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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 25,1999
Commission file number 1-14019
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SCHEIN PHARMACEUTICAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 11-2726505
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(State or other jurisdiction of incorporation or (I.R.S. Employer Identification
organization) No.)
100 CAMPUS DRIVE, FLORHAM PARK, NJ 07932
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(Address of principal executive offices) (Zip Code)
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973-593-5500
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(Registrant's telephone number)
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Securities registered pursuant Name of each exchange on
to Section 12(b) of the Act: which registered:
Title of each class
Common Stock, Par Value $0.01 New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock of the Registrant held by
nonaffiliates was approximately $69,200,000 as of March 20, 2000 (assuming
solely for purposes of this calculation that all Directors, Officers, and
certain significant shareholders of the Registrant are "affiliates").
Number of shares of Common Stock, par value $.01, outstanding as of March 20,
2000, was 32,983,864.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement (Proxy Statement) for
the 2000 Annual Meeting of Stockholders are incorporated by reference into
Part III of this Report.
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SCHEIN PHARMACEUTICAL, INC.
FORM 10-K 1999
TABLE OF CONTENTS
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PART I
ITEM 1. Business.................................................... 3
ITEM 2. Properties.................................................. 21
ITEM 3. Legal Proceedings........................................... 22
ITEM 4. Submission of Matters to a Vote of Security Holders......... 23
ITEM 4A. Executive Officers of the Registrant........................ 23
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 25
ITEM 6. Selected Financial Data..................................... 26
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 27
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 41
ITEM 8. Financial Statements and Supplementary Data................. 42
ITEM 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 72
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 72
ITEM 11. Executive Compensation...................................... 72
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 72
ITEM 13. Certain Relationships and Related Transactions.............. 72
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................. 73
Signatures............................................................ 80
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PART I
This Annual Report on Form 10-K contains forward-looking statements regarding
the future events or the future financial performance of the Company that
involve certain risks and uncertainties. Actual events or the actual future
results of the Company may differ materially from the results discussed in the
forward-looking statements due to various factors, including, but not limited
to, those discussed in "Other Factors Affecting Future Performance" below at
pages 18 to 21.
ITEM 1. BUSINESS
GENERAL
Schein Pharmaceutical, Inc. (herein referred to as Schein or the Company)
develops, manufactures and markets a broad line of generic products and has a
significant branded business. 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 brand products group at Schein is
focused on developing and commercializing proprietary pharmaceutical products in
niche therapeutic areas, and has developed an expertise in the management of
iron deficiency and pharmaceutical products related to the management of anemia
in nephrology. The Company believes that its primary branded product
INFeD-Registered Trademark- (INFeD) is the leading injectable iron product in
the United States (U.S.) in terms of revenue. Shipments of
Ferrlecit-Registered Trademark- (Ferrlecit), the newest addition to the
Company's branded products group, commenced in June 1999. The Company has a
substantial pipeline of products under development, and enhances its internal
product development, manufacturing and marketing capabilities through strategic
collaborations. The Company was founded in 1985, and was re-incorporated as a
Delaware corporation in 1993. Schein has manufacturing facilities in Arizona,
Connecticut, New Jersey, New York and Puerto Rico.
The Company currently manufactures and markets a line of generic products of
approximately 47 chemical entities formulated in approximately 97 different
dosages under approximately 80 Abbreviated New Drug Applications (ANDAs)
approved by the U.S. Food and Drug Administration (FDA). The Company markets its
generic products through a 50 person direct sales and marketing force. Through
its customized marketing programs, the Company markets its products to
customers, representing all major customer channels, including pharmaceutical
wholesalers, chain and independent drug retailers, hospitals, managed care
organizations, group purchasing organizations and physicians.
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 gastroenterology markets. INFeD is
used in the treatment of certain types of anemia, particularly in dialysis
patients. Following its approval by the FDA in February 1999, the Company added
Ferrlecit, its next-generation iron product, to its branded product portfolio.
Ferrlecit is an injectable iron compound that is indicated for the treatment of
iron deficiency in chronic hemodialysis patients receiving supplemental
erythropoietin (EPO) therapy. The Company markets its branded products through a
52 person dedicated sales and marketing force, as well as through a co-marketing
collaboration for Ferrlecit with Bayer Corporation (Bayer) in the hospital
nephrology market. (See "Other Factors Affecting Future Performance- Dependence
on Certain Existing Products and Health Care Financing Administration
Reimbursement of Ferrlecit.")
The Company supplements its internal product development, manufacturing and
marketing capabilities through strategic alliances. During 1994, Schein entered
into a strategic alliance with Bayer, through which Bayer purchased a minority
interest (then 28.3%) in Schein. Bayer currently participates with Schein in
several collaborations. In addition, the Company has entered into strategic
collaborations involving product development arrangements with companies such as
Cheminor Drugs Ltd. (Cheminor), Makoff R&D Laboratories, Inc. (R&DL), Elan
Corporation Plc (Elan) and Amarin Corporation plc (formerly Ethical Holdings
Plc) (Ethical); raw material supply arrangements with companies such as Johnson
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Matthey Inc. (Johnson Matthey) and Abbott Laboratories (Abbott); and sales and
marketing arrangements with Bayer and other companies.
In January 2000, the Company announced that it had retained financial advisors
to explore strategic alternatives to enhance the value of its business,
including the possible sale of all or part of the business. Through March 2000,
this process is continuing, and the Company cannot predict the timing or the
outcome of this process.
CERTAIN REGULATORY MATTERS
The development, manufacture, marketing and sale of pharmaceutical products is
subject, among other things, to extensive Federal, state and local regulation.
The Company must obtain approval from the FDA before marketing most drugs and
must demonstrate continuing compliance with current Good Manufacturing Practices
(cGMP) regulations. Over the last several years, the FDA has inspected the
Company's facilities and in certain instances has reported inspection
observations that included significant cGMP and application reporting
deficiencies. As a result of these inspection observations, for varying periods
of time, each of the Company's facilities (other than its Danbury Pharmacal
Puerto Rico oral solid manufacturing facility) has been ineligible to receive
new product approvals and the Company's Marsam Pharmaceuticals Inc. (Marsam) and
Steris Laboratories, Inc. (Steris) sterile manufacturing facilities are
currently ineligible.
MARSAM FACILITY
On July 29, 1999, the FDA concluded an inspection of the Company's Marsam
sterile manufacturing facility, located in Cherry Hill, N.J. At the close of the
inspection, Marsam received a Form 483 detailing the FDA's inspectional
observations and noting a number of significant deficiencies in current good
manufacturing practices. During the inspection, Marsam initiated actions to
address a number of the FDA's inspectional observations by voluntarily recalling
all Marsam products within expiry and suspending manufacturing and testing
activities. In September, 1999 Marsam submitted its response to the FDA's
inspectional observations, together with its proposed corrective action plan
(Marsam Corrective Action Plan). A corrective action plan is a systematic
approach to assure that processes, quality assurance and quality control
programs, validation programs, employee training, and management controls comply
with cGMP regulations. The Marsam Corrective Action Plan contemplates resumption
of manufacturing on a product-by-product basis. On March 3, 2000 Marsam received
a Warning Letter from the FDA relating to the observations made during the
inspection. This FDA Warning Letter also acknowledged the commitments the
Company made under the Marsam Corrective Action Plan. The Company has confirmed
with the FDA in meetings with FDA representatives its approach to addressing
current cGMP deficiencies at Marsam on a voluntary basis. The Company does not
expect Marsam will be subject to further regulatory enforcement action related
to the 1999 inspection. Marsam is currently ineligible to receive new product
approvals, and the Company cannot predict when Marsam will resume manufacturing
specific products.
Following its suspension of operations at the Marsam facility, the Company
re-evaluated its sterile business and its assessment of the time and costs
required to reintroduce products. As a result, the Company has modified its
overall business plans to more aggressively reduce operating costs. These
measures included, among other things, a reduction in the Company's workforce,
and dividing Marsam's product line into products it will seek to manufacture
upon completion of the Marsam Corrective Action Plan, and those products it has
decided not to manufacture. Marsam contributed approximately seven percent of
the Company's revenues and a smaller percentage of the Company's gross profits
over the four quarters preceding the suspension of shipment of its products.
The Company intends to reactivate its penicillin operations as part of the first
phase of a plan to bring its Marsam facility back to operation. Pending
resumption of manufacturing at Marsam, the Company expects
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to reintroduce Penicillin G-Potassium during the second quarter of 2000 supplied
by a third party under a contract manufacturing agreement.
As a result of the actions discussed above, in 1999 the Company recorded a
restructuring charge of approximately $87.0 million, or $52.2 million net of tax
benefit. Costs of restructuring consist largely of costs incurred at the Marsam
facility and relate to the impairment of intangible assets, product recalls,
inventory write-offs and severance. Recall costs and inventory write-offs are
those costs that the Company incurred related to the Marsam Corrective Action
Plan. (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Regulatory Matters and Restructuring Charges.")
STERIS FACILITY
On September 10, 1998, the U.S., on behalf of the FDA, based on actions it filed
in Federal court in the Southern District of New York on September 9, 1998 and
the District of Arizona on September 10, 1998 initiated seizures of drugs and
drug related products manufactured by the Company's Steris facility. The actions
alleged certain instances in which the Steris facility, located in Phoenix,
Arizona, was not operating in conformity with cGMP regulations. The actions
resulted in the seizure of all drugs and drug related products in the Company's
possession manufactured at the Steris facility and halted the manufacture and
distribution of Steris manufactured products.
On October 16, 1998, Steris and certain of its officers, without admitting any
allegations of the complaints and disclaiming any liability in connection
therewith, entered into a consent agreement with the FDA (the Consent
Agreement). Under the terms of the Consent Agreement, Steris is required, among
other things, to demonstrate through independent certification that Steris'
processes, quality assurance and quality control programs, and management
controls comply with cGMP regulations. The Consent Agreement also provides for
independent certification of Steris' management controls, quality assurance and
quality control programs, and employee cGMP training. It further requires that
Steris develop a timeline and corrective action plan for implementing these
actions and for expert certification with respect to matters covered in previous
FDA inspections of the facility. Steris has submitted to the FDA the corrective
action plan provided for under the Consent Agreement (Steris Corrective Action
Plan) and is implementing the Steris Corrective Action Plan.
As a result of the Consent Agreement, Steris has divided its product line into
three categories: products that it will seek to manufacture under expedited
certification procedures under the Consent Agreement, products that it will seek
to manufacture once it satisfies all conditions under the Consent Agreement and
products it has decided not to manufacture in the near term. Expedited
certification procedures apply for certain products that are particularly
important to the medical community because they are primarily or exclusively
available from the Company or that are particularly significant to the Company.
In October, 1998 the Company resumed commercial distribution of INFeD, its
branded injectable iron product, from existing inventory. In the second quarter
of 1999, the Company began distribution of newly manufactured lots of INFeD
under the Consent Agreement and in the fourth quarter of 1999, the Company
resumed the manufacture of one other product deemed medically necessary under
the expedited certification procedures in the Consent Agreement. In March 2000,
the Company resumed the manufacture and commercial distribution of vecuronium
under the expedited certification procedures provided in the Consent Agreement.
Newly manufactured products must undergo certification by independent experts
and review by the FDA prior to commercial distribution.
On February 11, 2000 the FDA concluded an inspection at Steris. The Company
believes that the results of that inspection confirm that the Company is
complying with the requirements of the Steris Corrective Action Plan. Steris is
currently ineligible to receive new product approvals, and the Company cannot
predict when Steris will resume manufacturing additional products.
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Steris accounted for approximately 40% of the Company's net sales and 50% of its
gross profits for the first six months of 1998. The Steris products that the
Company has decided not to manufacture contributed approximately $65 million in
revenue in the 12-month period ended June 1998. The Company recorded a
restructuring charge in 1998 of $161.2 million pretax, or $135.0 million, net of
tax benefit, relating to the effects of the Consent Agreement. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation.")
