a failure to pay any installment of the Fixed Rent
and shall afford Landlord all the remedies provided in this Lease therefor,
including, without limitation, the Late Charge as provided in Paragraph 2(c) of
this Lease.
(e) Tenant acknowledges and agrees that Landlord shall have the
right to change the period of the Lease Year (but may not change the period of
the Initial Year), either before or during the Term, to any other fiscal year or
twelve month period, provided that such change shall not result in any item of
Expenses being included twice in either the same or different Lease Years. In
the event that Landlord makes such a change, then the same shall be effective
upon written notice to Tenant and, in such event, Tenant shall pay Tenant's
Proportionate Share of any increase in Expenses paid or incurred by Landlord
over the Expenses paid or incurred by Landlord during the Initial Year for the
period from the end of the initially designated Lease Year, as last billed, to
the beginning of the newly designated Lease Year, prorated for such period,
within twenty (20) days of the rendering by Landlord of the bill for such
interim period. If the Building shall have been less than ninety-five percent
(95%) occupied during the Initial Year or any entire Lease Year, then the
Expenses shall be projected for the Initial Year and such Lease Year as set
forth in the last paragraph of Paragraph 3(a) of this Lease. Real Estate Taxes,
for the purposes of this Lease shall reflect the full assessed value of the
Building as a completed office building multiplied by the tax rate then in
effect. If all the Land, Building and other Improvements have not been included
in the assessed value of the Building for the calculation of Real Estate Taxes,
then the Real Estate Taxes shall be adjusted by Landlord to reflect the amount
of Real Estate Taxes which would be assessed against a fully completed Building,
i.e. those imposed on the Building if all of the Land, Building and
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other Improvements were completed and included in the assessed value of the
Building.
4. Completion of Improvements and Commencement of Rent.
---------------------------------------------------
(a) Landlord agrees to construct the Tenant Improvements (as
such term is defined in Exhibit B attached hereto and made part hereof) in
accordance with the terms, conditions and provisions set forth in Exhibit B.
Landlord shall proceed diligently to complete such work in the manner specified
herein.
(b) The Demised Premises shall be deemed ready for occupancy
and the Commencement Date hereunder shall occur on August 1, 1993 or such later
date that (i) the Demised Premises shall be delivered to Tenant in tenantable
condition, free of violations of any health, safety, fire and other statutes and
regulations governing the Demised Premises and its use, all of which shall be
established by issuance of a certificate (temporary or final) by appropriate
governmental authority, permitting occupancy of the Demised Premises for the
purposes set forth herein; and (ii) Landlord has substantially completed the
initial installations and other work in and to the Demised Premises agreed to be
performed by it pursuant to Paragraph 4(a) (and Landlord shall be deemed to have
substantially completed said installations and other work notwithstanding that
minor or insubstantial details of construction, mechanical adjustment or
decoration remain to be performed within the Demised Premises or any part
thereof, the non-completion of which does not materially interfere with Tenant's
use of the Demised Premises). If the occurrence of any of the conditions listed
in the preceding sentence, and thereby the making of the Demised Premises ready
for occupancy, shall be delayed due to a Tenant Delay (as defined in Section 3.2
of Exhibit B), then the Commencement Date shall be accelerated by a time period
equal to the number of days of Tenant Delay so caused by Tenant; provided,
however, that the Commencement Date shall not be accelerated to a date earlier
than August 1, 1993. In the event that any such Tenant Delay days shall be
asserted by Landlord, Landlord shall notify Tenant of the same as provided in
Section 3.2 of Exhibit B. If the Commencement Date does not occur by August 15,
1993 for any reason other than a Tenant Delay, Landlord shall allow Tenant a day
of free Fixed Rent for each day after August 15, 1993 (net of Tenant Delay days)
until the Commencement Date occurs (which free Fixed Rent shall be in addition
to that allowed under Paragraph 2 (d) hereof). If the Commencement Date does not
occur by December 15, 1993 for any reason other than a Tenant Delay, Tenant may
terminate this Lease by giving written notice of termination to Landlord prior
to the Commencement Date. In the event of such a termination, Landlord shall
refund the Security Deposit and any pre-paid rental to Tenant. If Landlord
obtains a temporary certificate of occupancy, Landlord (i) shall proceed
diligently to complete or correct such items as are necessary to obtain a final,
unconditional certificate of occupancy for the Demised Premises and (ii) shall
be responsible for all costs, fines or penalties imposed as a result of any
delays in completing work required under the temporary certificate of occupancy.
(c) Tenant may occupy the Demised Premises as soon as the same
are ready for its occupancy and the Commencement Date shall have occurred (but
not prior to said date except for installation of Tenant's personal property or
otherwise with the express consent of Landlord). If and when Tenant shall take
actual possession of the Demised Premises, it shall be conclusively presumed
that the same is in satisfactory condition, except as to (i) those items of work
remaining to be performed by Landlord pursuant to this Paragraph 4, (ii) latent
defects in the construction of the Tenant Improvements of which Tenant notifies
Landlord within one year after the Commencement Date, or (iii) any items of work
set forth on a "Punch List" to be submitted to and acknowledged by Landlord in
writing within thirty (30) days after the Commencement
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Date. Landlord shall proceed diligently to complete such Punch List items.
(d) Upon the occurrence of the Commencement Date, the parties
shall execute a letter agreement confirming the Commencement Date and the
Expiration Date and specifying the amount of Fixed Rent payable during the
initial month if the Commencement Date occurs on a day other than the first day
of the month.
5. Covenants as to Condition of Premises and Compliance with
---------------------------------------------------------------
Laws.
----
(a) Subject to the waiver of subrogation provisions of
Paragraph 10(d) hereof, in the event that the Building or any of the equipment
affixed thereto or stored therein should be damaged as a result of any act of
Tenant, its agents, servants, employees, invitees or contractors, Tenant shall,
upon demand, pay to Landlord the actual reasonable cost of all required repairs,
including structural repairs. Tenant shall commit no act of waste and shall take
good care of the Demised Premises and the equipment affixed thereto and stored
therein, shall maintain the Demised Premises in good condition and state of
repair (including the components of the electrical and HVAC system which
exclusively serve the Demised Premises, but otherwise excluding the Building
systems) and, upon the Expiration Date or other termination of this Lease, shall
deliver up the Demised Premises in good order and condition, wear and tear from
a reasonable use thereof excepted. Landlord shall perform, or cause to be
performed, all such maintenance and repairs and Tenant shall pay to Landlord the
reasonable costs incurred therefor promptly upon demand as Additional Rent.
(b) Tenant, at Tenant's expense, shall promptly comply in all
material respects with all laws, rules, regulations and ordinances, of all
governmental authorities or agencies having jurisdiction over the Demised
Premises, and of all insurance bodies (including, without limitation, the Board
of Fire Underwriters), at any time duly issued or in force applicable to the
Demised Premises or any part thereof or to Tenant's use thereof, including,
without limitation the Americans with Disabilities Act, ("Laws" or, as the
context requires, "laws"); provided that Tenant shall not be deemed to have
complied with such Laws in all material respects in the event that Landlord
would have any liability thereunder as a result of such non-compliance.
(c) Landlord, at Landlord's expense, shall promptly comply with
all Laws applicable to the Common Areas and the Land. Subject to the releases
and waivers of subrogation contained in or required by this Lease, Landlord
shall indemnify and hold Tenant harmless from and against any expense
(including, without limitation reasonable attorneys fees), loss, liability or
damages (excluding consequential damages) suffered or incurred by Tenant as a
result of Landlord's failure to comply with all laws applicable to the Common
Areas. Landlord represents that it has received no notice of any violation of
Laws applicable to the Common Areas.
6. Tenant Improvements, Alterations and Installations.
--------------------------------------------------
(a) With the exception of Tenant's trade fixtures, furniture
and other personalty (including computer and other office equipment and
modular/open plan furniture), all fixtures, equipment, improvements,
alterations, installations which are attached to the Demised Premises, and any
additions and appurtenances made by Tenant to the Demised Premises, shall become
the property of Landlord upon installation. Not later than the last day of the
Term, Tenant shall, at its expense, remove from the Demised Premises all of its
trade fixtures, furniture and other personal property and such improvements as
Landlord elects to have removed;
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provided, however, that Tenant shall not be required to remove any improvements
or fixtures contemplated by the Final Plans (as defined in Exhibit B) or any
improvements or fixtures of similar character which become part of the Demised
Premises as a result of an expansion thereof in accordance with the rights
granted Tenant under Paragraphs 32 and 33 of this Lease. Tenant, at its sole
cost and expense, shall repair injury done by or in connection with the
installation or removal of such improvements. Any equipment, fixtures, goods
or other property of Tenant not removed by Tenant upon the termination of this
Lease, or upon any quitting, vacating or abandonment of the Demised Premises by
Tenant shall be considered as abandoned and Landlord shall have the right,
without any notice to Tenant, to sell or otherwise dispose of the same, at the
expense of Tenant, and shall not be accountable to Tenant for any part of the
proceeds of such sale, if any, unless the proceeds of such sale exceed the total
amount of any sums due to Landlord under this Lease. Landlord may have any such
property stored at Tenant's risk and expense.
(b) Tenant, without Landlord's prior consent, shall have the
right to make non-structural alterations, installations, additions or
improvements in or to the Demised Premises that (i) do not require a building
permit to be issued by any governmental authority to legally make same, and (ii)
do not affect any existing-building systems outside the Demised Premises and do
not impair or adversely affect any existing building systems within the Demised
Premises. No other alterations, installations, additions or improvements
(structural or non-structural) shall be made by Tenant without Landlord's
express prior written approval. Landlord agrees that approval of alterations,
installations and improvements of a non-structural nature and which do not
affect any building systems shall not be unreasonably withheld. Tenant shall
give Landlord prior written notice of any proposed alterations, installations,
additions or improvements (hereinafter called "Alterations") with copies of
proposed plans and as-built plans upon completion of the Alterations. At the
time of granting its approval of any Alterations, Landlord shall notify Tenant
of any such Alterations which must be removed at the expiration of the Term as
provided in Paragraph 6(a) above. All Alterations shall be done at Tenant's sole
expense and the making thereof shall not interfere with the use of the Building
by other tenants. Tenant agrees to indemnify, defend and hold harmless Landlord
from any and all costs, expenses, claims, causes of action, damages and
liabilities of any type or nature whatsoever (including, but not limited to,
reasonable attorneys' fees and costs of litigation) arising out of or relating
to the making of the Alterations by Tenant. Nothing herein contained shall be
construed as constituting the permission of Landlord for a mechanic or
subcontractor to file a lien claim against the Demised Premises and Tenant
agrees to secure the removal of or bond against any such lien which a contractor
purports to file against the Demised Premises as provided in Paragraph 30(g) of
this Lease. All such Alterations shall be effected in compliance with all
applicable laws, ordinances, rules and regulations of government bodies having
or asserting jurisdiction over the Demised Premises.
7. Various Negative Covenants by Tenant. Tenant agrees that it
------------------------------------
shall not, without Landlord's prior written consent:
(a) do anything in or near the Demised Premises which will
increase the rate of fire insurance on the Building, provided that Tenant's use
of the Demised Premises in the manner allowed under Paragraph 1(c) hereof shall
not be deemed to cause such increase;
(b) permit the accumulation of waste or refuse matter in or
near the Demised Premises, except in containers provided therefor;
(c) mortgage, hypothecate, pledge or encumber this Lease in
whole or in part;
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(d) permit any signs, lettering or advertising matter to be
erected or attached to the Demised Premises which is visible from outside of the
Demised Premises except as expressly permitted herein; or
(e) encumber or obstruct the Common Areas surrounding the
Demised Premises, nor cause same to be encumbered or obstructed, nor encumber or
obstruct any access ways to the Demised Premises, nor cause same to be
encumbered or obstructed.
8. Various Affirmative Covenants of Tenant. Tenant covenants
---------------------------------------
and agrees that Tenant will:
(a) At any time and from time to time execute, acknowledge and
deliver to Landlord, or to anyone Landlord shall designate, within ten (10)
business days of receipt of request therefor, a tenant estoppel certificate in
form reasonably acceptable to Landlord or financial institutions requesting the
same relating to matters customarily included in tenant estoppel certificates.
Tenant shall not be required to execute any estoppel certificate which would
result in a alteration of Tenant's rights and obligations under this Lease.
(b) Faithfully observe and comply with the rules and
regulations annexed hereto and made a part hereof as Exhibit C and such
additional rules and regulations as Landlord may hereafter at any time or from
time to time communicate in writing to Tenant, and which, in the reasonable
judgment of Landlord, shall be necessary or desirable for the reputation,
safety, care or appearance of the Building or the Complex, or the preservation
of good order therein, or the operation or maintenance of the Building or
Complex, or the equipment thereof, or the comfort of tenants or others in the
Building or Complex; provided, however, that in the case of any conflict between
the provisions of this Lease and any such rule or regulation, the provisions of
this Lease shall control. Nothing contained in this Lease shall be construed to
impose upon Landlord any duty or obligation to enforce the rules and regulations
or the terms, covenants or conditions in any other lease as against any other
tenant, and Landlord shall not be liable to Tenant for violation of any rule or
regulation by any other tenant, its employees, agents, visitors, invitees,
subtenants or licensees. Notwithstanding the foregoing, Landlord shall not
enforce such rules and regulations against Tenant, or fail to enforce the same
against other tenants in the Building, in a manner which would be unreasonable
and discriminatory as to Tenant.
9. Building Directory and Signage. Provided that Landlord is able
------------------------------
to obtain the necessary governmental permits and approvals to construct an
additional Building monument sign located on Campus Drive at the entrance to the
Building or to expand the existing sign, Landlord shall add Tenant's name at the
top of said additional or expanded Building monument sign. Landlord agrees to
make commercially reasonable efforts to secure such permits and approvals.
Landlord's inability to obtain such governmental permits and approvals shall not
entitle Tenant to an offset or abatement of rent of any kind hereunder or
otherwise permit Tenant to avoid compliance with all terms, covenants and
conditions of this Lease. If Landlord is unable to obtain such governmental
permits and approvals, Landlord shall reconfigure the existing monument sign to
add Tenant's name to the list of tenants presently contained on said sign.
Tenant shall be permitted to display its corporate name at the entrance of the
Demised Premises and on all Building directories.
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10. Casualty and Insurance.
----------------------
(a) In the event of partial or total destruction, by reason of
fire or any other cause, of (i) the Demised Premises or (ii) the Building or any
portion thereof which renders the Demised Premises untenantable, Landlord shall
promptly restore and rebuild (i) the Demised Premises to the standard set forth
in the work letter specifications contained in Exhibit B-1 or (ii) the Building
or such portion thereof as needed to make the Demised Premises tenantable to the
standard existing immediately prior to the occurrence of such fire or other
casualty, at Landlord's expense, unless, subject to the immediately following
sentence, Landlord elects by notice to Tenant within sixty (60) days of said
destruction not to restore and rebuild the Demised Premises and/or the Building,
and, in such case, upon a date specified in said notice by Landlord, this Lease
shall terminate. Landlord may elect to terminate this Lease only if (i) Landlord
is electing to terminate the leases of all tenants similarly situated and
affected by such casualty, or (ii) if such casualty occurs during the last
twelve (12) months of the Term (or, if Tenant has exercised its option to renew
this Lease, if such casualty occurs during the last twelve (12) months of the
final renewal Term). If Landlord elects to restore and rebuild the damage, then
during the period of restoration, Landlord shall notify Tenant of the estimated
time period for completing such restoration and Tenant shall be relieved of the
obligation to pay that portion of the rent herein reserved which relates to the
area of the Demised premises which has been rendered untenantable. If the damage
to the Demised Premises is such that Landlord reasonably estimates that the
restoration of the Demised Premises would require a period of time in excess of
eight (8) months after the date of Landlord's notice, then Tenant shall have the
right to terminate this Lease upon notice to Landlord given within twenty (20)
days after the date that Landlord notifies Tenant of the estimated time period
required for the restoration of the Demised Premises. If for any reason
(including force majeure) Landlord fails to complete the restoration of the
Demised Premises within twelve (12) months of the date on which the casualty
occurs, Tenant may terminate this Lease by giving Landlord written notice of
Termination prior to the completion of the restoration of the Demised Premises.
In the event of a casualty which renders the entire Demised Premises
untenantable which is restored and rebuilt by Landlord, Landlord shall give
Tenant fifteen (15) days notice prior to the completion of the restoration and
re-commencement of the obligation to pay rent hereunder.
(b) Tenant shall, at Tenant's sole cost and expense, except to the
extent prohibited by law with respect to workmen's compensation insurance, for
the mutual benefit of Landlord and Tenant and any Additional Insured (as
hereinafter defined) or any other additional insured as Landlord may from time
to time determine, including the lessors under any ground leases or underlying
leases and any mortgagees, maintain or cause to be maintained; (i) comprehensive
general liability insurance, including but not limited to, premises, bodily
injury, personal injury and contractual liability coverages (provided that
contractual liability coverage shall be required only if available at
commercially reasonable rates) for any and all damage or injury resulting from
any act or omission on the part of Tenant or Tenant's contractors, licensees,
agents, visitors or employees on or about the Demised Premises, including such
claims arising out of the construction of improvements on the Demised Premises,
such insurance to afford protection in the amount of Three Million Dollars
($3,000,000) with respect to injury or death to any one person or to any number
of persons or property damage arising out of a single occurrence, subject to
customary exclusions and to customary and reasonable deductibles; (ii) workmen's
compensation insurance covering all persons employed in connection with the
construction of any improvements by Tenant and the operation of its business
upon the Demised Premises. In the event that Landlord, at any time but not more
often than twice during the Term, reasonably deter-
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mines that Tenant's insurance coverage is inadequate, based upon the coverages
being required by landlords of comparable buildings in the general geographic
area of the Building, Landlord shall have the right to require Tenant to
increase its insurance coverage; provided, however, that such determination
shall not be made arbitrarily or discriminatorily as to Tenant in the context of
Landlord's treatment of other tenants in the Building. All such insurance
shall, to the extent permitted by law, name any mortgagees and ground lessors of
the Land and the Building and their successors and assigns, as additional
insureds (the "Additional Insureds") and shall be written by an insurance
carrier authorized to do business in the State of New Jersey, which shall be
reasonably satisfactory to Landlord.
(c) Prior to the Commencement Date, and at least thirty (30)
days prior to the expiration date of any policy, Tenant shall furnish evidence
of such insurance and of the payment of the premiums thereon to Landlord. Such
insurance shall be in form reasonably satisfactory to Landlord and, without
limitation, shall provide that no cancellation or lapse thereof or change
therein shall be effective until after thirty (30) days' written notice to
Landlord at the address specified in Paragraph 18 of this Lease. Tenant waives
all rights of recovery against Landlord and the Additional Insureds for any
loss, damages, or injury of any nature for which Tenant is insured.
(d) During the Term, Tenant shall maintain in effect in each
insurance policy required under this Lease that relates to property damage a
waiver of subrogation in favor of Landlord and the Additional Insureds from
its then-current insurance carriers, and shall at all times furnish evidence of
such currently effective waiver to Landlord. Such waiver shall be in a form
reasonably satisfactory to Landlord and, without limitation, shall provide that
no cancellation or lapse thereof or change therein with respect to any coverages
or conditions required in this Paragraph 10 shall be effective until after
thirty (30) days' written notice to Landlord at the address specified in
Paragraph 18 of this Lease. During the term of this Lease, Landlord shall
maintain in effect in each insurance policy insuring the Building, the Land or
the Complex Land that relates to property damage a waiver of subrogation in
favor of Tenant from its then-current insurance carriers, and shall at all times
furnish evidence of such currently effective waiver to Tenant. Such waiver
shall be in a form reasonably satisfactory to Tenant and, without limitation,
shall provide that no cancellation or lapse thereof shall be effective until
after thirty (30) days' written notice to Tenant at the address, specified in
Paragraph 18 of this Lease.
(e) Each insurance policy required to be maintained under this
Lease shall state that with respect to the interest of Landlord and the
Additional Insureds the insurance maintained pursuant to each such policy shall
not be invalidated by any action or inaction of Tenant and shall insure Landlord
and the Additional Insureds regardless of any breach or violation of any
warranties, declarations, conditions or exclusions by Tenant.
(f) Each insurance policy required to be maintained under this
Lease: (i) shall state that the insurance provided thereunder is primary
insurance without any right of contribution from any other insurance which may
be carried by or for the benefit of Landlord or the Additional Insureds; and
(ii) shall recognize the indemnification set forth in Paragraph 11 of this
Lease.
(g) Landlord agrees to maintain (i) comprehensive general
liability insurance in the minimum amount of One Million Dollars ($1,000,000)
single limit coverage, and (ii) insurance against loss or damage by fire, and
such other risks as may be included in the standard form of All Risk coverage,
in amounts required by Landlord's first mortgagee or, if none, amounts suffi-
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cient to enable Landlord to obtain physical replacement cost coverage.
11. Indemnification.
---------------
Subject to the releases and waivers of subrogation contained in or
required by this Lease, Tenant shall indemnify, defend and hold harmless
Landlord and the Additional Insureds, from and against any expense (including,
without limitation, reasonable attorneys' fees), loss, liability or damages
suffered or incurred as a result of the negligent acts or omissions or the
willful misconduct of Tenant or Tenant's agents, servants, invitees,
contractors or employees. The liability of Tenant to indemnify Landlord, as
hereinabove set forth, (i) shall not extend to liability resulting solely from
the negligence of Landlord or Landlord's agents or employees, (ii) shall be in
proportion to Tenant's allocable share of any joint negligence or willful
misconduct with Landlord, and (iii) shall not extend to any matter against which
Landlord shall be effectively protected by insurance; provided, however, that if
any such liability shall exceed the amount of the effective and collectable
insurance in question, the said liability of Tenant shall apply to such excess.
If the obligations or liabilities of Tenant under the provisions of this
Paragraph 11 are qualified or contradicted by the specifically expressed
provisions of other paragraphs or clauses of this Lease, this Paragraph 11,
shall be deemed and construed to be modified or controlled by such other
paragraphs or clauses.
12. Non-Liability of Landlord. Landlord shall not be liable for (and
-------------------------
Tenant shall make no claim for) any property damage or personal injury which may
be sustained by Tenant or any other person as a consequence of the failure,
breakage, leakage, inadequacy, defect or obstruction of the water, plumbing,
steam, sewer, waste or soil pipes, roof drains, leaders, gutters, valleys,
downspouts, or the like or of the electrical, gas, power, conveyor,
refrigeration, sprinkler, air conditioning or heating systems, elevators or
hoisting equipment; or by reason of the elements; or resulting from the
carelessness, negligence or improper conduct on the part of any other tenant of
Landlord, or Tenant's or any other tenant's agents, employees, guests,
licensees, invitees, sub-tenants, assignees or successors; or attributable to
any interference with, interruption or failure of any services or utilities to
be furnished or supplied by Landlord. Tenant shall give Landlord prompt written
notice of the occurrence of any events set forth in this Paragraph 12.
13. Remedies and Termination Upon Tenant Default.
--------------------------------------------
(a) In the event that:
(1) Tenant shall default in the payment of any Fixed Rent, or any
Additional Rent, or other charge payable hereunder by Tenant to Landlord, on any
date upon which the same becomes due, and such default shall continue for five
(5) days after Landlord shall have given Tenant a written notice specifying such
default; or
(2) Tenant shall default in the due keeping, observing or
performing of the covenants, agreements, terms, provisions or conditions
contained in Paragraph 1(c) of this Lease on the part of Tenant to be kept,
observed or performed and if such default shall continue and shall not be
remedied by Tenant within two (2) business days after Landlord shall have given
to Tenant a written notice specifying the same; or
(3) Tenant shall default in the due keeping, observing or
performing of any covenant, agreement, term, provision or condition of this
Lease on the part of Tenant to be kept, observed or performed, other than a
default of the character referred to in clauses (1) or (2) of this Paragraph
13(a), and if such
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<PAGE>
default shall continue and shall not be remedied by Tenant within twenty (20)
days after Landlord shall have given to Tenant a written notice specifying the
same (unless such default is such that it could not reasonably be cured within a
twenty (20) day period and Tenant shall commence to make a good faith effort to
cure such default within said twenty (20) day period and shall diligently
proceed to completion); or
(4) Should Tenant be evicted by summary proceedings or otherwise;
then, Landlord may, in addition to any other remedies herein contained, as may
be permitted by law, without being liable for prosecution therefor, or for
damages, reenter the Demised Premises and have and again possess and enjoy the
same; and as agent for Tenant or otherwise, re-let the Demised Premises and
receive the rents therefor and apply the same first to the payment of such
expenses, reasonable attorney fees and costs, as Landlord may have been put to
in re-entering and repossessing the same and in making such repairs and
alterations as may be necessary and second to the payment of the rents due
hereunder. Tenant shall remain liable for such rents as may be in arrears and
also the rents as may accrue subsequent to the re-entry by Landlord to the
extent of the difference between the rents reserved hereunder and the rents, if
any, received by Landlord during the remainder of the unexpired Term hereof,
after deducting the aforementioned expenses, fees and costs; the same to be paid
as such deficiencies arise and are ascertained each month. Landlord, at its
option, may require Tenant to pay in a single lump sum payment, at the time of
such termination or re-entry, as the case may be, a sum which represents the
present value (using a discount rate equal to the Prime Rate) of the excess of
the aggregate of the Fixed Rent which would have been payable by Tenant for the
period commencing with such termination or re-entry, as the case may be, and
ending on the originally fixed Expiration Date of the Term, over the aggregate
rental value of the Demised Premises for the same period. Landlord shall make
commercially reasonable efforts to mitigate damages in the event of a default by
Tenant.
(b) Upon the occurrence of any of the contingencies set forth in the
preceding subparagraph (a) of this Paragraph 13, or should Tenant be adjudicated
a bankrupt or insolvent, or placed in receivership, or should proceedings be
instituted by or against Tenant for bankruptcy, insolvency, receivership,
agreement of composition, or assignment for the benefit of creditors (and, if
the proceedings are initiated against Tenant, the same are not vacated within
ninety (90) days of their initiation), or if this Lease or the estate of Tenant
hereunder shall pass to another unaffiliated entity by virtue of any court
proceedings, writ of execution, levy, sale, or by operation of law, Landlord
may, if Landlord so elects, at any time thereafter, terminate this Lease and the
Term hereof, upon giving to Tenant or to any trustee, receiver, assignee or
other person in charge of or acting as custodian of the assets or property of
Tenant, five (5) days' notice in writing of Landlord's intention so to do.
Upon the giving of such notice, this Lease and the Term hereof shall end on the
date fixed in such notice as if the said date was the Expiration Date; and
Landlord shall have the right to remove all persons, goods, fixtures and
chattels therefrom, by force or otherwise without liability for damages.
14. Remedies Cumulative; Non-Waiver.
-------------------------------
The various rights, remedies, options and elections expressed herein are
cumulative and the failure of either party to enforce strict performance by the
other of the conditions and covenants of this Agreement, to exercise any
election or option, or to resort or have recourse to any remedy herein
conferred, or the acceptance by Landlord of any installment of rent after any
breach by Tenant, in any one or more instances, shall not be construed or deemed
to be
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<PAGE>
a waiver or a relinquishment for the future of any such conditions and
covenants, options, elections or remedies, but the same shall continue in full
force and effect.
15. Services; Electric Energy
-------------------------
(a) Landlord shall: (i) supply heat, ventilation and air conditioning
to the Demised Premises and the Common Areas during Business Hours in accordance
with the HVAC specifications contained in Exhibit B-1 attached hereto; (ii)
provide snow and ice removal for the parking area, sidewalks and driveways in a
reasonably expeditious manner; (iii) provide refuse removal from a dumpster to
be provided on site to be used for normal paper waste attendant to an office
building; and (iv) provide security services in accordance with the
specifications attached hereto as Exhibit I. "Business Hours" as used in this
Lease, means the generally customary daytime business hours of Tenant but not
before 8:00 A.M. or after 6:00 P.M. on weekdays and 8:00 A.M. to 1:00 P.M. on
Saturdays, and not including Sundays and Building Holidays (except that Landlord
shall provide heat, ventilation and air conditioning service to the Demised
Premises and building security to the Building on Good Friday without charging
Tenant for overtime services). Tenant shall have access to the Demised Premises
twenty-four (24) hours a day, seven (7) days a week at no additional cost except
when overtime services are required as provided in Paragraph 15(b). Tenant
agrees at all times to cooperate fully with Landlord and to abide by all the
regulations and requirements which Landlord may prescribe for the proper
functioning and protection of such air conditioning system. Landlord shall clean
the Demised Premises in accordance with the cleaning schedule annexed hereto as
Exhibit D. The cost of the services and utilities provided pursuant to this
Paragraph 15(a) is included in Expenses as defined in Paragraph 3(a).
(b) Provided Tenant is not then in default of this Lease beyond the
expiration of any applicable grace period, Landlord shall provide to Tenant
overtime services and utilities when and to the extent reasonably requested by
Tenant, or when activated by Tenant's use of an overtime thermostat and time
clock, and in accordance with such reasonable conditions as shall be determined
by Landlord. Tenant shall pay to Landlord, as Additional Rent, a charge
determined by Landlord for such additional service and utilities, which charge
shall cover all costs and expenses of Landlord in providing such overtime
services, including, without limitation, the cost of the utility usage, the cost
of maintenance, repairs and inspections of such building systems and employee
and administrative costs related to such services. Such charge shall constitute
a direct charge to Tenant and not an Expense as defined in Paragraph 3. During
the Initial Year, such charge shall be Fifty-five Dollars ($55) per hour.
Increases in such charge after the Initial Year shall be based upon increases in
the costs incurred by Landlord in supplying such service without mark-up.
(c) Landlord reserves the right, without liability to Tenant and
without constituting any claim of constructive eviction, to stop or interrupt
any heating, lighting, ventilating, air conditioning, gas, steam, power,
electricity, water or other service and to stop or interrupt the use of any
building or Building facilities at such times as may be necessary and for as
long as may reasonably be required by reason of accidents, strikes, or the
making of repairs, alterations or improvements, or inability to secure a proper
supply of fuel, gas, steam, water, electricity, labor or supplies, or by reason
of any other similar or dissimilar cause beyond the reasonable control of
Landlord. No such stoppage or interruption shall entitle Tenant to any
diminution or abatement of rent or other compensation nor shall this Lease or
any of the obligations of Tenant be affected or reduced by reason of any such
stoppage or interruption; provided, however, that if such stoppage
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<PAGE>
is within the control of Landlord, the rent reserved hereunder shall abate from
and after the fifth (5th) business day of such stoppage or interruption until
Landlord shall restore service. Further, if such stoppage or interruption
continues for a period of six (6) months, Tenant shall have the right to
terminate this Lease by giving written notice of termination to Landlord prior
to the restoration of service.
(d) Landlord shall furnish to Tenant, through the transmission
facilities installed in the Demised Premises, electric energy to be used by
Tenant, at Tenant's expense as provided for in this Paragraph 15, in the Demised
Premises in such reasonable quantity as shall be sufficient to meet Tenant's
ordinary business needs for lighting and the operation of its business machines,
as specified on Exhibit B-1, including, without limitation, photocopy equipment
and computer and data processing equipment, provided that Landlord shall not be
obligated to provide such electrical energy in any amount in excess of a total
connected load of six (6) watts of electric consumption for all purposes per
square foot of rentable area.
(e) Landlord shall, prior to the Commencement Date, at Landlord's sole
cost and expense, install a separate electrical meter so as to measure the
consumption of electricity in the Demised Premises. Landlord shall charge Tenant
for such electrical usage at Landlord's actual cost therefor (based upon the
average kilowatt hour cost of each invoice) without mark-up and Tenant shall pay
such amount to Landlord as Additional Rent hereunder within thirty (30) days of
Landlord's giving Tenant notice of the amount then due.
(f) If Landlord, by operation of law or as a result of the order of
any governmental authority or utility, is required to discontinue furnishing
electric energy to Tenant, Tenant shall arrange to obtain electric energy
directly from the public utility company furnishing electric service to the
Building. Such electric energy may be furnished to Tenant by means of the then
existing Building system feeders, risers and wiring to the extent that the same
are available, suitable and safe for such purposes. All meters and additional
panel boards, feeds, risers, wiring and other conductors and equipment which may
be required to obtain electric energy directly from such public utility company
shall be installed by Landlord at Tenant's expense. There shall be no
discontinuance of the furnishing of electric current to the Demised Premises by
Landlord until Tenant has completed its arrangements to obtain electric current
directly from the public utility company furnishing electric current to the
Building so that there is no interruption in the continuity of electric service.
(g) In the event that Tenant shall require electric energy for use in
the Demised Premises in excess of the quantity to be initially furnished as
herein provided and if, in Landlord's judgment, such excess requirements cannot
be furnished unless additional risers, conduits, feeders, switchboards and/or
appurtenances are installed in the Building, Landlord, upon written request of
Tenant, shall proceed with reasonable diligence to install such additional
risers, conduits, feeders, switchboards and/or appurtenances, provided the same
and the use thereof shall be permitted by applicable laws and insurance
regulations and shall not cause permanent damage or injury to the Building or
the Demised Premises, or cause or create a dangerous or hazardous condition, or
entail excessive or unreasonable alterations or repairs, or interfere with or
disrupt other tenants or occupants of the Building, and Tenant agrees to pay all
costs and expenses incurred by Landlord in connection with such installation.
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<PAGE>
(h) In order that Landlord may at all times have all necessary
information which it requires in order to maintain and protect its equipment,
Tenant agrees that Tenant shall not make any material alteration or material
addition to the electrical equipment and/or appliances in the Demised Premises
without the prior written consent of Landlord in each instance and shall
promptly advise Landlord of any other alteration or addition to such electrical
equipment and/or appliances. Tenant agrees to advise Landlord in writing as to
any material change in the periods of use of the lighting fixtures and Tenant's
business machines and equipment.
(i) Landlord shall in no way be liable or responsible to Tenant for
any loss or damage or expense which Tenant may sustain or incur by reason of any
failure, inadequacy or defect in the character, quantity or supply of electric
energy furnished to the Demised Premises except for actual damage other than
property damage suffered by Tenant by reason of any negligence of Landlord.
16. Subordination. This Lease shall be subject and subordinate in all
-------------
respects to any underlying leases, ground leases, licenses or agreements, and to
all mortgages which may now or hereafter be placed on or affect such leases,
licenses or agreements or the Land or the Demised Premises and also to all
renewals, modifications, consolidations and extensions of such underlying,
leases, ground lease, licenses, agreements, and mortgages, so long as each such
underlying landlord, ground lessor, or mortgagee shall provide to Tenant a
subordination, attornment and nondisturbance agreement substantially in the form
attached hereto and made part hereof as Exhibit E. Tenant shall execute and
deliver such further instruments confirming such subordination and non-
disturbance agreement as may be reasonably required by any holder of any such
mortgage or by a lessor, licensor or party to an agreement under any such
underlying lease, ground lease, license or agreement, respectively. If any
underlying lease, ground lease, license or agreement to which this agreement is
subject and subordinate terminates, or if any Mortgage to which this lease is
subordinate is foreclosed, Tenant shall, on timely request, attorn to the holder
of the reversionary interest or to the Mortgagee in possession, as the case may
be. Landlord represents that, on the date of the execution of this Lease, there
are no underlying leases, ground leases or mortgages encumbering the Building
with the exception of a construction loan mortgage held by the First National
Bank of Chicago. The parties shall execute and deliver to each other a
subordination, attornment and nondisturbance agreement substantially in the form
of that in Exhibit E with respect to said construction loan mortgage prior to
the Commencement Date.