There can be no assurance that the FDA will determine that the Company has
adequately corrected the deficiencies at its operating sites, that subsequent
inspectional observations will not result in additional deficiencies, that
approval of any of the pending or subsequently submitted ANDAs by the Company
will be granted or that the FDA will not seek to impose additional sanctions
against the Company or any of its subsidiaries. The range of possible sanctions
includes FDA issuance of adverse publicity, product recalls or seizures,
injunctions, and civil or criminal prosecution. Any such sanctions, if imposed,
could have a material adverse effect on the Company's business. Additionally,
significant delays in the review or approval of applications for new products or
in complying with the requirements of the Marsam Corrective Action Plan, the
Steris Corrective Action Plan or the Consent Agreement could have a material
adverse effect on the Company's business, results of operation and financial
condition. (See "Other Factors Affecting Future Performance--Dependence on
Certain Existing Products", and "Management's Discussion and Analysis of
Financial Condition and Results of Operations.")
INDUSTRY OVERVIEW
In the U.S., pharmaceutical products are marketed as either branded or generic
drugs. Branded products are marketed under brand names and through programs
designed to attract physician and consumer loyalty. Branded drugs generally are
covered by patents or other non-patent marketing exclusivities at the time of
their market introduction, thereby resulting in periods of exclusivity.
Following the expiration of these patents or marketing exclusivities, 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 Drug Price Competition and Patent Term Restoration Act of 1984
(Waxman-Hatch Act), generic drugs generally may be sold in the U.S. 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 generic
drugs have been substituted for branded drugs. In 1998, generic drugs reached
41% of the total drug prescriptions dispensed in the U.S. In terms of dollar
sales, however, generic drugs have accounted for a much lower percentage of the
total U.S. pharmaceutical market. Sales of generic drugs in 1998 accounted for
approximately $11.0 billion out of a total U.S. prescription pharmaceutical
market of approximately $122.9 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 four years, branded drugs with 1999 U.S. sales of
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more than $20.0 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 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 U.S. 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 reducing 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 increased 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.
PRODUCTS
The Company markets a broad line of pharmaceutical products including both solid
dosage and sterile dosage generic products and branded products. The Company
manufactures approximately 48 chemical entities in approximately 98 dosage forms
and strengths under approximately 80 approved ANDAs and one NDA. The Company
also supplements its manufactured line with products licensed from alliance
partners and outsourced from other pharmaceutical manufacturers.
The following table sets forth the percentages of the Company's net revenues
attributable to its generic and branded businesses:
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YEARS ENDED DECEMBER
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1999 1998 1997 1996 1995
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Generic product revenues.................................... 71% 81% 79% 81% 83%
Branded product revenues.................................... 29 19 21 19 17
--- --- --- --- ---
Total....................................................... 100% 100% 100% 100% 100%
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During the period from 1995 to 1999, the Company's percentage of net revenues
from generic products declined from 83% to 71% while net revenues from brand
products increased from 17% to 29% in the same period. The decline in generic
product percentage reflects (i) branded product sales rising faster than the
Company's total net revenues, (ii) generic price erosion due to competitive
pressures, (iii) discontinued products whereby the Company made a strategic
decision to eliminate lower margin products (primarily purchased products), and
(iv) a decline in net revenues of Steris and Marsam manufactured products due to
regulatory difficulties, offset by the introduction of newer products, primarily
methylphenidate and ketoprofen ER, and other solid dosage volume increases.
Brand net revenues as a percentage of the Company's total net revenues declined
in 1998 due to the FDA action at Steris, the facility at which INFeD is
manufactured.
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GENERIC PRODUCTS
The Company's generic business consists of the manufacturing and marketing of
solid and sterile dosage products and the marketing of certain additional
products obtained from other manufacturers. The Company's solid dosage and
sterile dosage product portfolio is comprised of approximately 70 products. Net
generic product revenues accounted for 71% of the Company's total net revenues
in 1999.
Key products that accounted for a significant portion of net revenues in 1999
were carisoprodol, which accounted for 7.7% of net revenues, methylphenidate,
which accounted for 6.2% of net revenues, and minocycline, which accounted for
4.7% of net revenues.
Carisoprodol, the generic equivalent of Wallace's Soma-Registered Trademark-, a
muscle relaxant, is a leading product in the Company's generic line. As of
December 1999, the Company was the leading generic supplier of this product,
with an approximate 35% market share.
Methylphenidate, a controlled substance launched during the 4th quarter of 1997,
continues to be a significant product in the Company's generic line. It is the
generic equivalent of Novartis' Ritalin-Registered Trademark- used in the
treatment of attention-deficit disorder. The methylphenidate market became
increasingly competitive in 1999 when two new generic producers entered the
market. There are currently four generic companies offering methylphenidate,
including Schein. The Company has exclusive purchase and supply rights for bulk
active methylphenidate hydrochloride produced by Johnson Matthey, pursuant to a
custom manufacturing agreement dated as of July 1, 1995, as amended, between
Johnson Matthey and the Company. The agreement terminates on December 31, 2005,
with automatic renewals for additional successive three-year terms.
Minocycline is the generic equivalent to Lederle's Minocin-Registered Trademark-
and is used in the treatment of infections and as adjunct therapy in the
treatment of severe acne. Market data indicates that prescriptions for
minocycline increased by 13% in 1999 over the previous year. As of December,
1999, the Company was the second leading generic supplier of this product, with
an approximate 38% market share.
The Company supplements its manufactured product line through strategic
collaborations with alliance partners that develop and/or manufacture
pharmaceutical products. There are currently six generic products that are
marketed under such arrangements. The percentage of the Company's total net
revenues of generic products for 1999 are approximately 76% for products
manufactured by the Company, 20% sourced through startegic collaborations and 4%
for other outsourced products.
BRANDED PRODUCTS
The Company currently has two branded products that it is marketing, INFeD (iron
dextran injection, USP), and Ferrlecit (sodium ferric gluconate complex in
sucrose injection). INFeD, the Company's first branded product, was introduced
in 1992. Ferrlecit is a next generation injectable iron therapy that was
launched in June 1999.
In 1999, branded products accounted for 29% of the Company's net revenues.
Ferrlecit and INFeD are 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 erythropoeitin (EPO). Iron deficiency anemia is a common medical condition.
The Company is working to expand its expertise in the management of iron
deficiency in the nephrology market into other niche markets such as oncology,
surgery, and gastroenterology.
IRON MANAGEMENT. Iron stores are efficiently maintained in the human body,
with very little iron either absorbed or excreted on a daily basis. Severe iron
deficiencies are most often caused by significant blood loss such as is seen in
nephrology and surgery patients. Iron overload is most often caused by repeated
blood transfusions and genetic disorders which cause the body to absorb too much
iron. Too little iron results in anemia and fatigue and too much iron could
result in damage to critical organs and, if
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untreated, death. In either case, treatment of iron deficiency or iron overload
usually requires some pharmacologic intervention due to the importance of iron
balance in the body.
Traditionally, the most common way to treat iron deficiency was with oral iron.
However, since the absorption of oral iron is limited by the body, oral iron may
be insufficient to replace iron losses in many iron deficient patients. In these
cases, injectable iron is a means of replacing iron stores since it bypasses the
body's limited absorption mechanisms. Iron deficiency is quite common in
nephrology patients, and the Company intends to increase awareness of iron
deficiency in oncology, surgery, obstetrics/gynecology, and gastroenterology
patient populations.
NEPHROLOGY MARKET. The nephrology market is currently the largest market
for injectable iron products and is growing. The ESRD population is increasing
at a rate of approximately 8% per year in the United States, and is currently
estimated to be 350,000 patients. This increase is primarily related to the
prevalence of diabetes and hypertension in the US population combined with the
aging of that population. Orally administered iron has historically been the
first form of treatment used by nephrologists to treat iron deficiency 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 effective in treating this disorder. The National Kidney Foundation
Dialysis Outcomes Quality Initiative Guidelines for the Treatment of Anemia
encourage more consistent use of injectable iron to adequately treat iron
deficiency anemia in hemodialysis patients. These guidelines state that while a
trial of oral iron is acceptable, almost all hemodialysis patients receiving EPO
will eventually require regular administration of injectable iron. EPO therapy
is currently used to treat approximately 95% of hemodialysis patients in the
United States. EPO stimulates the body to produce red blood cells, thus greatly
reducing the need for blood transfusions. However, one of the effects of EPO
treatment is the rapid mobilization of iron reserves and depletion of iron
stores. Many studies now demonstrate that supplementation with injectable iron
optimizes the body's utilization of EPO, thus eliminating the ensuing iron
deficiency. Accordingly, the widespread use of EPO therapy has created
additional need for injectable iron replacement therapy. In 1999, 60%-65% of
hemodialysis patients received injectable iron at least once during the year.
ONCOLOGY MARKETS. 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 only recently becoming recognized and 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 given
that many chemotherapy patients are now receiving EPO to treat their anemia. The
Company plans to conduct clinical research to support the use of Ferrlecit in
this market.
GASTROENTEROLOGY MARKET. In the gastroenterology market, there are over one
million patients with inflammatory bowel disease, consisting of Crohn's disease
and ulcerative colitis. It is estimated that 30%-70% of these patients
experience varying degrees of anemia, mostly due to pure iron deficiency from
bleeding and malabsorption. While oral iron is the current mainstay of therapy
in this market segment, the Company is considering the conduct of clinical
research to determine the safety and efficacy of Ferrlecit in repleting iron
stores versus oral iron.
FERRLECIT. Ferrlecit (sodium ferric gluconate complex in sucrose
injection), the Company's next generation injectable iron product, was approved
by the FDA for distribution in the U.S. in February 1999 and was launched June
of 1999. Ferrlecit is an injectable iron therapy used to treat iron deficiency
anemia in hemodialysis patients receiving supplemental EPO. There is no patent
covering Ferrlecit; however, the FDA granted R&DL a five-year exclusivity period
for Ferrlecit as a new chemical entity. The Company is aware that an NDA for an
injectable ferric saccharate product has been accepted for review by the FDA
which, if approved, could compete with Ferrlecit and INFeD.
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Ferrlecit was developed by the Nattermann Company of Cologne (now Aventis S.A.
(Aventis)) and is used in selected European markets. Ferrlecit is manufactured
by Rhone-Poulenc Rorer Ltd. and is supplied to the Company by R&DL. R&DL, a
specialty renal pharmaceutical company, acquired the rights to Ferrlecit from
RPR under a distribution agreement dated June 24, 1993 and a trademark agreement
dated August 26, 1993. In 1996, pursuant to a sublicense, co-marketing and
supply 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 until
February 2009. The countries outside the US include the United Kingdom, Ireland,
Greece, Argentina, Japan, Singapore, Canada, Chile, and Mexico. Efforts are
underway to identify strategic partners to obtain regulatory approval and
distribute the product in several of these countries. In August 1999, R&DL filed
an application in Canada for regulatory approval to market Ferrlecit. The
Company's marketing and distribution rights are subject to termination in the
event of default, including default of its payment obligations to R&DL for
product purchases.
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."
Prior to the approval of Ferrlecit, iron dextran was the only injectable iron
formulation in the U.S. market. The Company introduced its injectable iron
product, INFeD, in May 1992. In 1996, another company launched a competing
injectable iron product. Net revenues from INFeD in 1999 were $129 million, or
27%, of the Company's total net revenues.
Pursuant to a supply agreement dated May 1, 1992, as amended, and a new supply
agreement dated February 25, 1999, each between Abbott and the Company, Abbott
supplies iron dextran bulk solution to the Company on an exclusive basis through
December 31, 2001, subject to extension (Exclusive Term), and on a non-exclusive
basis for 24 months thereafter. The Company is obligated to purchase specified
minimum amounts of bulk solution during the Exclusive Term. Abbott retains the
right to manufacture, market or distribute a finished iron dextran drug product,
provided that during the Exclusive Term the product is not manufactured with
bulk solution or technology relating to bulk solution obtained from Abbott or a
licensee or sub-licensee of Abbott.
BACKLOG
As of February 29, 2000, there was no significant backlog of orders. As of
February 1999, the uncompleted portions of the Company's backlog of orders for
INFeD was approximately $25 million, largely due to the limited availability of
product as a result of the FDA action at Steris. There was no backlog of INFeD
as of February 1998. There was no significant backlog of orders of other
products in the aggregate as of February 1999 or February 1998.
PRODUCT DEVELOPMENT
The Company seeks to expand its product portfolio through continuing investment
in research and development. The Company and its alliance partners have 11 ANDAs
pending before the FDA (two of which were filed by the Company's Steris facility
and are not expected to be approved until the FDA has confirmed that Steris has
satisfactorily implemented the Steris Corrective Action Plan under the Consent
Agreement) and approximately 30 products under development internally and with
third parties. Additionally, the Company currently has tentative ANDA approvals
for 4 products. The Company's internal
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product development activities are conducted by 95 research and development
professionals and supported by others with expertise in manufacturing,
technology, legal, regulatory and intellectual property issues.
In its branded products business, the Company intends to develop products for
the management of iron-related disorders and select other markets, as well as to
conduct clinical research to support the use of Ferrlecit beyond the nephrology
market to other therapeutic areas, such as oncology and gastroenterology.
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, the 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. Recently, the Federal Trade Commission has
increased its investigation of, and, under certain circumstances, enforcement
actions against, settlements of patent litigations between makers of branded and
generic pharmaceuticals.
STRATEGIC COLLABORATIONS
The Company actively pursues strategic collaborations 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 a number of
functions, including product formulation, regulatory approval and supply of raw
materials and finished dosage product. The Company has product development
arrangements with companies such as R&DL, Elan, Cheminor and Ethical, and
collaborative arrangements for direct access to raw materials with, among
others, Johnson Matthey, Cheminor and Abbott.
Under the arrangements with Elan and Ethical, the Company funds development
costs for designated products and the strategic partner develops the products.
Following regulatory approval, the strategic partner supplies, and the Company
markets the products and pays the strategic partner a royalty or profit share
from sales. The Company is currently marketing ketoprofen ER, nicotine TD and
verapamil ER, products covered by the strategic collaboration with Elan. Several
other products are in various stages of development under the Company's
arrangements with Elan, Cheminor and Ethical.
In 1999, the Company entered into several agreements for the license,
development, and commercialization of iron management products for use in the
U.S. and select non-U.S. countries. Under the terms of the agreements, the
Company is obligated to pay $14.9 million, dependent on the achievement of
certain milestones. In conjunction with these agreements, in 1999 the Company
paid and capitalized $1.0 million and paid and expensed $0.6 million.
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Under a 1998 agreement with Elan, the Company paid $15.0 million in license fees
and may be obligated to pay approximately $3.5 million in additional fees as and
when certain milestones are achieved. Certain of these fees may be increased by
up to $2.0 million or decreased by up to $0.5 million depending on whether
certain other milestones are achieved.
In 1998, the Company entered into a strategic alliance agreement with Cheminor
and Dr. Reddy's Laboratories Limited and its subsidiaries (Reddy). Pursuant to
the agreement, Cheminor will make available to the Company certain of its
present and future dosage form generic products on an exclusive basis for sale
in the U.S. and certain other countries, and the Company will make available to
Cheminor and Reddy certain of its present and future products on an exclusive
basis for sale in India and certain other countries. Cheminor and Reddy will
make available to the Company bulk active pharmaceutical ingredients. As part of
the arrangement, the Company purchased 2.0 million publicly traded shares of
Cheminor (12.79% of Cheminor) for $10.0 million. Cheminor has the right to make
fair market value purchases of the Company's common stock; the purchase price
may be payable from profits otherwise due Cheminor from the alliance. Each party
will also be entitled to representation on the other company's board of
directors consistent with its equity interest.
In 1994, the Company entered into a worldwide technology licensing and
development agreement with Ethical for the development of a portfolio of oral
controlled release and transdermal products. Under the terms of the agreement,
which was amended in March 2000, the Company is obligated to pay product
licensing fees and development costs dependent on achievement of interim
milestones. The Company paid an aggregate of $13.7 million under the agreement
through December 1999. As a result of the March 2000 amendment, the remaining
commitment under the agreement as of March 31, 2000 was $2.5 million, subject to
the completion of milestones.
MANUFACTURING
The diversity and capacity of the Company's manufacturing facilities are
important elements of the Company's strategy to expand the range of its existing
product line and to provide several significant benefits, including (i) the
ability to satisfy the 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, quality control and regulatory compliance.
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 products.
The Company manufactures a variety of product forms and types, including
immediate-release and extended-release solid dosage products. In 1999, the
Company produced approximately 4 billion tablets and capsules and has the
capacity to increase production to 6 billion tablets and capsules. 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.
The Company is currently producing three products at the Steris facility and its
strategy is to reintroduce products in accordance with the Consent Agreement.
Steris resumed shipment of newly manufactured lots of INFeD and hydroxycobalamin
in 1999 and vecuronium in 2000. (See "Business--Regulatory Matters" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.")
In June 1999, the Company ceased manufacturing operations at the Marsam
facility. This action was taken based on observations made during an FDA
inspection. Subsequently, the Company submitted the
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Marsam Corrective Action Plan which addresses activities required to assure full
cGMP compliance. Several of Marsam's most significant products (in terms of
revenues and gross profit contribution) have been outsourced until the Marsam
Corrective Action Plan is implemented and the Company is able to resume the
manufacture of these products. (See "Business--Regulatory Matters" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.")
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. The 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 for each of its more economically significant drug applications. The
Company has a program of identifying alternative suppliers where practicable
and, in many cases, has filed supplemental applications with the FDA for
approval of alternative suppliers. However, many raw materials are available
only from a single source and, in many of the Company's drug applications, only
one supplier of raw materials has been identified, even in instances where
multiple sources exist. For example, currently, the Company has only one source
for the active ingredient used in the manufacture of INFeD and certain other
economically significant drugs.
The Company obtains a significant portion of its raw materials from
international suppliers. Arrangements with international raw material suppliers
are subject to, among other things, FDA regulations, customs and other
government clearances, various import duties and regulation by the country of
origin.
SALES AND MARKETING
CUSTOMERS
A significant portion of pharmaceuticals are distributed in the U.S. through
wholesale drug distributors and major retail drug store chains. Sales to Bergen
Brunswig Corporation, Cardinal Health, Inc. and McKesson Drug Company (all
wholesale drug distributors) accounted for 22%, 17% and 12%, respectively, of
the Company's total net revenues for 1999. While pharmaceutical products are
typically distributed via wholesalers, pharmaceutical companies often directly
enter into contracts with retail chains, managed care and institutional
customers covering the actual acquisition price. Under these arrangements,
wholesalers often service substantially all of a customer's product needs,
allowing it to maintain minimal inventories and to receive overnight deliveries
of several manufacturers' products from a single source. Currently,
approximately 60% of the Company's net revenues are sold through wholesalers,
with approximately 83% of these net revenues subject to direct contracts between
the Company and its customers. In general, it is the Company's strategy to enter
into purchase contracts with retail, managed care and institutional customers.
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 reducing
the number of sources from which they purchase pharmaceutical products. The
majority of the Company's products are sold under the "Schein Pharmaceutical"
label.
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GENERIC SALES AND MARKETING
The Company's generic sales and marketing organization comprises 50 people
serving the retail, institutional, alternative site, managed care and other
generic drug purchasing markets, of which 13 are in marketing, 22 are in sales
and 15 are in customer service and sales support. The Company's sales and
marketing force permits effective coverage of all significant 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 such as 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.
BRANDED SALES AND MARKETING
The Company's branded sales and marketing organization comprises 52 people of
which 42 are in sales and 10 are in marketing.
The Company has a co-promotion arrangement with Bayer covering Ferrlecit. Under
this agreement, certain of Bayer's specialty sales representatives detail
Ferrlecit to the hospital nephrology market in the U.S. and Puerto Rico.
COMPETITION
In the generic pharmaceutical business, the Company competes with a number of
companies, including independent generic manufacturers and branded
pharmaceutical companies. 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. 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 will be based on, among other things, price, product efficacy,
safety, service, reliability and availability.
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 products compete 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
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 or financial condition.
Additionally, under the Food and Drug Modernization Act of 1997, brand products
may be eligible for additional six month periods of exclusivity when studies are
undertaken to generate indications for pediatric populations. 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.
From time to
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time, 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. The Company's business, results of
operations or financial condition could be materially adversely affected by any
one or more of such developments.
GOVERNMENT REGULATION
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. Certain pharmaceutical products are subject to
rigorous pre-clinical testing and clinical trials and to other approval
requirements by the FDA in the U.S. 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 Company, like its competitors, must obtain approval
from the FDA before marketing most drugs, and must demonstrate continuing
compliance with cGMP regulations. Generally, for generic products an ANDA is
submitted to the FDA, and for new drugs, a New Drug Application (NDA) is
submitted. (See "Business--Regulatory Matters.")
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. Under certain circumstances following product approval and
market introduction, the 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. The 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. 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, laws or regulations of
foreign governments may affect the availability or price of raw materials needed
for the development or manufacture of generic drugs.
The 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.
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, the 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
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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 receipt of FDA approval is approximately one to 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 the reduction of the
effective life of a patent as a result of time spent by the 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 submits a certificate challenging a listed
patent as being invalid or not infringed. The FDA is currently considering
modifications to its regulations for determining eligibility for market
exclusivity. Under the Food and Drug Modernization Act of 1997, brand products
may be eligible for additional six or twelve month periods of exclusivity when
studies are undertaken to generate indications for pediatric populations.
NDA PROCESS
An NDA is a filing submitted to the 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 U.S., 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
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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 the FDA as
part of the IND.
Data from pre-clinical testing and clinical trials may be submitted to the 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 requires 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 the 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. The 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, the 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 the FDA or other
regulatory authority. Additionally, the 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 or
financial condition.
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.
EMPLOYEES
In February 2000, the Company reduced its workforce by approximately 16% as part
of an evaluation of its sterile business plan and to reduce operating costs. At
the end of February 2000, the Company had approximately 1,325 employees, of
which 450 were engaged in manufacturing, 370 were engaged in quality control and
quality assurance, 205 were engaged in administration, finance and human
resources, 95 were engaged in research and product development, 110 were engaged
in sales and marketing, 45 were engaged in distribution and 50 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.
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OTHER FACTORS AFFECTING FUTURE PERFORMANCE
REGULATORY MATTERS
The development, manufacture, marketing and sale of pharmaceutical products is
subject, among other things, to extensive Federal, state and local regulation.
The Company must obtain approval from the FDA before marketing most drugs and
must demonstrate continuing compliance with current Good Manufacturing Practices
(cGMP) regulations. (See "Business--Regulatory Matters.")
DEPENDENCE ON REGULATORY APPROVAL AND COMPLIANCE
The development, manufacture, marketing, sale and distribution 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 the FDA before marketing most drugs, and must
demonstrate continuing compliance with cGMP regulations. Generally, for generic
products an ANDA is submitted to the FDA, and for new drugs, a NDA is submitted.
Under certain circumstances following product approval and market introduction,
the 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. The 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 the 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 or financial condition.
Currently, the Company's Steris and Marsam facilities are ineligible to receive
new product approvals. (See "Business--Regulatory Matters.")
FLUCTUATING RESULTS OF OPERATIONS AND LIQUIDITY
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, the timing of
receipt of patent settlement revenues, the Company's dependence on a limited
number of products, the impact of regulatory compliance initiatives, including
the use of independent experts and the restructuring charges associated with the
Steris and Marsam facilities. Additionally, the Company's cash flow was affected
during 1999 by the cash costs and loss of revenues related to manufacturing
disruptions at its Marsam and Steris facilities, capital expenditures and
principal payment obligations under its revolving credit and loan agreement. The
Marsam and Steris costs include product recalls, disposal of inventory,
severance expenses, costs associated with maintaining and staffing idle or
underutilized manufacturing operations and the associated corrective action
plans.
The Company believes that it will continue to experience fluctuations in net
revenues, gross profit, net income and liquidity as a result of, among other
things, the timing of regulatory approvals and market introduction of new
products by the Company and its competitors, downward pressure on pricing for
generic products available from multiple approved sources, the Company's
compliance with the Consent Agreement, and the implementation of the Steris
Corrective Action Plan and the Marsam Corrective Action Plan.