17. Curing Tenant's Defaults. If Tenant shall fail or refuse to comply
------------------------
with and perform any conditions and covenants of this Lease after notice and the
expiration of the applicable cure period, Landlord may, if Landlord so elects,
carry out and perform such conditions and covenants, at the cost and expense of
Tenant, and the said cost and expense shall be payable on demand, or, at the
option of Landlord, shall be added to the installment of Monthly Fixed Rent due
immediately thereafter but in no case later than one month after such demand,
whichever occurs sooner, and shall be due and payable as such. This remedy shall
be in addition to such other remedies and Landlord may have hereunder by reason
of the breach of Tenant of any of the covenants and conditions in this Lease
contained.
18. Notices. Any notice, demand, statement or other communication which
-------
under the terms of this Lease or under any statute or law must or may be given
shall be given by hand delivery, or by registered or certified mail, return
receipt requested, or by reputable private overnight delivery service
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<PAGE>
providing a receipt of delivery or refusal, delivered or addressed to the
respective parties at the following address:
To Landlord: Sammis Morristown Associates
c/o Gale & Wentworth, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attn: Jonathan G. Thorpe
with a copy to: Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932
Attn: Glenn C. Geiger
To Tenant prior Schein Pharmaceutical, Inc.
to Commencement 1800 Northern Boulevard
Date: Roslyn, New York 11576
Attention: Chairman
with a copy to: General Counsel
(at same address)
To Tenant after Schein Pharmaceutical, Inc.
Commencement Date: 100 Campus Drive
Florham Park, New Jersey 07932
Attention: Chairman
with a copy to: General Counsel
(at same address)
Any such notice, demand, statement or other communication shall be deemed to
have been given or made (i) upon delivery, if hand delivered, (ii) on the second
business day after mailing, if mailed, postage paid, certified or registered
mail, and (iii) on the next business day, if delivered, charges prepaid or
charged to sender, to a reputable private overnight delivery service. Any of the
above addresses may be changed at any time by notice given as provided above.
Legal counsel for the respective parties may provide the requisite notice(s)
hereunder on behalf of their respective client.
19. Quiet Enjoyment. Landlord covenants that Tenant upon keeping and
---------------
performing each and every covenant, agreement, term, provision and condition
herein contained on the part and on behalf of Tenant to be kept and performed,
shall quietly enjoy the Demised Premises without hindrance or molestation by
Landlord or by any other person lawfully claiming by, through or under the same,
subject to the covenants, agreements, terms, provisions and conditions of this
Lease and the effects of the application of same. The foregoing covenant is and
shall be, in addition to and not in derogation of Tenant's implied right to
quiet enjoyment.
20. Security Deposit.
----------------
(a) Tenant has this day deposited with Landlord the Security Deposit
for the payment of the Fixed Rent, Additional Rent and other charges hereunder
and the full and faithful performance by Tenant of the covenants and conditions
on the part of Tenant to be performed. Said sum shall be returned to Tenant,
without interest, after the expiration of the term hereof, provided that Tenant
has fully and faithfully performed all such covenants and conditions and is not
in arrears in Fixed Rent, Additional Rent and other charges. During the term
hereof, Landlord may, if Landlord so elects, have recourse to such security, to
make good any default by Tenant, in which event Tenant shall, on demand,
promptly restore said security to its original amount. Liability to repay said
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<PAGE>
security to Tenant shall run with the reversion and title to the Demised
Premises, whether any change in ownership thereof be by voluntary alienation or
as the result of judicial sale, foreclosure or other proceedings, or the
exercise of a right of taking or entry by any mortgagee. Landlord shall assign
or transfer said security, for the benefit of Tenant, to any subsequent owner or
holder of the reversion or title to Demised Premises, in which case the assignee
shall become liable for the repayment thereof as herein provided, and the
assignor shall be deemed to be released by Tenant from all liability to return
such security.
(b) If on the thirty (30) month anniversary of the Commencement Date,
and provided that (i) Tenant's financial condition has not, in the reasonable
opinion of Landlord, declined in any material respect below the condition
existing on the date of the execution of this Lease, (ii) Tenant has not made
more than two (2) late payments of Fixed or Additional Rent beyond the
applicable grace period, and (iii) Tenant is not in default under any other
term, covenant or condition of this Lease beyond the applicable cure period,
the Security Deposit shall be reduced to an amount equal to the monthly Fixed
Rent, and Landlord shall refund the excess over such amount to Tenant.
(c) If on the five (5) year anniversary of the Commencement Date, and
provided that (i) Tenant's financial condition has not, in the reasonable
opinion of Landlord, declined in any material respect below the condition
existing on the date of the execution of this Lease, (ii) Tenant has not made
more than two (2) late payments of Fixed or Additional Rent beyond the
applicable grace period, and (iii) Tenant is not in default under any other
term, covenant or condition of this Lease beyond the applicable cure period, the
Security Deposit shall be returned to Tenant by Landlord; provided, however,
that in the event of a default by Tenant hereunder with respect to Tenant's
obligation to pay Fixed or Additional Rent, Landlord may require, in addition to
such payments as are necessary to cure such default, that Tenant pay an amount
equal to twice the Fixed Monthly Rent to re-establish the Security Deposit.
21. Inspection and Entry by Landlord.
--------------------------------
(a) Tenant agrees to permit Landlord and Landlord's agents, employees
or other representatives to show the Demised Premises to any lessor under any
underlying lease or ground lease or any mortgagee or any persons wishing to rent
or purchase the same; provided that Tenant shall be given twenty-four (24) hours
prior telephonic notice.
(b) Tenant agrees that, upon same day telephonic notice to Tenant
(except for routine maintenance), Landlord and Landlord's agents, employees or
other representatives, shall have the right to enter into and upon the Demised
Premises or any part thereof, at all reasonable hours, for the purpose of
inspecting the same, or reading meters, or performing maintenance, or making
such repairs or alterations therein as may be necessary for the safety and
preservation thereof. This clause shall not be deemed to be a covenant by
Landlord nor be construed to create an obligation on the part of Landlord to
make such inspection or repairs.
22. Brokerage. Tenant and Landlord warrant and represent to each other
---------
that neither has dealt with any broker or brokers regarding the negotiation of
this Lease other than the Designated Broker. Landlord agrees to pay the
commission due and payable to the Designated Broker as a result of the execution
of this Lease in accordance with the terms of a separate agreement between those
parties, and Landlord shall indemnify and hold Tenant harmless from any claim by
the Designated Broker with respect to such commission. Tenant and Landlord agree
to be responsible for
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<PAGE>
and to indemnify and hold the other harmless from and against any claim for a
commission or other compensation by any broker other than the Designated Broker
claiming to have negotiated with the indemnifying party with respect to the
Demised Premises or to have called the said Demised Premises to Tenant's
attention or to have called Tenant to Landlord's attention.
23. Parking. Tenant shall have the right under this Lease to the
-------
exclusive use of the Exclusive Spaces in the Building's executive garage and the
non-exclusive use of the Non-Exclusive Spaces in the parking lot of the Building
in compliance with such reasonable Rules and Regulations as Landlord may
promulgate from time to time. Landlord shall have the right to assign the
location of said non-exclusive parking spaces or may designate the location of
same from time to time. Landlord shall designate and assign to Tenant one (1)
additional Exclusive Space in the Building's executive garage, as and if such
space become available due to the expiration and non-renewal of other tenant's
leases in the Building. If Tenant takes additional space in the Building
pursuant to the rights afforded Tenant in Paragraphs 32 and 33 hereof, subject
to availability, Tenant shall also be allocated one additional Exclusive Space
in the executive garage for each additional ten thousand (10,000) square feet of
gross rentable area of office space leased by Tenant.
24. Renewal Option.
--------------
(a) Tenant is hereby granted three (3) successive options to renew
this Lease for a Renewal Term or five (5) years each, subject to the term of
this Paragraph 24. In the event that Tenant desires to renew this Lease, it
shall give notice in writing to Landlord of its intention to renew the Lease at
least fifteen (15) months prior to the Expiration Date and at least fifteen
(15) months prior to the expiration of each of the first two (2) Renewal Terms,
as the case may be. All of the terms and conditions of this Lease shall remain
in effect during each Renewal Term, except that (i) the Initial Year for
purposes of determining Tenant's Proportionate Share of any increase in Expenses
shall be adjusted to the year preceding the first year of the applicable Renewal
Term, and (ii) the annual Fixed Rent payable during each Renewal Term shall be
ninety-five percent (95%) of the annual fair market rental value of the Demised
Premises during the applicable Renewal Term based on comparable space in the
vicinity of the Demised Premises in comparable condition to that which the
Demised Premises will be in after completion of the Tenant Improvements (the
"Fair Market Value") as of the date which is thirteen (13) months prior to the
commencement date of such Renewal Term. The Fair Market Value of the Demised
Premises for purposes of subparagraph (a) of this Paragraph 24 shall take into
account the adjustment of the Initial Year as provided above and shall otherwise
be determined pursuant to the provisions of Paragraph 24(b). In no event shall
the annual Fixed Rent during any Renewal Term be less than the annual Fixed Rent
payable during the year preceding the first year of each such Renewal Term.
(b) On or before the later to occur of (i) the fifteenth (15th) day
after Landlord's receipt of notice of Tenant's intention to renew this Lease or
(ii) the first day of the fifteenth (15th) month preceding the then Expiration
Date, Landlord Shall notify Tenant of Landlord's determination of the Fair
Market Value. Within fifteen (15) days after Tenant's receipt of Landlord's
determination, Tenant shall notify Landlord whether Tenant accepts or rejects
said determination. If Tenant objects to Landlord's determination, the parties
shall confer and negotiate over the next sixty (60) days in an attempt to
reconcile its differences over the Fair Market Value. If the parties are unable
to resolve the dispute within sixty (60) days after Landlord's receipt of
Tenant's objection, then Tenant shall have
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<PAGE>
the right, at its discretion, to either rescind its notice of intention to renew
this Lease or to implement the appraisal process hereinafter described. If
Tenant elects to rescind its renewal notice, or if Tenant fails to give Landlord
notice of its election to implement the appraisal process by the first day of
the twelfth (12th) month precedinq the then Expiration Date, then in either case
Tenant shall be deemed to have waived its right to renew pursuant to the terms
of this Paragraph. If Tenant elects to implement the appraisal process, then
Landlord and Tenant each agree to be bound by the Fair Market Value determined
by said process. In the event Tenant has elected to implement the appraisal
process, then each party, at their own expense, shall designate an MAI or SREA
appraiser in the Morris County area who shall then determine and promptly report
to both parties in writing the Fair Market Value of the Demised Premises. If,
after receiving the appraisers' reports, the parties are unable to agree on the
Fair Market Value, both parties shall jointly appoint a separate MAI or SREA
appraiser who shall determine the Fair Market Value by selecting either
Landlord's appraiser's Fair Market Value determination or Tenant's appraiser's
Fair Market Value determination according to whichever of the two valuations is
closer to the actual Fair Market Value in the opinion of such third appraiser.
If Landlord's appraiser and Tenant's appraiser can not agree on the selection of
the third appraiser, such selection shall be made by the Morris County
Assignment Judge. The costs of such third appraiser shall be shared equally by
Landlord and Tenant.
(c) It shall be a condition of the exercise or the option set forth in
this Paragraph 24, that at the time of the exercise of said option, Tenant shall
not be in default under this Lease beyond applicable grace periods.
25. Landlord's Inability to Perform. This Lease and the obligation of
-------------------------------
Tenant to pay the rent hereunder and to comply with the covenants and conditions
hereof shall not be affected, curtailed, impaired or excused because of the
Landlord's inability to supply any service or material called for herein, by
reason of any rule, order, regulation or preemption by any governmental entity,
authority, department, agency or subdivision or for any delay which may arise by
reason of negotiations for the adjustment or any fire or other casualty loss or
because of strikes or other labor trouble or for any cause beyond the control of
the Landlord; provided; however, that this Paragraph 25 shall not affect
Tenant's right to an abatement of rent where such right is specifically provided
in another paragraph of this Lease.
26. Condemnation.
------------
(a) In the event that the whole or the Demised Premises shall be
lawfully condemned or taken in any manner for any public or quasi-public use or
purpose or is transferred, under threat of condemnation, by Landlord to any
party having the right of condemnation (any of such acts are referred to herein
as "eminent domain"), this Lease and the term and estate hereby granted shall
forthwith cease and terminate as of the date of vesting of title (hereinafter
referred to as the "date of taking"), and Tenant shall have no claim against
Landlord for, or make any claim for the value of, any unexpired term of this
Lease, and the Fixed Rent and Additional Rent shall he apportioned as of such
date.
(b) In the event that any part of the Demised Premises shall be so
condemned or taken, then this Lease shall be and remain unaffected by such
condemnation or taking, except that the Fixed Rent and Additional Rent
allocable to the part so taken shall be apportioned as of the date of taking,
and Tenant shall have no claim against Landlord for, or make any claim for the
value of, the portion of the unexpired Term of this Lease allocable to the part
so taken, provided, however, that in such event either party may elect to cancel
this Lease, provided that notice of
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termination is given to the other party not later than sixty (60) days after the
date when title shall vest in the condemning authority. Upon the giving of such
notice, this Lease shall terminate on the thirtieth (30th) day following the
date of such notice and the Fixed Rent and Additional Rent shall be apportioned
as of such termination date and Tenant shall have no claim against Landlord for,
or make any claim for the value of, the unexpired Term of this Lease. Upon such
partial taking and this Lease continuing in force as to any part of the Demised
Premises, the Fixed Rent and Additional Rent shall be diminished by an amount
representing the part of the Fixed Rent and Additional Rent properly applicable
to the portion or portions of the Demised Premises which may be so condemned or
taken and the parking spaces allocable to the Demised Premises shall be reduced
proportionately. If, as a result of the partial taking (and this Lease
continuing in force as to the part of the Demised Premises not so taken), any
part of the Demised Premises not taken is damaged, Landlord agrees with
reasonable promptness to commence the work necessary to restore the damaged
portion to the condition existing immediately prior to the taking, and prosecute
the same with reasonable diligence to its completion. In the event Landlord and
Tenant are unable to agree as to the amount by which the Fixed Rent and
Additional Rent shall be diminished, the matter shall be determined by a
mutually acceptable third party. Pending such determination, Tenant shall pay to
Landlord the Fixed Rent and Additional Rent as fixed by Landlord, subject to
adjustment upon resolution of such dispute.
(c) Nothing herein provided shall preclude Tenant from appearing,
claiming, proving and receiving in the condemnation proceeding Tenant's
reasonable and actual moving and relocation expenses and the value of trade
fixtures provided such claim shall be separate from and shall not adversely
affect Landlord's award.
(d) Subject to the provisions of Paragraph 26(c), the entire award for
any act of eminent domain shall be paid to Landlord, and, in the event of a
partial taking, if this lease is not cancelled by either party pursuant to the
provisions of this Paragraph 26, Landlord, at Landlord's own expense, shall
restore the unaffected part of the Demised Premises to substantially the same
condition and tenantability as existed prior to the taking. Until said
unaffected portion is restored, Tenant shall be entitled to a proportionate
abatement of Fixed Rent and Additional Rent of that portion of the Demised
Premises which is being restored and is not usable until the completion of the
restoration or until the said portion of the Demised Premises is used by Tenant,
whichever occurs sooner. Said unaffected portion shall be restored within a
reasonable time, provided, however, if Landlord is delayed by force majeure the
time for completion shall be extended for a period equivalent to the delay. If
such partial taking shall occur in the last year of the Term, either party,
irrespective of the area of the space remaining, may elect to cancel this Lease
and the term hereby granted, provided such party shall, within sixty (60) days
after such taking, give notice to that effect, and upon the giving of such
notice, the Fixed Rent and Additional Rent shall be apportioned and paid to the
date of expiration of the term specified, which date shall be not more than
thirty (30) days after the date of such notice, and this Lease and the term
hereby granted shall cease, expire and come to an end upon the expiration of the
period specified in said notice. If either party shall so elect to end this
Lease and the term hereby granted, Landlord need not restore any part of the
Demised Premises and the entire award for partial condemnation shall be paid to
Landlord, and Tenant shall have no claim to any part thereof.
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27. Assignment and Subletting.
-------------------------
(a) In the event that Tenant desires to assign this Lease or sublease
the Demised Premises or any portion thereof to any other party, notice of such
desire shall be given to Landlord in writing at least sixty (60) days prior to
the proposed effective date of any such assignment or sublease. Such notice
shall include, in the case of a sublease, the area of the Demised Premises to
be sublet and the proposed term of such sublease. Landlord shall have the
option, exercisable within thirty (30) days of Landlord's receipt of Tenant's
notice of intent, to recapture this Lease, in the case of an assignment, or, in
the case of a sublease, to recapture the space intended to be sublet, if the
gross floor area of the space to be sublet exceeds (in the aggregate including
all prior subleases) thirty percent (30%) of the gross floor area of the Demised
Premises, such recapture to occur as of the proposed effective date set forth in
Tenant's notice. In such event, Tenant shall be fully released from any and all
obligations hereunder with respect to the Demised Premises, in the case of an
assignment, or with respect to the space to have been sublet, in the case of a
sublease. Any sale or other transfer, whether voluntary or involuntary, by
operation of law or otherwise (including, without limitation, by consolidation,
merger or reorganization), of a majority of the voting stock of Tenant, if
Tenant is a corporation, or a majority of the partnership interests in Tenant,
if Tenant is a partnership, shall be an assignment for purposes of this
Paragraph 27 whether such transfer is accomplished in one transaction or a
series of transactions; provided, however, that the initial public stock
offering by Tenant or a successor entity and subsequent sales of stock sold on a
nationally recognized exchange shall not constitute an assignment for purposes
of this Paragraph 27.
(b) In the event that Landlord elects not to recapture the Demised
Premises or the portion thereof to be sublet as hereinabove provided, whichever
the case may be, Tenant may nevertheless assign this Lease or sublet the whole
or any portion of the Demised Premises, subject to the Landlord's prior written
consent, which consent shall not be unreasonably withheld and shall be granted
or denied within fifteen (15) days of receiving Tenant's request therefor
identifying the name and address of the proposed assignee or sublessee.
Landlord's failure to respond within said fifteen (15) day time period shall be
deemed to constitute consent. Any approval of such request shall be subject to
the consent of any mortgagee or ground lessor, which consent shall also be
granted or withheld within said fifteen (15) day period, and shall be subject to
the following terms and conditions:
(1) The assignee shall assume, by written instrument, all of the
obligations of this Lease, and the sublessee shall agree, by written instrument,
to be subject to all of the obligations of this Lease (but only to the extent
applicable to the space sublet and for the term of the sublease), and a copy of
such agreement shall be furnished to Landlord within ten (10) days of its
execution.
(2) Tenant and each assignee shall be and remain liable for the
observance of all of the covenants and provisions of this Lease including, but
not limited to, the payment of Fixed Rent, Additional Rent and other charges due
hereunder through the entire Term of this Lease, as the same may be renewed,
extended or otherwise modified.
(3) Tenant shall promptly pay to Landlord fifty percent (50%) of
any consideration other than rent received for or in connection with any
assignment or sublease, however denominated (excluding the proceeds of the sale
of Tenant's personal property and trade fixtures at a price not in excess of
depreciated book value), and fifty percent (50%) of all of the rent, as and when
received, in excess of the rent required to be paid by Tenant for the area
assigned or sublet.
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(4) In any event, the acceptance by Landlord of any rent from any
of the subtenants or the failure of Landlord to insist upon the strict
performance of any of the terms, conditions and covenants herein from any
assignee or subtenant shall not release Tenant herein, from any and all of the
obligations herein during and for the entire term of this Lease.
(5) The assignment or sublease shall provide that there shall be
no further assignments and/or subletting without Landlord's consent in
accordance with the provisions of this Paragraph 27.
(c) Tenant shall pay the actual reasonable legal costs incurred by
Landlord, up to a maximum of Seven Hundred Fifty Dollars ($750) per request, to
cover its handling charges for each request for consent to any assignment or
sublet which is subsequently approved by Landlord, such payment to be made
within ten (10) days of Landlord's notice of approval. Tenant acknowledges that
its sole remedy with respect to any assertion that Landlord's failure to consent
to any assignment or sublet is unreasonable shall be the remedy of specific
performance and Tenant shall have no other claim or cause of action against
Landlord as a result of Landlord's actions in refusing to consent thereto.
(d) Notwithstanding anything to the contrary contained in this Lease,
Tenant, without Landlord's prior written consent thereto and without being
subject to the provisions of this Paragraph 27, except subsection (b)(2) which
shall be applicable, shall have the right at any time and from time to time, to
assign this Lease or sublet all or a portion of the Demised Premises to, or
allow the Demised Premises to be otherwise occupied by (i) any parent,
subsidiary, affiliate, group, or division of Tenant, or to any purchaser of all
or substantially all of Tenant's assets, or to any entity which acquires all or
substantially all of the outstanding capital stock of Tenant; or (ii) any entity
arising from Tenant being restructured as a publicly held company; or (iii) any
entity arising as a result of a leveraged buyout, including any subsequent sales
of stock to the public or otherwise, as applicable.
28. Environmental Laws.
------------------
(a) Tenant agrees to comply with all environmental laws, rules and
regulations, including, but not limited to, the Environmental Cleanup
Responsibility Act (N.J.S.A. 13:lK-6, et seg.) ("ECRA") applicable to the
-- ---
Demised Premises or to the Tenant's use or occupancy thereof. Tenant represents
to Landlord that Tenant's Standard Industrial Classification (SIC) Number is
2834. Tenant represents that its contemplated use of the Demised Premises is
consistent with those uses identified in N.J.A.C. 7:26B-l.8(a)2 and should
thereby qualify for the administrative office exemption from ECRA contained in
said regulation. Tenant shall not conduct any operations at the Demised Premises
that shall cause the Building or the Demised Premises to be deemed an
"industrial establishment" as presently defined in ECRA, or, in the alternative,
shall conduct its operations so as to continue to qualify for an exemption
therefrom.
(b) Tenant hereby agrees to execute such documents Landlord reasonably
deems necessary and to cooperate in the making of such applications as Landlord
reasonably requires to assure compliance with ECRA. Tenant shall bear all costs
and expenses incurred by Landlord associated with any required ECRA compliance
resulting from Tenant's use of the Demised Premises, including, but not limited
to, state agency fees, engineering fees, clean-up costs, filing fees and
suretyship expenses; provided, however, that Tenant shall have no responsibility
for any such costs and expenses arising from (i) conditions at the Demised
Premises or on the Land existing prior to the Commencement Date, (ii) the
affirmative act or negligent omission of Landlord, or Landlord's agents or
employees, or (iii) the construction of the Building or the Demised
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<PAGE>
Premises by Landlord and the nature of the materials employed by Landlord with
respect thereto. In addition, Landlord shall be responsible for the cost of
obtaining a Letter of Non-Applicability under ECRA if the triggering event is
the sale or refinancing of the Building by Landlord, or any change in the
ownership or control of Landlord, or any other trigger resulting solely from the
actions of Landlord. As used in this Lease, ECRA compliance shall include
applications for determinations of nonapplicability by the appropriate
governmental authority. The foregoing undertaking shall survive the termination
or sooner expiration of the Lease and surrender of the Demised Premises and
shall also survive the sale, lease or assignment of the Demised Premises by
Landlord. Tenant shall promptly provide Landlord with copies of all material
correspondence, reports, notices, orders, findings, declarations and other
materials pertinent to Tenant's compliance at the Demised Premises and the New
Jersey Department of Environmental Protection and Energy's ("NJDEPE")
requirements under ECRA as they are issued or received by the Tenant.
(c) Neither party hereto shall be permitted to generate, store,
manufacture, refine, transport, treat, dispose of, or otherwise allow to be
present on or about the Demised Premises, any Hazardous Substances with the sole
exception of those Hazardous Substances typically used in operating, cleaning or
maintaining a business office in quantities consistent with such use. As used
herein, "Hazardous Substance" shall be defined as any "hazardous chemical",
"hazardous substance", "hazardous waste", or similar term as defined in the
Comprehensive Environmental Responsibility Compensation and Liability Act, as
amended (42 U.S.C. 9601, et seq.), ECRA, the New Jersey Spill Compensation and
Control Act, as amended, (N.J.S.A. 58:l0-23.llb, et seq.), any rules or
regulations promulgated thereunder, or in any other present or future applicable
federal, state or local law, rule or regulation dealing with environmental
protection.
(d) Tenant agrees to indemnify and hold harmless Landlord and each
mortgagee of the Demised Premises from and against any and all liabilities,
damages, claims, losses, judgments, causes of action, costs and expenses
(including reasonable attorneys' fees) which may be incurred by Landlord or any
such mortgagee or threatened against the Landlord or such mortgagee, relating to
or arising out of any breach by Tenant of this Paragraph 28, which
indemnification shall survive the expiration or sooner termination of this
Lease.
(e) Landlord represents that it has no knowledge of the storage or
disposal of Hazardous Substances anywhere on the Complex Land or any of the
Improvements thereon (i) except in compliance with all applicable federal, state
and local environmental laws, (ii) of a nature as would expose Tenant to any
claims or liabilities as a result of its use and occupancy of the Demised
Premises, or (iii) which would materially impair Tenant's use and occupancy of
the Demised Premises. Landlord agrees to indemnify and hold Tenant harmless
from and against any and all liabilities, damages, claims, losses, judgments,
causes of action, costs and expenses (including reasonable attorneys' fees)
which may be incurred by Tenant as a result of (i) the existence of Hazardous
Substances in the Building or on the Land prior to the Commencement Date, or
(ii) the handling, storage or disposal of Hazardous Substances by Landlord or
Landlord's agents or employees in violation of any applicable federal, state or
local environmental laws.
29. Parties Bound.
-------------
(a) The covenants, agreements, terms, provisions and conditions of
this Lease shall bind and benefit the respective successors, assigns and legal
representatives of the parties hereto with the same effect as if mentioned in
each instance where a party
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hereto is named or referred to except that no violation of the provisions of
Paragraph 7(c) hereof shall operate to vest any rights in any successor,
assignee or legal representative of Tenant and that the provisions of this
Paragraph 29 shall not be construed as modifying the conditions contained in
Paragraph 13 hereof.
(b) Tenant acknowledges and agrees that if Landlord shall be an
individual, joint venture, tenancy-in-common, firm, or partnership, general or
limited, there shall be no personal liability on such individual or on the
members of such joint venture, tenancy-in-common, firm or partnership in respect
of any of the covenants or conditions of this Lease; rather, Tenant agrees to
look solely to Landlord's estate and property in the Building (or the proceeds
thereof) for the satisfaction of Tenant's remedies arising out of or related to
this Lease.
(c) The term "Landlord" as used in this Lease means only the owner, or
the mortgagee in possession, for the time being of the Demised Premises (or the
owner of a lease of the Demised Premises) so that in the event of any sale or
sales of the Land, the Building, or the Demised Premises or of said lease, or in
the event of a lease of the Land, the Building or of the Demised Premises, the
said Landlord shall be and hereby is entirely freed and relieved of all
covenants and obligations of the Landlord hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors-in-
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the Land, Building or of the Demised Premises, that the purchaser
or the lessee of the same has assumed and agreed to carry out any and all
covenants and obligations of Landlord hereunder.
30. Miscellaneous.
-------------
(a) This Lease contains the entire contract between the parties. No
representative, agent or employee of Landlord has been authorized to make any
representations or promises with reference to the leasing of the Demised
Premises or to vary, alter or modify the terms hereof. No additions, changes or
modifications, renewals, or extensions hereof, shall be binding unless reduced
to writing and signed by Landlord and Tenant.
(b) The terms, conditions, covenants and provisions of this Lease
shall be deemed to be severable. If any clause or provision herein contained be
adjudged to be invalid or unenforceable by a court of competent jurisdiction or
by operation of any applicable law, it shall not affect the validity of any
other clause or provision herein but such other clauses or provisions shall
remain in full force and effect.
(c) The paragraph headings in this Lease are for convenience
only and are not to be considered in construing the same.
(d) If, in connection with obtaining financing for the Building, a
banking, insurance or other recognized institutional lender shall request
reasonable modifications in this Lease as a condition to such financing, Tenant
shall not unreasonably withhold, delay or defer its consent thereto, provided
that (i) such modifications do not in any significant manner increase the
obligations of Tenant hereunder, or affect the leasehold interest created
hereby, or impair the conduct of Tenant's business operations at the Demised
Premises or materially diminish Landlord's responsibilities hereunder; and (ii)
such modifications do not affect the Term, rent, renewal or expansion rights, or
work letter allowances afforded to Tenant hereunder.
(e) This Lease shall be governed by and construed in accordance with
the laws of the State of New Jersey.
(f) The parties agree that any litigation arising out of this Lease
shall be venued in the Superior Court of New
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Jersey. Each party waives trial by jury in any action or proceeding arising out
of this Lease.
(g) Tenant shall not allow the Demised Premises to be encumbered by a
mechanic's lien. If any mechanic's or material-man's lien is filed against the
Demised Premises, the Building or the Land as a result of any additions,
alterations, repairs, installations, improvements or any other work or act of
Tenant, Landlord shall notify Tenant of same and Tenant shall discharge or bond
same within fifteen (15) days from the date Tenant is notified of the filing of
the lien. If Tenant shall fail to discharge or bond the lien, Landlord may bond
or pay lien or claim for the account of Tenant without inquiring into the
validity of the lien or claim and Tenant shall reimburse Landlord upon demand.
(h) Each party represents to the other that the undersigned officer(s)
have been duly authorized to enter into this Lease and that the execution and
consummation of this Lease does not and shall not violate any provision of any
by-laws, certificate of incorporation, agreement, order, judgment, governmental
regulation or any other obligations to which the parties are subject. Upon
execution hereof, Tenant shall deliver a Secretary's certificate evidencing its
authority to execute this Lease.
(i) Landlord represents that it is the owner in fee, simple of the
Land and the Building and that the title thereto is not subject to any covenant,
restriction or other encumbrance which would preclude the use and occupancy of
the Demised Premises by Tenant for the Permitted Use.
(j) Whenever Landlord's consent or approval is required under this
Lease, Landlord agrees that such consent shall not be unreasonably withheld or
delayed at such times as Tenant is not in default in the performance of any of
its obligations under this Lease beyond this applicable grace period provided
herein. This subparagraph (j) shall not apply to any provision in this Lease
which expressly permits Landlord to arbitrarily withhold its consent or
approval.
31. Hold Over Tenancy. If Tenant shall hold over after the expiration of
-----------------
the term of this Lease or any extensions hereof, Tenant shall be deemed to be
occupying the Demised. Premises as a tenant from month-to-month, which tenancy
may be terminated as provided by New Jersey state law. Tenant acknowledges that
holding over beyond the term of this Lease may cause Landlord damages that are
impossible to estimate or quantify for purposes of this Lease. Therefore, during
such tenancy, Landlord and Tenant agree that Tenant shall pay to Landlord one-
hundred fifty percent (150%) of the Fixed Monthly Rent in effect on the
Expiration Date plus all other sums due hereunder, making such payment in
accordance with this Lease. Tenant shall be otherwise bound by all of the terms,
covenants and conditions contained in this Lease.
32. Tenant's Expansion Options.
--------------------------
(a) Tenant is hereby granted the option to lease an additional six
thousand (6,000) square feet of gross rentable area of office space located on
the third floor of the Building and currently occupied by Gale & Wentworth,
Inc., which area is identified as Option Space A on the floor plan attached
hereto as Exhibit F, subject to reasonable adjustments in the configuration of
the space as may in the future be agreed upon by the parties, ("Option Space A")
at any time between the second and fourth anniversaries of the Commencement
Date. In the event that Tenant desires to lease Option Space A, it must give
notice in writing to Landlord of Tenant's intention to lease Option Space A no
earlier than the eighteen (18) month anniversary of the Commencement Date and no
later than the forty-two (42) month anniversary of the
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Commencement Date. Such notice shall fix a date for the commencement of the
lease of Option Space A which shall be six (6) months after the date of such
notice. Failure of Tenant to provide Landlord with such notice shall be deemed
to be a termination of Tenant's right to lease Option Space A pursuant to the
terms and provisions of this Paragraph 32(a). If said option is exercised, all
of the terms and conditions of this Lease shall remain in effect for Option
Space A except that: (i) the annual and monthly Fixed Rent shall be increased
based upon the increase in the gross floor area of the Demised Premises
resulting from the addition of Option Space A; (ii) Landlord shall provide a
period of rent abatement equal to nine (9) months Fixed Rent (as to Option Space
A only) multiplied by a fraction the numerator of which is the number of years
remaining in the Term on the date on which the lease of Option Space A commences
and the denominator of which is the number twelve (12); and (iii) Landlord shall
provide a construction allowance equal to Thirty-one Dollars ($31) per square
foot of office space in Option Space A if Tenant's notice is given between the
eighteen (18) month and thirty (30) month anniversaries of the Commencement Date
and Twenty-nine Dollars ($29) per square foot of office space in Option Space A
if such notice is given on or after the thirty (30) month anniversary of the
Commencement Date. At such time as the commencement date for Option Space A
begins, Landlord and Tenant shall enter into a separate amendment to this Lease
appropriately incorporating Option Space A into this Lease, including, without
limitation, a recomputation of Tenant's Proportionate Share.
(b) At any time after November 30, 1995, contingent upon the release or
termination of the expansion rights of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Tenant shall be granted the option to lease an additional five
thousand (5,000) square feet of gross rentable area of office space located on
the third floor of the Building, which area is identified as Option Space B on
the floor plan attached hereto as Exhibit G ("Option Space B"). In the event the
Tenant desires to lease Option Space B, it must give notice in writing to
Landlord of Tenant's intention to lease Option Space B after November 30, 1995.
Such notice shall fix a date for the commencement of the lease of Option Space B
which shall be six (6) months after the date of such notice. Failure of Tenant
to provide Landlord with such notice during the Term shall be deemed to be a
termination of Tenant's right to lease Option Space B pursuant to the terms and
provisions of this Paragraph 32(b). If said option is exercised, all of the
terms and conditions of this Lease shall remain in effect for Option Space B
except that: (i) the annual and monthly Fixed Rent shall be increased based upon
the increase in the gross floor area of the Demised Premises resulting from the
addition of Option Space B; (ii) Landlord provide a period of rent abatement
equal to nine (9) months Fixed Rent (as to Option Space B only) multiplied by a
fraction the numerator of which is the number of years remaining in the Term on
the date on which the lease of Option Space A commences and the denominator of
which is the number twelve (12); and (iii) Landlord shall not be required to
provide the same per square foot rate construction allowance as set forth herein
but shall provide instead a work letter allowance of Thirty-one Dollars ($31.00)
per square foot of office space in Option Space B multiplied by a fraction the
numerator of which is the number of years remaining in the Term on the date on
which the lease of Option Space B commences and the denominator of which is the
number twelve (12). At such time as the commencement date for Option Space B
begins, Landlord and Tenant shall enter into a separate amendment to this Lease
appropriately incorporating Option Space B into this Lease, including, without
limitation, a recomputation of Tenant's Proportionate Share.
(c) It shall be a condition of Tenant's right to exercise the options set
forth in Paragraphs 32(a) and 32(b) that at the time of the exercise of said
option that Tenant shall not be in default under this Lease beyond any
applicable grace period.
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33. Right of First Offer.
--------------------
(a) If at any time during the Term (exclusive of any Renewal Term),
Landlord decides to lease space on the third floor of the Building ("Third Floor
Offer Space"), then Landlord shall, before deciding to so lease the space,
provide written notice to Tenant enclosing an offer of the terms and conditions
upon which Landlord would be willing to lease the Third Floor Offer Space, which
notice shall be accompanied by a floor plan of the Third Floor Offer Space. The
fixed rent specified in such notice shall be the greater of (i) the prevailing
fixed rent then being offered to tenants leasing similar space in the Building,
or (ii) the Fixed Rent payable by Tenant hereunder on the date of the notice.
Tenant shall then have a period of ten (10) days after receipt of the notice
containing the offer within which to accept such offer in writing, by notice
given in accordance with Paragraph 18 of this Lease, upon the terms and
conditions specified therein. In the event Tenant shall accept Landlord's offer,
then Landlord and Tenant shall enter into an amendment to this Lease upon the
terms and conditions specified in Landlord's notice to Tenant. In the event
Tenant shall fail to respond to Landlord during such ten (10) day period, then
Landlord shall thereafter be free to lease the First Offer Space to any third
party.
(b) If at any time during the Term, including any Renewal Term, any
storage space located in the lower level of the Building becomes available,
Landlord shall, prior to leasing such available storage space, provide written
notice to Tenant enclosing an offer of the terms and conditions upon which
Landlord would be willing to lease the storage space. Tenant shall then have a
period of ten (10) days after receipt of the notice containing the offer within
which to accept such offer in writing, by notice given in accordance with
Paragraph 18 of this Lease, upon the terms and conditions specified herein. In
the event that Tenant accepts Landlord's offer, then Landlord and Tenant shall
enter into an amendment of this Lease incorporating the storage space on the
terms and conditions specified in Landlord's notice to Tenant. In the event that
Tenant fails to respond to Landlord during such ten (10) day period, then
Landlord shall thereafter be free to lease the storage space to any third party.
(c) It shall be a condition of Tenant's right to exercise its right of
first offer for the Third Floor Offer Space or the storage space as set forth in
this Paragraph 33, that, at the time of such exercise Tenant shall not be in
default under this Lease beyond the expiration of any applicable grace period.
34. Satellite Dish Antenna. Tenant shall have the right, at its sole
----------------------
cost and expense, to install and maintain on the Building's roof the equipment
and satellite dish antenna (or similar transmitting device) required for
Tenant's communications and data transmission network (the "Antenna"). Tenant
shall be solely responsible for obtaining, with Landlord's reasonable
cooperation, if necessary (but at no cost to Landlord), any and all governmental
approvals and permits, including, without limitation, any FCC permit and any
amendment of the Building's site plan approval, which may be required in
connection with the installation and use of the Antenna. The Antenna shall be
located in an area mutually acceptable to both Tenant and Landlord. Landlord
shall have the right to relocate the Antenna, at its sole cost and expense, at
any time and from time to time during the Term, provided such relocation does
not unreasonably interfere with Tenant's business at the Demised Premises and
further provided that Landlord shall provide Tenant with reasonable prior notice
of said relocation and Landlord shall cooperate with Tenant in effectuating said
relocation. Tenant shall not have the exclusive right to use the Building roof
for its Antenna, but rather, shall be subject to the right of Landlord to use
the roof or to permit other tenants of the Building to use the roof for their
needs. In the event that Land-
- 32 -
<PAGE>
lord permits any other tenant to use the roof for equipment similar to the
Antenna, such other tenant's use shall not unreasonably interfere with Tenant's
Antenna. Tenant shall not be permitted to terminate this Lease or be entitled to
a reduction or abatement of the rent due and payable under this Lease in the
event that Tenant is unable to obtain the necessary permits and approvals to
install the Antenna or if conditions beyond Landlord's control interfere with
Tenant's use of the Antenna. Tenant shall be permitted access to the Building
roof and to the risers and conduits within the Building for purposes of
installing and maintaining the Antenna, which access shall not unreasonably
interfere with any other tenant's use and enjoyment of the Building. Tenant
shall pay the cost of any Building modifications or improvements required to
accommodate the Antenna. Tenant hereby indemnifies and holds Landlord harmless
from and against any and all claims, damages, liabilities, costs and expenses
(including without limitation attorneys fees and litigation costs) arising out
of Tenant's construction, installation, replacement, maintenance and general use
of the Antenna. Tenant acknowledges that Landlord has made no representations or
warranties to Tenant that the Antenna is permitted under applicable zoning
ordinances. Tenant shall comply with any such ordinances, at its sole cost and
expense. Tenant's use of the roof space shall not require a separate or
additional rent payment by Tenant.
35. Cafeteria. The Landlord covenants that so long as Tenant or an
---------
affiliate of Tenant, including the entities described in subparagraph 27(d)
hereof, is in occupancy of the Demised Premises Landlord shall maintain a
cafeteria open to the general public in the Building at all times during the
Term; provided, however, that Landlord shall not be considered to be in breach
of this covenant in the event that said cafeteria closes for a brief period of
time, not to exceed ninety (90) days, while Landlord is obtaining a new operator
for said cafeteria, or for a brief period of time, not to exceed one hundred
twenty (120) days, while said facility is being repaired or restored after
damage resulting from a casualty.
36. Utility Rebates. In the event that any of the heating, ventilating,
---------------
or air conditioning equipment, or any other energy systems installed in the
Demised Premises, entitle the purchaser thereof to any rebate of the cost of
purchase, Landlord shall assign to Tenant all of its interest in such rebate.
Landlord shall cooperate with Tenant at no expense to Landlord to enable Tenant
to process any necessary applications for such
- 33 -
<PAGE>
rebates by signing or endorsing any such applications after the same have been
prepared or compiled by Tenant.
IN WITNESS WHEREOF Landlord and Tenant have caused this Lease to be
executed as of the date first above written.
LANDLORD:
--------
SAMMIS MORRISTOWN ASSOCIATES, a
California general partnership
By: Gale & Wentworth, Inc.
authorized management agent
ATTEST:
/s/ [SIGNATURE APPEARS HERE] By:/s/ [SIGNATURE APPEARS HERE]
- ------------------------------- -----------------------------------
Name:
Title:
TENANT:
SCHEIN PHARMACEUTICAL, INC., a
New York corporation
ATTEST:
/s/ Paul Feuerman By: /s/ Oliver Esman
- ------------------------------- -----------------------------------
Paul Feuerman Name : Oliver Esman
Vice President and General Counsel Title: Vice President, Human Resources
-34-
<PAGE>
EXHIBIT "A"
-----------
FLOOR PLAN
----------
PARK AVENUE AT MORRIS COUNTY
PHASE 1 - THIRD FLOOR
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT "A"-1"
---------------
SITE PLAN OF BUILDING
---------------------
[SITE PLAN APPEARS HERE]
PARK AVENUE AT MORRIS COUNTY
MASTER SITE PLAN
<PAGE>
EXHIBIT B
---------
WORK LETTER TO LEASE
Between
Sammis Morristown Associates
and
Schein Pharmaceutical, Inc.
Section 1.1. The provisions of this Exhibit shall have the same force and
effect as if this Exhibit were a numbered Article of the Lease.
Section 2.1. (a) Landlord and Tenant have approved and do hereby
incorporate by reference herein as Exhibit B-1 work letter specifications and
preliminary plans for the construction of the Demised Premises (the "Preliminary
Plans"). The parties acknowledge that the Preliminary Plans were prepared based
upon a Demised Premises of 38,180 square feet of gross floor area of office
space. In finalizing the Preliminary Plans, the gross floor area of the Demised
Premises will be increased to 40,899 square feet and, as a result, the
quantities and allowances set forth in Exhibit B-1 shall be increased by 7.12%
(except for those expressed as an amount per square foot). Subject to the
provisions of this, Lease, Landlord agrees, to construct the Demised Premises in
accordance with the Final Plans (as hereinafter defined) finalized from the
Preliminary Plans, which construction shall be completed in a good and
workmanlike manner and in compliance with all applicable laws and regulations.
The work, fixtures, equipment and other improvements depicted on the Final Plans
are referred to in this Lease as the "Tenant Improvements". Tenant shall pay to
Landlord the sum of One Hundred Seven Thousand Dollars ($107,000) toward the
cost of constructing the Tenant Improvements ("Tenant's Construction Cost");
otherwise, Landlord shall complete the construction at Landlord's sole cost and
expense. Tenant's Construction Cost shall be paid to Landlord on the sooner of
(i) the date on which Tenant takes occupancy of the Demised Premises or (ii) the
date which is five (5) days of the issuance of a temporary or permanent
Certificate of Occupancy for the Demised Premises.
(b) Landlord shall pay the cost of preparing the Preliminary
Plans and the Final Plans up to a maximum of Four Dollars and Fifty Cents
($4.50) per useable square foot as provided in Exhibit B-1. Any revisions to the
Final Plans shall be at Tenant's sole cost and expense thereto.
Section 3.1. (a) In order to finalize the Preliminary Plans or in the event
that Tenant desires any change in the Preliminary Plans before finalization,
Tenant shall submit to Landlord, proposed final plans setting forth the
finalization of the Preliminary Plans, including any proposed finalization by
April 12, 1993. Within two (2) business days after receipt of any proposed
change to the Preliminary Plans, Landlord shall approve or reject same and if
rejecting same shall state the reasons for such rejection. Landlord agrees not
to unreasonably withhold its approval to any changes or to the proposed final
plans. If the proposed final plans included any changes from the Preliminary
Plans, upon the granting of any approval, Landlord shall notify Tenant of the
amount, if any, of the charge to Tenant arising therefrom (which charge shall be
determined after deducting any savings attributable to said change and which
charge shall be paid by Tenant to Landlord within ten (10) days after the
issuance of a temporary or permanent certificate of occupancy for the Demised
Premises). In the event of a rejection by Landlord of any proposed final plans,
Tenant may make changes to the proposed final plans and resubmit them pursuant
hereto. Upon receiving Landlord's approval to any proposed final plans, such
plans shall become the Final Plans (the "Final Plans") hereunder. No plans
submitted to Landlord shall be considered to be Final Plans unless they are
B-1
<PAGE>
submitted to Landlord signed and sealed and in proper and sufficient form for
Landlord to obtain all necessary permits and approvals to construct the Demised
Premises in accordance with such Final Plans. Any delay in the completion of
the Demised Premises caused by the Final Plans being delivered to Landlord,
fully approved and in the proper form as set forth herein, later than May 5,
1993 shall be a Tenant Delay (as hereinafter defined).
(b) In the event that Tenant desires any change in the Final Plans,
Tenant shall submit to Landlord revised final plans setting forth the proposed
change and instructing Landlord whether to cease work or cease any segment of
work while the change is approved (in which case the delay shall be a Tenant
Delay as hereinafter defined) or whether Landlord should continue constructing
the Demised Premises in accordance with the Final Plans notwithstanding the
proposed change thereto. In the event that no such instructions are given,
Landlord shall continue constructing the Demised Premises in accordance with the
Final Plans without regard to the proposed changes thereto. Within two (2)
business days after receipt of any proposed change in the Final Plans from
Tenant, Landlord shall approve or reject same and, if rejecting same, shall
state the reasons for such rejection. Landlord agrees not to unreasonably
withhold its approval to any such change. If Landlord has stopped work, or some
segment thereof, at Tenant's request, Landlord shall resume work, or some
segment thereof, at Tenant's written instructions from Tenant authorizing the
recommencement of such work. Upon the granting of any approval, Landlord shall
notify Tenant of the amount, if any, of the charge to Tenant arising therefrom
(which charge shall be determined after deducting any savings attributable to
said change and which charge shall be paid by Tenant to Landlord within thirty
(30) days after the issuance of a temporary or permanent certificate of
occupancy for the Demised Premises) and Landlord's estimate of the delay in
completion that will be caused by such proposed revision to the Final Plans. In
the event of a rejection by Landlord of a proposed revision, Tenant may make
changes to the proposed revision and resubmit it pursuant hereto. Upon receiving
Landlord's approval to any revision, Tenant shall, as soon thereafter as
practicable, but in no event in excess of two (2) business days, and
understanding that any delay in responding may cause delays in completion
substantially greater than the estimate given by landlord, authorize the work
that Tenant desires by approving in writing the work and the cost thereof, and
submitting to Landlord signed and sealed revised final plans sufficient for
Landlord to obtain all necessary permits and approvals to construct the Demised
Premises in accordance with such revised final plans. Upon the submission of
such revised final plans, such revised final plans shall become the Final Plans
hereunder. Any delay in completion caused by the revision to the Final Plans,
whether greater or less than Landlord's estimate, shall be a Tenant Delay (as
hereinafter defined).
(c) Any reduction in the cost of constructing the Tenant Improvements
resulting from changes to the Preliminary or Final Plans shall result in a
dollar for dollar reduction in Tenant's Construction Cost; provided, however,
that in no event shall Landlord be required to rebate any funds to Tenant due to
cost reductions in excess of Tenant's Construction Cost.
Section 3.2. If (a) a delay shall occur in the completion of the Demised
Premises in accordance with the Final Plans or any revised Final Plans by the
Landlord as the result of any act of or by Tenant or any of its employees,
agents or contractors which materially interferes with the completion of the
Tenant Improvements, including, without limitation, (i) any delay in delivering
the Final Plans to Landlord in the form and on the date required by Section
3.1(a) hereof, (ii) any direction by Tenant that the Landlord delay proceeding
with the work or any segment of the work in anticipation of a possible revision
to the Final Plans by Tenant or for any other reason, (iii) any revision to the
Final
B-2
<PAGE>
Plans authorized by Tenant, or (iv) any additional time required for the
completion by Landlord of its work because of the inclusion therein at Tenant's
request of any item of work not included in the Final Plans, or (v) any other
act or omission of Tenant, its agents, employees or contractors (any of such
events being a "Tenant Delay"), then (b) the Commencement Date shall (even
though no Certificate of Occupancy has been issued or the Demised Premises has
not been completed) be deemed to be one day earlier than provided for in
Paragraph 4(b) of the Lease for each day of such Tenant Delay. Landlord shall
notify Tenant of any event or occurrence which constitutes a Tenant Delay within
five (5) days of such event or occurrence. If Landlord fails to give such
notice, Landlord shall be deemed to have waived such Tenant Delay for the period
prior to the date which is five (5) days prior to the giving of such notice. The
extent of any Tenant Delay shall be determined in the following manner: Landlord
shall notify Tenant of a Tenant Delay and the estimated length of the Tenant
Delay involved as soon as practicable after the information necessary to
estimate such Tenant Delay is available (which notice shall include the basis
for the Landlord's estimate) and, as Landlord obtains the information to
calculate the actual Tenant Delay, Landlord shall so notify Tenant, providing it
with the basis used in calculating such Tenant Delay. In the event of a dispute
concerning the length of any Tenant Delay, Landlord's calculation shall be used
and the Commencement Date shall occur in accordance therewith, provided,
however, that Tenant shall retain its right to challenge Landlord's calculation
of the length of the Tenant Delay, and such dispute shall be submitted to
arbitration by the American Arbitration Association or such other arbitrator as
may be selected by mutual agreement of the parties, such arbitration to be
conducted in accordance with the rules of the American Arbitration Association
pertaining to commercial arbitration.
B-3
<PAGE>
EXHIBIT B-1
WORK LETTER FOR SCHEIN PHARMACEUTICAL, INC.
Park Avenue at Morris County
Third Floor
100 Campus Drive
Florham Park, New Jersey
March 3, 1993
This work letter is based on a plan prepared by Interior Space Specialists,
Inc., titled, Feasibility Study, and dated January 20, 1993. The specifications
for the construction are as follows:
1. General Conditions
------------------
a. An allowance of $4.50 per s.f. for the preparation of the
architectural, structural and engineering construction documents is
included.
b. The cost of obtaining building permits is included.
c. The cost of clean up and rubbish removal is included, as required.
2. An allowance of $10,000 for the furnishing and installation of additional
structural steel for the central file room is included. Engineer fees are
included in #la above.
3. Carpentry
---------
a. All furniture and work stations to be supplied and installed by tenant.
b. Thirty-six (36) l.f. of base and wall cabinetry is included in the
lunch room and pantries. All exposed surfaces will be plastic laminate
with interior shelving to be constructed of melamine.
c. Closet interiors to consist of melamine shelving above a single closet
pole.
d. Four 12' long x 8' high mahogany veneer wood base cabinets with
bookshelves above are included.
4. Doors and Hardware
------------------
a. The double entrance doors are to each be 3' x 9' Herculite glass doors.
<PAGE>
Schein Pharmaceuticals Workletter
February 19, 1993
Page 2
b. Swing doors in the interior space will be 3'0" x 8'10" x 1 3/4" plain
sliced, solid core oak veneer doors stained to match tenant's
selection. Interior door frames shall be knock down hollow metal,
factory primed, field finished and field painted.
c. Closet sliding doors to be 2'-0" or 2'-6" wide as shown on plans.
These doors will also be 8'-10" high and be solid core oak veneer.
d. Door hardware to be Sergeant 10 line lever latch sets. Each door will
have two (2) pair of hinges finished in building standard polished
brass. Sergeant 8100 Series mortise locksets and closures will be
installed on the doors exiting from the tenant space to the corridor.
5. Finishes
--------
a. Proposed partitions within tenant space will extend from floor to
underside of ceiling. Partitions to be constructed of 3 5/8" studs 24"
on center with one (1) layer of 5/8" gypsum board each side, taped and
spackled. Insulation will be installed in the partitions surrounding
the conference rooms, training room, copy rooms, and all perimeter
offices. The offices along column line "h" partitions shall extend
from the floor to the underside of structure above and be insulated
with full thick acoustical insulation top to bottom.
b. A 2' wide x 9' high x 3/8" thick sidelight to be provided at the 5
executive offices along column line "h". This opening will be
sheetrock framed on two sides with a glazing channel on the floor and
a flush channel at the ceiling. All other offices to have 9'-0" high
by full width glass fronts.
c. Ceilings will be 2' x 2' x 3/4" Neo-Step Cirrus tile. The tiles shall
be installed in a 9/16" super-fine exposed white ceiling grid system.
Ceiling height to be nominal 9'-0".
d. Kentile or Armstrong vinyl composition tile will be installed in the
following areas: lunch rooms, storage and copy rooms. A 4" high vinyl
cove base in standard colors will be installed throughout the space.
e. An allowance of $18.00 per s.y. for labor and material is included for
furnishing and installation of carpet and under padding.
<PAGE>
Schein Pharmaceuticals Workletter
February 19, 1993
Page 3
f. Vinyl wall covering will be installed in all exterior perimeter
offices, the reception area, conference rooms and all public areas.
This wall covering is included at an allowance of $2.00 per s.f. for
labor and material. The remaining areas shall be painted with two (2)
coats of flat latex paint. Colors shall be selected from Landlord's
standard Conlux color chart, one (1) color per room. Dark colors,
other than flat latex and accent colors will be considered as an
extra.
g. An allowance of $25.00 per s.f. for labor and material necessary to
provide granite flooring and 4" base from the elevator lobby through
the reception area, between columns H' and G'.
6. Specialty Items
---------------
a. Building standard horizontal mini-blinds will be provided and
installed by Landlord, on exterior perimeter offices only.
b. Two (2) 17' x 9'-0" Modernfold Spacesetter Model #202 folding
partitions, 35 STC rated, to be provided at the conference rooms near
the training room.
7. Mechanical
----------
a. Plumbing
1. Each lunch room and pantry will have one (1) stainless steel sink
installed in the cabinetry, with a 6 gallon hot water heater
installed above the hung ceiling.
2. The cost to furnish and install the following General Electric
appliances with roughing and hookups is included:
3 TBXl8QP Refrigerators with ice makers
1 G5D570 Dishwasher
b. Fire Sprinkler
1. The fire sprinkler system that exists in the building will be
modified and heads will be added and relocated as required to
meet code. All sprinkler heads will be centered in the tile.
<PAGE>
Schein Pharmaceuticals Workletter
February 19, 1993
Page 4
2. A fire alarm system exists in the building and will remain as is.
Additional horn/strobes to be provided as required.
c. Heating, Ventilating and Air Conditioning
1. Furnish and install a complete year-round heating, ventilating
and air conditioning system to provide interior conditions of 78
degrees Fahrenheit when outside conditions are 95 degrees
Fahrenheit, and 68 degrees Fahrenheit when outside temperatures
are 0 degrees Fahrenheit. The air conditioning system shall
provide not less than 15 cubic feet of outside air permanent per
occupant provided that in any given room or area of tenant's
demised premise the occupancy does not exceed one (1) person per
150 square feet of useable area and total electric load does not
exceed 4.0 watts per square foot for tenant lighting and power.
2. The existing distribution system to be utilized, with building
standard VAV boxes with DDC controls to be provided based upon
the following criteria:
a. 1 VAV per exterior office
b. 1 VAV per 4 interior offices
c. 1 VAV per 1,200 s.f. interior open space
d. 1 VAV per conference room
e. 3 VAV's in the training room
f. 1 VAV each in the copy room and equipment room
3. One (1) air cooled 2 ton Liebert Mini-mate to be provided for the
equipment room.
4. One (1) Plenum exhaust fan provided for each conference room and
the lunch room.
5. Two (2) Honeywell F57B electronic air cleaners to be provided.
6. All medium pressure duct to be wrapped with 1 1/2" insulation.
7. All low pressure duct to be lined with 1/2" insulation.
8. 2' maximum flexible duct to be used for each diffuser.
<PAGE>
Schein Pharmaceuticals Workletter
February 19, 1993
Page 5
9. Louver face diffusers and perforated face returns to be provided
throughout. Color to be as selected by tenant's architect.
8. Electrical
----------
a. Service - The usage of tenant power for lighting and receptacles is to
be metered through the use of a Westinghouse Digital Demand Meter. The
distribution of power is based on using a 225 AMP Buss plug; 42
circuit 277/480 volt panel, a 75 AMP transformer, and (2) 42 circuit
110 V panels.
b. Lighting - We will furnish and install one (1) 2' x 4' recessed
fluorescent unit containing three (3) 40 watt rapid start lamps with
silver parabolic deep louvers for every 80 square feet of net rentable
area.
c. As there is no electrical plan at this time, we have made assumptions
and included the following quantities of electrical items:
1. Fifty (50) 150 watt incandescent downlights for use in the
conference and reception areas.
2. One hundred thirty (130) duplex receptacles with maximum of (8)
per circuit.
3. Eighty (80) isolated ground receptacles and feeds, with maximum
(5) per circuit.
4. Ten (10) dedicated circuit receptacles for copiers and fax
machines.
5. Switching provided as required.
6. Fifteen (15) poke-thru receptacles for wiring of work station
panels using (1) circuit for every (2) work stations. Receptacle
wiring within the panels to be supplied by others and installed
by landlord.
7. Three (3) 30 AMP dedicated receptacles.
8. Twelve (12) dimmers for control of incandescent lighting.
9. Emergency and exit lights provided per code.
d. All branch circuit wiring to be BX cable.
<PAGE>
Schein Pharmaceuticals Workletter
February 19, 1993
Page 6
e. All lighting is to be controlled by local switching. There is no tie-
in included to an energy management system nor is there computerized
controls.
f. All exit lighting is to be tied into the emergency generator circuit.
g. One (1) 4 pair Plenum rated communications cable to be provided from
the equipment room to each office, workstation and conference room.
h. The following items are to be by tenant:
1. Surge suppression system
2. Security system
3. All telephone and data devices and final connections.
<PAGE>
EXHIBIT C
---------
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be installed
or displayed on any part of the exterior or interior Common Areas of the
Building without the prior written consent of Landlord. Landlord shall have
the right to remove, at Tenant's expense and without notice, any sign
installed or displayed in violation of this rule. All approved signs or
lettering on doors and walls shall be printed, painted, affixed or
inscribed at the reasonable expense of Tenant by a person chosen or
approved by Landlord.
2. No awning shall be permitted on any part of the Demised Premises. Tenant
shall not place anything against or near glass partitions or doors or
windows which may appear unsightly from outside the Demised Premises.
3. Landlord shall retain the right to control and prevent access to the
Building of all persons whose presence in the judgment of Landlord would be
prejudicial to the safety, character, reputation and interests of the
Building and its tenants; provided that nothing herein contained shall be
construed to prevent such access to persons with whom any tenant normally
deals in the ordinary course of its business, unless such persons are
engaged in illegal activities. Except as required in connection with the
installation and maintenance of the satellite dish antenna in accordance
with Paragraph 34 hereof, no tenant and no employee or invitee of any
tenant shall go upon the roof of the Building.
4. All cleaning and janitorial services for the Building and the Demised
Premise shall be provided exclusively through Landlord and, except with the
written consent of Landlord, no person or persons other than those approved
by Landlord shall be employed by Tenant or permitted to enter the Building
for the purpose of cleaning the same. Tenant shall not cause any
unnecessary labor by carelessness or indifference to the good order and
cleanliness of the Demised Premises.
5. Landlord will furnish Tenant, free of charge, one access card to the
Building and the Demised Premises per employee. Landlord may charge a
reasonable amount for any additional cards requested by Tenant; Tenant
shall not alter any lock or install a new additional lock or bolt on any
door of its Demised Premises. Tenant, upon the termination of its tenancy,
shall deliver to Landlord any cards which have been furnished to Tenant,
and in the event of loss of any cards so furnished, shall pay Landlord
therefor.
6. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions
in their installation.
7. Any freight elevator shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord, in its
reasonable discretion, shall deem appropriate. No equipment, materials,
furniture, packages, supplies, merchandise or other property will be
received in the Building or carried in the elevators except between such
hours and in such elevators as may be designated by Landlord.
C-1
<PAGE>
8. Tenant shall not place a load upon any floor of the Demised Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the
weight, size and position of all equipment, materials, furniture or other
property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on such platforms as determined by Landlord to
be necessary to properly distribute the weight. Business machines and
mechanical equipment belonging to Tenant which cause noise or vibration
that may be transmitted to the structure of the Building or to any space
therein to such a degree as to be objectionable to Landlord or to any
tenants in the Building shall be placed and maintained by Tenant, at
Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate noise or vibration. The persons employed to move such equipment
in or out of the Building must be reasonably acceptable to Landlord.
Landlord shall not be responsible for loss of, or damage to, any such
equipment or other property from any cause, and all damage done to the
Building by maintaining or moving such equipment or other property shall be
repaired at the expense of Tenant.
9. Tenant shall not use or keep in the Demised Premises any kerosene, gasoline
or inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Demised Premises any foul
or noxious gas or substance, or permit or allow the Demised Premises to be
occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors or vibrations,
nor shall Tenant bring into or keep in or about the Demised Premises any
birds or animals.
10. Tenant shall not use any method of heating or air-conditioning other than
that supplied by Landlord.
11. Tenant shall cooperate fully with Landlord to assure the most effective
operation of the Building's heating and air-conditioning and to comply with
any governmental energy-saving rules, laws or regulations of which Tenant
has actual notice, and shall refrain from attempting to adjust controls
other than room thermostats installed for Tenant's use. Tenant shall keep
corridor doors closed at the end of each business day.
12. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building
provided that the Building name chosen shall not be the name of a competing
pharmaceutical company.
13. Landlord reserves the right to exclude from the Building, between the hours
of 6 p.m. and 8 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Sundays and legal
holidays, any person unless that person is known to the person or employee
in charge of the Building and has a pass or is properly identified. Tenant
shall be responsible for all persons for whom it requests passes and shall
be liable to Landlord for all acts of such persons. Landlord shall not be
liable for damages for any error in regard to the admission to or exclusion
from the Building of any person. Landlord reserves the right to prevent
access to the Building in case of invasion, mob, riot, public excitement or
other commotion by closing the doors or by other appropriate action.
C-2
<PAGE>
14. Tenant shall close and lock the doors of the Demised Premises and entirely
shut off all water faucets or other water apparatus and electricity, gas
appliances or compressed air outlets before Tenant and its employees leave
the Demised Premises. Tenant shall be responsible for any damage or
injuries sustained by other tenants or occupants of the Building or by
Landlord for noncompliance with this rule.
15. Tenant shall not obtain for use on the Demised Premises ice, food,
beverage, towel or other similar services, or accept barbering or
bootblacking services upon the Demised Premises, except at such hours and
under such reasonable regulations as may be fixed by Landlord.
16. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown into same. The
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose employees or invitees
shall have, caused it.
17. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise
to the general public in or on the Demised Premises. Tenant shall not make
any room-to-room solicitation of business from other tenants in the
Building.
18. Except as expressly provided in Paragraph 34 hereof, Tenant shall not
install any radio or television antenna, loudspeaker or other device on the
roof or exterior walls of the Building. Tenant shall not interfere with
radio or television broadcasting or reception from or in the Building or
elsewhere.
19. Tenant shall not mark, drive nails, screw or drill into the partitions,
woodwork or plaster or in any way deface the Demised Premises or any part
thereof without Landlord's prior approval, which approval shall not be
unreasonably withheld. Landlord reserves the right to direct electricians
as to where and how telephone and telegraph wires are to be introduced to
the Demised Premises. Tenant shall not cut or bore holes for wires. Tenant
shall not affix any floor covering to the floor of the Demised Premises in
any manner except as reasonably approved by Landlord. Tenant shall repair
any damage resulting from noncompliance with this rule.
20. Tenant shall not install, maintain or operate upon the Demised Premises any
vending machine except for a reasonable number of vending machines for
soda, candy, gum and similar convenience items.
21. Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in the Building are prohibited, and each tenant
shall cooperate to prevent same.
22. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment, is intoxicated or under the influence
of liquor or drugs or who is in violation of any of the Rules and
Regulations of the Building.
23. Tenant shall store all its trash and garbage within the Demised Premises.
Tenant shall not place in any trash box or receptacle any material which
cannot be disposed
C-3
<PAGE>
of in the ordinary and customary manner of trash and garbage disposal or
which does not originate from materials utilized by Tenant at the Demised
Premises. All garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord.
24. The Demised Premises shall not be used for the storage of merchandise held
for sale to the general public, or for lodging or for manufacturing of any
kind, nor shall the Demised Premises be used for any improper, immoral or
objectional purpose. No cooking shall be done or permitted by any tenant on
the Demised Premises, except that use by Tenant of Underwriters'
Laboratory-approved equipment, including microwave ovens, for re-heating
prepared food and for brewing coffee, tea, hot chocolate and similar
beverages shall be permitted, provided that such equipment and use is in
accordance with all applicable federal, state, county and city laws, codes,
ordinances, rules and regulations.
25. Tenant shall not use in any space or in the public halls of the Building
any hand trucks except those equipped with rubber tires and side guards or
such other material-handling equipment as Landlord may approve. Tenant
shall not bring any other vehicles of any kind into the Building.
26. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
28. Tenant assumes any and all responsibility for protecting the Demised
Premises from theft, robbery and pilferage.
29. Except in an emergency, the requirements of Tenant will be attended to only
upon written application to the office of the Building Manager by an
authorized individual.
30. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the Building. Tenant shall not
leave vehicles in the Building parking areas overnight without the consent
of Landlord, which consent shall not be unreasonably withheld.
31. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant
or any other tenant, nor prevent Landlord from thereafter enforcing any
such Rules and Regulations against any or all of the tenants of the
Building.
32. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building. In the
event of conflict between the provisions contained in this Lease and these
Rules and Regulations the provisions of this Lease shall prevail.
33. Landlord reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may
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<PAGE>
from time to time be needed for safety and security, for care and
cleanliness of the Building and the Complex and for the preservation of
good order therein. Tenant agrees to abide by all such Rules and
Regulations hereinabove stated and any additional rules and regulations
which are adopted.
34. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and
guests.
C-5
<PAGE>
EXHIBIT D
---------
CLEANING SERVICES
1. General Cleaning:
----------------
Nightly
-------
a. Clean reception area and conference rooms.
b. Empty and clean all waste receptacles, removing waste to a designated
central location for disposal. Landlord is to provide for disposal of
waste.
c. Empty and clean all ash trays and receptacles.
d. Remove all fingerprints, smudges and other marks from metal
partitions, doors and other surfaces.
e. With respect to a kitchen area (if applicable), rinse out coffee pots,
turn off burners to coffee pots, spot clean walls for coffee spillage,
clean sink, and clean tables and chairs in such area.
Weekly
------
e. Hand dust and clean all office furniture that has been cleared of
papers, boxes, and/or personal items, ledges, chair rails, baseboards
and window sills.
2. Floors
------
Group A - Granite, ceramic tile, marble, terrazzo
Group B - Linotile, asphalt, koroseal, plastic vinyl, wood, rubber, or
other composition floors and base.
Nightly
-------
a. All floors in Group A to be swept, wet mopped and rinsed.
b. All floors in Group B to be dry mopped.
Weekly
------
c. All floors in Group B to be damp mopped.
Every six (6) months
--------------------
d. All floors to be scrubbed and buffed.
3. Vacuuming
---------
Nightly
-------
a. Vacuum or carpet sweep all rugs and carpeted areas.
Monthly
-------
b. Brush or dust by hand carpet edges inaccessible to high
pressure vacuum attachments.
D-1
<PAGE>
4. High Dusting
------------
Every six (6) Months
--------------------
a. Dust all clothes closet shelving, pictures, charts, graphs, etc.
b. Dust clean all vertical surfaces such as walls, partitions, door
bucks and other surfaces.
C. Dust all venetian blinds.
Special Service
---------------
Records and General Storage Area
--------------------------------
Floors are to be broom cleaned weekly. Files and exposed open shelves
dusted once every three (3) months.
6. Other Services
--------------
a. Landlord shall supply all soap, towels, and toilet tissue in
both men's and women's rooms and sanitary napkins in coin
dispensers in the women's rooms.
b. Landlord shall supply all coin operated dispensers and shall be
responsible for the servicing of same and for the collection of
money from the machine.
c. During the term of this Lease the dispenser price for sanitary
napkins shall not exceed a price equal to 150% of the wholesale
price paid by Landlord.
7. Carpeting
---------
In addition to the aforementioned nightly and weekly vacuuming,
Landlord shall do the following:
Weekly
------
All carpeting is to be spot cleaned removing all stains, smudges, and
unsightly appearances.
8. Glass
-----
Monthly
-------
a. Clean all partitions and furniture glass.
Annually
--------
b. Clean all perimeter windows, both inside and out.