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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 1999 were $129.2 million, or 27%, of the Company's total net
revenues, with gross profit from INFeD as a percentage of total gross profit
being greater. INFeD is manufactured at the Company's Steris facility, which is
operating under the Consent Agreement. The Company resumed shipment of newly
manufactured lots of INFeD in March of 1999. These lots must undergo
certification by independent experts and review by the FDA prior to commercial
distribution. The Company's future results of operations depend upon its ability
to continue the manufacturing of INFeD and the implementation of the Steris
Corrective Action Plan. Any material decline in revenues or gross profit from
INFeD could have a material adverse effect on the Company's business, results of
operations and financial condition.
HEALTH CARE FINANCING ADMINISTRATION REIMBURSEMENT OF FERRLECIT
Ferrlecit is a drug indicated for use in hemodialysis patients receiving
erythropoetin. Pharmaceuticals for this patient population are covered under a
special federal reimbursement program administered by the Health Care Financing
Administration (HCFA). The use of pharmaceuticals in hemodialysis patients is
highly dependent on reimbursement by HCFA. The Company continues to work with
HCFA and HCFA's regional intermediaries to establish national and interim
reimbursement coverage for Ferrlecit. Under a new HCFA review process, the
Company expects initial indication of HCFA's national reimbursement coverage
decision over the coming months. There can be no assurance that HCFA will
authorize reimbursement for utilization of Ferrlecit or the timing of HCFA's
reimbursement decision. Currently, several of HCFA's regional intermediaries
provide reimbursement for either full or restricted utilization of Ferrlecit.
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 to successfully market
generic equivalents of such drugs achieve higher revenues and gross profits from
the sale of such generic drugs than do later market entrants. As competing
generic equivalents reach the market, selling price, unit sales volume and
profit margin of the earliest generic versions often decline significantly. For
these reasons, the Company's ability to achieve overall growth in revenues and
profitability depends on its being among the first companies 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 the FDA, will be among the first
to the market or will achieve significant revenues and profitability.
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 Waxman-Hatch Act. In several successful
proceedings, the Company had been advised and represented by an independent
patent attorney (the Consultant), whose involvement has been substantial, and
who no longer is involved in the Company's patent challenge efforts. Through its
internal efforts, and with the assistance of strategic collaborators and
advisors, the Company has identified a number of additional patents that may be
susceptible to challenge. Recently, the Federal Trade Commission has increased
its investigation of, and, under certain circumstances, enforcement actions
against, settlements of patent litigations between makers of branded and generic
pharmaceuticals. There can be no assurance the Company will successfully
complete the development of any additional products involving patent challenges,
succeed in any pending
19
<PAGE>
or future patent challenges or, if successful, receive significant revenues and
gross profit from the products covered by successfully challenged patents.
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.
DEPENDENCE ON STRATEGIC COLLABORATIONS
The Company actively pursues strategic collaborations 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 a 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.
CONSOLIDATION OF DISTRIBUTION NETWORK; CUSTOMER CONCENTRATION
The Company's principal customers are wholesale drug distributors and major
retail drug store chains. These customers comprise a significant part of the
distribution network for pharmaceutical products in the U.S. This distribution
network is continuing to undergo significant consolidation marked by mergers and
acquisitions among wholesale distributors and the growth of large retail drug
store chains. As a result, a small number of large wholesale distributors
control a significant share of the market, and the number of independent drug
stores and small drug store chains has decreased. The Company expects that
consolidation of drug wholesalers and retailers will increase pricing and other
competitive pressures on generic drug manufacturers.
For the year ended December 1999, sales to the Company's ten largest customers
represented approximately 80% of the Company's total net product sales. For the
year ended December 1999, three customers accounted for 22%, 17% and 12%,
respectively, of the Company's total net revenues. The same three customers
accounted for 22%, 14% and 14%, respectively, of the Company's total net
revenues in 1998. The loss of any of these customers could materially and
adversely affect the Company's business, results of operations or financial
condition.
SUPPLY OF RAW MATERIALS
The principal components of the Company's products are active and inactive
pharmaceutical ingredients. 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 both domestic and
international sources. The 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
20
<PAGE>
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. The qualification of a new supplier could materially
and adversely affect the Company's profit margins and market share for the
product, as well as delay the Company's development and marketing efforts. To
the extent practicable, the Company attempts to identify more than one supplier
in each drug application. The Company has a program of identifying alternative
suppliers where practicable and, in many cases, has filed supplemental
applications with the FDA for approval. However, many raw materials are
available only from a single source and, in many of the Company's drug
applications, only one supplier of raw materials has been identified, even in
instances where multiple sources exist. For example, currently, the Company has
only one source for the active ingredient used in the manufacture of INFeD. Any
interruption of supply could have a material adverse effect on the Company's
ability to manufacture its products. In addition, the Company obtains a
significant portion of its raw materials from foreign suppliers. Arrangements
with international raw material suppliers are subject to, among other things,
FDA regulation, various import duties and other government clearances. Acts of
governments outside the U.S. may affect the price or availability of raw
materials needed for the development or manufacture of generic drugs. In
addition, recent changes in patent laws in jurisdictions outside the U.S. may
make it increasingly difficult to obtain raw materials for research and
development prior to the expiration of the applicable U.S. patents. There can be
no assurance that the Company will establish or, if established, maintain good
relationships with its suppliers or that such suppliers will continue to supply
ingredients in conformity with legal or regulatory requirements.
RISK OF PRODUCT LIABILITY CLAIMS; NO ASSURANCE OF ADEQUATE INSURANCE
The testing, manufacture and distribution 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 have a material adverse
affect on the Company's business, results of operations or financial condition.
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.
ITEM 2. PROPERTIES
The following table presents the facilities owned or leased by the Company in
1999 and indicates the location and type of each of these facilities.
<TABLE>
<CAPTION>
OWN OR SQUARE LEASE
FACILITY LOCATION LEASE FEET EXPIRATION
- -------- ----------------------------- --------- -------- ----------
<S> <C> <C> <C> <C>
Manufacturing Facilities
Solid dosage............... Carmel, NY(1) Own 112,000 --
Solid dosage............... Humacao, PR Own 75,000 --
Solid dosage............... Danbury, CT(1) Lease 88,000 2005
Sterile dosage............. Phoenix, AZ Own 175,000 --
Sterile dosage............. Cherry Hill, NJ(1) Own 209,500 --
Distribution Center.......... Brewster, NY(2) Lease 98,500 2007
Corporate Offices............ Florham Park, NJ(2) Lease 53,000 2005
</TABLE>
- ------------------------
(1) The Company maintains research laboratories at this facility.
(2) The Company maintains administrative offices at this facility.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In September and October 1998, following the commencement of the seizure action
by the FDA against Steris on September 10, 1998, a number of substantially
similar class action complaints asserting claims under the federal securities
laws were filed in federal Court in the District of New Jersey against the
Company and certain of its officers and directors. On December 21, 1998, the
court entered an order consolidating the actions, appointing lead plaintiffs and
approving selection of lead and liaison counsel. On or about March 29, 1999,
lead plaintiffs filed a consolidated and amended class action complaint (the
Complaint), naming as defendants the Company, its directors at the time of the
Company's April 9, 1998 initial public offering (the Offering), and three of the
underwriters of the Offering. Plaintiffs purport to sue on behalf of a class of
persons who purchased shares of the Company's common stock pursuant or traceable
to the Offering during the period from April 9, 1998 through September 28, 1998.
They allege that defendants violated the Securities Exchange Act of 1934 and
Rule 10b-5 by making misrepresentations and omissions of material facts in
connection with the Offering and in the registration statement and prospectus
issued pursuant to the Offering and in statements made immediately following the
FDA seizure action on September 10, 1998. Plaintiffs allege, among other things,
that defendants failed to disclose or misrepresented facts concerning the status
of the Company's internal controls and ability to comply with government
regulations relating to its manufacturing activities, including the status of
the Company's corrective actions at the Steris facility and the effect of the
FDA enforcement action on the Company's operations. Plaintiffs on behalf of the
purported class seek damages, recision and/or recisionary damages. In May 1999,
the Company and the other defendants in this action filed a motion to dismiss
the Complaint. In March 2000, and prior to any decision on the motion to
dismiss, plaintiffs and defendants entered into a Memorandum of Understanding
(MOU) to settle the actions. The MOU provides for, among other things, the
certification of the class, for purposes of the settlement, and the taking of
additional discovery by plaintiffs appropriate and necessary to confirm the
fairness and reasonableness of the contemplated settlement. The MOU also
contemplates the execution of an appropriate Stipulation of Settlement and other
related documentation. In addition, the settlement can become effective only
upon notice to the proposed class and a hearing and approval by the Court. The
Company does not believe that, if approved, the contemplated settlement, which
is expected to be funded through insurance proceeds, will have a material
adverse effect upon its results of operations or financial condition.
In one of the Company's patent challenge litigations filed in the U.S. District
Court for the Southern District of New York, the trial judge ruled against the
Company and upheld the validity of the patent at issue. On October 1, 1998, the
Court awarded attorneys fees to the patent holder and its licensee, and on
June 22, 1999 the court fixed the fees at $2.0 million. On July 28, 1999, the
Company filed an appeal of this matter which is currently pending before the
appeals court.
In March 1999, an action entitled MARVIN SAMSON V. SCHEIN PHARMACEUTICAL, INC.,
MARTIN SPERBER AND MARSAM PHARMACEUTICALS INC. was commenced in Superior Court
of New Jersey, Camden County, Law Division, alleging, among other things,
breaches of plaintiff's employment agreement with Marsam and misrepresentations
concerning responsibilities that would be given to plaintiff, and seeks, among
other things, damages which plaintiff believes exceed $6 million and a
declaration that the "non-competition restrictions" in his employment agreement
are no longer effective. The Company intends to defend itself vigorously against
this action.
In November, 1999, the Company was informed by the U.S. Department of Justice
that it, along with several other pharmaceutical companies, is a defendant in a
QUI TAM action brought in 1995 under the U.S. False Claims Act currently pending
in the Federal District Court for the Southern District of Florida. As of
March 31, 2000, the Company had not been served in this action. A QUI TAM action
is a lawsuit brought by an individual for an alleged violation of a federal
statute, in which the Department of Justice has the right to intervene and take
over the prosecution of the lawsuit at its option. The Department of Justice has
not yet decided whether to intervene in the matter. Pursuant to applicable
federal law, the QUI TAM action is under seal and no details are available
concerning the name of the plaintiff, the various
22
<PAGE>
theories of liability or the amount of damages sought from any of the
defendants. Based on industry information, the Company believes that the matter
relates to pharmaceutical pricing issues and whether allegedly improper efforts
by pharmaceutical manufacturers led to increased payments by Medicare and/or
Medicaid. Because detailed allegations have not been revealed to the Company by
the Justice Department, management does not have any basis on which to determine
the Company's liability, if any, in connection with the lawsuit or the likely
amount of any such liability, or whether any resolution of the lawsuit would be
likely to have a material adverse affect on the Company's financial position,
results of operations or liquidity.
In addition, 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 product
liability and other proceedings and claims (except for the matter set forth
immediately above for which it is too early to assess liability), individually
or in the aggregate, will not have a material adverse effect on the Company's
financial position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended December 25, 1999, no matters were submitted to a vote
of the security holders of the Company.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the Company's executive officers are listed
below:
MARTIN SPERBER (age 68) has been Chairman, Chief Executive Officer and director
of the Company since 1999. From 1989 until November 1999, Mr. Sperber carried
the additional title of President of the Company. From 1985 until 1989,
Mr. Sperber was 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 (age 53) has been President and Chief Operating Officer since
November 1999, and a director of the Company since September 1997. From
October 1995 until October 1999, Mr. Ashrafi was Executive Vice President and
Chief Financial Officer. From May 1995 until September 1995, Mr. Ashrafi was
Senior Vice President and Chief Financial Officer. 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, LLP 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 (age 40) has been General Counsel since 1991, Executive Vice
President, Corporate Affairs since January 2000, and a director of the Company
since 1997. From February 1997 to December 1999, Mr. Feurman was a Senior Vice
President of the Company, and from January 1993 until February 1997 was a Vice
President of the Company. 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 (age 47) 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 Product Planning
for the U.S.