9. Kitchen Areas
-------------
Nightly
-------
a. Clean all tables, chairs, counters and sinks.
b. Spot cleaning of walls.
c. Cleaning of coffee pots.
D-2
<PAGE>
10. General
-------
a. All lights are to be extinguished and the doors as specified by
Tenant are to be locked after cleaning is completed.
b. All personnel are to be uniformed and clean in appearance during
business hours.
c. Cleaning of all private bathrooms shall be subject to additional
charges shall be determined on a case-by-case basis.
D-3
<PAGE>
EXHIBIT E
---------
PREPARED BY,
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Pitney, Hardin, Kipp & Szuch
Park Avenue at Morris County
P.O. Box 1945
Morristown, New Jersey 07962-1945
Attention: Glenn C. Geiger, Esq.
By:
-----------------------
Glenn C. Geiger, Esq.
- --------------------------------------------------------------------------------
SPECIFIC ASSIGNMENT OF LEASE, SUBORDINATION,
--------------------------------------------
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
----------------------------------------
NOTICE: THIS SPECIFIC ASSIGNMENT OF LEASE, SUBORDINATION, NONDISTURBANCE
------
AND ATTORNMENT AGREEMENT RESULTS IN THE LEASEHOLD ESTATE IN THE PROPERTY
BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR
LATER SECURITY INSTRUMENT.
THIS SPECIFIC ASSIGNMENT OF LEASE, SUBORDINATION, NONDISTURBANCE AND
ATTORNMENT AGREEMENT (this "Agreement") is made as of February 1992, by and
among SAMMIS MORRISTOWN ASSOCIATES, a California general partnership
("Landlord") whose address is c/o The Sammis Company, 17922 Fitch Avenue, Suite
100, Irvine, California 92714, and SCHEIN PHARMACEUTICAL, INC., a New York
corporation ("Tenant") whose address is 1800 Northern Boulevard, Roslyn, New
York 11576 and THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association ("Lender"), whose principal office is located at One First National
Plaza, Chicago, Illinois 60670.
RECITALS
--------
A. Landlord is the owner of that certain land (the "Land") located in
the Borough of Florham Park, County of Morris, State of New Jersey and more
particularly described in Exhibit A attached hereto and by this reference made a
---------
part hereof. As used herein, the term "Property" shall refer to the Land
together with all improvements located thereon.
B. Landlord and Lender previously have entered into that certain
Construction Loan Agreement dated as of June 9, 1989, as amended pursuant to
that certain Modification Agreement dated July 26, 1989 by and between Landlord
and Lender and as further amended by that certain Second Modification Agreement
(the "Second Modification") dated January 10, 1990, by and between Landlord and
Lender (as modified, the "Loan Agreement"), pursuant to which Lender agreed to
lend and Landlord agreed to borrow up to Ninety Million Dollars ($90,000,000)
(the "Loan") upon the terms and conditions contained therein.
C. The Loan is evidenced by that certain Promissory Note dated as of
June 9, 1989 (the "Note"), executed by Landlord, as maker, and payable to the
order of Lender, as holder, in the principal amount of Ninety Million Dollars
($90,000,000).
D. The Note is secured by, among other things, a Mortgage dated June 9,
1989, executed by Landlord, as mortgagor in favor of Lender as mortgagee, and
recorded on June 14, 1989, in the Office of the Clerk of Morris County, New
Jersey, in Mortgage Book 3016, Page 0241 as modified by that certain Mortgage
Modification Agreement dated July 26, 1989, by and between Landlord, as
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<PAGE>
mortgagor and Lender, as mortgagee, and recorded on August 1, 1989, in the
Office of the Clerk of Morris County, New Jersey in Mortgage Book 3066, Page
0001 and as further amended by that certain Second Mortgage Modification
Agreement dated January 10, 1990 by and between Landlord, as mortgagor, and
Lender, as mortgagee and recorded on March 6, 1990, in the Office of the Clerk
of Morris County, New Jersey, in Mortgage Book 3273, Page 0128 (as amended, the
"Mortgage").
E. The Note is also secured by, among other things, that certain
Assignment of Rents, Leases, Income and Profits dated as of June 9, 1989, by
Landlord, as assignor, in favor of Lender, as assignee, recorded on June 14,
1989, in the Office of the Clerk of Morris County, New Jersey in Mortgage Book
3016, Page 0276, as modified by that certain Assignment of Rents Modification
Agreement dated as of July 26, 1989, by and between Landlord, as assignor, and
Lender, as assignee and recorded on August 1, 1989, in the Office of the Clerk
of Morris County, New Jersey in Mortgage Book 3066, Page 0015 and as further
amended by the Second Modification (as modified, the "Assignment of Rents").
The Mortgage and the Assignment of Rents together with any and all other
documents now or hereafter securing the Note, are collectively referred to
herein as the "Security Documents."
F. Tenant and Landlord have entered into or are about to enter into
that certain lease dated as of April , 1993 by and between Tenant and Landlord
(the "Lease") pursuant to which Landlord leased to Tenant a portion of the
improvements located on the Land and more particularly described in the Lease
(the "Premises").
G. Upon receipt of a nondisturbance agreement, Tenant has obligated
itself under the terms of the Lease to execute any document necessary or
appropriate to subordinate the Lease to the Security Documents.
H. Landlord has obligated itself under the terms of the Lease to
furnish Tenant with an undertaking by Lender as set forth herein and Lender is
willing to provide such undertaking on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing recitals, which are
incorporated herein by this reference, and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby covenant and agree as follows:
1. Landlord does hereby grant, transfer and assign to Lender the
Lease together with all rents and other sums payable under the Lease; provided,
however, that until written demand is made by Lender to Tenant, all rents and
other sums payable under the Lease shall be paid to Landlord, but only as they
become payable. Upon receipt of written notice by Lender to Tenant pursuant to
Paragraph 18 hereof, Tenant shall thereafter pay all rents and other sums
payable under the Lease to Lender. Landlord agrees to indemnify, defend and hold
tenant harmless from and against any and all loss, claim, damage or liability
arising out of Tenant's compliance with such notice.
2. Subject to the provisions of this Agreement, the Security
Documents (and each of them) and all supplements, amendments, and modifications
thereto and all renewals, replacements or extensions thereof, shall
unconditionally be and remain at all times a lien or charge on the Property
prior and superior to the Lease, to the leasehold estate created thereby and to
all rights and privileges of Tenant thereunder, and the Lease, the leasehold
estate created thereby, together with all rights and privileges of Tenant
thereunder; is hereby unconditionally subjected, and made subordinate, to the
lien or charge of the Security Documents (and each of them) in favor of Lender.
Tenant declares, agrees and acknowledges that Lender, in making disbursements
pursuant to the
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<PAGE>
Loan Documents (as defined in the Mortgage), is under no obligation or duty to,
nor has Lender represented that it will, see to the application of such proceeds
by the person or persons to whom Lender disburses such proceeds, and any
application or use of such proceeds for purposes other than those provided for
in such agreement or agreements shall not defeat the subordination herein made
in whole or in part.
3. So long as Tenant is not in default in performance of the terms,
provisions and conditions contained in the Lease beyond any notice and cure
period provided in the Lease, and so long as Tenant observes the provisions of
Paragraph 4 of this Agreement:
(a) Tenant shall not be named or joined in any foreclosure or
other proceeding to enforce the Mortgage unless such joinder be required by
law in order to perfect such foreclosure or other proceeding;
(b) enforcement of the Mortgage shall not terminate the Lease or
disturb Tenant's possession and use of the Premises or affect any of
Tenant's other rights, options and privileges under the Lease; and
(c) the leasehold estate granted by the Lease shall not be
affected in any manner by any foreclosure or other proceeding instituted or
action taken under or in connection with the Mortgage or in case Lender
takes possession of the Premises pursuant to any provision of the Mortgage,
except that a transferee (including, but not limited to, Lender) of the
interest of Landlord as a result of such foreclosure or other proceeding
and such transferee's successors and assigns (such transferee, its
successors and assigns, including, but not limited to, Lender, being
hereinafter referred to as "Purchaser") shall not:
(i) be liable for any damages or other relief
attributable to any act or omission of any prior landlord under the
Lease (including, without limitation, Landlord);
(ii) be liable for any damages or other relief
attributable to any latent or patent defects in construction unless
and only to the extent such defects are the result of such Purchaser's
negligent act or omission, provided, however, this Paragraph 3(c)(ii)
shall not be deemed a waiver or relinquishment by Tenant of any right
or cause of action Tenant may have against any contractor, architect
or other party (other than a Purchaser) for such defect, and provided,
further, any such action against Landlord shall be expressly subject
to Paragraph 2 hereof;
(iii) be liable for any consequential damages attributable
to any act or omission of said Purchaser;
(iv) be liable for any damages or other relief
attributable to any breach by any prior landlord (including Landlord)
under the Lease of any representation or warranty contained in the
Lease;
(v) be subject to any offsets or defenses not
specifically provided for in the Lease and which Tenant may have
against any prior landlord under the Lease; and
(vi) be bound by any prepayment by Tenant of more than one
month's installment of rent or for any security deposit not actually
delivered to Purchaser, or by any modification of or amendment to the
Lease, unless such prepayment, amendment or modification shall have
E-3
<PAGE>
been approved in writing by Lender or by any subsequent mortgagee
under the Mortgage, which approval shall not be unreasonably withheld
or delayed.
4. If the interest of Landlord in the Property shall be transferred
by reason of any foreclosure or other proceeding for enforcement of the Mortgage
or by deed in lieu thereof, the Lease shall continue in full force and effect as
a direct lease between Purchaser and Tenant, and Tenant shall attorn to
Purchaser, including Lender if it be Purchaser, as the landlord under the Lease,
and Purchaser shall assume Landlord's obligations under the Lease for the
balance of the term then remaining, including any renewal options; the
provisions of this sentence shall be effective and self-operative without the
execution of any further instruments upon Purchaser's succeeding to the interest
of the landlord under the Lease. Tenant hereby waives any right to exercise any
purchase option contained in the Lease in the event of any transfer to
Purchaser. Landlord hereby agrees to give Tenant prompt written notice of any
foreclosure or other proceeding for the enforcement of the Mortgage; provided
however, any failure by Landlord to give such notice shall in no way affect the
rights of any Purchaser.
5. In the event of default by Landlord in its performance of the
terms, provisions and conditions of the Note or of any Security Document, Tenant
agrees to recognize the assignment of the Lease made by Landlord to Lender
hereunder and pursuant to the Assignment of Rents and shall pay to Lender, as
assignee, the rents under the Lease, but only those which are due or which come
due to Landlord under the terms of the Lease at or after the time Lender gives
Tenant notice that Landlord is in default under the terms of the Note or
Security Documents. Such payments of rents to Lender by Tenant by reason of
said assignment and of Landlord's default shall continue until the first to
occur of the following:
(a) No further rent is due or payable under the Lease;
(b) Lender gives Tenant notice that the default of Landlord
under the note or Security Documents has been cured and instructs
Tenant that the rents shall thereafter be payable to Landlord; or
(c) The lien of the Mortgage has been foreclosed and Purchaser
gives Tenant notice of such foreclosure. Purchaser shall thereupon
succeed to the interests of Landlord under the Lease as provided in
Paragraphs 2, 3 and 4 hereof, after which time the rents and other
benefits of Landlord under the Lease shall be payable to Purchaser as
the owner thereof.
6. In complying with the provisions of Paragraph 5 hereof, Tenant
shall be entitled to rely solely upon the notices given by Lender which are
referred to in Paragraph 5 hereof and Landlord agrees to indemnify and hold
Tenant harmless from and against any and all loss, claim, damage, or liability
arising out of Tenant's compliance with such notice. Tenant shall be entitled
to full credit under the Lease for any rents paid to Lender in accordance with
the provisions of Paragraph 5 hereof to the same extent as if such rents were
paid directly to Landlord. Any dispute between Lender (or other Purchaser) and
Landlord as to the existence or continuance of a default by Landlord under the
terms of the Note or Security Documents, or with respect to the extent or nature
of such default, or with respect to foreclosure of the Mortgage by Lender, shall
be dealt with and adjusted solely between Lender (or other Purchaser) and
Landlord, and Tenant shall not be made a party thereto (unless required by law).
7. Nothing in this Agreement shall be deemed to be or construed to be
an agreement by Lender to perform any covenant of the Landlord as landlord under
the Lease unless and until it
E-4
<PAGE>
obtains title to the Property by judicial foreclosure or deed in lieu thereof or
obtains possession of the Property pursuant to the terms of the Mortgage.
8. Tenant agrees that during the term of the Lease, without Lender's
prior written consent, Tenant will not:
(a) pay any rent or additional rent more than one month in advance
to any landlord (including, but not limited to, Landlord);
(b) cancel, terminate or surrender the Lease, except at the normal
expiration of the Lease term or otherwise in accordance with the terms and
conditions of the Lease; or
(c) enter into any material amendment or modification of the
Lease, provided, however, no Purchaser shall be bound by any amendment or
modification of the Lease which has not been approved by Lender in writing.
9. Landlord, Tenant and Lender agree that unless Lender shall
otherwise consent in writing, Landlord's estate in and to the Property and the
leasehold estate created by the Lease shall not merge but shall remain separate
and distinct, notwithstanding the union of said estates either in Landlord or
Tenant or any third, party by purchase, assignment or otherwise.
10. Tenant, from and after the date hereof, shall send a copy of any
notice of default under the Lease to Lender at the same time such notice is sent
to Landlord under the Lease. Such notices shall be delivered to Lender in the
manner and at the addresses set forth in Paragraph 18 hereof.
11. Anything herein or in the Lease to the contrary notwithstanding,
in the event that any Purchaser shall acquire title to the Property, said
Purchaser shall have no obligation, nor incur any liability, beyond the then
interest, if any, of said Purchaser in the Property and Tenant shall look
exclusively to such interest of said Purchaser, if any, in the Property for the
payment and discharge of any obligations imposed upon said Purchaser hereunder
or under the Lease, and said Purchaser is hereby released and relieved of any
liability hereunder and under the Lease beyond any such interest in the
Property. As regards said Purchaser, Tenant shall look solely to the estate or
interest owned by said Purchaser in the Property and Tenant will not collect or
attempt to collect any such judgment out of any other assets of said Purchaser.
By executing this Agreement, Landlord specifically acknowledges and agrees that
nothing contained in this Paragraph 11 shall impair, limit, affect, lessen,
abrogate or otherwise modify the obligations of Landlord to Tenant under the
lease.
12. Tenant and Landlord each hereby certifies that as of the date
hereof, to the best of its respective knowledge, there are no defaults on the
part of the other party under the Lease, that the Lease is a complete statement
of the agreement of the parties thereto with respect to the leasing of the
Premises, that the Lease is in full force and effect, and that all conditions to
the effectiveness or continuing effectiveness thereof required to be satisfied
as of the date hereof have been satisfied.
13. This Agreement shall be the whole and only agreement with regard
to the subjection and subordination of the Lease and the leasehold estate
created thereby, together with all rights and privileges of Tenant thereunder,
to the lien or charge of the Security Documents (and each of them) and shall
supersede and cancel, but only insofar as would affect the priority between the
Lease and the Security Documents (and each of them), any prior agreements as to
such subjection or subordination, including, but not limited to, those
provisions contained in the Lease which provide for the subjection or
subordination of the Lease and the
E-5
<PAGE>
leasehold estate created thereby to a deed or deeds of trust or to a mortgage or
mortgages.
14. This Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument. Signature and acknowledgement pages may be detached from the
counterparts and attached to a single copy of this Agreement to physically form
one document, which may be recorded.
15. This Agreement may not be modified orally or in any manner other
than by an agreement in writing signed by the parties hereto or their respective
successors in interest. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
16. In the event any legal action or proceeding is commenced to
interpret or enforce the terms of, or obligations arising out of, this
Agreement, or to recover damages for the breach thereof, the party prevailing
in any such action or proceeding shall be entitled to recover from the non-
prevailing party all reasonable attorneys' fees, costs and expenses incurred by
the prevailing party.
17. The interpretation, validity and enforcement of this Agreement
shall be governed by and construed under the laws of the State of New Jersey.
18. All notices and other communications to be made hereunder to the
parties hereto shall be in writing (at the addresses set forth below) and shall
be given by any of the following means: (a) personal service; (b) electronic
communication, whether by telex, telegram or telecopying (if confirmed in
writing sent by registered or certified first class mail, return receipt
requested); or (c) registered or certified first class mail, return receipt
requested. Such addresses may be changed by notice to the other parties given
in the same manner as provided above. Any notice or other communication sent
pursuant to subsection (a) or (b) hereof shall be deemed received upon such
personal service or upon dispatch by electronic means, and, if sent pursuant to
subsection (c), shall be deemed received five (5) days following deposit in the
mail.
To Lender: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attention: Commercial Loan Department
Real Estate Section
Regional Offices Group
Eastern Division
With
copies to: O'Melveny & Myers
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Attention: Paul M. Karssen, Esq.
The First National Bank of Chicago
555 South Flower Street, Suite 3300
Los Angeles, California 90071
Attention: Ms. Barbara K. Loos
To Landlord: Sammis Morristown Associates
c/o The Sammis Company / Gale & Wentworth
100 Campus Drive
Florham Park, New Jersey 07932
Attention: Mr. Jonathan G. Thorpe
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<PAGE>
To Tenant: Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: Chairman
with a
copy to: General Counsel
(at the same address)
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
NOTICE: THIS AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE
PERSON OBLIGATED ON YOUR LEASE TO OBTAIN A LOAN A PORTION OF
WHICH MAY BE EXTENDED FOR PURPOSES OTHER THAN IMPROVEMENT OF
THE PROPERTY.
"Landlord"
SAMMIS MORRISTOWN ASSOCIATES,
a California general partnership
WITNESSES TO ALL SIGNATURES By:
---------------------------
- ----------------------------
Printed Name:
---------------
- ----------------------------
Printed Name:
---------------
"Tenant"
[Corporate Seal]
SCHEIN PHARMACEUTICAL, INC.,
a New York corporation
ATTEST: By:
------------------------------
By:
-------------------------
Printed Name:
---------------
Its:
--------------------
WITNESSES TO ALL SIGNATURES
- ----------------------------
Printed Name:
---------------
- ----------------------------
Printed Name:
---------------
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<PAGE>
[Corporate Seal] "Lender"
THE FIRST NATIONAL BANK OF CHICAGO,
a national banking association
ATTEST:
By:
-------------------------------
Printed Name:
----------------
By:
------------------------
Printed Name: Its:
-------------- ------------------------------
Its:
-------------------
WITNESSES TO ALL SIGNATURES
- ---------------------------
Printed Name:
--------------
- ---------------------------
Printed Name:
--------------
STATE OF ILLINOIS )
) ss.:
COUNTY OF )
On this day of , 1992, in the County and
State aforesaid, before me, the subscriber, a notary public authorized
to take acknowledgements and proofs in said County and State,
personally appeared ________________________________________, the Vice
President of THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association, who I am satisfied, is the person who, as such officer of
said association, signed, sealed and delivered the within instrument
made by THE FIRST NATIONAL BANK OF CHICAGO, and acknowledged to me
that he, as such officer, signed, sealed with the corporate seal and
delivered the same on behalf of said association and that said
instrument is the voluntary act and deed of such association made
pursuant to its bylaws or resolution of its board of directors.
WITNESS my hand and official seal.
----------------------------------------
Name:
Notary Public in and for said State
[Notarial Seal] My Commission Expires:
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<PAGE>
STATE OF NEW JERSEY )
) ss.:
COUNTY OF )
On this , day of , 1993 in the County and State aforesaid,
before me, the subscriber, a notary public authorized to take acknowledgements
and proofs in said County and State, personally appeared , a
general partner of SAMMIS MORRISTOWN ASSOCIATES, a California general
partnership, who, I am satisfied, is the person who, as such general partner,
signed and delivered the within instrument on behalf of said general partnership
for the uses and purposes set forth therein, and that said instrument is the
voluntary act and deed of SAMMIS MORRISTOWN ASSOCIATES, made by virtue of
authority duly given.
------------------------------------
Name:
Notary Public
[Notarial Seal] My Commission Expires:
STATE OF NEW JERSEY )
) ss.:
COUNTY OF )
On this day of , 1993 in the County and State
aforesaid, before me, the subscriber, a notary public authorized to take
acknowledgements and proofs in said County and State, personally appeared
, the of SCHEIN PHARMACEUTICAL, INC.
corporation, who, I am satisfied, is the person who, as such officer of said
corporation, signed, sealed and delivered, the within instrument made by
acknowledged to me that he, as such officer signed, sealed
with the corporate seal and delivered the same on behalf of said corporation and
that said instrument is the voluntary act and deed of such corporation made
pursuant to its bylaws or a resolution of its board of directors.
------------------------------------
Name:
Notary Public in and for said State
[Notary Seal] My Commission Expires:
E-9
<PAGE>
EXHIBIT F
---------
Option Space A Floor Plan
PARK AVENUE AT MORRIS COUNTY
PHASE 1 - THIRD FLOOR
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT G
---------
Option Space B Floor Plan
PARK AVENUE AT MORRIS COUNTY
PHASE 1 - THIRD FLOOR
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT H
OPERATING EXPENSE STATEMENT
PARK AVENUE MORRIS COUNTY-PHASE I
<TABLE>
<CAPTION>
1991 Per Square Foot
---- ---------------
<S> <C>
Total Maintenance $2.48
Utilities $1.32
Administrative $.71
Management Fee $.60
Real Estate Taxes $1.36
---------------
Total Operating Expenses $6.47
</TABLE>
<TABLE>
<CAPTION>
1991 Per Square Foot
---- ---------------
<S> <C>
Total maintenance $2.58
Utilities $1.39
Administrative $0.68
Management Fee $0.69
Real Estate Taxes $1.64
---------------
Total Operating Expenses $6.98
</TABLE>
<PAGE>
EXHIBIT I
---------
PARK AVENUE SECURITY PROCEDURES
--------------------------------
- ---- All Guards shall wear complete uniforms and display an official security
badge and identification name tag;
- ---- Guards shall respond politely and intelligently to all tenant and visitor
inquiries;
- ---- Guard personnel shall canvass the building at least once per hour;
- ---- Guards shall station themselves in the main atrium to monitor and assist
tenants and visitors when not on canvassing patrols;
- ---- During closed building hours tenant doors shall be checked. Entry shall
only be made when doors are found in an unlocked status. Notifications
shall be further made if an investigation proves so.
- ---- Any large or suspicious packages shall be investigated by security upon
either entry or exiting the building.
- ---- Tenants entering the building after hours shall utilize the Schlage
Security System and visitors, after hours, can access the tenants suite by
utilizing the Sentex Annunciator System at the main entrance.
- ---- Security personnel shall also make themselves available to assist tenants
to their automobiles whenever needed.
- ---- Security personnel shall respond expeditiously to stranded tenants with
vehicle malfunctions on building parking lots. Each vehicle is equipped
with starter cables, flashlights and flares.
- ---- Parking lot lights are on until midnight. A certain percentage of site
lights are on all night via photocel.
- ---- All non-business hour deliveries must be pre-arranged thru the Property
Manager's Office.
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT is made this 26th day of
October, 1994 between VALLEY NATIONAL BANK, as subtrustee ("Landlord"), having
an office address c/o Gale & Wentworth, 100 Campus Drive, Florham Park, New
Jersey 07932 and SCHEIN PHARMACEUTICAL, INC., a Delaware corporation
("Tenant"), having an address of 100 Campus Drive, Florham Park, New Jersey
07932.
P R E A M B L E
- - - - - - - -
A. By Lease Agreement dated April 16, 1993 (the "Lease"), Sammis
Morristown Associates, Landlord's predecessor in title, leased to Tenant and
Tenant leased from said party certain premises therein described on the third
floor of the office building at 100 Campus Drive, Florham Park, New Jersey.
B. The parties desire to amend the Lease to include the demise of
additional premises on the first floor of the Building.
C. All terms not specifically defined herein shall have the meanings
given to them in the Lease.
NOW, THEREFORE, in consideration of the foregoing, the parties agree
that the Lease is hereby amended as hereafter provided, effective as of the
"Effective Date", as defined below:
1. Upon the occurrence of the Effective Date, the Demised Premises
shall be increased to include the portion of the first floor of the Building
outlined on the floor plan which is annexed hereto as Exhibit A-3 (the
"Additional Premises"). The gross rentable area of the Additional Premises is
9,832 square feet.
2. The Term with respect to the Additional Premises shall be
coextensive with the Term with respect to the remainder of the Demised Premises.
The parties confirm and agree that the Expiration Date is August 31, 2005.
<PAGE>
3. Subject to the Rental Abatement described below, the Fixed Rent
with respect to the Additional Premises shall be $20. per square foot of gross
rentable area of office space per annum, i.e., $196,640., payable in equal
monthly installments of $16,386.67, from the Effective Date through August 18,
1999 (the sixth (6th) anniversary of the Commencement Date). commencing August
19, 1999 and throughout the remainder of the Term, the Fixed Rent with respect
to the Additional Premises shall be $23. per square foot of gross rentable area
of office space per annum, i.e., $226,136., payable in equal monthly
installments of $18,844.67. Therefore, as of the Effective Date, the Fixed Rent
for the entire Demised Premises shall be $1,219,115. per annum, payable in equal
monthly installments of $101,592.91, through August 18, 1999. Commencing August
19, 1999 and for the remainder of the Term, the Fixed Rent for the entire
Demised Premises shall be $1,361,083.25 per annum, payable in equal monthly
installments of $113,423.60.
4. Tenant's Proportionate Share with respect to the Additional
Premises is two and 76/100 percent (2.76%). Tenant's Proportionate Share with
respect to the entire Demised Premises shall be fourteen and 25/100 percent
(14.25%).
5. With respect to parking, Tenant shall be entitled to thirty-
nine (39) additional Non-Exclusive Spaces.
6. Notwithstanding the foregoing provisions, Tenant shall not be
required to pay to Landlord the Monthly Fixed Rent with respect to the
Additional Premises attributable to the second (2d) through the fifth (5th)
months after the Effective Date, i.e., February through May, 1995.
7.A. Landlord agrees to fit up the Additional Premises in accordance
with plans and specifications prepared by the architectural firm of Knoll Roslyn
Associates, Inc., after consultation with and approval thereof by both Landlord
and Tenant (the "Tenant Improvements"). Each party agrees that it will not
unreasonably withhold its approval of the plans and specifications.
-2-
<PAGE>
The work to be performed shall be generally consistent with the character and
quality of the existing improvements in the Demised Premises. Tenant shall be
responsible for the Construction Cost, as hereafter defined, of the Tenant
Improvements, against which Tenant shall be entitled to an allowance of
$260,548. (the "Tenant Allowance"). The difference between the Construction
Cost and the Tenant Allowance is hereafter called the "Tenant's Finish Cost."
Tenant's Finish Cost shall be payable to Landlord within thirty (30) days
after the substantial completion of the Tenant Improvements pursuant to
subparagraph C, below. The failure of Tenant to pay Tenant's Finish Cost when
due shall have the same consequences as a failure of Tenant to pay Fixed Rent
when due. Construction Cost as defined herein shall be the actual cost of the
construction of the Tenant Improvements in accordance with the approved plans
and specifications, plus four percent (4%) of such actual cost as profit to
Landlord and six percent (6%) of such actual cost as a payment to Landlord to
compensate Landlord for its overhead costs. Construction Cost shall only include
the following out-of-pocket soft costs to Landlord: permits, blueprints,
cleanup, dumpsters job site supervision, overnight delivery charges,
architectural fees and temporary protection. Construction Cost shall include
the fees of Knoll Roslyn Associates, Inc. paid by Tenant for space planning and
other architectural services with respect to the Additional Premises.
Construction Cost shall not include the fees of Landlord's architect Mancini
Duffy, which fees are the sole responsibility of Landlord. Tenant shall not be
entitled to any portion of the Tenant Allowance not utilized for construction of
leasehold improvements by Tenant in the Building within one year after the
Effective Date. Tenant shall be allowed access to the Additional Premises prior
to the Effective Date for the purpose of furniture erection and fixture and
equipment installation, so long as Tenant and its agents and contractors do not
interfere with the performance of the Tenant Improvements by Landlord.
-3-
<PAGE>
B. The plans and specifications for the Tenant Improvements shall be
prepared giving effect to the outline specifications contained in Exhibit B-l of
the Leased except where any such specification is inconsistent with the express
provisions of this Amendment.
C. The Effective Date shall be the later of January 1, 1995 and the
date of completion of the Tenant Improvements as evidenced by the issuance
of any necessary certificate of occupancy from the Borough of Florham Park. If
such certificate is not issued by January 1, 1995, the Effective Date shall be
extended until the certificate is issued, unless the delay constitutes a Tenant
Delay as defined in Exhibit B to the Lease. If the Effective Date is delayed as
aforesaid, all corresponding dates of the Lease shall be extended for an
equivalent time, with the exception of the Expiration Date. Notwithstanding
the foregoing, if the Effective Date has not occurred by June 30, 1995 and the
delay is not attributable to a Tenant Delay or to a situation beyond Landlord's
reasonable control, Tenant shall have the right to terminate this First
Amendment by notice to Landlord whereupon this First Amendment shall be null and
void, but the Lease shall otherwise remain in effect. Landlord shall be deemed
to have substantially completed the Tenant Improvements notwithstanding
that minor or insubstantial details of construction, mechanical adjustment
or decoration remain to be performed within the Additional Premises or any part
thereof, the noncompletion of which does not materially interfere with Tenant's
use of the Additional Premises. Within thirty (30) days after the Effective
Date, Tenant may submit to Landlord a "Punchlist" of incomplete items with
respect to the Tenant Improvements, and Landlord agrees to proceed diligently to
complete such Punchlist items.
8. Paragraph 3(a) of the Lease is hereby amended to provide that with
respect to the Additional Premises the Initial Year shall be the calendar year
1995.
-4-
<PAGE>
9. Tenant shall be responsible to pay to Landlord, as Additional Rent,
a monthly charge equivalent to the cost to Landlord of estimated monthly usage
of electrical service within the Additional Premises. The initial estimated
monthly charge for electrical service to the Additional Premises shall be $847.
Such monthly charge shall be adjusted from time to time by Landlord on a square
foot basis on the basis of the electricity charges paid by Tenant to Landlord
with respect to the original Demised Premises described in the Lease. Either
party may elect (but not more frequently than once during any calendar year) to
cause a survey of electrical usage of the Additional Premises to be made by a
qualified independent electrical rate consultant, in which event the monthly
charge shall be appropriately adjusted prospectively in accordance with the
results of such survey. The cost of each such survey shall be paid by the party
requesting it.
10. The provisions of Paragraph 33 of the Lease shall also apply to
the portion of the first floor of the Building shown on the floor plan
annexed hereto as Exhibit B-2 (the "First Floor Offer Space"). The terms of
Paragraph 33 of the Lease shall apply to the First Floor Offer Space in the
same manner as they apply to the Third Floor Offer Space.
11. Landlord represents that, as of the date hereof, no mortgage
encumbers the Land.
12. Except and as amended hereby, the Lease remains in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Agreement of Lease as to the date first above written.
ATTEST: VALLEY NATIONAL BANK,
subtrustee
By: Gale & Wentworth, Inc.
as Authorized Management Agent
By
- ---------------------------------- -----------------------------
ATTEST: SCHEIN PHARMACEUTICAL, INC.
BY
- ----------------------------------- ------------------------------
-5-
<PAGE>
EXHIBIT A-3
ADDITIONAL PREMISES
[LOGO] PARK AVENUE AT MORRIS COUNTY
PHASE 1 - FIRST FLOOR
[CHART APPEARS HERE]
<PAGE>
EXHIBIT B-2
FIRST FLOOR OFFER SPACE
[LOGO] PARK AVENUE AT MORRIS COUNTY
PHASE 1 - FIRST FLOOR
[CHART APPEARS HERE]
<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT is made this 31st day of
January, 1995 between VALLEY NATIONAL BANK, as subtrustee ("Landlord"), having
an office address c/o Gale & Wentworth, 100 Campus Drive, Florham Park, New
Jersey 07932 and SCHEIN PHARMACEUTICAL, INC., a Delaware corporation ("Tenant"),
having an address of 100 Campus Drive, Florham Park, New Jersey 07932.
P R E A M B L E
- - - - - - - -
A. By Lease Agreement dated April 16, 1993, amended by First Amendment
to Lease Agreement (the "First Amendment") dated October 26, 1994 (collectively,
the "Lease"), Sammis Morristown Associates, Landlord's predecessor in title,
leased to Tenant and Tenant leased from said party certain premises therein
described on the first and third floors of the office building at 100 Campus
Drive, Florham Park, New Jersey.
B. The parties desire to amend the Lease to include the demise of
additional premises on the third floor of the Building.
C. All terms not specifically defined herein shall have the meanings
given to them in the Lease.
NOW, THEREFORE, in consideration of the foregoing, the parties agree
that the Lease is hereby further amended as hereafter provided, effective as of
the later to occur of (i) February 1, 1995, and (ii) the date on which Landlord
delivers possession of the Additional Premises, as defined below, to Tenant free
and clear of all tenancies and occupancies and in "broom clean" condition (such
later date being hereafter referred to as the "Effective Date"):
1. Upon the occurrence of the Effective Date, the Demised Premises
shall be increased to include the portion of the third floor of the Building
outlined on the floor plan which is annexed hereto as Exhibit A-4 (the
"Additional Premises"). The
<PAGE>
gross rentable area of the Additional Premises is 2,242 square feet.
2. The Term with respect to the Additional Premises shall be
coextensive with the Term with respect to the remainder of the Demised Premises.
The parties confirm and agree that the Expiration Date is August 31, 2005.
3. The Fixed Rent with respect to the Additional Premises shall be
$25. per square foot of gross rentable area of office space per annum, i.e.,
$56,050., payable in equal monthly installments of $4,670.83, from the Effective
Date through August 18, 1999 (the sixth (6th) anniversary of the Commencement
Date). Commencing August 19, 1999 and throughout the remainder of the Term, the
Fixed Rent with respect to the Additional Premises shall be $27.75. per square
foot of gross rentable area of office space per annum, i.e., $62,215.50.,
payable in equal monthly installments of $5,184.63. Therefore, provided that
the First Amendment has become effective, as of the Effective Date the Fixed
Rent for the entire Demised Premises shall be $1,275,165. per annum, payable in
equal monthly installments of $106,263.75, through August 18, 1999. Commencing
August 19, 1999 and for the remainder of the Term, the Fixed Rent for the entire
Demised Premises shall be $1,423,298.75 per annum, payable in equal monthly
installments of $118,608.23.
4. Tenant's Proportionate Share with respect to the Additional
Premises is 63/100 percent (.63%). At such time as the First Amendment is
effective, Tenant's Proportionate Share with respect to the entire Demised
Premises shall be fourteen and 87/100 percent (14.87%).
5. With respect to parking, Tenant shall be entitled to nine
(9) additional Non-Exclusive Spaces. Upon addition of the Additional
Premises to the Demised Premises, Tenant would qualify for one additional
Exclusive Space under Paragraph 23 of the Lease, except that no such space is
currently available for Tenant.
-2-
<PAGE>
6. A. The Additional Premises shall be delivered to Tenant "as is" on
the Effective Date and, except as hereafter provided, Landlord shall have no
obligation with respect to the fit-up thereof. Any work performed by Tenant in
the Additional Premises (the "AP Work") shall be subject to all applicable
provisions of the Lease, including Paragraph 6 thereof. Landlord hereby grants
to Tenant an improvement allowance for the AP Work in the amount of $22,420.
(the "Improvement Allowance"). Within thirty (30) days after the presentation
to Landlord of invoices covering AP Work, together with such other documentation
as may be reasonably requested by Landlord, Landlord shall reimburse Tenant for
the amount of such invoices, up to the amount of the Improvement
Allowance. Any unused Tenant Allowance with respect to the premises demised by
the First Amendment may be utilized by Tenant with respect to the AP Work. No
allowance shall be payable by Landlord, except for work actually performed by or
for Tenant in the Additional Premises or in the premises demised by the First
Amendment within one year after the Effective Date. Tenant shall be solely
responsible for the cost of all AP Work which exceeds the Improvement Allowance.
B. Landlord's contractor, Gale & Wentworth Construction Co. ("G&W")
shall have the right to bid for the AP Work against contractors selected by
Tenant from a list of approved contractors prepared by Tenant and approved by
Landlord, which approval shall not be unreasonably withheld or delayed. If the
bid of G&W is equal to, less than or not more than five percent (5%) in excess
of the bid of another contractor which Tenant is willing to accept, Tenant
agrees to accept the bid of G&W to do the AP Work. Furthermore, if the bid of
G&W exceeds the bid of Tenant's preferred contractor by more than five percent
(5%), Tenant shall give G&W the opportunity to match such bid, and Tenant agrees
to award the job to G&W if it does in fact agree to match such bid. The right of
G&W to match the bid of another contractor shall expire unless it is exercised
with five (5) business days after its receipt of notice from Tenant of the terms
of the acceptable bid.
-3-
<PAGE>
Notwithstanding the foregoing, Tenant agrees that all contractors performing AP
Work shall perform such work in such a manner as will promote harmonious labor
relations in the Building, and that they must promptly cease any activities or
practices which cause labor unrest in the Building. If Tenant uses a contractor
other than G&W to perform the AP Work, it agrees to pay to G&W a fee of three
and one-half percent (3.5%) of the contract price of the AP Work for its review
of the plans and performance of the AP Work on behalf of Landlord, such fee to
be payable as additional rent within thirty (30) days after the completion of
the AP Work or payment in full to Tenant of the Improvement Allowance, whichever
occurs first.
7. The Initial Year shall remain the calendar year 1994 with respect
to the Additional Premises, pursuant to the provisions of Paragraph 3(a) of the
Lease.
8. Tenant agrees, as part of the AP Work, to connect the electrical
system of the Additional Premises to the electrical meter serving the
original Demised Premises and described in Paragraph 15(e) of the Lease.
Tenant shall pay for the consumption of the electricity used in the Additional
Premises in accordance with the provisions of Paragraph 15(e) of the Lease. If
Tenant fails to connect the electrical system of the Additional Premises to such
meter, Tenant shall be charged for electricity in the Additional Premises on the
same basis per square foot as that provided in Paragraph 9 of the First
Amendment.
9. Landlord represents that, as of the date hereof, there are no
underlying leases, ground leases or mortgages encumbering the Land or the
Building.
10. This Second Amendment to Lease Agreement is contingent upon
Landlord securing, prior to January 23, 1995, a termination of an existing lease
of the Additional Premises from The Arbitration Centre, Inc. If Landlord is
unable to secure such termination by January 23, 1995, this Second Amendment to
Lease Agreement shall be null and void and of no further force or effect, except
that Tenant may, by notice given to Landlord prior to
-4-
<PAGE>
January 23, 1995, extend this deadline for a period of up to thirty (30) days.
11. The terms of Paragraph 22 of the Lease apply to this Second
Amendment to such Lease.
12. The parties agree that no additional security deposit shall be
payable by Tenant to Landlord on account of the execution of this Second
Amendment.
13. In any situation in which Landlord is entitled to review plans
for the AP Work in accordance with the provisions of Paragraph 6 of the Lease,
or otherwise, Landlord agrees that it will complete such review within five (5)
business days after submission of such plans. If Landlord fails to object to
any part of said plans within such period, the plans shall be deemed approved
by Landlord.
14. Except and as amended hereby, the Lease remains in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Lease Agreement as to the date first above written.
ATTEST: VALLEY NATIONAL BANK,
subtrustee
By Gale & Wentworth, Inc.
as authorized management agent
By
- ---------------------------------- -----------------------------
ATTEST: SCHEIN PHARMACEUTICAL, INC.
BY
- ----------------------------------- ------------------------------
-5-
<PAGE>
EXHIBIT A-4
"Additional Premises"
[LOGO] PARK AVENUE AT MORRIS COUNTY
PHASE 1 - THIRD FLOOR
[CHART APPEARS HERE]
<PAGE>
EXHIBIT 10.12
LEASE MODIFICATION AND EXTENSION AGREEMENT
THIS LEASE MODIFICATION AND EXTENSION AGREEMENT, made this 12th day of November
1996, between CHERRY HILL INDUSTRIAL SITES, INC., a New Jersey Corporation
having its principal office at 1998 Springdale Road, Cherry Hill, New Jersey
08003, (hereinafter referred to as LANDLORD), and Marsam Pharmaceuticals,
having an office at Building #31, Olney Avenue, Cherry Hill Industrial Center,
Cherry Hill, New Jersey 08003 (hereinafter referred to as TENANT)
Landlord and Tenant hereby covenant as follows:
1. LEASED PREMISES. Landlord hereby agrees to lease to Tenant, and Tenant hereby
agrees to rent from Landlord Building #15 and adjacent land therto, situated in
Cherry Hill Township, Block 490.01, Lot 1 as follows:
Commencing March 1, 1997 through September 30, 1999 (both dates
inclusive, 31 months), the basic net-net-net monthly rental for shall be THIRTY
EIGHT THOUSAND THREE HUNDRED AND FOUR DOLLARS AND ZERO CENTS ($38,304.00) per
month.
The Term rental for the 31 month term of this Lease shall be ONE
MILLION ONE HUNDRED EIGHTY SEVEN THOUSAND FOUR HUNDRED TWENTY FOUR DOLLARS AND
ZERO CENTS ($1,187,424.00).
Tenant agrees that this Lease shall, unless sooner terminated,
pursuant to the covenants hereof, expires absolutely on the expiration date
without the requirement of any further notice from Landlord.
2. USE. Tenant shall use and occupy the Premises only for laboratories, light
manufacturing, warehousing, offices, distribution, and allied uses pursuant to
I-R zoning of Cherry Hill Township or any subsequent zone designated for the
Premises by Cherry Hill Township.
3. RENT. Rent is payable on the first day of each month, in advance, during the
Term, at the office of the Landlord or such other place as Landlord may
designate.
Tenant shall assume the risk of lateness or failure of delivery of the mails,
and no lateness or failure of the mails will excuse Tenant from its obligation
to have made any payment of rent or additional rent as required under this
Lease.
No payment by Tenant or receipt or acceptance by Landlord of a lesser amount
than the correct rent or additional rent shall be deemed to be other than a
payment on account, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance or pursue any other remedy in this Lease or at law
provided.
1
<PAGE>
4. SECURITY. VOID
5. ADDITIONAL RENT. Additional rent charges shall be paid to the Landlord within
fifteen (15) days of receipt of notice of a bill sent by the Landlord to the
tenant.
6. LANDSCAPING. Tenant shall do all grass cutting and landscape maintenance
pursuant to standards as established by Landlord. Landlord.
Tenant shall keep the lawn, landscaped areas, paved surfaces, sidewalks
and similar areas free of debris and other waste material at all times. In the
event debris and/or other waste material is present upon any of the
aforementioned areas, or if, in Landlord's reasonable determination debris
and/or waste material originating from Tenant's Premises is upon other
properties owned by Landlord, Landlord may, at its option and WITHOUT PRIOR
NOTICE OR APPROVAL OF TENANT, remove same. All costs and charges relating
thereto shall be payable by Tenant as additional rent. The minimum charge for
this service shall be $50.00 per instance and/or occurrence.
7. SNOW REMOVAL. VOID.
8. UPGRADING. Tenant agrees to pay to Landlord, as additional rent, during the
term of this Lease the sum of $ 400 per month toward Landlord's costs related to
the maintenance and repair of the road easement within Block 490.01 Lot 1 as
shown on exhibits B and C attached hereto and made a part hereof.
9. SPRINKLER SYSTEM SERVICE. Tenant shall pay, as additional rent, one hundred
(100 %) percent of all charges relating to Building # 15 for sprinkler
supervisory service and sprinkler standby fees.
10. UTILITIES. Tenant shall pay for all deposits, costs and charges relating to
heat, water, sewer, CCMUA, electricity, gas and similar services rendered or
supplied to or upon the Premises, or in connection with the use and occupation
of building #15 prior to the date same are due.
Tenant shall not be released or excused from the performance or any of its
obligations under this Lease for any failure, interruption or curtailment of any
utilities or services; nor shall any such failure, interruption or curtailment
constitute a constructive or partial eviction.
11. PERSONAL PROPERTY TAXES. Tenant shall pay all personal property taxes and
other taxes and assessments pertaining to its goods, chattels, machinery,
equipment, fixtures, personal property and similar items prior to the date same
are due.
2
<PAGE>
12. REAL PROPERTY TAXES. Tenant shall pay to Landlord, as additional rent One
hundred (100%) percent of all real property taxes and assessments levied upon
Block 490.01, Lot 1 (Bldg # 15, with adjoining land) under or by virtue of any
present or future laws or regulations of any governmental or lawful authority
having jurisdiction over the Premises.
If at any time during the Term any governmental or quasi-governmental
authority, having jurisdiction over the Premises imposes (a) a tax, assessment,
levy, imposition, license fee or other charge on the rents collected by
Landlord, or (b) any other additional or substitute tax, assessment, levy,
imposition or charge relating to Block 497.01, Lot 1, any such items shall be
deemed to be included within the term "Real Estate Taxes" for the purposes
hereof.
Landlord may, at its option, appeal any real property tax or assessment
affecting the Premises utilizing such attorneys and/or experts as Landlord deems
advisable. In the event of any successful appeal Tenant shall pay to Landlord,
as additional rent, either the tax savings to the Tenant for one year or one
half of the total tax savings to the Tenant during the remainder of the Term,
whichever is less.
13. INSURANCE. In respect to Landlord's fire insurance policy with standard
extended coverage and difference in condition policy, Tenant agrees: (a) it will
not do nor permit any acts or things which will invalidate or be in conflict
with any provisions thereof or which shall cause the insurance rate on the
Premises to be higher than on the date of the commencement of this Lease; (b) it
shall comply with all present and future rules, regulations and recommendations
thereof and shall promptly make all changes, modifications, replacements and
alterations as are necessary and/or required.
The aforementioned policy shall insure only the Landlord's property
against damage and/or losses for perils specified therein. In no event will
Landlord be responsible for charges and/or costs related to damage, loss, or
repair and/or replacement of any property: (a) caused by conditions, exclusions
or reasons not covered therein; (b) within the deductible provisions of the
aforementioned policies; and/or (c) any property not owned by Landlord.
Landlord's fire insurance policy with standard extended coverage policy,
difference in condition policy and rental income insurance
3
<PAGE>
policy shall contain a waiver of subrogation of the rights of the Landlord's
insurance carrier to proceed against the Tenant for matters are covered therein.
Tenant is invited and encouraged to review and ascertain the type,
deductibles and limits related to Landlord Insurance policies required herein.
Tenant is responsible for, and hereby saves and holds harmless Landlord, for all
costs, charges and expenses relating to or ensuing from damage, loss, and/or
replacement to/of any property, of whatever nature and from any cause
whatsoever, not covered by or within the deductible limits of Landlords
insurance policies referenced herein.
Tenant shall pay, as additional rent, 100 percent of Landlord's premiums
for fire insurance with standard extended coverage policy, difference in
condition policy and rental income insurance policy to the extent the
aforementioned policies relate to Building # 15, as determined by Landlord One
hundred.
14. TENANT'S INSURANCE OBLIGATIONS. Tenant, as a minimum, shall carry the
following insurance policies applicable to the Premises (and other areas as may
be required herein) with reputable companies authorized to issue policies in the
State of New Jersey having a Moody rating of at least A. The Certificate of
Insurance shall indicate Cherry Hill Industrial Sites, Inc. as the additional
insured under the "description" portion of the certificate, as follows: "Cherry
Hill Industrial Sites, Inc. as additional insured relative to any and all
lease/rental premises utilized by the Tenant":
(a) Comprehensive Public Liability Insurance. Such insurance shall be for
a Combined Single Limit (CSL) for bodily injury (including death) and property
damage or loss (for occurrences in or about the Premises or arising out of
Tenants ownership, maintenance, use or occupancy of the Premises) in the amount
of $1,000,000 for each occurrence, and $3,000,000 in the aggregate.
(b) Personal Property Insurance in amounts and types of coverage to insure
against damage or loss to any property including, but not limited to any Tenant
alterations, improvements or betterments in or about the Premises that is not
the property of Landlord caused by: (1) water, rain, sleet, snow, or ice
entering, seeping or leaking into or through the Premises or any portion
thereof; (2) fire, explosion, tornado, wind, earthquake or any other casualty or
any other similar occurrences; (3) theft, burglary, vandalism, malicious
mischief, or other similar occurrences; (4) accidents of any kind, type or
nature; (5) electrical, gas or water failure, cutoffs, surges or similar
occurrences; (6) loss or damage to property not owned by Landlord by any similar
reason.
(c) Such other insurance, and in such amount, as may from time to time be
reasonably required by Landlord or required by law. No insurance requirements as
set forth in this Lease shall preclude Tenant from obtaining whatever additional
insurance coverages Tenant shall deem necessary or prudent.
(d) NOTE: Tenant shall have the right to procure its required insurance on
a blanket master policy basis and/or an umbrella basis; provided, however, that
all such coverage shall otherwise comply with
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all of the requirements contained herein.
All insurance policies required of Tenant shall: (a) provide at least
thirty (30) days prior notice to Landlord and Tenant of any change,
modifications or cancellation; and (b) contain a waiver of subrogation of the
rights of the Tenant's insurance carrier to proceed against the Landlord for
matters which are required to be or are covered by the Tenant's insurance
policies.
Tenant shall give prompt notice to Landlord in case of any fire, casualty,
accident or similar occurrence.
15. FIRE. If the Premises shall be partially damaged by fire or similar casualty
as is covered under insurance policies carried by Landlord, the damage shall be
repaired by and at the expense of Landlord to the extent provided for pursuant
to the provisions thereof. Any fire or similar casualty damage to the Premises,
within the deductible limits of the aforementioned policies shall be repaired by
Landlord, but paid for by Tenant as additional rent.
The rent, until such repairs are made, shall be apportioned according to
the portion of the Premises which was damaged or which has been made unusable,
whichever is less. Nevertheless the Lease shall continue in full force and
effect.
If the Premises are totally or substantially damaged by fire or similar
casualty as is covered under policies required of Landlord pursuant to the
covenants of this Lease, and if Landlord, at its option, decides not to restore
or not to rebuild same, Landlord shall then, within sixty (60) days after such
fire, give Tenant notice of such decision, and thereupon this Lease shall expire
by lapse of time upon the fifth day after such notice is given. Tenant shall
then vacate the Premises and surrender same to Landlord.
For the purpose of this Lease substantial damage is defined as that which
is greater than twenty (20%) percent of the insured value of the premises as
determined by the cost estimate of Landlord.
Tenant acknowledges that Landlord will not carry insurance on the
furniture, furnishings, inventory, fixtures, equipment, improvements,
alterations, additions, property, appurtenances, or similar items that are not
the property of Landlord in or upon the Premises and agrees that Landlord is not
and shall not be obligated to repair any damage or loss thereto, nor replace
same, nor compensate any person or party for any loss, damage, or destruction
regardless of cause and/or reason.
In the event Landlord, at its option, decides to restore or rebuild the
Premises, no penalty shall accrue for reasonable delay which may arise by reason
of adjustment of insurance on the part of Landlord and/or Tenant, or for delays
on account of labor troubles or other reasons or causes beyond Landlord's
control.
In accordance with this paragraph, Tenant explicitly waives applicability
of N.J.S.A. 46:8-6 and N.J.S.A. 46:8-7.
16. FIRE PREVENTION SYSTEMS.
a. If the National Board of Fire Underwriters or any local Board of Fire
Underwriters or Insurance Exchange (or other bodies hereafter exercising similar
functions) shall require or recommend the installation of fire extinguishers, a
"sprinkler system", fire detection and prevention equipment (including, but not
limited to, smoke detectors and heat sensors), or any changes, modifications,
alterations, or the installation of additional sprinkler heads or other
equipment for any existing sprinkler, fire extinguishing system,
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and/or fire detection system for any reason, whether or not attributable to
Tenant's use of the Premises or Alterations performed by or on behalf of Tenant;
OR
b. If any law, regulation, or order or if any bureau, department or
official of the Federal, State, and/or Municipal Governments shall require or
recommend the installation of fire extinguishers, a "sprinkler system", fire
detection and prevention equipment (including, but not limited to, smoke
detectors and heat sensors), or any changes, modification, alterations, or the
installation of additional sprinkler heads or other equipment for any existing
sprinkler system, fire extinguishing system, and/or fire detection system for
any reason, whether or not attributable to Tenant's use of the Premises or
Alterations performed by or on behalf of Tenant; OR
c. If any such installations, changes, modifications, alterations,
sprinkler heads, or other equipment become necessary to prevent the imposition
of a penalty, an additional charge, or an increase in the fire insurance rate as
fixed by said Board or Exchange, from time to time, or by any fire insurance
company as a result of the use of the Premises whether or not the same is a
permitted use as defined elsewhere herein, then Tenant shall, at Tenant's sole
cost and expense, promptly make such installations within the Premises and make
such changes, modifications, alterations or the installation of additional
sprinkler heads or other required or recommended equipment.
17. REPAIRS, REPLACEMENTS. Tenant shall keep premises in good order and repair
and shall promptly make any and all repairs, maintenance, and replacements to
the Premises of whatever nature, ordinary and extraordinary, foreseen and
unforeseen, except as is specifically provided for herein. All repairs,
maintenance and replacements shall be in quality, usefulness, and class at least
equal to the original installation.
Landlord shall not be required to furnish any services, improvements,
alterations, or similar items, nor to make any repairs, maintenance, or
replacements to the Premises except as is specifically provided for herein.
18. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements without Landlord's approval, which shall not be unreasonably
withheld or delayed.
In the event Tenant proposes any alterations, additions, or improvements,
it shall submit a complete set of plans and specifications relating thereto,
prepared by any architect or professional engineer registered in the State of
New Jersey to Landlord. Landlord, at its option, shall grant or deny approval
within 15 days after receipt. Landlord may impose any conditions and/or
requirements upon Tenant as Landlord considers necessary or prudent to protect
Landlord's interest in the Premises. Tenant must agree in writing to adopt any
such conditions and/or requirements before any approval is effective.
If Landlord shall grant approval for the proposed work and provided Tenant
has agreed to any conditions and/or requirements made a part of such approval,
the following additional conditions shall apply:
a. Prior to making any alterations, additions or improvements Tenant shall
assure itself that the work will not impair the structural integrity of the
Premises, or any portion thereof.
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Approval of the proposed work by Landlord shall not constitute or imply a
warranty or representation by Landlord that the existing Premises, or any part
thereof, is adequate to withstand work proposed by Tenant. By making any
alterations, additions, or improvements, Tenant expressly warrants that the same
will not impair the structural integrity of the Premises nor any part thereof
and are in full compliance with the requirements of all governmental agencies or
authorities having jurisdiction. Landlord reserves the right to approve or
reject Tenant's contractor. If Tenant's proposed alteration involves a tie-in to
building systems, Landlord further reserves the option of requiring Tenant to
use Landlord's contractor.
b. All costs related to the proposed work, irrespective of their nature,
are the sole responsibility of Tenant and shall be promptly paid by Tenant at
such time as they may be due.
c. All contractors, labor and/or material suppliers, and similar parties
shall agree, in writing, prior to the commencement of any work or procurement of
materials, (1) to jointly comply with Tenant with the mechanics lien
restrictions contained elsewhere in this Lease; (2) that they are entering into
any agreements for labor and/or material with Tenant and not on behalf or for
the benefit of Landlord; (3) that the work to be done shall be in conformance
with the last plans and specifications approved by Landlord and that no changes
shall be made thereto without the approval of Landlord and Tenant; and (4) that
they, and their employees and other agents, shall comply with all rules and
regulations contained in Tenant's Lease regarding their conduct on the Premises.
Proof of such agreements shall be given to Landlord prior to the commencement of
the proposed work.
d. Tenant shall insure, indemnify and hold Landlord harmless for any loss
to which Landlord may be subject or which Landlord may sustain relating to
accidents, injury to persons (including death), property loss or damage of any
nature whatsoever, regardless of cause, arising during or ensuing from the work
undertaken by Tenant.
e. All such alterations, additions and improvements upon completion shall
immediately become the property of Landlord, without compensation by Landlord to
Tenant or any other party, and simultaneously become part of the Premises, and
Tenant's obligations and responsibilities pursuant to the terms and conditions
of this Lease shall thenceforth apply to the aforementioned alterations,
additions, or improvements. Upon the termination of the Tenant's lease and/or
Tenant's vacating of the premises, Tenant shall remove said alterations,
additions and improvements at Tenant's expense, if so requested by Landlord.
f. Upon completion of the work, Tenant will submit to Landlord as-built
drawings and certifications of inspections certifying the completion of the
alteration, addition or improvement.
19. COMPLIANCE WITH LAWS. With respect to the Premises or the use and occupation
thereof, Tenant shall promptly comply with all laws, orders, regulations, and
requirements now in force, or which may hereafter be in force, of (a) Federal,
State, County, and Municipal authorities and (b) private, quasi-public and
public utility companies and similar parties providing services.
Tenant acknowledges that during the term of this Lease, a system, or
materials and components thereof, now existing on the Premises may be legally
banned or subject to mandatory modification or conversion to some other system,
material or component. Tenant agrees that it will not, on the basis of such
legal ban or mandatory modification or
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conversion, claim frustration of purpose, seek termination of the Lease, or seek
abatement of rent.
Tenant shall immediately notify Landlord upon receipt of notice of a ban,
conversion requirement, violation or alleged violation of any of the foregoing.
Tenant shall also provide Landlord, upon Landlord's request, affidavits and/or
representations executed by a knowledgeable officer or principal of the company
concerning Tenant's best knowledge and belief regarding Tenant's compliance with
particular laws, orders, regulations and requirements as may be cited by
Landlord in its request.
20. RULES AND REGULATIONS. Without limiting Tenant's obligations pursuant to any
of the terms and conditions of this Lease, Tenant has the following duties:
a. Between April 15 and May 15 of each year Tenant shall provide to
Landlord, in form and content satisfactory to Landlord, a certification from a
reputable heating, ventilating and air conditioning contractor acceptable to
Landlord, or a professional engineer licensed to practice in the State of New
Jersey, confirming that all heating, ventilating and air conditioning systems
within the Premises are in good working order and repair and are being properly
serviced by Tenant.
b. Tenant shall keep: (1) the roof and exterior wall systems in a
watertight condition; (2) gutters, downspouts, drainage, and sewerage systems
free from obstructions and blockages; (3) all yard and exterior wall mounted
lighting on during night time hours; (4) parking areas, driveways, walkways, and
similar items free from snow, ice, potholes and all other defects and/or
hazards; (5) the Premises in a clean, safe, and orderly condition free from
debris, refuse, trash, vermin, pests, defects and/or hazards; (6) the
dissemination of smoke, dust, odors, fumes, and other noxious gases shall be
within the limits of the industrial tolerance standards of the State Department
of Health, Bureau of Adult and Industrial Health.
c. Tenant shall not cause, commit or permit: (1) areas allocated for
driveways, walkways, or the parking of automobile vehicles to be used for any
other purpose; (2) any public or private nuisance; (3) use or occupancy in a
manner reasonably offensive or objectionable to the Landlord by reason of, but
not limited to, noise and/or vibrations; (4) debris, dirt, holes, scuff marks,
smears, graphics and/or similar items on wall, floor, or ceiling surfaces; (5)
any utility service or equipment to be overloaded; (6) anything that will impair
or tend to impair, in Landlord's reasonable judgement, the character, value, or
appearance of the Premises; (7) outside storage of any kind except as is
specifically provided for herein; (8) parking of inoperable vehicles,
non-motorized vehicles or trailers in or about the Premises; (9) any part or the
whole of the sidewalks, entrances, passages, stairways, corridors or halls of
the premises to be obstructed or encumbered or used for any purpose other than
ingress and egress to and from the Premises; (10) any signs, advertisements,
objects, notices or other lettering to be exhibited, inscribed, painted, or
affixed on any part of the outside or inside of the Premises, so as to be
visible from the exterior without prior approval of Landlord; (11) any show
cases or other items to be put in front of or affixed to any part of the
exterior of the building; (12) any water and wash closets and other plumbing
fixtures to be used for any purposes other than those for which they were
designed/constructed, and no sweepings, rubbish, rags or other substances shall
be thrown
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therein; (13) any wires to be installed except in conduits, ducts or outlets
established for that purpose, unless prior written consent of Landlord has been
obtained; (14) disturbance or interference with other Tenants or occupants of
the building or neighboring buildings; (15) canvassing, soliciting or peddling
within the Premises; (16) installation of a television, radio, or two-way radio
antenna, or any other similar antenna, on the roof, in the windows or upon the
exterior of the Premises, without the prior approval of Landlord; (17) any
cooking within the Premises, without the prior written consent of Landlord,
provided, however, that the heating, refrigerating and preparing of beverages
and light snacks for employees shall be permitted if there are appropriate and
adequate facilities and equipment for such purposes; (18) unusual or
objectionable odors to be produced upon or emanate from the Premises; (19)
storage, manufacture or sale of liquor or illegal drugs; (20) any portion of the
Premises to be used for lodging or sleeping or for any immoral or illegal
purpose; (21) animals of any kind to be brought or kept about the Premises
without Landlord's prior approval; (22) notices, posters, or advertising media,
except for purposes of emergency, to be affixed on the exterior of the building;
and (23) burning of trash or garbage of any kind in or about the Premises.
d. Tenant shall: (1) store discarded material temporarily being stored
outside of the building, forming part of the Premises, within fence-enclosed
waste storage containers of a type and at locations approved by Landlord; (2)
arrange for and enforce good housekeeping procedures and practices satisfactory
to Landlord; (3) arrange for liquid wastes and effluents to be discharged into
an approved existing sewage treatment plant in accordance with that plant's
regulations and state and federal regulations, or shall treat its own wastes and
effluents in a treatment plant or process which is in compliance with the New
Jersey State and Federal Statutes and with the requirements of the New Jersey
State Department of Health; (4) shall comply with the New Jersey State Statutes
and requirements of the New Jersey State Department of Labor and Industry
Precaution against fire hazards, radiation, explosion, proper handling and
storage of materials and structural design, and safeguards for the health of
workers.
e. Tenant, its agents, employees, contractors, invitees, licensees, and
similar parties shall not: (1) interfere with the business of Landlord or other
Tenants or persons on any other property owned by Landlord; (2) bring or keep
within the premises any flammable, combustible or explosive fluid, chemical or
substance of types or quantities not permitted by law and/or Landlord's fire and
casualty insurance carrier.
f. Tenant, its agents, employees, contractors, invitees, licensees, and
similar parties shall: (1) obey speed limit, warning and related type signs
posted within the road/driveway system of the Cherry Hill Industrial Center; (2)
obey fire regulations and procedures governing the premises; (3) keep access
lids on exterior waste storage containers in a closed position except when waste
is actually being placed within said containers.
g. Landlord shall have the right to prohibit any advertising by any Tenant
which, in Landlords reasonable judgment, tends to impair the reputation of said
Tenant's Premises or the Cherry Hill Industrial Center, and upon notice from
Landlord, such Tenant shall refrain from or discontinue such advertising.
Landlord shall have the right to enforce this provision by injunction.
h. Landlord's employees shall not be required to perform, and
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shall not be required by tenant to perform, any work outside of their regular
duties, unless under specific instructions from the office of Landlord.
i. Tenant shall immediately notify Landlord of any serious breakage, or
fire or disorder, occurring within the Premises.
j. Landlord reserves the right to rescind, amend, alter or waive any of
the foregoing Rules and Regulations at any time when, in its judgment, it deems
it necessary, desirable or proper for its best interest and/or for the best
interest of the tenants, and no such recission, amendment, alteration or waiver
of any rule or regulation in favor of one Tenant shall operate as an alteration
or waiver in favor of any other Tenant. Any such rescission, amendment,
alteration, or waiver shall become effective ten (10) days after notice by
Landlord to Tenant.
k. Nothing contained in this Lease shall be construed to impose upon
Landlord any duty or obligation to impose the rules and regulations against any
other Tenant or any employees or agents of any other Tenant, and Landlord shall
not be responsible or liable to Tenant or others for non-observance or violation
of the rules and regulations by any other Tenant or its employees, agents,
invitees or licensees at any time.
l. Tenant, its employees, contractors, agents, assignees, sublessees,
invitees, licensees and similar parties shall obey and observe all reasonable
rules and regulations established by Landlord from time to time for the conduct
of Tenant and/or the welfare, care, cleanliness, preservation of good order,
and/or safety of the Cherry Hill Industrial Center. Landlord shall give Tenant
at least (10) days notice of the establishment thereof. Nothing contained in
this Lease shall be construed to impose upon Landlord any duty or obligation to
enforce the rules and regulations against any other Tenant or any employees or
agents of any other Tenant, and Landlord shall not be liable to Tenant or others
for violations of the rules and regulations by any other Tenant or its
employees, contractors, agents, invitees, licensees or similar parties.
21. EMINENT DOMAIN. If the Premises or any portion thereof are taken under the
power of eminent domain, this Lease shall terminate as to the part so taken as
of the date the condemning authority takes title. If more than 10% of the floor
area of the Premises, or more than 25% of the non floor area of the Premises is
taken by condemnation, Tenant may, at Tenant's option, to be exercised by
written notice to the Landlord within 10 days after the Landlord shall have
given Tenant notice of such taking, terminate this Lease as of the date the
condemning authority takes title. If Tenant does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent shall be
reduced in proportion to the floor area of the Premises taken to the total floor
area of the Premises. Any award for taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of the Landlord, whether such award
shall be made as compensation for diminution in value of the Leasehold or for
the taking of the fee, or as severance damages, or other compensation to which
Landlord may be entitled. Tenant may make a separate application for
compensation relating to its trade fixtures or personal property.
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22. FORCE MAJEURE. Except as the effect of this paragraph may be expressly
excluded in other provisions hereof, the parties shall be excused for the period
of any delay in the performance of any obligation hereunder when prevented from
so doing by a cause or causes beyond the parties control which shall include,
without limitation, all labor disputes, civil commotion, war, war-like
operations, invasion, rebellion, hostilities, military or usurped power
sabotage, governmental regulations or controls, fire or other casualty, or
through Acts of God.
23. LANDLORDS NON-LIABILITY. Except as is specifically provided for herein:
Landlord shall not be liable or responsible for any loss or damage to any
property regardless of its nature or ownership at any time on or about the
Premises arising from any cause or reason whatsoever. Nor shall Landlord be
liable or responsible for any harm or injury (including death) to any person at
any time on or about the Premises, arising from any cause or reason whatsoever.
Tenant shall not hold Landlord in any way responsible or liable therefor and
hereby releases and remises Landlord therefrom.
Without limiting or diminishing Landlord's non-liability as provided for
herein, Landlord shall not be responsible or liable to Tenant, its employees,
invitees, agents, or any other party for any loss or damage to any property or
harm or injury to any persons (including death): (a) which is and/or should have
been covered by an insurance policy required of Tenant or which Tenant failed to
obtain or keep in force and effect; (b) caused by work stoppages, business
interruptions, or similar events; (c) caused by other Tenants, its agents,
invitees, employees, and similar parties; (d) caused by operations in
construction of any private, public or quasi-public works; (e) caused by any
latent or patent defects in the Premises or in any part of the building of which
the Premises may form a part; (f) arising out of the design or construction of
the Premises; (g) caused by snow, wind, rain, leakage, and similar events into
or out of any portion of the Premises; (h) caused by leakage, overflows,
obstructions, blockages, explosions, collapse, bursts, surges, and similar
events of any mechanical, structural, or other component and/or part thereof;
(i) arising from or caused by Tenant's business operation, occupancy and/or use
of the Premises and/or the streets, rights of way, and walkways adjacent
thereto, or any other similar reason.
All non-liability, waivers of liability, and save and hold harmless
references in this Lease given Cherry Hill Industrial Sites, Inc., as Landlord,
shall apply to (a) Cherry Hill Industrial Sites, Inc., as General Contractor,
Designer, Contractor, or Subcontractor; and (b) any partner, joint venturer,
director, officer, agent, stockholder, and employee of Cherry Hill Industrial
Sites, Inc.
24. INDEMNIFICATION. Tenant shall not do, nor permit to be done, any act or
thing in or upon the Premises, which may, will, or does subject Landlord to any
claims, penalties, expenses, judgments, responsibility, liability, damages or
similar occurrence by reason of damage or loss to any property or harm and/or
injury (including death) to any persons at any time.
Tenant agrees to and shall hold and save harmless and indemnify the
Landlord from and for any and all payments, expenses, costs, attorney fees,
claims and liability for losses or damage to property
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and/or injury to any person (including death) resulting from any acts or
omissions by the Tenant, or its agents, employees, guests, licensees, invitees,
sub-tenants, contractors and similar parties, or for any cause or reason arising
out of or by reason of Tenant's use and/or occupancy of the Premises and/or the
conduct of Tenant's business and/or the breach by Tenant of any of the terms and
conditions of this Lease and/or similar reason.
25. FAILURE TO GIVE POSSESSION. If Landlord, for any reason, shall be unable to
give possession of the Premises on the date set for the commencement of the
Term, Landlord shall not be subject to any liability for such failure. Under
such circumstances, provided the delay is not caused or contributed to by
Tenant, the rent payments shall not commence until possession of the Premises is
given or the Premises are available for occupancy by Tenant, whichever occurs
first. Failure to give possession on the date of commencement of the term shall
in no way affect the validity of this Lease or the obligations of Tenant
hereunder nor shall it be construed in any way as an extension to the Term or
expiration date of this Lease.
If Landlord, at its option, grants Tenant permission to enter into the
possession of the Premises prior to the date specified as the commencement of
the Term, Tenant agrees that such occupancy shall be pursuant to the terms and
conditions of this Lease.