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<PAGE>
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.
WHITNEY K. STEARNS, JR. (age 48) has been Senior Vice President and Chief
Financial Officer of the Company since November 1999. From February 1999 until
October 1999 Mr. Stearns was Senior Vice President, Finance and Administration.
From 1997 until January 1999 Mr. Stearns was Vice President, Finance. From 1993
to 1997 Mr. Stearns was Vice President and Controller. In 1989 Mr. Stearns
joined Henry Schein, Inc. as a Director, Internal Audit. In 1989 he transferred
to Schein as Controller. Prior to joining Henry Schein he was an audit partner
at KPMG Peat Marwick. Mr. Stearns received a B.S. in accounting at Lehigh
University in 1975 and his CPA in 1977.
DONALD A. BRITT, SR. (age 51) joined Schein in January 2000 as Senior Vice
President, Quality. From May 1999 through January 2000, Mr. Britt was Senior
Vice President QA/QC and Compliance for Centocor, Inc. From February 1996
through May 1999 he was initially Vice President of World Wide Quality for Rhone
Poulenc Porer and subsequently named Senior Vice President for World Wide
Quality for Aventis. Mr. Britt began his career with assignments in production
and quality prior to joining Glaxo where he spent 11 years in positions of
increasing responsibility, culminating with his assignment as Corporate Director
of Quality Assurance. In 1994, he joined Fisons as Vice President of Quality.
Mr. Britt has a B.S. in Chemistry from the University of South Carolina.
JAVIER CAYADO (age 54) Mr. Cayado terminated his employment with the Company on
March 6, 2000. From August 1, 1999 to March 2000 Mr. Cayado served the Company
on a part-time basis. From February 1998 through June 1999 Mr. Cayado was Senior
Vice President of Technical Operations of the Company. From 1993 to 1998,
Mr. Cayado was successively Vice President, Senior Vice President and General
Manager of Danbury Pharmacal, a wholly owned subsidiary of the Company. Prior to
joining Schein in 1993. Mr. Cayado had a 14-year career with Pfizer
Pharmaceutical culminating with his assignments 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.
24
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value $0.01 per share (the Common Stock), traded
on the New York Stock Exchange for the full year 1999 under the trading symbol
"SHP".
The high and low sale prices for the Common Stock as reported by the New York
Stock Exchange for each of the quarters during the years ended December 25, 1999
and December 26, 1998 are summarized below.
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
FISCAL HIGH LOW HIGH LOW
- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
First quarter............................. $14.625 $10.000 $ -- $ --
Second quarter............................ 16.000 10.875 32.438 20.500
Third quarter............................. 17.000 11.500 31.750 11.688
Fourth quarter............................ 12.000 8.188 16.750 6.000
</TABLE>
As of March 20, 2000, there were approximately 137 holders of record of the
Company's Common Stock, which does not include those who held shares in street
or nominee name. The Company has not paid a cash dividend on its Common Stock
and does not anticipate paying dividends in the foreseeable future.
The Company's Revolving Credit and Term Loan agreement and its Senior Floating
Rate Notes contain restrictions on the payment of dividends. The Revolving
Credit and Term Loan Agreement did not permit the payment of dividends at
December 25, 1999.
On November 18, 1999, the Company sold 250,000 shares of its Common Stock to the
President of the Company for $8.9375 per share (an aggregate of $2,234,375), the
closing price of the Company's Common Stock on the date of the sale. In
consideration for such shares, the President executed a promissory note, payable
to the Company and maturing on November 18, 2004, which bears interest at a rate
equal to the interest rate on borrowings under the Company's revolving credit
and loan agreement. The sale of these securities was exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended.
25
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data with respect to the Company's
financial position and its results of operations as of and for each of the five
years ended December 1999 set forth below have been derived from the audited
consolidated financial statements of the Company. The selected consolidated
financial data presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company and related notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $477,161 $523,229 $490,170 $476,295 $391,846
Cost of sales............................. 306,019 349,140 329,761 320,675 250,507
-------- -------- -------- -------- --------
Gross profit.............................. 171,142 174,089 160,409 155,620 141,339
Costs and expenses:
Selling, general and administrative..... 92,157 87,162 81,809 87,329 75,274
Research and development................ 27,951 29,245 29,387 27,030 28,324
Amortization of goodwill and other
intangibles........................... 6,303 8,754 10,196 10,195 3,399
Non-recurring charges (1)............... 86,971 161,200 -- -- 30,000
-------- -------- -------- -------- --------
Operating income (loss)................... (42,240) (112,272) 39,017 31,066 4,342
Interest expense, net..................... 18,661 20,626 26,578 23,285 10,005
Other expenses (income), net (2).......... 1,268 (2,246) (9,318) 1,193 (1,245)
-------- -------- -------- -------- --------
Income (loss) before provision (benefit)
for income taxes and extraordinary
item.................................... (62,169) (130,652) 21,757 6,588 (4,418)
Income (loss) before extraordinary item... (34,388) (116,366) 11,102 1,397 (14,900)
Net income (loss)......................... (34,388) (118,026) 11,102 1,397 (14,900)
======== ======== ======== ======== ========
Earnings (loss) per share, basic and
diluted (3):
Income (loss) before extraordinary
item.................................. $ (1.05) $ (3.72) $ 0.39 $ 0.05 $ (0.52)
Net income (loss)....................... (1.05) (3.77) 0.39 0.05 (0.52)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................ $ (16,819) $ 8,287 $ 73,249 $ 99,111 $ 92,021
Total assets............................. 403,501 452,996 534,126 544,312 522,410
Short-term debt, including current
portion of long-term debt.............. 128,631 103,975 56,440 41,090 40,078
Long-term debt, less current portion..... 92,738 124,482 198,705 245,390 240,480
Total debt............................... 221,369 228,457 255,145 286,480 280,558
Stockholders' equity..................... 57,118 78,485 139,715 129,980 125,692
</TABLE>
- ------------------------
(1) Non-recurring charges include: (i) the 1999 restructuring charge as a result
of FDA actions at the Company's Marsam facility, (ii) the 1998 restructuring
charge as a result of FDA actions at the Company's Steris facility and the
Consent Agreement and (iii) the 1995 acquired in-process research and
development of $30.0 million in connection with the purchase of Marsam (the
Company's results of operations include Marsam from September 1995, the date
of purchase).
26
<PAGE>
(2) Other expenses (income), net, includes equity in earnings (loss) of
unconsolidated international ventures of $(1.1) million, $(1.9) million,
$(3.4) million, $(3.4) million and $(0.4) million in 1999, 1998, 1997, 1996
and 1995, respectively, and gains on sales of marketable securities of
$0.7 million, $4.4 million and $12.7 million in 1999, 1998 and 1997,
respectively.
(3) See Note 1 to the consolidated financial statements of the Company for
information concerning the computation of earnings (loss) per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED CONSOLIDATED FINANCIAL DATA AND THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO. EXCEPT FOR HISTORICAL INFORMATION CONTAINED
HEREIN, THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. SUCH RISKS AND UNCERTAINTIES ARE DISCUSSED
BELOW IN "FUTURE TRENDS".
OVERVIEW
Schein Pharmaceutical, Inc. (herein referred to as Schein or the Company)
develops, manufactures and markets a broad line of generic products and has a
significant branded business. Revenues from branded products are derived from
sales of INFeD-Registered Trademark- (INFeD), the leading injectable iron
product in the United States (U.S.) and Ferrlecit-Registered Trademark-
(Ferrlecit), launched in June 1999. Generic revenues in 1999 include sales of
generic products, a litigation settlement related to the development of a
product, and the sale of certain product rights.
In January 2000, the Company announced that it had retained financial advisors
to explore strategic alternatives to enhance the value of its business,
including the possible sale of all or part of the business. Through March 2000,
this process is continuing, and the Company cannot predict the timing or the
outcome of this process.
In February 2000, the Company reduced its workforce by approximately 16% as part
of an evaluation of its sterile business plan and to reduce operating costs. As
a result, the Company expects to incur a charge of approximately $3.5 million in
the first quarter of 2000.
On July 29, 1999 the Food and Drug Administration (FDA) concluded an inspection
of the Company's subsidiary, Marsam Pharmaceuticals Inc. (Marsam) and noted a
number of significant deficiencies in current Good Manufacturing Practices
(cGMP) regulations. During the inspection, Marsam initiated actions to address a
number of the FDA's inspectional observations by voluntarily recalling all
Marsam products within expiry and suspending manufacturing and testing
activities. The Company has confirmed with the FDA its approach to addressing
current cGMP deficiencies at Marsam on a voluntary basis. The Company has
divided Marsam's product line into products it will seek to manufacture upon
completion of this process, and those products it has decided not to
manufacture. As a result of these actions, in 1999 the Company recorded a
restructuring charge of $87.0 million, or $52.2 million, net of tax benefit,
primarily relating to Marsam intangible assets, inventory and product recalls.
(See "MD&A--Regulatory Matters and Restructuring Charges.")
On September 10, 1998, the FDA initiated a seizure action against all products
in the Company's possession which had been manufactured by the Company's Steris
Laboratories, Inc. (Steris) subsidiary. Subsequently, on October 16, 1998 Steris
entered into a consent agreement with the FDA (Consent Agreement). In 1998 the
Company recorded a restructuring charge of $161.2 million, or $135.0 million,
net of tax benefit, relating to the Consent Agreement. (See "MD&A--Regulatory
Matters and Restructuring Charges.")
27
<PAGE>
The Company's results of operations depend on its 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 to successfully market generic equivalents of such
drugs achieve higher revenues and gross profit than do later market entrants. As
competing generic equivalents reach the market, selling price, unit sales volume
and profit margin of the earliest generic versions often decline significantly.
For these reasons, the Company's ability to achieve overall growth in revenues
and profitability depends on its being among the first companies to introduce
new generic products. During the past ten years, the Company has introduced a
number of generic products to the market at patent expiration dates and, in a
number of cases, prior to patent expiration of the branded product by successful
challenges to the patent under the Drug Price Competition and Patent Term
Restoration Act of 1984 (The Waxman--Hatch Act).
The branded business was launched in 1992 with the introduction of INFeD, the
leading injectable iron product in the U.S. The Company added to its branded
product portfolio with the launch of Ferrlecit in June 1999, its next-generation
iron product. FDA approval for Ferrlicit was received by the Company's alliance
partner, Makoff R & D Laboratories, Inc. The Company has exclusive marketing
rights to Ferrlecit in the U.S. and certain other countries. The Company has
been making on-going investments in its branded business in order to attempt to
create a more predictable and diverse revenue stream. As compared with generic
products, branded products offer stronger competitive protection and typically
sell at higher prices and achieve more stable margins.
REGULATORY MATTERS AND RESTRUCTURING CHARGES
The development, manufacture, marketing and sale of pharmaceutical products is
subject, among other things, to extensive Federal, state and local regulation.
The Company must obtain approval from the FDA before marketing most drugs and
must demonstrate continuing compliance with current Good Manufacturing Practices
(cGMP) regulations. Over the last several years, the FDA has inspected the
Company's facilities and in certain instances has reported inspection
observations that included significant cGMP and application reporting
deficiencies. As a result of these inspection observations, for varying periods
of time, each of the Company's facilities (other than its Danbury Pharmacal
Puerto Rico oral solid manufacturing facility) has been ineligible to receive
new product approvals and the Marsam and Steris sterile manufacturing facilities
have suspended manufacturing operations.