26. LIENS. Tenant shall not do anything which shall interfere with Landlord's
rights of ownership in the Premises. Tenant shall not permit nor allow any
notice of intention to file any type of lien (including, but not limited to,
mechanics liens) to be filed against the Premises. However, in the event any
notice of intention to file a lien is filed for work to be performed, material
to be furnished, or a lien is filed for work claimed to have been done or for
materials claimed to have been furnished to Tenant, same shall be discharged of
record and satisfied by Tenant within five (5) days thereafter at Tenant's own
cost and expense, or Tenant shall file a bond pursuant to statute releasing such
liens. Failure to do so shall entitle Landlord to resort to such remedies as are
provided herein in case of any default of this Lease, in addition to such as are
permitted by law.
27. ACCESS TO PREMISES. Landlord, its employees and agents shall have the right
to enter the Premises at all reasonable times for the purpose of: (a) examining
or inspecting the same; (b) showing the same to prospective purchasers,
mortgagees or Tenants; (c) making such alterations, repairs, improvements or
additions to the Premises or to the Building as may be necessary; (d) any other
similar or reasonable purpose.
If representatives of Tenant shall not be present to open and permit entry
into the Premises at an time when such entry by Landlord is necessary or
permitted hereunder, Landlord may enter by means of a master key (or forcibly in
the event of an emergency) without: (a) liability to Landlord, its employees,
agents, invitees and similar parties; (b) hindrance or molestation from Tenant,
its employees, and agents; and (c) such entry constituting an eviction of Tenant
or termination of this Lease.
28. ASSIGNMENT.
a. Tenant shall not assign, mortgage, pledge, encumber or in any manner
transfer this Lease or any portion thereof, or any interest
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herein, or sublet the whole or any part of the Premises, without obtaining the
approval of Landlord. In the event of any such occurrence, with or without
Landlord's approval, Tenant shall, nevertheless, remain liable for the
performance of all the terms and conditions of this Lease and will require any
assignee/sublessee to execute and deliver to Landlord an assumption of all of
the terms and conditions of this Lease in form satisfactory to Landlord.
Landlord shall be entitled to, and Tenant shall promptly remit to Landlord, any
profit which may inure to the benefit of Tenant as a result of any partial or
entire subletting of the Premises or assignment of this Lease, whether or not
approved by Landlord.
b. For the purposes of this paragraph, Tenant understands that the
transfer of a majority of Tenant's stock is tantamount to an assignment.
c. As a condition precedent to Tenant's right to sublease the Premises or
to assign this Lease, Tenant shall, at Tenant's own expense, first comply with
ECRA and fulfill all of Tenant's environmental obligations under this Lease
pursuant to paragraph 51 which also arise upon termination of Tenant's lease
term. If this condition is not satisfied, then Landlord shall have the right to
withhold consent to sublease or assignment.
Tenant shall promptly furnish to Landlord true and complete copies of all
documents, submissions and correspondence provided by Tenant to the NJDEP and
all documents, reports, directives and correspondence provided by the NJDEP to
Tenant. Tenant shall also promptly furnish to Landlord true and complete copies
of all sampling and test results obtained from samples and tests taken at and
around the Premises. Tenant shall notify Landlord in advance of all meetings
scheduled between Tenant and NJDEP, and Landlord may attend all such meetings.
d. Should Tenant make an assignment or sublet the Premises or any portion
thereof without the approval of Landlord, then Landlord may, at its option,
terminate this Lease by giving Tenant five (5) days notice of Landlord's
intention to do so and, upon the expiration of five (5) days, this Lease shall
terminate and Tenant shall peaceably quit and surrender the Premises to
Landlord; nevertheless Tenant shall remain liable as provided elsewhere in this
Lease. This Lease shall not, nor shall any interest therein, be assignable as to
the interest of Tenant by operation of law, without the approval of Landlord.
e. Subletting or assigning this Lease to anyone other than an actual user
of the Premises is positively prohibited.
f. Tenant may assign this Lease or sublet the Premises or any part thereof
to a subsidiary or controlled or affiliated concern of Tenant and of its parent,
or a surviving company of a merger or consolidation of any of the foregoing
without the Landlord's consent. Tenant is expressly granted consent to assign or
sublet the Premises, or any portion thereof, to a wholly owned subsidiary.
29. SUBORDINATION. This Lease shall be subject and subordinate at all times to
the lien of any mortgages and/or other encumbrances, common right-of-way's,
easements and similar items existing or hereafter placed upon the Premises by
Landlord, or with the permission of Landlord, without the necessity of any
further instrument or act on the part of Tenant to effectuate such
subordination. Tenant agrees, however, at the election of a mortgagee, to attorn
to any holder of any mortgage to which this Lease is subordinate. Tenant agrees
to
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execute and deliver promptly upon demand, and without charge, such further
instrument or instruments evidencing such subordination of this Lease to the
lien of any mortgage and/or other encumbrance. Tenant hereby irrevocably
appoints Landlord as Tenant's attorney in fact to execute and deliver such
instrument or instruments for and in the name of the Tenant provided same have
not been executed by Tenant within ten (10) days after Landlord's notice to
Tenant.
Landlord agrees that the subordination of the Lease to any future mortgage
relating to the Premises shall be conditional and contingent upon any such
mortgagee's agreeing that, so long as Tenant is not in default under the terms
and conditions of the Lease, such mortgages shall not disturb Tenant's use,
possession and occupancy of the Premises.
30. CERTIFICATIONS. Tenant agrees, within ten (10) days after Landlord's notice,
to execute, acknowledge and deliver to Landlord a written instrument in
recordable form certifying: (1) that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same are in full force
and effect as modified and stating the modifications); (2) that the Tenant has
accepted possession of the Premises and the date on which the term of the Lease
commenced; (3) the dates to which rent and additional rent have been paid in
advance, if any; (4) whether or not to the best knowledge of the signer of such
certificate, Landlord is in default in the performance of any covenant of this
Lease, and, if so, specifying each such default of which the signers may have
knowledge; (5) any other reasonable stipulation as may be required and/or
requested by Landlord. It is understood that such instrument may be relied upon
by a prospective purchaser of the fee or any mortgagee of the Premises.
Tenant shall provide to Landlord, if requested, its latest audited
financial statement, accurately reflecting its financial condition for the
latest fiscal year of Tenant. It is understood that such statement may by relied
upon by a prospective purchaser of the fee or any mortgagee of the Premises.
31. DEFAULT AND REMEDIES.
a. Default. The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant:
(1) Failure of Tenant to accept possession of the Premises within
thirty (30) days after the effective date of the Lease;
(2) The vacating or abandonment of the Premises by Tenant;
(3) The failure by Tenant to pay, when due, any installment of rent
hereunder or any additional rent or any such other sum herein required to be
paid by Tenant;
(4) A failure by Tenant to observe and perform any other provision
or terms and conditions of this lease to be observed or performed by Tenant,
where such failure continues for fifteen (15) days (or a lesser time period when
an emergency or law requires or makes such a reduction for abatement and/or
correction prudent; or when a lessor of non notice provision is specifically
provided for in any covenant of this Lease) after written notice thereof from
Landlord to Tenant provided, however, that if the nature of the default is such
that the same cannot reasonably be cured within such fifteen (15) day period,
Tenant shall not be deemed to be in default if Tenant shall within such period
commence such cure and thereafter diligently prosecute the same to completion;
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b. Remedies. Upon the occurrence of any such event of default set forth
above;
(1) Landlord may (but shall not be required to) perform for the
account of Tenant the curing of any default of Tenant and immediately recover as
additional rent any expenditure made and the amount of any obligations incurred
in connection therewith, plus interest at the rate of four percent (4%) per
annum over the Midlantic National Bank/South prime rate from the date of such
expenditure;
(2) Tenant may cure any monetary default by making payment of the
monies due, together with a late charge of 5% of the amount due not later than
ten (10) calendar days after notice of the default has been given to Tenant. If
said default should continue for a longer period, Landlord may accelerate all
rent and additional rent due for the succeeding nine (9) months of the term of
this Lease and declare the same to be immediately due and payable.
(3) Tenant may cure any non-monetary default by correcting the
default condition described in Landlord's notice to Tenant if said corrections
are completed within twenty (20) calendar days after notice of the default has
been given to Tenant. If said default should continue for a longer period,
Landlord may accelerate all rent and additional rent due for the succeeding nine
(9) months of the term of this Lease and declare the same to be immediately due
and payable.
(4) In the event of default, and the failure of Tenant to cure same
within the designated time period, Landlord, at its option, may serve notice
upon Tenant that this Lease and the then unexpired term hereof and all renewal
options shall cease and expire and become absolutely void on the date specified
in such notice, to be not less than five (5) days after the date of such notice
without any right on the part of the Tenant to save the forfeiture by payment of
any sum due or by the performance of any terms, provision, covenant, agreement
or condition broken; and, thereupon and at the expiration of the time limit in
such notice, this Lease and the term hereof granted, as well as the right, title
and interest of the Tenant hereunder, shall wholly cease and expire and become
void in the same manner and with the same force and effect (except as to
Tenant's liability) as if the date fixed in such notice were the date herein
granted for expiration of the term of this Lease. Thereupon, Tenant shall
immediately quit and surrender to Landlord the Premises, and Landlord may enter
into and repossess the Premises by summary proceedings, detainer, ejectment or
otherwise and remove all occupants thereof and, at Landlord's option, any
property thereon without being liable to indictment, prosecution or damages
therefor. No such expiration or termination of this Lease shall relieve Tenant
of its liability and obligations under this Lease, whether or not the Premises
shall be relet;
(5) Landlord may, at any time after the occurrence of any event of
default, re-enter and repossess the Premises and any part thereof and attempt in
its own name, as agent for Tenant if this Lease not be terminated or in its own
behalf if this Lease be terminated, to relet all or any part of such Premises
for and upon such terms and to such persons, firms or corporations and for such
period or periods as Landlord, in its sole discretion, shall determine,
including the term beyond the termination of this Lease; and Landlord shall not
be required to accept any tenant offered by Tenant or observe any instruction
given by Tenant about such reletting or do any act or exercise any care or
diligence with respect to such reletting or to the mitigation of damages. For
the purpose of such reletting, Landlord may decorate or make repairs, changes,
alterations
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or additions in or to the Premises to the extent deemed by Landlord desirable or
convenient; and the cost of such decoration, repairs, changes, alterations or
additions shall be charged to and be payable by Tenant as additional rent
hereunder, as well as any reasonable brokerage and legal fees expended by
Landlord; and any sums collected by landlord from any new tenant obtained on
account of the Tenant shall be credited against the balance of the rent due
hereunder as aforesaid. Tenant shall pay to Landlord monthly, on the days when
the rent would have been payable under this Lease, the amount due hereunder less
the amount obtained by Landlord from such new Tenant;
(6) The parties recognize and agree that the damage to Landlord
resulting from any failure by Tenant to timely surrender possession of the
Premises will be substantial, will exceed the amount of the monthly installments
of the Rent payable hereunder, and will be impossible to measure accurately.
Tenant therefore agrees that if possession of the Premises is not surrendered to
Landlord upon the expiration date or sooner termination of the Lease, in
addition to any other rights or remedies Landlord may have hereunder or at law,
Tenant shall pay to Landlord, as liquidated damages, for each month and for each
portion of any month during which Tenant holds over in the Premises after the
expiration date or sooner termination of this Lease, a sum equal to two times
the aggregate of that portion of Base Annual Rent and Additional Rent that was
payable under this Lease during the last month of the Term.
(7) Nothing herein contained shall be deemed to permit Tenant to
retain possession of the Premises after the expiration date or sooner
termination of the Lease.
(8) In addition to all remedies provided herein or by law, Tenant
shall pay to Landlord reasonable attorneys fees and court costs and any other
expenses incurred as a result of such breach or default.
32. BANKRUPTCY.
a. Anything elsewhere in this lease to the contrary notwithstanding, this
Lease may be cancelled by Landlord by the sending of a written notice to Tenant
within a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor; or (2) the making by Tenant of an assignment
or any other arrangement for the benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
Lease shall be assigned in accordance with its terms, the provisions of this
Article 31 shall be applicable only to the party then owning Tenant's interest
in this Lease.
b. It is stipulated and agreed that in the event of the termination of
this Lease pursuant to (a) hereof, Landlord shall forthwith, notwithstanding any
other provisions of this Lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such
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premises or any part thereof be re-let by the Landlord for the unexpired term of
said Lease, or any part thereof, before presentation of proof of such liquidated
damages to any court, commission or tribunal, the amount of rent reserved upon
such reletting shall be deemed to be the fair and reasonable rental value for
the part or the whole of the premises so re-let during the term of the
re-letting. Nothing herein contained shall limit or prejudice the right of the
Landlord to prove for and obtain as liquidated damages by reason of such
termination, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of the difference referred to above.
33. EXPIRATION. Upon the expiration date of this Lease or prior termination
specified by Landlord pursuant to notice as provided for elsewhere in this
Lease: (a) Tenant shall remove all of its personal property from the Premises;
(b) Tenant shall peacefully quit and surrender to Landlord the Premises, broom
clean and in the same condition in which Tenant has agreed to keep it during the
Term. Tenant's obligation to observe or perform this covenant shall survive the
expiration or prior termination date of this Lease; (c) Tenant, for itself and
on behalf of any and all persons claiming through or under it, including, but
not limited to, creditors of every kind, shall and does hereby waive and
surrender all rights and privileges which it may have under or by reason of any
present or future law, to redeem the Premises or to have a continuance of this
Lease; (d) Landlord may enter and repossess the Premises as of Landlord's former
estate and expel Tenant, and those claiming through or under Tenant from the
Premises; (e) Landlord may remove from the Premises any property of Tenant
and/or the property of those cliaming through or under Tenant and, without
notice to Tenant or others, sell such property or any part thereof at public or
private sale or Landlord may treat such property or any part thereof as
abandoned and dispose of same in any manner as Landlord, at its option, elects,
all at the risk and cost of Tenant and without any liability to Landlord
whatsoever.
If during the last month of the term or prior termination, Tenant has
removed all or substantially all of the Tenant's property from the Premises,
Landlord may, without notice to Tenant, immediately enter the Premises to
renovate and decorate the Premises, without liability to Tenant and without
reducing or otherwise affecting Tenant's obligations hereunder.
34. USE AND OCCUPANCY ON HOLDOVER. Tenant agrees that if possession of the
Premises is not surrendered to Landlord upon the expiration date or sooner
termination of the Lease, in addition to any other rights or remedies Landlord
may have hereunder or at law, Tenant shall pay to Landlord, as use and
occupancy, for each month and for each portion of any month during which Tenant
holds over in the Premises after the expiration date or sooner termination of
this Lease, a sum equal to two times the aggregate of that portion of Base
Annual Rent and Additional Rent that was payable under this Lease during the
last month of the Term.
Nothing herein contained shall be deemed to permit Tenant to retain
possession of the Premises after the expiration date or sooner termination of
the Lease.
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35. NON-WAIVER BY LANDLORD. Landlord may restrain any breach or threatened
breach of any covenant of this Lease by Tenant. However, the recitation herein
of any particular remedy shall not preclude the Landlord from any other remedy
it may have, either at law or in equity. Landlord, at its option, may pursue
more than one remedy available either concurrently or separately. The failure of
Landlord to insist upon the strict performance of any one of the terms and
conditions of this Lease or to exercise any right, remedy or election provided
for in this Lease, or permitted by law, shall not constitute or be construed as
a waiver or relinquishment of such right, remedy or election. Landlord may, at
its option, mitigate any damages caused or arising out of Tenant's breach of any
of the terms and conditions of this Lease, but shall not be under any obligation
or duty to do so. Any rights and remedies of Landlord, whether created by the
terms of this Lease or existing at law, in equity, or otherwise, shall be
distinct, separate and cumulative and no one of them, whether exercised by
Landlord or not, shall be deemed to be in exclusion of any other.
No covenant of this Lease shall be deemed to have been waived by Landlord
unless such waiver is in writing, signed by Landlord.
36. QUIET ENJOYMENT. Landlord covenants that upon Tenant observing and
performing all the terms and conditions of this Lease, Tenant shall and may
peaceably and quietly have, hold and enjoy the Premises for the term
aforementioned.
37. BILLS/NOTICES. Except as otherwise provided in this Lease, any bill,
statement, or notice shall be deemed sufficient if written and delivered to
Tenant personally or sent by certified mail, return receipt requested, to Tenant
at the Premises. The time of mailing of such bill or statement and of the giving
of such notice or communication shall be deemed to be the time when same is
mailed to Tenant as herein provided. Any notice by Tenant to Landlord must be
served by certified mail, return receipt requested, to Landlord at the address
herein given or at such other address as Landlord shall designate.
38. WAIVER OF TRIAL BY JURY. Landlord and Tenant agree that the respective
parties shall and hereby do waive trial by jury in any action or proceeding
brought by either of the parties hereto against the other on any matters arising
out this Lease.
In any action brought by the Landlord against the Tenant, Tenant shall not
interpose any counterclaim against Landlord, but same shall be subject to an
independent action which is not to be consolidated with the Landlord's action.
This Lease shall be construed without regard to any presumption or other
rule requiring construction against the party causing this Lease to be drafted.
If Landlord institutes a dispossess or eviction action in response to
Tenant's refusal to vacate the Premises, Tenant waives its right to invoke
N.J.S.A. 2A.18-60. In any action brought by the Landlord against the Tenant,
Tenant shall not interpose any counterclaim against Landlord, but same shall be
subject to an independent action which is not to be consolidated with the
Landlord's action.
39. SIGNS. The Tenant shall not place nor allow to be placed any signs upon or
about the exterior of the building or the grounds of the
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Premises, or other property of Landlord unless of a design and structure and at
such locations as shall be first approved by the Landlord and then the
appropriate governmental authorities and/or agencies, if required.
Tenant, shall pay, as additional rent, all costs and charges incurred by
Landlord related to the installation, repair, maintenance, or replacement of all
signs related to the Tenant within the Cherry Hill Industrial Center.
40. BROKER. Tenant represents to Landlord that it has not dealt with any
brokerage company regarding this Lease. Tenant shall hold and keep Landlord
harmless from and against any claim for brokerage commissions and all
liabilities and expenses arising therefrom.
41. NO REPRESENTATIONS. (a) Tenant has rented the Premises after a complete
inspection and examination of its present condition and without any
representation on the part of the Landlord, its agents, employees, and similar
parties as to the condition or usefulness of the Premises; (b) Tenant does not
acquire any rights, easements or licenses by implication or otherwise, except as
are specifically provided for herein; (c) Tenant's possession of the Premises
shall be conclusive evidence that the Premises were in good and satisfactory
condition at the time Tenant took possession and that Tenant accepted same "as
is" and in its present condition without any express or implied warranties; (d)
upon execution of this Lease or anytime thereafter Tenant assumes the full and
sole responsibility for the condition, safety, operation and management of the
Premises pursuant to the terms and conditions contained herein.
42. LANDLORD'S APPROVAL. Except where specifically stated otherwise:
Whenever Landlord's approval or consent is required pursuant to any term
or condition of this Lease, such approval shall be in writing and in advance for
each occurrence. Landlord is under no duty or obligation to grant approvals.
Whenever this Lease provides for a Landlord's option, it is agreed such
does not imply or constitute a duty or an obligation of Landlord.
Whenever this Lease provides for Landlord's approval which shall not be
unreasonably withheld, it is agreed that Tenant's remedy in the event of
Landlord's non-approval is limited to specific performance.
43. NET LEASE. It is intended that the rent and additional rent reserved
hereunder shall be an absolutely net return to the Landlord throughout the Term.
The rent and additional rent reserved hereunder shall be paid to the Landlord
without any claim on the part of Tenant, or those claiming under Tenant, for
diminution, setoff, deduction, or abatement except as is specifically provided
for herein.
Tenant's obligation to pay rent and additional rent hereunder, and to
perform the terms and conditions of this Lease shall in no way be affected,
impaired or excused because Landlord is unable to fulfill any of its obligations
hereunder, or because Tenant's use and occupancy of the Premises is disturbed,
for any reason other than "as is" specifically provided for herein.
44. LANDLORD'S BREACH. Tenant shall look solely to a sum that shall not exceed
twenty percent (20%) of the net annual rental or ten
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percent (10%) of the balance of the term rent, whichever is less, for the
satisfaction of the remedies of Tenant in the event of a breach by Landlord of
any of the covenant(s) of this Lease.
45. TENANTS WARRANTY. Tenant warrants that if it is a corporation that: (a) it
is duly incorporated and/or qualified under the laws of the State of NEW JERSEY
and is authorized to do business in the State of New Jersey and is in good
standing; (b) all necessary corporate action necessary to authorize the
execution of this Lease upon the terms and conditions set forth herein have been
duly taken; and (c) the officer(s) executing and delivering this Lease have been
duly authorized to bind the corporation to the terms and conditions herein
contained.
46. ADVERSE POSSESSION. Tenant shall not suffer or permit the Premises, or any
portion thereof, to be used without restriction or in such a manner as might
reasonably tend to impair Landlord's title to the Premises or in such manner as
might reasonably make possible claims of adverse usage or adverse possession, or
of implied dedication of the Premises or any portion thereof.
47. COMPLIANCE WITH THE NJ ENVIRONMENTAL CLEANUP RESPONSIBILITY ACT.
a. Tenant shall, at Tenant's own expense, comply with the Environmental
Cleanup Responsibility Act, N.J.S.A. 13:1K-6 et seq., the regulations
promulgated thereunder and any successor legislation and regulations, and any
amendments or additions thereto, (hereinafter referred to as "ECRA"). Tenant
shall, at Tenant's own expense, make all submissions to, provide all information
to, and comply with all requirements of, the Industrial Site Evaluation or its
successor ("Element") of the New Jersey Department of Environmental Protection
("NJDEP").
b. Tenant's obligations under this paragraph shall arise if there is any
closing, termination or transferring of operations of an industrial
establishment at the premises pursuant to ECRA, whether triggered by Landlord or
Tenant.
c. Provided this Lease is not previously cancelled or terminated by either
party or by operation of law, Tenant shall commence its submission to the
Element in anticipation of the end of the lease term no later than one (1) year
prior to the expiration of the lease term. Tenant shall promptly furnish to
Landlord true and complete copies of communications provided by Tenant to the
Element, and all documents, reports, directives, correspondence and oral or
written communications by the Element to Tenant. Tenant shall also promptly
furnish to Landlord true and complete copies of all sampling and tests taken at
and around the Premises. Tenant shall notify Landlord in advance of all meetings
scheduled between Tenant and NJDEP, and Landlord may attend all such meetings.
d. Should the Element or any other division of NJDEP determine that a
cleanup plan be prepared and that a cleanup be undertaken because of a spill or
discharge of a hazardous substance or waste at the Premises which occurred
during the term of the Lease, Tenant shall, at Tenant's own expense, promptly
prepare and submit the required plan and financial assurances and shall promptly
carry out the approved plans.
e. At no expense to Landlord, Tenant shall promptly provide all
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information requested by Landlord or NJDEP for preparation of a
non-applicability affidavit, de minimus quantity exemption application, negative
declaration application, limited conveyance application or other submission and
shall promptly sign such affidavits and submissions when requested by Landlord
or NJDEP.
f. Should Tenant's operations at the Premises be outside of those
industrial operations covered by ECRA, Tenant shall, at Tenant's own expense,
obtain a letter of non-applicability or de minimus quantity exemption from the
Element prior to termination of the Lease term and shall promptly provide
Tenant's submission and the Element's exemption letter to Landlord. Should
Tenant obtain a letter of non-applicability or de minimus quantity exemption
from the Element, then Tenant shall, at Landlord's option, hire a consultant
satisfactory to Landlord to undertake sampling at the Premises sufficient to
determine whether or not Tenant's operations have resulted in a spill or
discharge of a hazardous substance or waste at or around the Premises. Should
the sampling reveal any spill or discharge of a hazardous substance or waste,
the Tenant shall, at Tenant's expense, promptly clean up the Premises to the
satisfaction of Landlord and NJDEP.
g. If Tenant fails to obtain either: (i) a non-applicability letter; (ii)
a de minimus exemption; (iii) a negative declaration; or (iv) final approval of
cleanup; (collectively referred to as "ECRA clearance") from the Element; or
fails to clean up the Premises pursuant to subparagraph (f) above, prior to the
expiration or earlier termination of the lease term, then upon the expiration or
earlier termination of the lease term Landlord shall have the option either to
consider the Lease as having ended or to treat Tenant as a holdover tenant in
possession of the Premises. If Landlord considers the lease as having ended,
then Tenant shall nevertheless be obligated to promptly obtain ECRA clearance
and to fulfill the obligations set forth in subparagraph (f) above. If Landlord
treats Tenant as a holdover tenant in possession of the Premises, then Tenant
shall monthly pay to Landlord double the regular and additional monthly rent
which Tenant would otherwise have paid, until such time as Tenant obtains ECRA
clearance and fulfills its obligations under subparagraph (f) above, and during
the holdover period all of the terms of this Lease shall remain in full force
and effect.
h. Tenant represents and warrants to Landlord that Tenant intends to use
the Premises for activities relating to the warehousing and distribution of
pharmaceutical products. Tenant's use of the Premises shall be restricted to the
classifications set forth above unless Tenant obtains Landlord's written prior
written consent to any change in use of the Premises. Prior to the commencement
date of Tenant's lease term, Tenant shall supply to Landlord an affidavit of an
officer of Tenant ("Officer's Affidavit") setting forth Tenant's SIC numbers and
a detailed description of the operations and processes Tenant will undertake at
the Premises, organized in the form of a narrative report including a
description and quantification of hazardous substances and wastes to be
generated, manufactured, refined, transported, treated, stored, handled or
disposed of at the Premises. Following commencement of the lease term, Tenant
shall notify Landlord by way of a supplemental Officer's Affidavit, as to any
changes in Tenant's operation, SIC number or use or generation of hazardous
substances and wastes. Tenant shall also supplement and update Officer's
Affidavit upon each anniversary of the commencement of the lease term. Tenant
shall not commence or alter any operations
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at the Premises prior to (i) obtaining all required operating and discharge
permits or approvals, including, but not limited to, air pollution control
permits and pollution discharge elimination system permits from NJDEP, all
governmental or public authorities having jurisdiction over Tenant's operations
or the Premises, and (ii) providing copies of permits and approvals to Landlord.
i. Tenant shall permit Landlord and Landlord's agents, servants and
employees, including but not limited to, legal counsel and environmental
consultants and engineers, access to the Premises for the purposes of
environmental inspections and sampling during regular business hours, or during
other hours either by agreement of the parties or in the event of any
environmental emergency. Tenant shall not restrict access to any part of the
Premises, and Tenant shall not impose any conditions to access. In the event
that Landlord's environmental inspection shall include sampling and testing of
the Premises, Landlord shall use its best efforts to avoid interfering with
Tenant's use of the Premises, and upon completion of sampling and testing shall
repair and restore the affected areas of the Premises from any damage caused by
the sampling and testing.
j. Tenant's indemnification of Landlord as set forth elsewhere within this
Lease shall extend to any and all claims, liabilities, losses, damages, and
costs, foreseen or unforeseen, including without limitation counsel, engineering
and other professional or expert fees, which Landlord may incur by reason of
Tenant's action or non-action with regard to Tenant's obligations under this
paragraph.
k. This paragraph shall survive the expiration or earlier termination of
this Lease. Tenant's failure to abide by the terms of this paragraph shall be
restrainable by injunction without limiting Landlord's right to remedy as
provided for elsewhere in this Lease.
48. RESPONSIBILITY FOR HAZARDOUS SUBSTANCES
a. Hazardous Substances: The term "Hazardous Substances", as described in
this Lease, shall include, but shall not be limited to, flammables, explosives,
radioactive materials, asbestos, polychlorinated biphenyls (PCBs), chemicals
known to cause cancer or reproductive toxicity, pollutants, contaminants,
hazardous wastes, toxic substances or related materials, petroleum and petroleum
products, and substances declared to be hazardous or toxic under any law or
regulation now or hereafter enacted or promulgated by any governmental
authority.
b. Tenant's Restrictions: Tenant shall not cause or permit to occur:
(1) Any violation of any federal, state, or local law, ordinance, or
regulation now or hereafter enacted, related to environmental conditions on,
under, or about the Premises, or arising from Tenant's use or occupancy of the
Premises, including, but not limited to, soil and ground water conditions; or
(2) The use, generation, release, manufacture, refining, production,
processing, storage, or disposal of any Hazardous Substance, on, under or about
the Premises, or the transportation to or from the Premises of any Hazardous
Substance, except as specifically required during the lawful conduct of Tenant's
permitted use, as such is defined elsewhere herein.
c. Environmental Clean-Up
(1) Tenant shall, at Tenant's own expense, comply with all laws
regulating the use, generation, storage, transportation, or disposal of
Hazardous Substances ("Laws").
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(2) Tenant shall, at Tenant's own expense, make all submissions to,
provide all information required by, and comply with all requirements of all
governmental authorities (the "Authorities") under the Laws.
(3) Should the Authority or any third party demand that a cleanup
plan be prepared and that a cleanup be undertaken because of any deposit, spill,
discharge, or other release of Hazardous Substances that occurs during the term
of the Lease, at or from the Premises, or which arises at any time from Tenant's
use or occupancy of the Premises, then Tenant shall, at Tenant's own expense,
prepare and submit the required plans and all related bonds and other financial
assurances; and Tenant shall carry out all such cleanup plans in a timely
manner.
(4) Tenant shall promptly provide all information regarding the use,
generation, storage, transportation, or disposal of Hazardous Substances that is
requested by the Landlord. If Tenant fails to fulfill any duty imposed under
this sub-paragraph within a reasonable time, Landlord may do so; and in such
case, Tenant shall cooperate with Landlord in order to prepare all documents
Landlord deems necessary or appropriate to determine the applicability of the
Laws to the Premises and Tenant's use thereof, and for compliance therewith, and
Tenant shall execute all documents promptly upon Landlord's request. No such
action by Landlord and no attempt made by Landlord to mitigate damages under any
Law shall constitute a waiver of any of Tenant's obligations under this
sub-paragraph c.
d. Tenant's Indemnity.
Tenant shall indemnify, defend and hold harmless Cherry Hill
Industrial Sites, Inc. as Landlord, Landlord and Contractor, and its officers,
directors, beneficiaries, shareholders, partners, agents, and employees from all
fines, suits, procedures, claims, and actions of every kind, and all costs
associated therewith (including attorneys' and consultants' fees) arising out of
or in any way connected with any deposit, spill, discharge, or other release of
Hazardous Substances that occurs during the term of this Lease, at or from the
Premises, or which arises at any time from Tenant's use or occupancy of the
Premises, or from Tenant's failure to provide all information, make all
submissions, and take all steps required by all Authorities under the Laws and
all other environmental laws.
e. Tenant's obligations and liabilities under this paragraph 48 shall
survive the natural expiration or sooner termination of this Lease.
f. Landlord represents that as of the date of the execution of this Lease,
Landlord has no knowledge of, and has not received any notice of any violation
from the NJDEP affecting the Premises.
49. ENVIRONMENTAL REPORTS. Tenant shall promptly provide Landlord with:
a. all documentation and correspondence provided to NJDEP pursuant to the
Worker and Community Right to Know Act, N.J.S.A. 34:5A-1, et seq. and the
regulations promulgated thereunder ("Right to Know Act"), and any amendments or
additions thereto,
b. all reports and notices made by Tenant pursuant to the Hazardous
Substances Discharge Reports and Notices Act, N.J.S.A. 13:1K-15 et seq., and the
regulations promulgated thereunder ("Reports and Notices Act"), and any
amendments or additions thereto, and
c. any notices, correspondence and submissions made by Tenant to NJDEP,
the United States Environmental Protection Agency (EPA), the
23
<PAGE>
United States Occupational, Safety and Health Administration (OSHA), or any
other local, state or federal authority which requires submission of any
information concerning environmental matters or hazardous waste or substances.
50. ENVIRONMENTAL LIENS. Tenant shall promptly notify Landlord as to any liens
threatened or attached against the Premises pursuant to the Spill Act or any
other environmental law. In the event that such a lien is filed against the
Premises, then Tenant shall, within thirty (30) days from the date that the lien
is placed against the Premises, and at any rate prior to the date any
governmental authority commences proceedings to sell the Premises pursuant to
the lien, either: (a) pay the claim and remove the lien from the Premises; or
(b) furnish either (i) a bond satisfactory to Landlord in the amount of the
claim out of which the lien arises, (ii) a cash deposit in the amount of the
claim out of which the lien arises, or (iii) other security satisfactory to
Landlord in an amount sufficient to discharge the claim out of which the lien
arises.
51. BINDING OFFER. It is understood and agreed by the Landlord and Tenant that
this Lease is an offer only and is submitted to Tenant for signature with the
understanding that it shall not bind Landlord unless and until it has been
executed by Landlord.
52. ENTIRE AGREEMENT. This Lease constitutes the entire agreement between the
parties. No representative, agent, or employee of the Landlord has been
authorized to make any representations or promises or to vary, alter or modify
the covenants hereof. No additions, changes, modifications, renewals or
extensions of this Lease shall be binding unless reduced to writing and signed
by the Landlord and the Tenant.
This Lease may not be cancelled or terminated by Tenant without the
consent of Landlord except as is specifically provided for elsewhere in this
Lease.
53. APPLICATION AND DURATION. Wherever in this Lease an obligation is imposed
upon or required of Tenant, same shall be at Tenant's sole cost and expense.
Obligation of Tenant pursuant to the terms and conditions of this Lease
are: (a) for the Premises as set forth in exhibit "A" unless extended in scope
pursuant to any particular provision and/or as the sense and circumstances of
the text may require; (b) for the duration/term of the Lease unless having
application before the commencement date and/or if they survive the expiration
date or prior termination date pursuant to any provision contained herein.
54. VALIDITY. The terms and conditions of this Lease shall be deemed severable,
if any clause or provision herein shall be adjudged to be invalid or
unenforceable by a court of competent jurisdiction or by the operation of any
applicable law, such an occurrence shall not affect the validity of any other
clause and/or provision herein, and this Lease and such other clauses and
provision shall remain in full force and effect.
Landlord, however, at its option, may pursue the relief or remedy sought
in any invalid clause by conforming the said clause with the provision of the
statutes or the regulation of any governmental agency as if the particular
provisions of the applicable statutes or
24
<PAGE>
55. COUNTERPARTS. This Lease may be executed in several counterparts, each of
Which shall be deemed to be an original copy, and all of which taken together
shall constitute one agreement binding on all parties hereto, notwithstanding
that the parties shall not have signed the same counterpart.
56. GENDER NEUTER. In all references herein to any pronouns, parties, persons,
entities, or corporation, the use of any particular gender or the plural or
singular number is intended to include the appropriate gender or number as the
sense and circumstances of the context may require.
57. BINDING AGREEMENT. All the terms and conditions contained herein shall be
for and shall inure to the benefit of and shall bind the respective parties
hereto, their heirs, successors and assigns.
58. APPLICABLE LAW. Landlord and Tenant agree that this Lease and any suits
and/or special proceedings under it will be governed and construed pursuant to
the laws of the State of New Jersey.
59. CAPTIONS. The captions are inserted only as a matter of convenience and in
no way define, limit or describe the scope of this Lease nor the intent of any
covenant thereof.
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed this
Lease as of the date written.
CHERRY HILL INDUSTRIAL SITES, INC.
/s/ [Illegible] Date: 11/12/96 By: /s/ Paul Heise
- -------------------------- -------------------------------
Witness as to Landlord Paul Heise, President
MARSAM PHARMACEUTICALS
/s/ [Illegible] Date: 11/12/96 By: /s/ Marvin Samson
- -------------------------- -------------------------------
Witness as to Tenant Marvin Samson, President
25
<PAGE>
ESTOPPLE CERTIFICATE
TO: SUN NATIONAL BANK
WHEREAS, CHERRY HILL INDUSTRIAL SITES, INC., ("the landlord") has entered
into a lease (the "Lease") with MARSAM PHARMACEUTICALS, INC. ("Tenant") for the
rental of the property located in Building #15, 20 Olney Avenue, Cherry Hill
Township, New Jersey ("Premises"); and
WHEREAS, Landlord has applied to Sun National Bank ("Bank") for a loan
which is secured in part by a mortgage encumbering the Premises;
NOW, THEREFORE, the undersigned, party to the Lease confirms the
following:
1. A true, complete and correct copy of the Lease has previous been
provided to the bank by the Landlord. The Lease is presently in full
force and effect; it has not been amended or modified in any way,
and it represents the entire agreement between Landlord and Tenant.
2. The term of the Lease commenced on March 1, 1994, and will expire on
September 30, 1999. Full rental at the rate per month as set forth
in the Lease is currently accruing thereunder.
3. Tenant has accepted possession of the Premises pursuant to the terms
of the Lease and is in occupancy thereof. All construction and/or
improvements required by the Lease have been completed.
4. Tenant, as of this date, has no claim or offset under the Lease or
otherwise, against rents or other charges due to or become due
thereunder.
5. All rentals and other charges due and payable under the Lease by
Tenant have been paid up to date. No rent under the Lease has been
or will be paid more than thirty (30) days in advance of its due
date.
6. Neither Tenant nor Landlord is now in default in the performance of
any of their respective obligations under the lease.
7. Tenant has not assigned its interest in the Lease, and Tenant has
received no notice of any assignment of the rents accruing under
the Lease.
8. Landlord is holding no security deposit.
<PAGE>
9. Tenant has an agreement to purchase the premises. A copy of which
has been previously provided the Bank by the landlord.
10. Tenant acknowledges that the Bank is relying upon this Estoppel
Certificate in making the Loan to Landlord.
11. Tenant further acknowledges that Tenant will not look to the Bank as
mortgagee, mortgagee in possession, or successor in title to the
Premises for the accountability for any future security deposit held
by Landlord, or any successor landlord, unless said sums have
actually been received by said mortgagee.
IN WITNESS WHEREOF, the party hereto intending to be legally bound hereby
has affixed hand and seal the 24th day of February, 1997.
TENANT: MARSAM PHARMACEUTICALS, INC.
BY: /s/ [Illegible]
- ------------------------ -----------------------------
Witness
/s/ Dale Desanto Witness
- ------------------------ --------------------------------
<PAGE>
SA_9315c
AGREEMENT OF SALE
MODIFICATION SUPERSEDING PRIOR AGREEMENT OF SALE
BETWEEN THE PARTIES DATED JANUARY 18, 1994
This Agreement made this 12th day of November, 1996 by and between CHERRY
HILL INDUSTRIAL SITES, INC., a New Jersey corporation, whose address is 1998
Springdale Road, Cherry Hill, NJ 08003 (hereinafter referred to as the
"Seller"), and MARSAM PHARMACEUTICALS INC., a Delaware corporation, whose
address is Building 31, Olney Avenue, Cherry Hill, New Jersey 08003 (hereinafter
referred to as the "Buyer").
W I T N E S S E T H:
In consideration of the mutual covenants herein contained, the parties,
intending to be legally bound, agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Seller hereby agrees to sell and convey to
Buyer, and Buyer agrees to purchase from Seller approximately 8.50 acres of land
and the building known as Building #l5 located on that certain premises
designated as Lot 1, Block 490.01 on the Tax Map of Cherry Hill Township) on the
Tax Map of the Township of Cherry Hill, County of Camden, State of New Jersey,
as more particularly described in Exhibit A attached hereto, together with all
right, title and interest and estate of Seller in and to the Premises, and the
tenements, hereditaments, appurtenances, and any right of ways and easements
appurtenant thereto; all right title and interest of Seller, if any, in and to
(i) the land lying in the bed of any street or highway in front of or adjoining
the Premises to the center line thereof, (ii) any unpaid award for any taking by
condemnation or any damage to the Premises by reason of a change of grade of any
street or highway, (iii) all improvements located on the Premises, and (iv) all
tangible and intangible rights and interests with respect to the Premises;
subject to the terms and conditions contained herein (the "Premises").
The descriptions attached hereto in Exhibit A have been prepared and
certified by the Seller's surveyor.
2. PURCHASE PRICE. The purchase price for the Premises is FIVE MILLION AND THREE
HUNDRED EIGHTEEN THOUSAND NINE HUNDRED AND NINETY DOLLARS AND ZERO CENTS
($5,318,990.00) ("Purchase Price"), which shall be payable as follows:
a. Buyer has deposited with Seller the sum of TWO HUNDRED FIFTY THOUSAND
and No/100 DOLLARS ($250,000.00) (the "Deposit"). Seller shall hold the DEPOSIT
in a separate interest-bearing account.
The Deposit shall be paid to and deposited in escrow with the Seller and
shall be held by the Seller in an interest bearing separate account. Except as
otherwise provided in this Agreement, the Deposit shall be (i) kept by Seller
until the second installment payment is made by buyer, as provided in this
agreement; (ii) paid to Buyer upon either a permitted termination of this
Agreement as provided herein or a default hereunder by Seller as provided in
this Agreement; or (iii) kept by Seller
<PAGE>
upon a failure hereunder by Buyer to pay the balance of the Purchase Price as
provided in Paragraph 2.b of this Agreement.
All interest accruing on the deposit shall be kept by the seller.
b. Closing shall take place at the office of Seller located at 1998
Springdale Road, Cherry Hill, New Jersey, 08003; or such other place as may be
designated by Seller, no sooner than October 1, 1999 but not later than October
6, 1999.
Buyer shall make a payment of FIVE MILLION AND THREE HUNDRED
EIGHTEEN THOUSAND NINE HUNDRED AND NINETY DOLLARS AND ZERO CENTS
($5,318,990.00) ("Purchase Price") less the deposit referrenced in paragraph 2a,
by cash, or wire transfer into Seller's account, or such other account as Seller
may designate.
The following adjustments and payments shall be made at Closing:
a. Real property taxes for the then current year relating to the Premises
shall be adjusted as of the date of Closing. If the Closing shall occur before
the tax rate is fixed, the apportionment of taxes shall be on the basis of the
tax rate for the immediately preceding year, applied to the latest assessed
valuation;
b. Any assessments levied on the property shall be paid by Buyer;
c. Buyer shall pay the New Jersey Realty Transfer Tax in connection with
the conveyance (which obligation shall survive Closing);
d. Mortgages, liens or judgments of record shall be paid or otherwise
satisfied by Seller in accordance with the terms of this Agreement; and
e. The parties shall each be solely responsible for the fees and expenses
of their respective counsel.
The Deposit shall be paid to and deposited in escrow with the Seller and
shall be held by the Seller in an interest bearing separate account. Except as
otherwise provided in this Agreement, the Deposit shall be (i) kept by Seller
until the second installment payment is made by buyer, as provided in this
agreement; (ii) paid to Buyer upon either a permitted termination of this
Agreement as provided herein or a default hereunder by Seller as provided in
this Agreement; or (iii) kept by Seller upon a failure hereunder by Buyer to pay
the balance of the Purchase Price as provided in Paragraph 2.b of this
Agreement.
<PAGE>
3. TITLE TO PREMISES. At Closing, Seller shall convey to Buyer, by special
warranty deed, good and marketable title of record in fee simple to the
Premises. All costs related to closing shall be paid by Buyer. Such costs shall
be deemed to include real property taxes, real estate transfer taxes, sewer
charges and other municipal and local taxes, assessments and levies upon the
property which are required by the title company or Buyer's lender to be paid.
The Buyer shall be required to accept at closing those restrictions of
record that may appear on the title report to be issued by Continental Title
Insurance Company, 8000 Sagemore Drive, Suite 8202, Marlton, NJ 08053 (Required
Encumbrances). Buyer further agrees that it will execute the easements, attached
hereto as Exhibits B and C, relating to the private road system in the
industrial center in which building #31 and this premises are situated. Buyer
acknowledges that the documents will be recorded along with the deed.
The Seller represents and warrants to the Buyer that it presently has
marketable title in fee simple to the premises subject only to those exceptions
listed in the title report, to be provided. The Seller further warrants that it
will not cause or permit any adverse changes in its title to the premises at any
time prior to the Closing of Title. If the title report requires actions or
payments by the Seller in order to preserve Seller's title, the Seller will
promptly make all of said payments and will promptly perform all of said acts
without permitting any default.
If at the Closing Date there may be any mortgages, liens or encumbrances
which Seller is obligated to pay and discharge, Seller may use all or any
portion of the Purchase Price payable at the Closing to satisfy the same,
provided (i) Seller shall simultaneously deliver instruments in recordable form
and sufficient to satisfy such mortgages, liens and encumbrances of record
together with the cost of recording or filing said instruments which the title
company employed by Buyer shall approve in order to omit such mortgages, liens
and encumbrances from Buyer's title insurance commitment; or (ii) Seller shall
have made arrangements with the title company employed by Buyer in advance of
Closing, which are acceptable to and required by it, to insure the obtaining and
recording of such satisfactions and the issuance of title insurance to Buyer
free of any such liens and encumbrances.
4. COMPLIANCE WITH ECRA. Buyer shall have the obligation of affirmatively
complying with all of the requirements of the New Jersey Environmental Cleanup
Responsibility Act, N.J.S.A. 13:1K-6 et seq ("ECRA"), or, in the alternative, to
obtain a letter of non-applicability stating that the transaction contained in
the agreement of sale is not a transaction which triggers the application of
ECRA.
In the event that the sale of the property requires that the property be
reviewed pursuant to ECRA, then Buyer shall notify the New Jersey Department of
Environmental Protection ("NJDEP") and submit all necessary forms and fees in a
timely manner so that closing is not delayed beyond the time designated in the
agreement.
Buyer shall indemnify, defend and hold Seller harmless from
<PAGE>
and against all claims, liabilities, losses, damages and costs, foreseen and
unforeseen, including, without limitation, counsel, engineering and other
professional expert fees, which Seller may incur by reason of Buyer's action or
non-action with regard to Buyer's obligation under this paragraph. This
paragraph shall survive closing of title.
5. BUYER'S REPRESENTATIONS. Buyer represents and warrants to Seller that:
a. Buyer has the legal right, power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby, and the
execution, delivery and performance of this Agreement have been duly authorized
and no other action by Buyer is requisite to the valid and binding execution,
delivery and performance of this Agreement;
b. The execution and performance of this Agreement shall not be a breach
or violation of any Agreement to which the Buyer is a party.
c. Buyer is acquiring the Property in reliance upon its own investigations
as well as Seller's warranties and representations set forth herein. The Buyer
is not relying upon any oral representations of the Seller that are not
otherwise set forth in writing herein.
6. SELLER'S REPRESENTATIONS. Seller represents and warrants to Buyer that:
a. Seller has the legal right, power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby;
b. The Seller has not entered into any other Agreement for the sale of the
Premises nor does any person or entity other than Buyer have any right or option
to acquire the Premises.
c. Seller has not received written notice, and Seller is not aware, of
pending or contemplated condemnation proceedings affecting the Premises or any
part thereof as of the date of this Agreement, and, if Seller receives any such
written notice or such information prior to Closing, Seller agrees to provide
Buyer with such information, including a copy of any written notice.
d. Seller has not received written notice, and Seller is not aware, of any
default or breach under any covenant, condition, restriction, right-of-way or
easement affecting the Premises, or any portion thereof as of the date of this
Agreement, and, if Seller receives any such written notice or such information
prior to Closing, Seller agrees to provide Buyer with such information,
including a copy of any written notice.
e. Seller is a corporation of the State of New Jersey in good standing.
f. Seller has not received any written notice, and Seller is not aware, of
existing violations of any Federal, State, County, municipal or local laws,
ordinances, orders, regulations or requirements affecting the Premises as of the
date of this Agreement, and, if Seller receives any such written notice or such
information prior to Closing, Seller agrees to provide Buyer with such
information, including a copy of any written notice.
g. Seller has not received any written notice from the holder(s) of any
mortgages upon the Premises, any insurance company which has issued a policy
with respect to the Premises,
<PAGE>
or any board of fire underwriters (or other body of similar functions) claiming
any default in Seller's performance under said documents and, if Seller receives
any such written notice prior to Closing, Seller agrees to provide Buyer with a
copy thereof.
h. Seller has received no written notice, and Seller is not aware, of any
litigation or administrative or governmental proceeding pending or threatened
against or relating to the title to the Premises or which would materially
adversely affect Buyer's purchase, ownership, operation of, construction and
development of the Premises as of the date of this Agreement, and, Seller shall
give to Buyer prompt notice of the institution of any such litigation or
proceeding prior to the Closing of which Seller receives written notice or of
which Seller becomes aware, and Seller agrees to provide Buyer with such
information including a copy of any written notice.
7. CONDITION OF THE PREMISES. Buyer acknowledges and agrees that, other than is
expressly set forth elsewhere in this Agreement, Seller has made no
representations or warranties regarding the Premises, including, without
limitation, its condition, its past use, or its suitability for Buyer's intended
use thereof, and that Buyer is acquiring the Premises on an "AS IS" basis.
8. ASSIGNABILITY. The Buyer may not assign its rights and duties under this
Contract.
9. NOTICE. All notices, requests, consents, approvals or other communications
under this Agreement shall be in writing and mailed by U.S. Registered or
Certified mail.
10. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the
parties. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives, successors
and/or assigns.
11. AMENDMENT AND WAIVER. Any provisions of this Agreement may be amended or
waived, but only if such amendment or waiver is in writing and is signed by all
parties to this Agreement.
12. APPLICABLE LAW. This Agreement and the rights of the parties hereunder shall
be construed in accordance with and governed by the laws of the State of New
Jersey.
13. SEVERABILITY. In the event any one or more provisions of this Agreement
shall be determined to be void or unenforceable by a court of competent
jurisdiction or by law, such determination will not render this Agreement
invalid or unenforceable and the remaining provisions hereof shall remain in
full force and effect.
14. Said premises are sold and conveyed subject to the following:
(a) any state of facts an accurate survey or physical inspection may show
provided same does not render title
<PAGE>
unmarketable; (b) covenants, restrictions, easements, reservations,
consents and agreements of record, if any, provided same are not violated
by the existing structure and present use thereof and/or render title
unmarketable; (c) rights, if any, acquired by the utility company to
maintain and operate lines, wires, cables, poles, etc., in, over, and upon
said premises; (d) street widenings, existing or proposed, if any,
provided same do not encroach on existing buildings or violate their
present use; (e) the violations of any covenant or restriction shall not
be deemed an objection to title provided the title company insuring title
shall agree to insure that such improvements may remain in their present
location as long as same shall stand.
15. Seller and Buyer each warrants and represents to the other that it has
dealt with no broker which would result in a commission or other
compensation being due with respect to the sale of the premises and Seller
and Buyer each agree to indemnify and hold the other harmless with respect
to any judgment, damages, legal fees, court costs and any liabilities of
any nature whatsoever arising from breach of its representation.
16. All prior understandings and agreements between Seller and Buyer are
merged into this agreement. It completely expresses their full agreement.
It has been entered into after full investigation, neither party relying
upon any statements made by anyone else that are not set forth in this
agreement.
17. If Seller is unable to transfer title to Buyer in accordance with this
agreement, Seller's sole liability shall be to refund all money paid on
account of this agreement, plus all charges made for (i) examining the
title; (ii) any appropriate additional searches made in accordance with
this agreement, and (iii) survey and survey inspection charges. Upon such
refund and payment this agreement shall be considered concelled, and
neither Seller nor Buyer shall have any further rights against the other.
18. The parties agree, subject to those contingencies and conditions to
closing contained herein, that in the event Buyer fails to comply with any
of the terms of this Agreement and closing does not take place on the
Closing date as set forth in this Agreement, then the damage which Seller
will sustain as a result thereof will be substantial but will be
difficult, if not impossible, to ascertain.
The parties therefore agree that in such event Seller's sole and
exclusive remedy shall be to terminate this Agreement, in which event all
obligations hereunder shall be deemed null and void, and to retain the
Deposit as liquidated damages, to recompense Seller for time spent, labor
and services performed, and loss of the benefit of its bargain.
19. Except as is otherwise specifically provided, no
<PAGE>
representations or warranties by Seller shall survive the passage of the
deed.
20. Closing proceeds will be paid by certified or bank check or draft. Third
party endorsed checks, whether certified or bank checks, and uncertified
funding company, mortgage broker, attorney or private mortgage company
checks or drafts shall not be deemed to be acceptable funds hereunder.
21. In any construction of the terms of this agreement, none of its terms
shall be construed against the Sellers or their attorney by reason of the
fact that the Sellers or their attorney drew the agreement since the final
terms of this agreement are the result of negotiations by parties having
equal bargaining power, with each of the parties having full access to
legal representation.
22. Buyers, at least ten (10) days before the date scheduled for closing,
shall furnish Seller's attorney with any objections to title which may
have been returned by the title company or anyone examining title to the
premises, and if it appears from such objections or exceptions, that time
will be required within which to remove the same, then and in that event,
Sellers shall have reasonable adjournment or adjournments, from time to
time, within which to clear such objections or exceptions.
23. This agreement shall be considered only an offer on the part of the Buyers
and shall not be enforceable as against the Seller until executed by the
Seller.
IN WITNESS WHEREOF, the parties hereto have duly executed this Rider
on the day and year written below.
CHERRY HILL INDUSTRIAL SITES, INC.
A New Jersey Corporation
ATTEST:
/s/ [Illegible] By /s/ Paul Heise
- -------------------------- ------------------------------
Secretary Paul Heise, President
MARSAM PHARMACEUTICALS
A Delaware Corporation
ATTEST:
/s/ [Illegible] By /s/ Marvin Samson
- -------------------------- ------------------------------
Secretary Marvin Samson, President
Date: 11-12-96
<PAGE>
[DIAGRAM]
THIS CERTIFICATION IS MADE ONLY TO ABOVE NAMED PARTIES FOR PURCHASE AND/OR
MORTGAGE TO HEREIN DELINEATED PROPERTY BY ABOVE NAMED PURCHASER. NO
RESPONSIBILITY OR LIABILITY IS ASSUMED BY SURVEYOR FOR USE OF SURVEY FOR ANY
OTHER PURPOSE INCLUDING, BUT NOT LIMITED TO, USE OF SURVEY FOR SURVEY AFFIDAVIT,
RELEASE OF PROPERTY, OR TO ANY OTHER PERSON NOT LISTED IN CERTIFICATION, EITHER
DIRECTLY OR INDIRECTLY. TO: ANY INSUROR OF TITLE RELYING HEREON AND ANY OTHER
PARTY IN INTEREST IN CONSIDERATION OF THE FEE PAID FOR MAKING THIS SURVEY, I
HEREBY CERTIFY TO ITS ACCURACY (EXCEPT SUCH EASEMENTS, IF ANY, THAT MAY BE
LOCATED BELOW THE SURFACE OF THE LANDS OR ON THE SRUFACE OF THE LANDS AND NOT
VISIBLE) AS AN INDUCEMENT FOR ANY INSUROR OF TITLE TO INSURE THE TITLE TO THE
LANDS AND PREMISES SHOWN THEREON. THIS RESPONSIBILITY LIMITED TO THE CURRENT
MATTER AS OF THE DATE OF THIS SURVEY."
/s/ Edward S. McConnell
---------------------------
EDWARD S. MCCONNELL
LICENSED SURVEYOR
NJ 17432
PA 17413
- --------------------------------------------------------------------------------
PLAN OF SURVEY
- --------------------------------------------------------------------------------
Building 15
Cherry Hill Industrial Sites
Cherry Hill Township
Camden County, NJ
- --------------------------------------------------------------------------------
EDWARD S. MCCONNELL ASSOC.
- --------------------------------------------------------------------------------
LAND SURVEYING & LAND PLANNING
P.O. Box 2202 Cherry Hill, N.J. 08034 (609) 482-0662
3119 Bayland Dr. Ocean City, N.J. 08226 (609) 398-8280
- --------------------------------------------------------------------------------
PROJECT NUMBER DW'N. BY C K'D. BY
- --------------------------------------------------------------------------------
102-57-93 [ILLEGIBLE] DAVID
- --------------------------------------------------------------------------------
SCALE DATE
1" = 100' NOVEMBER 22, 1993
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.40
November 29, 1993
Paul Kleutghen
33 Coventry Road
Mendam, New Jersey 07945
Dear Paul:
We are pleased to confirm the terms of your ongoing employment with Schein
Pharmaceutical, Inc. (the "Company") as Vice President of Business Development.
1. The Company will employ you as Vice President of Business Development for
the period from the date of this Agreement and continuing until 60 days after
either you or the Company gives written notice to the other that you or it does
not wish to continue your employment hereunder (a "Non-Continuation Notice").
You accept such employment, and will devote your full time and effort to the
business and affairs of the Company, with such duties consistent with your
position as may be assigned to you from time to time by the President (or such
other officer) or Board of Directors of the Company.
2. In consideration of all services rendered by you during your employment
hereunder, the Company will pay you a base salary at the annual rate of
$180,000, payable in accordance with the Company's payroll practices from time
to time in effect. The Company will review your salary at least once each year
and may in its discretion increase your salary.
3. For as long as you are employed by the Company you will be entitled to
participate in all bonus, incentive, retirement, profit-sharing, life, medical,
disability and other benefit plans and programs of the Company as are from time
to time generally available to other executives of the Company with comparable
responsibilities, subject to the provisions of those programs.
4. Your employment by the Company: (a) shall terminate upon your death; (b)
shall terminate 60 days after a Non-Continuation Notice is given; (c) may be
terminated by the Company for cause at any time; and (d) may be terminated by
the Company if you fail to render the services provided for in this Agreement
for a continuous period of six months by reason of physical or mental illness or
disability.
For purposes of this Agreement, "cause" means (i) your willful and
continued failure substantially to perform your duties with the Company, (ii)
fraud, misappropriation or intentional material damage to the property or
business of the Company or (iii) commission of a felony.
5. If your employment is terminated by the Company's giving a Non-Continuation
<PAGE>
Notice as provided in Section 1 hereof (the giving of such Notice being a
"Termination Event"), the Company will pay you, in full satisfaction of all of
its obligations hereunder (except for its obligations under paragraphs 6 and 8
hereof), 100% of the amount of compensation (base salary and annual cash bonus)
paid (or payable) by the Company to you in respect of the last full fiscal year
of the Company immediately preceding the date of termination (the "Termination
Payment"). If the Termination Event occurs at any time within two years after a
Significant Date, the Termination Payment will be two times the amount provided
in the preceding sentence reduced by the amount of all compensation actually
paid to you by the Company at any time after the sixth-month anniversary of a
Significant Date; provided that in no event will the Termination Payment be less
than 100% of your compensation for the last full fiscal year preceding
termination, as provided in the preceding sentence. Notwithstanding anything to
the contrary in this Agreement, the maximum amount payable under this Section 5
shall be limited to that amount which when added to all other payments (or the
value of all other benefits) that are "contingent on a change in control" (as
such term is defined in the Internal Revenue Code of 1986, as amended (the
"Code") of the Company, would not constitute a "parachute payment" (as such term
is defined in the Code). The Termination Payment will be paid in a lump sum and
will be subject to any applicable payroll or other taxes required to be
withheld.
Termination of your employment by the Company for any reason other than for
cause or disability, or your voluntary termination of employment on account of
(i) a 10% or more reduction of your base salary by the Company or (ii) the
Company's assigning you duties or responsibilities that are inconsistent, in any
significant respect, with the scope of duties or responsibilities associated
with Vice President of Business Development or (iii) relocation of your office
other than to a facility which, as of the date of this Agreement, the Company or
any of its subsidiaries conducts operations, will be deemed a Termination Event.
The Termination Payment will not be subject to offset on account of any
remuneration paid or payable to you for any subsequent employment you may
obtain, whether during or after the period during which the Termination Payment
is made and you shall have no obligation whatever to seek any subsequent
employment.
For purposes of this Agreement, a "Significant Date" means the date on
which the persons (or successors designated by such persons or successors)
presently entitled to elect a majority of the Board of Directors of the company
(the "Parent") controlling the Company, are no longer entitled to elect,
directly or indirectly, a majority of the Board of Directors of the Company,
other than as an immediate result of public sales of stock of the Parent or the
Company; provided however that a Significant Date shall not be deemed to have
occurred if on such date the present Chairman of the Company (including
successors designated by such Chairman or by successors) alone or pursuant to
joint authority with others, are entitled to so elect.
6. For one year following a Termination Event, the Company will also provide
you
<PAGE>
with basic health and medical benefits on the terms that such benefits are
provided to all salaried employees of the Company as of the date of your
termination of employment. If the Termination Event occurs at any time within
two years after a Significant Date, the Company will provide the benefits
described in the preceding sentence until the later of (A) the first anniversary
of the Termination Event and (B) the second anniversary of the Significant Date.
These benefits will cease immediately upon your obtaining other full-time
employment. If the Company is unable to provide any of the foregoing benefits
under then existing plans without costs it considers excessive, the Company will
be entitled to satisfy any such obligation by making a payment to you equal to
two times the cost to the Company during the last full year immediately
preceding the Termination Event of providing such benefits to you.
7. At the time you execute this Agreement, you will also execute and deliver
to the Company the enclosed Confidentiality Undertaking.
8. The Company will reimburse you for reasonable attorneys fees and expenses
incurred by you if you are employed hereunder on a Significant Date and prevail
against the Company with respect to a claim hereunder arising on or after such
date.
9. This Agreement shall be binding upon and inure to the benefit of you and
your legal representatives and the Company and any assignee or successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company.
10. This Agreement: contains the entire agreement between the parties with
respect to the subject matter hereof, may not be modified or terminated orally,
and shall be construed and governed in accordance with the laws of the State of
New York.
If the foregoing is acceptable to you, please execute the enclosed copy of
this Agreement and return it to the undersigned.
Very truly yours,
SCHEIN PHARMACEUTICAL, INC.
By: [SIGNATURE ILLEGIBLE]
--------------------------
Authorized Officer
Agreed to and accepted:
/s/ Paul Kleutghen
- -----------------------------
Paul Kleutghen
<PAGE>
EXHIBIT 10.41
November 22, 1993
Javier Cayado
30 Sail Harbor
New Fairfield, CT 06470
Dear Jay:
We are pleased to confirm the terms of your ongoing employment with Schein
Pharmaceutical, Inc. (the "Company") as Vice President of Operations, Danbury
Pharmacal, Inc.
1. The Company will employ you as Vice President of Operations, Danbury
Pharmacal, Inc., for the period from the date of this Agreement and continuing
until 60 days after either you or the Company gives written notice to the other
that you or it does not wish to continue your employment hereunder (a "Non-
Continuation Notice"). You accept such employment, and will devote your full
time and effort to the business and affairs of the Company, with such duties
consistent with your position as may be assigned to you from time to time by the
President (or such other officer) or Board of Directors of the Company.
2. In consideration of all services rendered by you during your employment
hereunder, the Company will pay you a base salary at the annual rate of
$180,000, payable in accordance with the Company's payroll practices from time
to time in effect. The Company will review your salary at least once each year
and may in its discretion increase your salary.
3. For as long as you are employed by the Company you will be entitled to
participate in all bonus, incentive, retirement, profit-sharing, life, medical,
disability and other benefit plans and programs of the Company as are from time
to time generally available to other executives of the Company with comparable
responsibilities, subject to the provisions of those programs.
4. Your employment by the Company: (a) shall terminate upon your death; (b)
shall terminate 60 days after a Non-Continuation Notice is given; (c) may be
terminated by the Company for cause at any time; and (d) may be terminated by
the Company if you fail to render the services provided for in this Agreement
for a continuous period of six months by reason of physical or mental illness or
disability.
<PAGE>
For purposes of this Agreement, "cause" means (i) your willful and
continued failure substantially to perform your duties with the Company, (ii)
fraud, misappropriation or intentional material damage to the property or
business of the Company or (iii) commission of a felony.
5. If your employment is terminated by the Company's giving a Non-Continuation
Notice as provided in Section 1 hereof (the giving of such Notice being a
"Termination Event"), the Company will pay you, in full satisfaction of all of
its obligations hereunder (except for its obligations under paragraphs 6 and 8
hereof), 100% of the amount of compensation (base salary and annual cash bonus)
paid (or payable) by the Company to you in respect of the last full fiscal year
of the Company immediately preceding the date of termination (the "Termination
Payment"). If the Termination Event occurs at any time within two years after a
Significant Date, the Termination Payment will be two times the amount provided
in the preceding sentence reduced by the amount of all compensation actually
paid to you by the Company at any time after the sixth-month anniversary of a
Significant Date; provided that in no event will the Termination Payment be less
than 100% of your compensation for the last full fiscal year preceding
termination, as provided in the preceding sentence. Notwithstanding anything to
the contrary in this Agreement, the maximum amount payable under this Section 5
shall be limited to that amount which when added to all other payments (or the
value of all other benefits) that are "contingent on a change in control" (as
such term is defined in the Internal Revenue Code of 1986, as amended (the
"Code") of the Company, would not constitute a "parachute payment" (as such term
is defined in the Code). The Termination Payment will be paid in a lump sum and
will be subject to any applicable payroll or other taxes required to be
withheld.
Termination of your employment by the Company for any reason other than for
cause or disability, or your voluntary termination of employment on account of
(i) a 10% or more reduction of your base salary by the Company or (ii) the
Company's assigning you duties or responsibilities that are inconsistent, in any
significant respect, with the scope of duties or responsibilities associated
with Vice President of Operations, Danbury Pharmacal, Inc., or (iii) relocation
of your office other than to a facility which, as of the date of this Agreement,
the Company or any of its subsidiaries conducts operations, will be deemed a
Termination Event.
The Termination Payment will not be subject to offset on account of any
remuneration paid or payable to you for any subsequent employment you may
obtain, whether during or after the period during which the Termination Payment
is made and you shall have no obligation whatever to seek any subsequent
employment.
For purposes of this Agreement, a "Significant Date" means the date on
which the persons (or successors designated by such persons or successors)
presently entitled to elect a majority of the Board of Directors of the company
(the "Parent") controlling the Company, are no longer entitled to elect,
directly or indirectly, a majority of the Board of Directors of the Company,
other than as an immediate result
<PAGE>
of public sales of stock of the Parent or the Company; provided however that a
Significant Date shall not be deemed to have occurred if on such date the
present Chairman of the Company (including successors designated by such
Chairman or by successors) alone or pursuant to joint authority with others, are
entitled to so elect.
6. For one year following a Termination Event, the Company will also provide
you with basic health and medical benefits on the terms that such benefits are
provided to all salaried employees of the Company as of the date of your
termination of employment. If the Termination Event occurs at any time within
two years after a Significant Date, the Company will provide the benefits
described in the preceding sentence until the later of (A) the first anniversary
of the Termination Event and (B) the second anniversary of the Significant Date.
These benefits will cease immediately upon your obtaining other full-time
employment. If the Company is unable to provide any of the foregoing benefits
under then existing plans without costs it considers excessive, the Company will
be entitled to satisfy any such obligation by making a payment to you equal to
two times the cost to the Company during the last full year immediately
preceding the Termination Event of providing such benefits to you.
7. At the time you execute this Agreement, you will also execute and deliver
to the Company the enclosed Confidentiality Undertaking.
8. The Company will reimburse you for reasonable attorneys fees and expenses
incurred by you if you are employed hereunder on a Significant Date and prevail
against the Company with respect to a claim hereunder arising on or after such
date.
9. This Agreement shall be binding upon and inure to the benefit of you and
your legal representatives and the Company and any assignee or successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company.
10. This Agreement: contains the entire agreement between the parties with
respect to the subject matter hereof, may not be modified or terminated orally,
and shall be construed and governed in accordance with the laws of the State of
New York.
<PAGE>
If the foregoing is acceptable to you, please execute the enclosed copy of
this Agreement and return it to the undersigned.
Very truly yours,
SCHEIN PHARMACEUTICAL, INC.
By: /s/ James C. McGee
---------------------------
James C. McGee
Agreed to and accepted:
/s/ Jay Cayado
- ------------------------------
Jay Cayado
<PAGE>
EXHIBIT 10.42
SCHEIN PHARMACEUTICAL, INC.
DEFERRED COMPENSATION AGREEMENT
Agreement dated August 8, 1996 between Schein Pharmaceutical, Inc.
(the "Company") and Paul Kleutghen (the "Employee").
The parties agree as follows:
1. Deferred Compensation. Subject to the provisions of this
---------------------
agreement, the Company shall pay the Employee a bonus of $500,000 (the "Deferred
Compensation Amount"), payable as provided herein. The Company shall pay the
employee (a) $100,000 on December 31, 1996, (b) $100,000 on December 31, 1997,
(c) $150,000 on December 31, 1998, and (d) $150,000 on December 31, 1999,
provided the Employee is in the employ of the Company or any of its subsidiaries
at each such date. Notwithstanding the foregoing, however, if the Employee's
employment with the Company and each of its subsidiaries terminates at any time
before December 31, 1999, the amount, if any, payable to the Employee, and the
time any such amount shall be payable, shall be determined under section 2 of
this agreement. All payments under this agreement shall be subject to applicable
federal, state and local withholdings.
2. Termination of Employment.
-------------------------
2.1 General. In the event of a termination of the Employee's
-------
employment by the Company and each of its subsidiaries for any reason including,
without limitation, death or Disability (as defined below), other than a
termination for Cause (as defined in section 2.2) or voluntary termination in
accordance with section 2.3, the Company shall pay the Employee (or his or her
estate), not later than thirty days following the termination of employment, the
balance of any unpaid Deferred Compensation Amount. As used in this agreement,
the term
1
<PAGE>
"Disability" means a permanent disability, as determined by the board of
directors of the Company in its sole discretion. A Disability shall be deemed to
occur at the time of that determination by the board of directors.
2.2 Cause. If the Company or any of its subsidiaries terminates
-----
the Employee's employment for Cause, or the Employee terminates his or her
employment in violation of an agreement with the Company or any of its
subsidiaries, or if it is discovered after such termination of employment that
the Employee had engaged in conduct that would have justified termination if
employment for Cause, the Company shall have no obligation to pay any amount
under this agreement. As used in this agreement, termination of employment for
"Cause" means (a) the Employee's willful and continued failure substantially to
perform his or her duties with the Company and its subsidiaries, (b) fraud,
misappropriation or intentional material damage to the property or business of
the Company or any of its subsidiaries or (c) commission of a felony.