MARSAM FACILITY
On July 29, 1999, the FDA concluded an inspection of the Company's Marsam
sterile manufacturing facility, located in Cherry Hill, N.J. At the close of the
inspection, Marsam received a Form 483 detailing the FDA's inspectional
observations and noting a number of significant deficiencies in current good
manufacturing practices. During the inspection, Marsam initiated actions to
address a number of the FDA's inspectional observations by voluntarily recalling
all Marsam products within expiry and suspending manufacturing and testing
activities. In September, 1999 Marsam submitted its response to the FDA's
inspectional observations, together with its proposed corrective action plan
(Marsam Corrective Action Plan). A corrective action plan is a systematic
approach to assure that processes, quality assurance and quality control
programs, validation programs, employee training, and management controls comply
with cGMP regulations. The Marsam Corrective Action Plan contemplates resumption
of manufacturing on a product-by-product basis. On March 3, 2000 Marsam received
a Warning Letter from the FDA relating to the observations made during the
inspection. This FDA Warning Letter also acknowledged the commitments the
Company made under the Marsam Corrective Action Plan. The Company has confirmed
with the FDA in meetings with FDA representatives its approach to addressing
current cGMP deficiencies at Marsam on a voluntary basis. The Company does not
expect Marsam will be subject to further regulatory enforcement action related
to the 1999 inspection. Marsam is currently ineligible to receive new product
approvals, and the Company cannot predict when Marsam will resume manufacturing
specific products.
28
<PAGE>
Following its suspension of operations at the Marsam facility, the Company
re-evaluated its sterile business and its assessment of the time and costs
required to reintroduce products. As a result, the Company has modified its
overall business plans to more aggressively reduce operating costs. These
measures included, among other things, a reduction in the Company's workforce,
and dividing Marsam's product line into products it will seek to manufacture
upon completion of the Marsam Corrective Action Plan, and those products it has
decided not to manufacture. Marsam contributed approximately seven percent of
the Company's revenues and a smaller percentage of the Company's gross profits
over the four quarters preceding the suspension of shipment of its products.
The Company intends to reactivate its penicillin operations as part of the first
phase of a plan to bring its Marsam facility back to operation. Pending
resumption of manufacturing at Marsam, the Company expects to reintroduce
Penicillin G-Potassium during the second quarter of 2000 supplied by a third
party under a contract manufacturing agreement.
As a result of the actions discussed above, in 1999 the Company recorded a
restructuring charge of approximately $87.0 million, or $52.2 million net of tax
benefit. Costs of restructuring consist largely of costs incurred at the Marsam
facility and relate to the impairment of intangible assets, product recalls,
inventory write-offs and severance. Recall costs and inventory write-offs are
those costs that the Company incurred related to the Marsam Corrective Action
Plan.
STERIS FACILITY
On September 10, 1998, the U.S., on behalf of the FDA, based on actions it filed
in Federal court in the Southern District of New York on September 9, 1998 and
the District of Arizona on September 10, 1998 initiated seizures of drugs and
drug related products manufactured by the Company's Steris facility. The actions
alleged certain instances in which the Steris facility, located in Phoenix,
Arizona, was not operating in conformity with cGMP regulations. The actions
resulted in the seizure of all drugs and drug related products in the Company's
possession manufactured at the Steris facility and halted the manufacture and
distribution of Steris manufactured products.
On October 16, 1998, Steris and certain of its officers, without admitting any
allegations of the complaints and disclaiming any liability in connection
therewith, entered into a consent agreement with the FDA (the Consent
Agreement). Under the terms of the Consent Agreement, Steris is required, among
other things, to demonstrate through independent certification that Steris'
processes, quality assurance and quality control programs, and management
controls comply with cGMP regulations. The Consent Agreement also provides for
independent certification of Steris' management controls, quality assurance and
quality control programs, and employee cGMP training. It further requires that
Steris develop a timeline and corrective action plan for implementing these
actions and for expert certification with respect to matters covered in previous
FDA inspections of the facility. Steris has submitted to the FDA the corrective
action plan provided for under the Consent Agreement (Steris Corrective Action
Plan) and is implementing the Steris Corrective Action Plan.
As a result of the Consent Agreement, Steris has divided its product line into
three categories: products that it will seek to manufacture under expedited
certification procedures under the Consent Agreement, products that it will seek
to manufacture once it satisfies all conditions under the Consent Agreement and
products it has decided not to manufacture in the near term. Expedited
certification procedures apply for certain products that are particularly
important to the medical community because they are primarily or exclusively
available from the Company or that are particularly significant to the Company.
In October, 1998 the Company resumed commercial distribution of InFeD, its
branded injectable iron product, from existing inventory. In the second quarter
of 1999, the Company began distribution of newly manufactured lots of INFeD
under the Consent Agreement and in the fourth quarter of 1999, the Company
resumed the manufacture of one other product deemed medically necessary under
the expedited certification procedures in the Consent Agreement. In March 2000,
the Company resumed the manufacture and commercial distribution of vecuronium
under the expedited certification procedures provided in
29
<PAGE>
the Consent Agreement. Newly manufactured products must undergo certification by
independent experts and review by the FDA prior to commercial distribution.
On February 11, 2000 the FDA concluded an inspection at Steris. The Company
believes that the results of that inspection confirm that the Company is
complying with the requirements of the Steris Corrective Action Plan. Steris is
currently ineligible to receive new product approvals, and the Company cannot
predict when Steris will resume manufacturing additional products.
Steris accounted for approximately 40% of the Company's net sales and 50% of its
gross profits for the first six months of 1998. The Steris products that the
Company has decided not to manufacture contributed approximately $65 million in
revenue in the 12-month period ended June 1998. The Company recorded a
restructuring charge in 1998 of $161.2 million pretax, or $135.0 million, net of
tax benefit, relating to the effects of the Consent Agreement.
There can be no assurance that the FDA will determine that the Company has
adequately corrected the deficiencies at its operating sites, that subsequent
inspectional observations will not result in additional deficiencies, that
approval of any of the pending or subsequently submitted ANDAs by the Company
will be granted or that the FDA will not seek to impose additional sanctions
against the Company or any of its subsidiaries. The range of possible sanctions
includes FDA issuance of adverse publicity, product recalls or seizures,
injunctions, and civil or criminal prosecution. Any such sanctions, if imposed,
could have a material adverse effect on the Company's business. Additionally,
significant delays in the review or approval of applications for new products or
in complying with the requirements of the Marsam Corrective Action Plan, the
Steris Corrective Action Plan and the Consent Agreement could have a material
adverse effect on the Company's business, results of operation and financial
condition. (See "Other Factors Affecting Future Performance--Dependence on
Certain Existing Products.")
RESTRUCTURING CHARGES--1999 AND 1998
As a result of the regulatory matters at the Company's sterile dosage
facilities, the Company recorded a restructuring charge of $52.2 million, net of
tax benefit, in 1999, and $135.0 million, net of tax benefit, in 1998. The
details of the restructuring charges are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
DECEMBER 25, 1999 DECEMBER 26, 1998
----------------- -----------------
(in millions)
<S> <C> <C>
Costs of restructuring:
Recalls and related expenses........................ $ 8.9 $ 2.0
Severance and related costs......................... 1.1 5.4
Regulatory and compliance related costs............. -- 12.7
Temporary manufacturing shutdown costs.............. -- 5.3
Other costs and expenses............................ -- 3.0
------ ------
10.0 28.4
------ ------
Asset impairments:
Intangible asset impairment......................... 54.6 --
Goodwill impairment................................. -- 95.5
Inventory write-off................................. 14.0 30.5
Fixed asset impairment.............................. 8.4 6.8
------ ------
77.0 132.8
------ ------
Total charges and impairment.................... 87.0 161.2
Income tax benefit.............................. (34.8) (26.2)
------ ------
$ 52.2 $135.0
====== ======
</TABLE>
30
<PAGE>
RESTRUCTURING CHARGE 1999--MARSAM
Costs of restructuring consist largely of costs incurred at the Marsam facility
and relate to the impairment of intangible assets, product recalls, inventory
write-offs and severance. Recall costs and inventory write-offs are those costs
that the Company incurred related to the Marsam Corrective Action Plan. As of
December 25, 1999, $76.5 million of costs have been charged against the
restructuring reserve of $87.0 million established in 1999.
The inventory write-off was determined based upon the Marsam Corrective Action
Plan that requires the Company to destroy certain finished goods and
work-in-process inventories. Additionally, valuation adjustments were recorded
for raw materials and supplies associated with products that the Company no
longer expects to market. Fixed asset impairments were recorded for plant and
equipment at the Marsam facility that is not expected to be utilized in
production.
The intangible asset impairment was recorded in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (SFAS 121). In 1995, the Company acquired Marsam, a manufacturer
and marketer of generic injectable products for the institutional market. As a
result of the Marsam Corrective Action Plan and the decision not to manufacture
a number of Marsam products, the Company re-evaluated the carrying value of the
intangible assets. Based upon an evaluation of projected non-discounted
operating cash flows for continuing products, management determined there was an
impairment. Fair value was then determined based upon discounted operating cash
flows (using a discount rate of 12%). Based on this analysis, the related
intangible assets were written down to their fair value.
RESTRUCTURING CHARGE 1998--STERIS
Costs of restructuring consist largely of costs incurred at the Steris facility
and, to a lesser extent, costs of closing one of the Company's distribution
centers and other steps taken by the Company to reduce its ongoing operating
costs, including workforce reductions. Regulatory and compliance related costs
consist primarily of costs related to products the Company will recondition and
validation testing of products in the market as required by the Consent
Agreement. Temporary manufacturing shutdown costs are the idle plant costs of
the Steris facility. Severance costs relate to reductions in workforce costs at
the Steris facility, the closed distribution center, and in the institutional
sales and marketing organization. Workforce reductions in 1998 totaled
approximately 370 individuals. Recalls and related expenses and other costs and
expenses are those costs that the Company estimates will be incurred related to
the Consent Agreement. As of December 25, 1999, $27.5 million had been charged
against the restructuring reserve of $28.4 million established in 1998.
The inventory write-off was determined based upon the terms of the Consent
Agreement that required the Company to destroy certain finished goods and
work-in-process inventories. Additionally, valuation adjustments were recorded
for raw materials and supplies associated with products that the Company no
longer expects to market. Fixed asset impairments were recorded for plant and
equipment at the Steris facility that is not expected to be utilized in
production.
The goodwill impairment was recorded in accordance with SFAS 121. In connection
with the 1995 acquisition of Marsam, which, like Steris, was a manufacturer and
marketer of generic injectable products for the institutional market, the
Company subsequently combined the two organizations' sales and marketing forces
with a goal of leveraging the combined product lines. Additionally, other
functions were combined, including manufacturing and research and development
activities. As a result of the Consent Agreement and the decision not to
manufacture a significant number of Steris products, the Company's opportunities
in and approach to the institutional market place were re-evaluated. As part of
this re-evaluation, management reviewed the carrying value of the goodwill.
Based upon an evaluation of projected non-discounted operating cash flows,
management determined there was an impairment to goodwill. Fair value was then
determined based upon discounted operating cash flows (using a discount rate of
9%). Based on this analysis, the goodwill amount was written off since it was
deemed to have no remaining value.
31
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain selected statement of operations data as
a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenues................................................ 100.0% 100.0% 100.0%
Cost of sales............................................... 64.1 66.7 67.3
------ ------ ------
Gross profit................................................ 35.9 33.3 32.7
Costs and expenses:
Selling, general and administrative....................... 19.3 16.7 16.6
Research and development.................................. 5.9 5.6 6.0
Amortization of goodwill and other intangibles............ 1.3 1.7 2.1
Restructuring charge...................................... 18.2 30.8 --
------ ------ ------
Operating income (loss)..................................... (8.8) (21.5) 8.0
Interest expense, net....................................... 3.9 3.9 5.4
Other expenses (income), net................................ 0.3 (0.4) (1.9)
------ ------ ------
Income (loss) before provision (benefit) for income taxes
and extraordinary income.................................. (13.0) (25.0) 4.5
Provision (benefit) for income taxes...................... (5.8) (2.7) 2.2
------ ------ ------
Income (loss) before extraordinary item..................... (7.2) (22.3) 2.3
Extraordinary item........................................ -- (0.3) --
------ ------ ------
Net income (loss)........................................... (7.2)% (22.6)% 2.3%
====== ====== ======
</TABLE>
In February 2000, the Company reduced its workforce by approximately 16% as part
of an evaluation of its sterile business plan and to reduce operating costs. As
a result, the Company expects to incur a charge of approximately $3.5 million in
the first quarter of 2000.