2.3 Voluntary Termination. If the Employee voluntarily
---------------------
terminates his employment with the Company and each of its subsidiaries before
any of the payment dates set forth in section 1, the Company shall have no
further obligation to pay any amount under this agreement.
3. General Provisions
------------------
3.1 Right to Terminate Employment. Notwithstanding anything to
-----------------------------
the contrary in this agreement, nothing in this agreement shall be deemed to
impose any obligation on the Company or any of its subsidiaries to continue the
employment of the Employee, or on the Employee to remain in the employ of the
Company or any of its subsidiaries, subject, however, to the provisions of any
other agreement between the Company or any of its subsidiaries and the Employee.
2
<PAGE>
3.2 Payment not Salary. Any deferred compensation payable under
------------------
this agreement shall not be deemed salary or other compensation to the Employee
for the purposes of computing benefits to which he or she may be entitled under
any pension plan or other arrangement of the Company or an affiliate of the
Company for the benefit of its employees.
3.3 Notices. Any notice or communication under this agreement
-------
shall be in writing and shall be deemed to have been duly given when delivered
in person, or by United States mail, to the appropriate party at the address set
forth below (or such other address as the party shall from time to time
specify):
If to the Company, to:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: Corporate Secretary
If to the Employee, to:
the address indicated on the signature page at the end of this
agreement.
3.4 Severability of Provisions. If any provision of this
--------------------------
agreement shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions of this agreement and
this agreement shall be construed and enforced as if such provisions had not
been included.
3.5 Headings and Captions. The headings and captions under this
---------------------
agreement are provided for reference and convenience only. They shall not be
considered part of this agreement and shall not be employed in the construction
of this agreement.
3
<PAGE>
3.6 Controlling Law. This agreement shall be construed and
---------------
enforced according to the law of the state of New Jersey applicable to
agreements made and to be performed wholly in New Jersey.
3.7 Counterparts. This agreement may be executed in
------------
counterparts, each of which shall be considered an original, but both of which
together shall constitute the same instrument.
3.8 Entire Agreement. This agreement contains a complete
----------------
statement of all the arrangements between the parties with respect to its
subject matter, supersedes all existing agreements between them with respect to
that subject matter may not be changed or terminated orally, and any amendment
or modification must be in writing and signed by the parties to this agreement.
SCHEIN PHARMACEUTICAL, INC.
By: [SIGNATURE ILLEGIBLE]
---------------------------
Authorized Officer
/s/ Paul Kleutghen
------------------------------
Paul Kleutghen
33 COVENTRY ROAD
------------------------------
Address
xxxxxxxxxxxxxxxxx
------------------------------
City, State, Zip Code
4
<PAGE>
EXHIBIT 10.43
SCHEIN PHARMACEUTICAL, INC.
DEFERRED COMPENSATION AGREEMENT
Dated November 22, 1993
-----------------------
The parties to this agreement are Schein Pharmaceutical, Inc. (the
"Company") and Jay Cayado (the "Employee").
----------
The Company and its subsidiaries wish to obtain the continuing benefit
of the Employee's services after an Equity Investor Transaction (as defined in
section 1). The purpose of this agreement is to enable the Company and its
subsidiaries to motivate the Employee to remain with the Company after an Equity
Investor Transaction by providing additional cash compensation to the Employee.
The parties agree as follows:
1. Deferred Compensation. Subject to the provisions of this
---------------------
agreement, the Company shall pay the Employee a bonus of $250,000 (the "Deferred
--------
Compensation Amount"), payable as provided herein. The Company shall pay the
employee, not later than thirty days after the applicable anniversary date, an
amount equal to (a) 50% of the Deferred Compensation Amount after the second
anniversary of an Equity Investor Transaction, (b) an additional 25% of the
Deferred Compensation Amount after the third anniversary of an Equity Investor
Transaction, and (c) an additional 25% of the Deferred Compensation Amount after
the fourth anniversary of an Equity Investor Transaction, provided the Employee
is in the employ of the Company or any of its subsidiaries at each such
anniversary date. Notwithstanding the foregoing, however, if the Employee's
employment with the Company and each of its subsidiaries terminates at any time
before the Final Date,
1
<PAGE>
the amount, if any, payable to the Employee, and the time any such amount shall
be payable, shall be determined under section 2 of this agreement. As used in
this agreement, (a) the term "Final Date" means the fourth anniversary of the
consummation of the Equity Investor Transaction, and (b) the term "Equity
Investor Transaction" means a transaction (or series of transactions) resulting
in the stockholders (or beneficiaries of any such stockholders which are trusts)
of Schein Holdings, Inc., a New York corporation of which SPINC is a subsidiary,
receiving after November 1, 1993 and prior to December 31, 1994 not less than
$200 million in the aggregate in respect of the disposition of shares of Schein
Holdings, Inc., by cash dividend or otherwise. All payments under this agreement
shall be subject to applicable federal, state and local withholdings.
2. Termination of Employment.
-------------------------
2.1 General. In the event of a termination of the Employee's
-------
employment by the Company and each of its subsidiaries for any reason including,
without limitation, death or Disability (as defined below), other than a
termination for Cause (as defined in section 2.2) or voluntary termination in
accordance with section 2.3, the Company shall pay the Employee (or his or her
estate), not later than thirty days following the termination of employment, the
Deferred Compensation Amount. As used in this agreement, the term "Disability"
means a permanent disability, as determined by the board of directors of the
Company in its sole discretion. A Disability shall be deemed to occur at the
time of that determination by the board of directors.
2.2 Cause. If the Company or any of its subsidiaries terminates
-----
the Employee's employment for Cause, or the Employee terminates his or her
employment in
2
<PAGE>
violation of an agreement with the Company or any of its subsidiaries, or if it
is discovered after such termination of employment that the Employee had engaged
in conduct that would have justified termination if employment for Cause, the
Company shall have no obligation to pay any amount under this agreement. As used
in this agreement, termination of employment for "Cause" means (a) the
Employee's wilful and continued failure substantially to perform his or her
duties with the Company and its subsidiaries, (b) fraud, misappropriation or
intentional material damage to the property or business of the Company or any of
its subsidiaries or (c) commission of a felony.
2.3 Voluntary Termination. If the Employee voluntarily
---------------------
terminates his or her employment with the Company and each of its subsidiaries
before the second anniversary of an Equity Investor Transaction, the Company
shall have no obligation to pay any amount under this agreement. If the Employee
voluntarily terminates his or her employment with the Company and each of its
subsidiaries thereafter, the Company shall pay the Employee, not later than
thirty days after the applicable anniversary date, an amount equal to (a) 50% of
the Deferred Compensation Amount if the termination of employment occurs after
the second anniversary, but before the third anniversary, of the consummation of
an Equity Investor Transaction, (b) an additional 25% of the Deferred
Compensation Amount if the termination of employment occurs after the third
anniversary of the consummation of an Equity Investor Transaction, but before
the Final Date, and (c) an additional 25% of the Deferred Compensation if the
termination of employment occurs after the Final Date.
3. General Provisions
------------------
3.1 Right to Terminate Employment. Notwithstanding anything to
-----------------------------
3
<PAGE>
the contrary in this agreement, nothing in this agreement shall be deemed to
impose any obligation on the Company or any of its subsidiaries to continue the
employment of the Employee, or on the Employee to remain in the employ of the
Company or any of its subsidiaries, subject, however, to the provisions of any
other agreement between the Company or any of its subsidiaries and the Employee.
3.2 Payment not Salary. Any deferred compensation payable under
------------------
this agreement shall not be deemed salary or other compensation to the Employee
for the purposes of computing benefits to which he or she may be entitled under
any pension plan or other arrangement of the Company or an affiliate of the
Company for the benefit of its employees.
3.3 Notices. Any notice or communication under this agreement
-------
shall be in writing and shall be deemed to have been duly given when delivered
in person, or by United States mail, to the appropriate party at the address set
forth below (or such other address as the party shall from time to time
specify):
If to the Company, to:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: Corporate Secretary
If to the Employee, to:
the address indicated on the signature page at the end of this
agreement.
3.4 Severability of Provisions. If any provision of this
--------------------------
agreement shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other
4
<PAGE>
provisions of this agreement and this agreement shall be construed and enforced
as if such provisions had not been included.
3.5 Headings and Captions. The headings and captions under this
---------------------
agreement are provided for reference and convenience only. They shall not be
considered part of this agreement and shall not be employed in the construction
of this agreement.
3.6 Controlling Law. This agreement shall be construed and
---------------
enforced according to the law of the state of New York applicable to agreements
made and to be performed wholly in New York.
3.7 Counterparts. This agreement may be executed in
------------
counterparts, each of which shall be considered an original, but both of which
together shall constitute the same instrument.
3.8 Entire Agreement. This agreement contains a complete
----------------
statement of all the arrangements between the parties with respect to its
subject matter, supersedes all existing agreements between them with respect to
that subject matter may not be changed or terminated orally and any amendment or
modification must be in writing and signed by the parties to this agreement.
SCHEIN PHARMACEUTICAL, INC.
By: [SIGNATURE ILLEGIBLE]
----------------------------------
Authorized Officer
/s/ Jay Cayado
-------------------------------------
Jay Cayado
30 Sail Harbour Drive
New Fairfield, CT 06812
5
<PAGE>
EXHIBIT 10.45
SCHEIN PHARMACEUTICAL
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the 1998
Employee Stock Purchase Plan of Schein Pharmaceutical.
1. Purpose. The purpose of the Plan is to provide employees of
--------
the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
------------
(a) "Board" shall mean the Board of Directors of the
-----
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986,
----
as amended.
(c) "Common Stock" shall mean the Common Stock of the
------------
Company.
(d) "Company" shall mean Schein Pharmaceutical.
-------
(e) "Compensation" shall mean all base straight time gross
------------
earnings, including commissions, overtime, shift premium, incentive
compensation, incentive payments, bonuses, and other compensation, but exclusive
of payments for award programs, relocation and non-cash company benefit
programs.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
-----------------------
which have been designated by the Board from
1
<PAGE>
time to time in its sole discretion as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
--------
the Company or any Designated Subsidiary for purposes of tax withholding under
the Code whose customary employment with the Company is at least twenty (20)
hours per week and more than five (5) months in any calendar year. For purposes
of the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds ninety (90) days and the individual's
right to reemployment is not guaranteed either by statute or by contract, the
employment relationship will be deemed to have terminated on the ninety-first
(9lst) day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
(i) "Exercise Date" shall mean the last day of each Offering
-------------
Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange of a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the mean between the
highest and lowest quoted sale price for the Common Stock (or the weighed
average of the means between the highest and lowest sales on the nearest date
before and the nearest date after the valuation date, if no sales were
reported), as quoted on such exchange (or the exchange with the greatest volume
of trading in Common Stock) or system on the date of such determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable, or;
-2-
<PAGE>
(2) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(k) "Offering Period" shall mean a period of approximately each
---------------
quarter of the calendar year, commencing (i) on the first Trading Day on or
after January 1 and terminating on the last Trading Day in the period ending the
following March 31, or (ii) commencing on the first Trading Day on or after
April 1 and terminating on the last Trading Day in the period ending the
following June 30, or (iii) commencing on the first Trading Day on or after July
1 and terminating on the last Trading Day in the period ending the following
September 30, or (iv) commencing on the first Trading Day on or after October 1
and terminating on the last Trading Day in the period ending the following
December 31, during which an option granted pursuant to the Plan may be
exercised. The duration of Offering Periods may be changed pursuant to Section
4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the
--------------
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan and the number of shares of Common Stock
which have been authorized for issuance under the Plan but not yet placed under
option.
-3-
<PAGE>
(o) "Subsidiary" shall mean a corporation, domestic or foreign,
----------
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock
-----------
exchanges and the National Association of Securities Dealers Automated Quotation
(NASDAQ) System are open for trading.
3. Eligibility.
-----------
(a) Any employee (as defined in Section 2(g)), who shall be
employed by the Company on a given Enrollment Date shall be eligible to
participate in the Plan, provided however, that any Employee who has been
employed for less than two (2) years must have completed six (6) consecutive
months of service with the Company before becoming eligible.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted a right to purchase Common Stock under the Plan (i)
if, immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding rights to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) which permits his or her rights to purchase stock ander
all employee stock purchase plans of the Company and its subsidiaries to accrue
at a rate which exceeds twenty-five thousand dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such right is
granted) for each calendar year in which such purchase right is outstanding at
any time.
4. Offering Periods. The Plan shall be implemented by
----------------
consecutive Offering Periods with a new Offering Period commencing on the first
Trading Day on or
-4-
<PAGE>
after January 1 , April 1, July 1 and October 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until the Plan is
terminated in accordance with Section 18 hereof. The Board shall have the power
to change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without shareholder approval if such
change is announced at least fifteen (15) days prior to the scheduled beginning
of the first Offering Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee (as defined in Section 3) may become a
participant in the Plan at the commencement of the first Offering Period after
the Employee has met the requirements of Section 2(g) and Section 3 by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office at
least five (5) business day prior to the applicable Enrollment Date, unless a
later time for filing the subscription agreement is set by the Board for all
eligible Employees. An eligible Employee (as defined in Section 3) who does not
participate in the first Offering Period after becoming eligible cannot
participate in the Plan until the commencement of a subsequent Offering Period.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll to
which such authorization is applicable, unless sooner terminated by the
participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement authorizing payroll deductions, he or she shall elect to have
deductions made on each payday during the time he or she is a participant at
the rate of 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 or
20% of his or her Compensation received on each payday
-5-
<PAGE>
during the Offering Period, and the aggregate of such payroll deductions during
the Offering Period shall not exceed twenty percent (20%) of the participant's
Compensation during said Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan. A participant may not make any
additional cash payments into such account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes. The change in rate shall be effective with the first
full payroll period following five (5) business days after the Company's receipt
of the new subscription agreement unless the Company elects to process a given
change in participation more quickly. A participant's subscription agreement
shall remain in effect unless terminated as provided in Section 10 hereof.
(d) At the time the stock is purchased by a participant under
this Plan or at the time some or all of the Company's Common Stock issued under
the Plan is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the purchase or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
Compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
(e) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423 (b)(8) of the Code and Section 3(b) hereof, a
participant's payroll
-6-
<PAGE>
deductions may be decreased to zero percent (0%) at such time during any
Offering Period which is scheduled to end during the current calendar year (the
"Current Offering Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Offering
Period which ended during that calendar year plus all payroll deductions
accumulated with respect to the Current Offering Period equal $25,000. Payroll
deductions shall recommence at the rate provided in such participant's
subscription agreement at the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10 hereof.
7. Grant of Option. On the Enrollment Date of each Offering
---------------
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on the Exercise Date of such Offering Period (at
the applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than a
number of Shares determined by dividing $25,000 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided
further that such purchase shall be subject to the limitations set forth in
sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof,QS and the option shall expire at the end of the day on the last day of
the Offering Period.
8. Exercise of Option. A participant's option for the purchase
------------------
shares will be exercised automatically on the Exercise Date, and the maximum
number of shares, including fractional shares, subject to option shall be
purchased for such participant at the applicable Purchase Price with the
accumulated payroll deductions in his or her account. During a participant's
lifetime, a participant's
-7-
<PAGE>
option to purchase shares hereunder is exercisable only by him or her.
9. Reports. A book-entry system of shares will be maintained for
-------
the Plan and certificates representing the shares purchased upon exercise will
not be issued except as in accordance with Section 10 hereof. Individual
accounts will be maintained for each participant in the Plan. Statements of
account will be given to participating Employees at least annually, which
statements will set forth the amounts of payroll deductions, the Purchase Price,
the number of shares purchased and the remaining cash balance, if any. The
Company will comply with all applicable reporting requirements applicable to
Employee Stock Purchase Plans under the Code.
10. Withdrawal; Termination of Employment.
----------
(a) A participant may withdraw from the Plan at any time by
giving written notice to the Company in the form of Exhibit to this Plan. Upon
a participant's withdrawal from the Plan all the payroll deductions credited to
his or her account and not yet used to exercise his or her option under the Plan
will be automatically exercised on the next Exercise Date. No further payroll
deductions for the purchase of Common Stock will be made after receipt of the
notice of withdrawal. If a participant withdraws from the Plan, he or she must
wait one full Offering Period before resuming participation in the Plan. In
addition such participant must deliver a new subscription agreement to the
Company which will become effective on the Enrollment Date of the applicable
Offering Period.
(b) upon a participant's ceasing to be an Employee for any
reason, he will be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such participant's account during the applicable
Offering Period will be returned to such participant or, in the case of his
death, to the person entitled thereto under Section 14 hereof, and such
participant's right to purchase Common Stock will be automatically terminated. A
participant ceasing to be an Employee will have ninety (90) days to
-8-
<PAGE>
either sell their shares purchased or have certificates representing such shares
issued, provided, however, that in the case of death, the person designated as
beneficiary pursuant to Section 14 hereof shall have one (1) year to notify the
Company regarding disposition of the account. If the Company has not been
notified by such Employee within ninety (90) days, or such designated
beneficiary within one (1) year, certificates will be issued for full shares and
partial shares will be sold. All certificates shall bear a legend indicating
that such shares were issued pursuant to the Company's Employee Stock Purchase
Plan
11. Interest. No interest shall accrue on the payroll deductions
--------
of a participant in the Plan.
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for purchase under the Plan shall be 500,000,
subject to adjustment upon changes in capitalization of the Company as provided
in Section 18 hereof. If, on a given Exercise Date, the number of shares to be
purchased by participants exceeds the number of shares then available under the
Plan, the Company shall make a pro rata allocation of the shares remaining
available for purchase in as uniform a manner as shall be practicable and as it
shall determine to be equitable.
(b) The participant will have no interest or voting right in
shares of Common Stock covered by his right to purchase until such Common Stock
has been purchased.
(c) Shares to be delivered to a participant under the Plan will
be registered in the name of the participant or in the name of the participant
and his spouse.
-9-
<PAGE>
13. Administration.
--------------
(a) Administrative Body. The Plan shall be administered by the
-------------------
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties. Members of the
Board who are eligible Employees are permitted to participate in the Plan,
provided that
(1) Members of the Board who are eligible to participate in the
Plan may not vote on any matter affecting the administration of the Plan or the
grant of any right to purchase Common Stock pursuant to the Plan; and
(2) If a committee is established to administer the Plan, no
member of the Board who is eligible to Participate in the Plan may be a member
of the Committee.
(b) Rule 16b-3 Limitations.
-----------------------
Notwithstanding the provisions of Subsection (a) of this Section 13, in the
event that Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any successor provision ("Rule 16b-3") provides
specific requirements for the administrators of plans of this type, the Plan
shall be administered only by such a body and in such a manner as shall comply
with the applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3,
no discretion concerning decisions regarding the Plan shall be afforded to any
committee or persons that is not "disinterested" as that term is used in Rule
16b-3.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a
beneficiary who is to receive any shares
-10-
<PAGE>
and cash, if any, form the participant's account under the Plan in the event of
such participant's death.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to
---------------
a participant's account nor any rights with regard to the purchase of or right
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise deposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat each act as an election to withdrew
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by
------------
the Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
17. Adjustments Upon Changes in Capitalization, Dissolution,
-------------------------------------------------------
Liquidation, Merger or Asset Sale.
- ---------------------------------
(a) Changes in Capitalization. Subject to any required action by
-------------------------
the shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each right to purchase Common Stock under the
-11-
<PAGE>
Plan which has not yet been exercised shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of, shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to a right of purchase under the Plan.
(b) Liquidation, Merger or Asset Sale. In the event of the
---------------------------------
dissolution or liquidation of the Company or a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each right to purchase Common Stock under the
Plan shall be assumed or an equivalent right to purchase stock shall be
substituted by such successor corporation or a parent or subsidiary of such
Successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to set a new
Exercise Date (the "New Exercise Date"). If the Board sets a New Exercise Date,
the Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date has been changed to
the New Exercise Date and that his right to purchase Common Stock will be
exercised automatically on the New Exercise Date, unless prior to such date he
has withdrawn from the Plan as provided in Section 10 hereof.
-12-
<PAGE>
18. Amendment or Termination.
-------------------------
The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 17 hereof, no amendment may make any
change in any purchase right theretofore granted which adversely affects the
rights of any participant. To the extent necessary to comply with Rule 16b-3 or
under Section 423 of the Code (or any successor rule or provision or any other
applicable law or regulation), the Company shall obtain shareholder approval of
termination or amendment of the Plan in such a manner and to such a degree as
required.
19. Conditions Upon Issuance of Shares. Shares shall not be
----------------------------------
issued under this Plan unless the issuance and delivery of such shares shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment
and without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of the law. In addition, any person
receiving shares of Company Common Stock pursuant to this Plan must notify the
Company upon the disposition of such shares.
20. Term of Plan. The Plan shall become effective upon the
------------
earlier to occur of its adoption by the Board or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 18 hereof.
-13-
<PAGE>
21. Notices. All notices or other communications by a
-------
participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the receipt
thereof.
22. Additional Restrictions of Rule 16b-3.
-------------------------------------
The terms and conditions of the rights granted hereunder to, and the purchase of
shares by, persons subject to Section 16 of the Securities Exchange Act of 1934,
as amended, shall comply with the applicable provisions of Rule 16b-3. This Plan
shall be deemed to contain, and such rights shall contain, in the shares issued
upon exercise thereof shall be subject to, such additional conditions and
restrictions as may be required by Rule 16b-3 to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan transactions.
-14-
<PAGE>
EXHIBIT A
SCHEIN PHARMACEUTICALS
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
- ------ Original Application Enrollment Date:__________
- ------ Change in Payroll Deduction Rate
- ------ Change of Beneficiary(ies)
1. _______________________________________ hereby elects to
participate in the Schein Pharmaceuticals 1998 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the
amount of ____% of my Compensation on each payday (not to exceed 20%) in
accordance with the Employee Stock Purchase Plan. (Please note that no
fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for
the purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I understand
that all accumulated payroll deductions will be used to automatically purchase
shares of Common Stock, provided, however, that all accumulated payroll
deductions during the Offering Period of an Employee's termination will be
refunded.
4. I have received a copy of the complete "Schein Pharmaceuticals 1998
Employee Stock Purchase Plan." I understand that my participation in the
Employee Stock
-15-
<PAGE>
Purchase Plan is in all respects subject to the terms Of the Plan
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and spouse only):
- --------------
- --------------------------------------------------------------------------------
6. I understand that if I dispose of any shares received by me pursuant
to the Plan within two (2) years after the applicable Enrollment Date (the date
on which the right to purchase shares of Common Stock was granted) or one (1)
year after the Exercise Date, I will be treated for Federal income tax purposes
as having received ordinary income at the time of such disposition in the amount
equal to the excess of the fair market value of the shares at the time such
shares were purchased over the price which I paid for the shares. I hereby agree
to notify the Company in writing within thirty (30) days after the date of any
disposition of my shares and I will make adequate provision for Federal, State
or other tax withholding obligations, if any, which arise upon the disposition
of the Common Stock. The Company may, but will not be obligated to, withhold
from my Compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the expiration
of the 2-year and 1-year holding periods, I understand that I will be treated
for Federal income tax purposes as having received income only at the time of
such disposition, and that such income will be taxed as ordinary income only to
the extent of any amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the purchase
price which I paid for the shares, or (2) fifteen percent (15% ) of the fair
market value of the shares on the first day of the applicable Enrollment Date.
The
-16-
<PAGE>
remainder of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
-17-
<PAGE>
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Employee
Stock Purchase Plan:
NAME: (Please print) ________________________________________
(First) (Middle) (Last)
- -------------------------------------------------------------------------------
Relationship
==============================
(Address)
Employee's Social
Security Number: ____________________________________________
Employee's Address: ____________________________________________
____________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN
IN EFFECT UNLESS TERMINATED BY ME.
Dated:______________ ________________________________________
Signature of Employee
________________________________________
Spouses's Signature (If beneficiary
other than spouse)
-18-
<PAGE>
EXHIBIT B
---------
SCHEIN PHARMACEUTICAL
1993 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Schein Pharmaceutical 1998
Employee Stock Purchase Plan which began on_______________ ,19___
(the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from participation. The undersigned understands and agrees that his or
her rights to purchase Common Stock will be automatically terminated, provided,
however, that all payroll deductions credited to his or her account will be
automatically exercised on the next Exercise Date. The undersigned understands
further that no further payroll deductions will be made for the purchase of
shares and the undersigned shall be eligible to participate in the Plan only
after waiting one full Offering Period before resuming participation in the Plan
and delivering to the Company a new Subscription Agreement which shall be
effective on the Enrollment Date of the applicable Offering Period.
Name and Address of Participant:
____________________________________________
____________________________________________
____________________________________________
Signature:
____________________________________________
Date:_______________________________________
-19-
<PAGE>
EXHIBIT 12.1
SCHEIN PHARMACEUTICAL, INC.: STATEMENT REGARDING COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED SEPTEMBER
---------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
provision for income
taxes.................. $32,198 $74,964 $21,796 $(4,418) $ 6,588 $ 5,719 $ 7,821
Fixed charges........... 3,359 2,890 3,108 11,717 25,515 17,465 21,903
------- ------- ------- ------- ------- ------- -------
Total................... $35,557 $77,854 $24,904 $ 7,299 $32,103 $23,184 $29,724
======= ======= ======= ======= ======= ======= =======
RATIO................... 10.59 26.94 8.01 x 1.26 1.33 1.36
Income before provision
for income taxes re-
quired to cover fixed
charges................ x x x $ 4,418 x x x
FIXED CHARGES:
Interest expense........ $ 2,310 $ 1,572 $ 1,775 $ 9,255 $21,109 $14,949 $18,052
Amortization of debt ex-
pense.................. 44 100 100 895 2,606 1,216 2,484
Rental expense represen-
tative of the interest
factor................. 1,005 1,218 1,233 1,567 1,800 1,300 1,367
------- ------- ------- ------- ------- ------- -------
Total fixed charges..... $ 3,359 $ 2,890 $ 3,108 $11,717 $25,515 $17,465 $21,903
======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Schein Pharmaceutical, Inc.
Florham Park, New Jersey
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated February 7, 1997, except for
Note 1 which is as of , 1998, relating to the consolidated financial
statements of Schein Pharmaceutical, Inc. and Subsidiaries, which is contained
in that Prospectus, and of our report dated February 7, 1997, relating to the
Schedule, which is contained in Part II of the Registration Statement.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
FEBRUARY 3, 1998
BDO SEIDMAN, LLP
<PAGE>
EXHIBIT 25
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
SCHEIN PHARMACEUTICAL, INC.
(Exact name of obligor as specified in its charter)
Delaware 11-2726505
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
100 Campus Drive
Florham Park, New Jersey 07932
(Address of principal executive offices) (Zip code)
______________________
Senior Floating Rate Notes Due 2004
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT
IS SUBJECT.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Name Address
- -----------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7A-
29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(D).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 2nd day of February, 1998.
THE BANK OF NEW YORK
By: /s/ VAN K. BROWN
---------------------------
Name: VAN K. BROWN
Title: ASSISTANT VICE PRESIDENT
<PAGE>
Exhibit 7
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin..................... $ 5,004,638
Interest-bearing balances............. 1,271,514
Securities:
Held-to-maturity securities........... 1,105,782
Available-for-sale securities......... 3,164,271
Federal funds sold and Securities pur-
chased under agreements to resell....... 5,723,829
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................34,916,196
LESS: Allowance for loan and
lease losses ..............581,177
LESS: Allocated transfer risk
reserve........................429
Loans and leases, net of unearned
income, allowance, and reserve 34,334,590
Assets held in trading accounts......... 2,035,284
Premises and fixed assets (including
capitalized leases)................... 671,664
Other real estate owned................. 13,306
Investments in unconsolidated
subsidiaries and associated
companies............................. 210,685
Customers' liability to this bank on
acceptances outstanding............... 1,463,446
Intangible assets....................... 753,190
Other assets............................ 1,784,796
-----------
Total assets............................ $57,536,995
===========
LIABILITIES
Deposits:
In domestic offices................... $27,270,824
Noninterest-bearing ......12,160,977
Interest-bearing .........15,109,847
In foreign offices, Edge and
Agreement subsidiaries, and IBFs...... 14,687,806
Noninterest-bearing .........657,479
Interest-bearing .........14,030,327
<PAGE>
Federal funds purchased and Securities
sold under agreements to repurchase. 1,946,099
Demand notes issued to the U.S.
Treasury.............................. 283,793
Trading liabilities..................... 1,553,539
Other borrowed money:
With remaining maturity of one year
or less............................. 2,245,014
With remaining maturity of more than
one year through three years............ 0
With remaining maturity of more than
three years......................... 45,664
Bank's liability on acceptances exe-
cuted and outstanding................. 1,473,588
Subordinated notes and debentures....... 1,018,940
Other liabilities....................... 2,193,031
-----------
Total liabilities....................... 52,718,298
-----------
EQUITY CAPITAL
Common stock............................ 1,135,284
Surplus................................. 731,319
Undivided profits and capital
reserves.............................. 2,943,008
Net unrealized holding gains
(losses) on available-for-sale
securities............................ 25,428
Cumulative foreign currency transla-
tion adjustments...................... ( 16,342)
-----------
Total equity capital.................... 4,818,697
-----------
Total liabilities and equity
capital ........................... $57,536,995
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi
Alan R. Griffith Directors
- --------------------------------------------------------------------------------
<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 , 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
<TABLE>
<S> <C> <C>
By Hand Or Overnight Delivery: Facsimile Transmissions: By Registered Or Certified Mail:
(Eligible Institutions Only)
The Bank of New York The Bank of New York
101 Barclay Street (212) 571-3080 101 Barclay Street, 7E
Corporate Trust Services Window To Confirm by Telephone New York, New York 10286
Ground Level or for Information Call: Attention: Reorganization Section,
Attention: Reorganization Section,
(212) 815-6333
</TABLE>
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 , 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 (the "New Notes"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act") of the Company for a like amount of the issued and
outstanding Senior Floating Rate Notes due 2004 (the "Old Notes") of the
Company from the holders thereof.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes either
if Old Notes are to be forwarded herewith or if tenders of Old Notes are to be
made by book-entry transfer to an account maintained by The Bank of New York
(the "Exchange Agent") at The Depository Trust Company (the "Book-Entry
Transfer Facility" or "DTC") pursuant to the procedures set forth in "The
Exchange Offer--Procedures for Tendering" in the Prospectus.
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" 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.
<PAGE>
The undersigned has completed the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
DESCRIPTION OF OLD NOTES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATE
NAME(S) AND ADDRESS(ES) OF REGISTERED PRINCIPAL AMOUNT
HOLDER(S) CERTIFICATE TENDERED (IF LESS
(PLEASE FILL IN, IF BLANK) NUMBER(S)* 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
holders.
** Need not be completed by holders who wish to tender with respect to all
Old Notes listed. See Instruction 4.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER 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 TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
NOTES ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER SET FORTH ABOVE.
[_] 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: _________________________________________________________________
2
<PAGE>
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 (the "New Notes") which have
been registered under the Securities Act upon the terms and subject to the
conditions set forth in the Prospectus dated , 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.
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
3
<PAGE>
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 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
4
<PAGE>
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 duty provided
for on such Old Notes prior to the original issue date of the New Notes or, if
no such interest has been paid or duly provided for, will not receive any
accrued interest on such Old Notes, and the undersigned waives the right to
receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after December 15, 1997.
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)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE )
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
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.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
5
<PAGE>
(SIGNATURE(S) OF HOLDER(S)) GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
Date: , 1998
__________________________________
Name(s) __________________________ (AUTHORIZED SIGNATURE)
__________________________________ Date: , 1998
(PLEASE PRINT) Name of Firm _____________________
Capacity (full title) ____________ Capacity (full title) ____________
Address __________________________ (PLEASE PRINT)
__________________________________ Address __________________________
__________________________________ __________________________________
(INCLUDE ZIP CODE) __________________________________
Area Code and (INCLUDE ZIP CODE)
Telephone Number _________________ 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 hold-
er(s) at an address other than
that shown above.
Issue
[_] Old Notes not tendered to:
[_] New Notes, to: Mail
[_] Old Notes not tendered to:
Name(s) __________________________ [_] New Notes, to:
Address __________________________ Name(s) __________________________
__________________________________ Address __________________________
(INCLUDE ZIP CODE) __________________________________
Area Code and (INCLUDE ZIP CODE)
Telephone Number _________________ Area Code and
__________________________________ Telephone Number _________________
__________________________________ __________________________________
(TAX IDENTIFICATION OR SOCIAL (TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S)) SECURITY NUMBER(S))
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth in "The
Exchange Offer--Procedures for Tendering" in the Prospectus. Certificates, or
timely confirmation of a book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC, as well as this 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 at its address set forth
herein on or prior to the Expiration Date. Old Notes may be tendered in whole
or in part in integral multiples of $1,000.
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 Exchange Act
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.
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.
7
<PAGE>
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.
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
8
<PAGE>
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.
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
9
<PAGE>
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.
10
<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
for a number to be issued to me).
(2) I am not subject to backup withholding either
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
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICA- (3) any other information provided on this form is
TION NUMBER ("TIN") true and correct.
AND CERTIFICATION
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.
11
<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
12
<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 (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
<TABLE>
<S> <C> <C>
By Registered or Certified Mail Facsimile Transmissions: By Hand Or Overnight Delivery
(Eligible Institutions Only)
The Bank of New York The Bank of New York
101 Barclay Street, 7E (212) 571-3080 101 Barclay Street
New York, New York 10286 Corporate Trust Services
Attn: Reorganization Section Confirm By Telephone: Window
(212) 815-6333 Ground Level
New York, New York 10286
For Information Call: Attn: Reorganization Section
(212) 815-6333
</TABLE>
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 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."
Aggregate Name(s) of Registered Holder(s): ____
Amount Tendered: $__________________* _____________________________________
Certificate No(s)
(if available): _____________________
_____________________________________
(Total Amount Represented by
Old Notes Certificate(s))
$ ___________________________________
If Old Notes will be tendered by book-entry transfer, provide the following
information:
DTC Account Number: _________________
Date: _______________________________
- --------
* Must be in denominations of $1,000 and any legal multiple thereof.
2
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
X ___________________________________ _____________________________________
X ___________________________________ _____________________________________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number: _______________________________
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): __________________________________________________________________
___________________________________________________________________
___________________________________________________________________
3
<PAGE>
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
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 learning 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 Title
_____________________________________ _____________________________________
Zip Code (Please Type or Print)
Area Code and Telephone No. _________ Dated: ______________________________
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
4
<PAGE>
EXHIBIT 99.3
EXCHANGE AGENT AGREEMENT
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street--21st Floor
New York, New York 10286
, 1998
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 , 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
, 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 ,
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
<PAGE>
other documents are duly executed and properly completed in accordance with
instructions set forth therein and (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
endeavor to 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.
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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 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
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 gross 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, and the Company shall reimburse you for the amount of any
and all transfer taxes payable in respect of the exchange of Old Notes;
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]
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