1999 COMPARED TO 1998
<TABLE>
<CAPTION>
% OF
NET REVENUES AND GROSS PROFIT YEARS ENDED REVENUES
(In millions) ------------------- -------------------
%
1999 1998 CHANGE 1999 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET REVENUES
Generic product revenues............................. $313.1 $393.7 -20.5% 65.6% 75.2%
Settlement and product rights revenues............... 26.8 30.0 -10.7% 5.6% 5.8%
------ ------ ----- -----
Total generic revenues............................. 339.9 423.7 -19.8% 71.2% 81.0%
Branded product revenues............................. 137.3 99.5 38.0% 28.8% 19.0%
------ ------ ----- -----
Total net revenues................................. $477.2 $523.2 -8.8% 100.0% 100.0%
====== ====== ===== =====
GROSS PROFIT......................................... $171.1 $174.1 -1.7% 35.9% 33.3%
====== ====== ===== =====
</TABLE>
32
<PAGE>
Overall total revenues were impacted by regulatory matters at the Company's two
sterile dose facilities, Marsam and Steris. Net revenues decreased
$46.0 million, or 8.8%, from $523.2 million in 1998 to $477.2 million in 1999,
primarily due to a decrease in revenues from generic products partially offset
by an increase in revenues from branded products.
Generic revenues decreased $83.8 million, from $423.7 million in 1998 to
$339.9 million in 1999. Revenues from generic sterile dose products decreased
$83.3 million, from $101.8 million in 1998 to $18.5 million in 1999, largely due
to the reduced product line at the Steris facility and the interruptions in
manufacturing and shipping at the Marsam facility. Revenues from generic solid
dosage products increased slightly by $2.7 million to $294.6 million in 1999
from $291.9 million in 1998, as revenues from new product introductions of
$12.7 million offset decreases in revenues from outsourced products of
$11.6 million. Other generic revenues in 1999 included $13.5 million from the
sale of rights to certain otic and opthalmic products from the Steris facility
that the Company did not plan to reintroduce and a litigation settlement of
$13.3 million related to the development of a product. Settlement revenue in
1998 reflects the final payment in connection with a patent settlement.
Net revenues from the branded business increased $37.8 million, from
$99.5 million in 1998 to $137.3 million in 1999. The increase reflects strong
brand product revenues principally from shipments of INFeD and the launch of
Ferrlecit in June 1999. INFeD revenues were significantly higher compared to the
prior year when revenues were adversely impacted by actions taken by the FDA in
September 1998. Subsequent to September 1998, the Company was not manufacturing
INFeD and was allocating inventory to existing customers until March 1999. This
caused a depletion of channel inventory which was subsequently replenished as
the Company began manufacturing INFeD on a regular basis.
Gross profit decreased $3.0 million, or 8.5%, from $174.1 million in 1998 to
$171.1 million in 1999. The gross margin increased 2.6% in 1999 to 35.9% versus
33.3% in 1998. The decrease in gross profit was principally the result of
reduced sales of generic sterile products, idle facility costs at the Company's
sterile operations and other costs of sales, offset by a more profitable mix of
products sold and higher gross profit on other generic revenue. Increased
volumes of the Company's branded products and higher selling prices of some
solid dosage products contributed to the more favorable mix of products sold.
<TABLE>
<CAPTION>
% OF
COSTS AND EXPENSES YEARS ENDED REVENUES
(In millions) ---------------------- ----------------------
%
1999 1998 CHANGE 1999 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Selling, general and administrative............. $ 92.1 $ 87.2 -5.6% 19.3% 16.7%
Research and development........................ 28.0 29.2 4.1% 5.9% 5.6%
Amortization of intangibles and goodwill........ 6.3 8.8 28.4% 1.3% 1.7%
Restructuring charge............................ 87.0 161.2 46.0% 18.2% 30.8%
------ ------ ---- ----
Total costs and expenses................ $213.4 $286.4 25.5% 44.7% 54.8%
====== ====== ==== ====
</TABLE>
Selling, general and administrative expenses increased $5.0 million, or 5.7%,
from $87.2 million in 1998 to $92.1 million in 1999. Selling, general and
administrative expenses in 1999 include $17.8 million of costs associated with
corrective action plans at the Company's sterile facilities. Excluding these
corrective action plan costs, the Company's selling, general and administrative
costs decreased $12.8 million dollars, largely as a result of cost reduction and
cost containment initiatives. In the first quarter of 2000 the Company took
additional actions to reduce staffing levels at its sterile dosage facilities
and general business functions and will incur a $3.5 million charge related to
severance.
Research and development expenses of approximately $28.0 million in 1999 were
down slightly from $29.2 million in 1998, as reduced generic product research
and development expenses were offset by higher branded product research and
development expenses.
33
<PAGE>
Amortization of goodwill and other intangibles decreased from $8.8 million in
1998 to $6.3 million in 1999 due to the write-off of goodwill included in the
1998 restructuring charge.
A restructuring charge totaling $87.0 million ($52.2 million, net of tax
benefit) was recorded in 1999. This charge relates to recall costs, inventory
write-offs, decisions by the Company to restructure its sterile operations
resulting in a reduced workforce and non-cash write-off of intangible assets of
$54.6 million and impaired fixed assets of $8.4 million (see "Overview" and
"Regulatory Matters and Restructuring Charges").
As a result of the factors discussed above, operating loss decreased
$70.1 million, from an operating loss of $112.3 million in 1998 to an operating
loss of $42.2 million in 1999. Operating income, excluding the restructuring
charges, decreased $4.1 million, or 8.4%, from $48.9 million in 1998 to
$44.8 million in 1999.
<TABLE>
<CAPTION>
INTEREST EXPENSE, OTHER EXPENSES (INCOME),
PROVISION (BENEFIT) FOR INCOME TAXES AND % OF
EXTRAORDINARY ITEM YEARS ENDED REVENUES
(In millions) ---------------------- ----------------------
%
1999 1998 CHANGE 1999 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest expense, net............................ $ 18.7 $ 20.6 9.2% 3.9% 3.9%
Other expenses (income), net..................... 1.3 (2.2) -159.1% 0.3% -- 0.4%
Provision (benefit) for income taxes............. (27.8) (14.3) 94.4% 5.8% -- 2.7%
Extraordinary item, net.......................... -- (1.7) 100.0% -- 0.3%
</TABLE>
Interest expense decreased $1.9 million, or 9.2%, from $20.6 million in 1998 to
$18.7 million in 1999. The decline in interest expense was principally due to
the full year effect of lower debt levels as the proceeds from the initial
public offering in 1998 were used to retire senior floating rate notes, offset
by higher interest rate spreads under the Company's credit agreement.
Other expenses (income), net, was expense of $1.3 million in 1999 compared to
income of $2.2 million in 1998. The change in other expenses (income), net, was
primarily due to gains on the sale of marketable securities declining from
$4.4 million in 1998 to $0.7 million in 1999.
The Company's effective tax benefit rate is higher than the statutory rate for
1999 due to the effect of tax-advantaged income from Puerto Rico operations and
state tax benefits. In 1998, the effective tax benefit rate is lower than the
statutory rate due to the effect of non-deductible expenses that generate no
corresponding tax benefit. These non-deductible expenses are largely
amortization of goodwill and the goodwill write-off of $95.5 million included in
the 1998 restructuring charge.
The extraordinary item of $1.7 million in 1998 relates to the write-off of
deferred financing fees and related costs in connection with the early
retirement of $50 million of the Company's senior floating rate notes with
proceeds of the Company's initial public offering.
34
<PAGE>
1998 COMPARED TO 1997
<TABLE>
<CAPTION>
% OF
NET REVENUES AND GROSS PROFIT YEARS ENDED REVENUES
(In millions) ---------------------- ----------------------
%
1998 1997 CHANGE 1998 1997
-------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
NET REVENUES
Generic product revenues....................... $393.7 $360.8 9.1% 75.3% 73.6%
Settlement and product rights revenues......... 30.0 25.0 20.0% 5.7% 5.1%
------ ------ ------------ ----- -----
Total generic revenues....................... 423.7 385.8 9.8% 81.0% 78.7%
Branded product revenues....................... 99.5 104.4 -4.7% 19.0% 21.3%
------ ------ ------------ ----- -----
Total net revenues........................... $523.2 $490.2 6.7% 100.0% 100.0%
------ ------ ------------ ----- -----
GROSS PROFIT................................... $174.1 $160.4 8.5% 33.3% 32.7%
====== ====== ============ ===== =====
</TABLE>
Overall revenues of generic and branded products were impacted by the FDA
seizure action and the subsequent consent agreement relating to the Steris
facility. Net revenues from branded and generic products manufactured at this
facility decreased $67.2 million from $231.4 million in 1997 to $164.2 million
in 1998.
Total revenues increased $33.0 million, or 6.7%, from $490.2 million in 1997 to
$523.2 million in 1998, primarily due to an increase in revenues from generic
solid dose products partially offset by a decrease in revenues from generic
sterile dose products and INFeD, largely due to the interruptions in
manufacturing and shipping following the FDA action in September. Revenues from
the generic business increased by $37.9 million or 9.8% to $423.7 million in
1998 from $385.8 million in 1997. This increase was the result of launching new
products and other net unit growth, resulting in incremental revenues of
$54.5 million partially offset by price erosion of $16.6 million or
approximately 5%. The volume increase included $64.9 million of sales from two
new product introductions in the fourth quarter of 1997 (methylphenidate and
ketoprofen ER), net unit growth from all other products of $28.4 million, other
new product revenues of $18.5 million, patent settlement revenue increase of
$5.0 million (the final payment in connection with a patent settlement), offset
by lower revenues from Steris manufactured products of $62.3 million.
Net revenues from the branded business decreased $4.9 million or 4.7% largely
due to reduced sales of INFeD following the FDA action in September 1998. The
decrease reflects lower volume of $8.6 million partially offset by a price
increase of $3.7 million.
Gross profit increased $13.7 million, or 8.5%, from $160.4 million in 1997 to
$174.1 million in 1998. The gross margin increased 0.6% in 1998 to 33.3% versus
32.7% in 1997. The increase in gross profit was principally the result of a more
profitable mix of products sold, an increase in patent settlement revenue, and a
lower percent of price erosion partially offset by lower volume of Steris
manufactured products. New generic products with market exclusivity or limited
competition contributed to the more profitable mix of products sold. The gross
profit of $15 million from patent settlement revenues is net of a related
$15 million payment to an independent consultant that is included in cost of
sales. In that regard, for projects in which the independent consultant had
rendered an opinion setting forth the basis for a possible patent challenge, the
Company paid the independent consultant half of the adjusted gross profits (as
defined) from the Company's sale of generic versions of the patented product
until the date on which the patent would normally have expired or half the
proceeds of any settlement.
35
<PAGE>
<TABLE>
<CAPTION>
% OF
COSTS AND EXPENSES YEARS ENDED REVENUES
(In millions) ---------------------- ----------------------
%
1998 1997 CHANGE 1998 1997
-------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
Selling, general and administrative............. $ 87.2 $ 81.8 -6.6% 16.7% 16.7%
Research and development........................ 29.2 29.4 0.7% 5.6% 6.0%
Amortization of intangibles and goodwill........ 8.8 10.2 13.7% 1.7% 2.1%
Restructuring charge............................ 161.2 -- -100.0% 30.8% --
------ ------ ---- ----
Total costs and expenses...................... $286.4 $121.4 -135.9% 54.7% 24.8%
====== ====== ==== ====
</TABLE>
Selling, general and administrative expenses increased $5.4 million, or 6.5%,
from $81.8 million in 1997 to $87.2 million in 1998. Selling, general and
administrative expenses were approximately 16.7% of net revenues in 1998 and in
1997. The increase in selling, general and administrative expenses was due
primarily to higher branded products marketing and selling expenses of
$2.7 million, including pre-launch activities related to Ferrlecit and higher
legal expenses of $1.6 million.
Research and development expenses of approximately $29.0 million were
essentially at the same level in 1998 as in 1997.
Amortization of goodwill and other intangibles decreased from $10.2 million in
1997 to $8.8 million in 1998 due to the write-off of goodwill included in the
third quarter restructuring charge.
A restructuring charge totaling $161.2 million ($135.0 million, net of tax
benefit) was recorded in 1998. This charge relates to decisions by the Company
to reduce its workforce, and consolidate distribution operations, and also
includes the related non-cash write-off of goodwill, inventory, and impaired
fixed assets (see "MD&A--Regulatory Matters and Restructuring Charge").
As a result of the factors discussed above, operating income decreased
$151.3 million, from $39.0 million in 1997 to an operating loss of
$112.3 million in 1998. Operating income, excluding the restructuring charge,
increased $9.9 million, or 25.4% from $39.0 million in 1997, to $48.9 million in
1998.
<TABLE>
<CAPTION>
INTEREST EXPENSE, OTHER EXPENSES (INCOME),
PROVISION (BENEFIT) FOR INCOME TAXES AND % OF
EXTRAORDINARY ITEM YEARS ENDED REVENUES
(In millions) ---------------------- ----------------------------
%
1998 1997 CHANGE 1998 1997
-------- -------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest expense, net........................... $ 20.6 $26.6 22.4% 3.9% 5.4%
Other expenses (income), net.................... (2.2) (9.3) -75.9% -0.4% -1.9%
Provision (benefit) for income taxes............ (14.3) 10.7 234.1% -2.7% 2.2%
Extraordinary item, net......................... (1.7) -- -100.0% -0.3% --
</TABLE>
Interest expense decreased $6.0 million, or 22.4%, from $26.6 million in 1997 to
$20.6 million in 1998. The decline in interest expense was principally due to
lower debt levels as the proceeds from the initial public offering were used to
retire senior floating rate notes, lower interest rates as higher cost
subordinated debt was exchanged for lower cost senior floating rate notes in
December 1997, and lower interest rate spreads under the Company's credit
agreement.
Other income, net, was $2.2 million in 1998 and $9.3 million in 1997. The change
in other income, net, was primarily due to gains on the sale of marketable
securities declining from $12.7 million in 1997 to $4.4 million in 1998.
36
<PAGE>
The Company's effective tax benefit rate is lower than the statutory rate due to
the effect of non-deductible expenses that generate no corresponding tax
benefit. These non-deductible expenses are largely amortization of goodwill and
the goodwill write-off of $95.5 million included in the 1998 restructuring
charge.
The extraordinary item of $1.7 million in 1998 relates to the write-off of
deferred financing fees and related costs in connection with the early
retirement of $50 million of the Company's senior floating rate notes with
proceeds of the Company's initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the regulatory matters at the Company's Marsam facility, the
Company recorded a restructuring charge in 1999 of $87.0 million pre-tax. Of
this amount, approximately $63.0 million consisted of asset impairments. The
remaining $24.0 million consisted of charges which have resulted or will result
in cash outlays by the Company. It is expected that substantially all remaining
cash outlays related to the restructuring charge will be completed by
June 2000.
Net cash provided by operating activities of $42.2 million during 1999 was
attributable to net loss of $34.4 million as adjusted for the effects of
non-cash items of $75.0 million and net increases in operating assets and
liabilities totaling $1.5 million. Accounts receivable decreased $21.4 million
primarily due to declines in revenues from Steris and Marsam manufactured
products and efforts by the Company to accelerate customer collections.
Inventories increased $38.6 million primarily attributable to an increase in
finished goods in anticipation of higher demand by customers with year 2000
related supply concerns and lower than expected sales in the fourth quarter of
1999. Prepaid expenses and other current assets increased $9.7 million, of which
$7.5 million is a note receivable as a result of a litigation settlement.
Income taxes receivable decreased $15.3 million, reflecting the receipt of
income tax refunds. Accounts payable, income taxes payable and accrued expenses
increased $13.2 million.
Net cash used in investing activities was $30.3 million. The net cash used in
investing activities consisted primarily of capital expenditures of
$9.8 million, the acquisition of product rights and licenses of $20.0 million
and international investments of $4.6 million, partially offset by proceeds from
the sale of marketable securities of $2.0 million. Product rights and licenses
and international investments consisted principally of payments of
$12.0 million in connection with product development and supply agreements with
Elan Corporation Plc and a $5.0 million milestone payment under a trademark and
distribution agreement for Ferrlecit.
Net cash of $8.4 million used in financing activities for the year of 1999 was
incurred primarily from net repayments of debt of $10.2 million offset by
proceeds from the stock purchase plan and the exercise of stock options of
$1.7 million.
The Company's cash flow was affected during 1999 by the cash costs and loss of
revenues related to manufacturing disruptions at its Marsam and Steris
facilities, capital expenditures and principal payment obligations under the
revolving credit and loan agreement. The Marsam and Steris costs include product
recalls, disposal of inventory, severance expenses, costs associated with
maintaining and staffing idle or underutilized manufacturing operations and the
associated corrective action plans. During fiscal 1999, the Company accelerated
customer collections by offering certain discounts for early payment and
negotiated extended payments terms with certain of its vendors and delayed
payment to certain other vendors, which practices are continuing.
Due to the 1999 fourth quarter restructuring charge taken at Marsam, the Company
was not in compliance with certain financial covenants contained in its
revolving credit and loan agreement. In February and March 2000, the Company and
the lenders agreed to various amendments to the revolving credit and loan
agreement which together: (i) allowed the Company a waiver with respect to such
non-compliance, (ii) modified certain financial covenants, including leverage,
interest expense coverage, fixed charge and
37
<PAGE>
working capital ratios through the end of 2000 and (iii) increased the interest
rate on the outstanding loans and fees payable as described below. Based upon
its current and expected future level of operations, the Company expects to be
able to satisfy the amended financial covenants during fiscal 2000. The amended
agreement provides that if the Company obtains at least $40 million of
Additional Financing (as defined) by April 30, 2000, the applicable interest
rate under the revolving credit and loan agreement will be increased from the
current LIBOR + 3.0% to LIBOR + 3.5% until August 31, 2000; then increase to
LIBOR + 4.0% until December 30, 2000; then increase to LIBOR + 4.25% thereafter.
If such Additional Financing is not obtained, the applicable interest rate under
the revolving credit and loan agreement will be LIBOR + 3.5% through April 30,
2000; LIBOR + 4.0% from May 1, 2000 through August 31, 2000; LIBOR + 4.25% from
September 1, 2000 through December 31, 2000, and LIBOR + 4.5% thereafter.
Additionally, quarterly fees of 0.25% of the Company's outstanding borrowings
under the term loan and the revolving credit commitment are payable on
March 31, 2000, September 1, 2000 and December 31, 2000 and, if Additional
Financing is not obtained, a fee of 0.5% of the Company's outstanding borrowings
under the term loan and revolving credit commitment is due on May 1, 2000. The
Company has made the required principal, interest and fee payments under its
revolving credit and loan agreement through March 31, 2000. The Company is
currently engaged in discussions with potential lending sources to obtain all or
a portion of the Additional Financing. There can be no assurance that the
Company will be successful in these efforts.
The Company's need for liquidity arises primarily from interest and principal
payments due under its revolving credit and loan agreement, and the funding of
the Company's capital expenditures and working capital requirements. The Company
had approximately $7.2 million of cash on hand and availability under its
revolving credit and loan agreement at March 31, 2000. The Company believes that
cash generated from its operations will be sufficient to finance its current and
anticipated level of operations (including interest payments and ordinary
capital expenditures) through the next 12 months. The Company believes it will
be required to borrow additional funds, issue equity securities or sell assets,
including product rights and marketable securities, to fund major capital
expenditures including those necessary to renovate manufacturing operations at
the Company's Marsam facility, as well as to make the principal payments
required under the revolving credit and loan agreement. There can be no
assurance that the Company will be able to borrow additional funds, issue equity
securities or sell assets on terms acceptable to the Company.
In addition, the Company's future results of operations depend on its ability to
continue the manufacture of INFeD and the implementation of the Steris
Corrective Action Plan as well as the market acceptance of Ferrlecit, and Health
Care Financing Administration's (HCFA) authorization for utilization of
Ferrlecit including the timing of HCFA's reimbursement decision. Any material
decline in revenues and gross profits from branded products could have a
material adverse effect on the Company's business, results of operations and
financial condition.
In January 2000, the Company announced that it had retained financial advisors
to explore strategic alternatives to enhance the value of its business,
including the possible sale of all or part of the business. Through March 2000,
this process was still ongoing, and the Company cannot predict the timing or the
outcome of this process.
FUTURE TRENDS
Certain Statements in this Form 10-K constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
including those concerning management's expectations with respect to future
events or results. Such forward looking statements may be identified by such
forward looking terms as expect, believe, may, anticipate, intend, will or
similar terms or variations thereof. These forward looking statements involve
certain significant risks and uncertainties, and actual results may differ
materially from the forward looking statements. Some important factors which may
cause results to differ include: the uncertainty and the difficulty of
predicting the United States Food and Drug Administration (FDA) approvals,
uncertainties associated with the implementation of the terms and conditions of
the
38
<PAGE>
Consent Agreement and Marsam Corrective Action Plan, the uncertainty of
acceptance and demand for the Company's new products, the impact of competitive
products and pricing, the availability of raw materials, uncertainties
associated with litigation and regulatory matters, and fluctuations in operating
results. The Company does not undertake to publicly update or revise any of its
forward looking statements even if experience or future changes show that the
indicated results or events will not be realized.
The development, manufacture, marketing and sale of pharmaceutical products are
subject to extensive Federal, state and local regulation in the U.S. and similar
regulations in other countries. The Company, like its competitors, must obtain
approval from the FDA before manufacturing and marketing most drugs and must
demonstrate continuing compliance with cGMP regulations.
The Company's future results of operations depend upon its ability to continue
the manufacturing of INFeD and the implementation of the Steris Corrective
Action Plan, to obtain FDA approval of new products, to validate its
manufacturing processes, to comply otherwise with FDA cGMP standards and other
governmental regulations to which the Company is subject, to procure a
continuous supply of raw materials and to receive continued customer acceptance
of its products. Additionally, there is often a time lag, sometimes significant,
between the receipt of product approval and the actual marketing of the approved
product due to the validation process. Over the past several years, the FDA has
inspected the Company's manufacturing facilities and, in certain instances, has
made inspectional manufacturing observations that include significant cGMP and
application reporting deficiencies. As a result of these inspectional
observations, for varying periods of time, each of the Company's facilities
(other than its Humacao, Puerto Rico facility) has been ineligible (the Steris
facility and Marsam facilities are currently ineligible) to receive new product
approvals. Raw materials are generally available from several sources although
this may not always be the case. For certain more significant products the
Company strives to qualify more than one source, however, it currently has only
one source for the active ingredient used in the manufacture of INFeD. Since the
FDA product approval process requires specification of raw material suppliers,
if raw materials from specified suppliers become unavailable, the Company would
be required to file a supplement to its product filing to use a new supplier's
materials. This could cause a delay of several months in the manufacture of the
drug involved and the consequent loss of potential revenue and market share.
In the past several years, there has been an increasing number of attempts to
use Federal legislation and the regulatory process to extend the patent life of
various drugs beyond the term permitted under current statutes. Although the
generic drug industry thus far has been partially successful in defeating these
attempts, the Company and industry could be adversely impacted if future
legislation is enacted which delays the introduction of generic products that
are expected to come off patent in the coming years.
The Company's future results of operations also may be affected by a variety of
additional factors consistent with the nature of its business, including, but
not limited to, changes in the intensity of competition affecting the Company's
products and customers. Products with limited competition are generally sold at
higher prices, resulting in relatively high gross margins. As competition
increases, selling prices and gross margins can decline dramatically and impair
overall profitability. Additionally, brand-name competitors are bundling the
sale of their generic and branded products as well as introducing generic
versions of their own branded products prior to, or at the time of expiration,
of the patents for such drugs, which results in lower market share for the
Company. The Company also has witnessed a consolidation of its customers such as
chain drug stores and wholesalers. The Company will need to provide a continuous
stream of new products and maintain its strong customer relations to offset
these competitive pressures.
The Company's gross margins will be negatively impacted by the underutilization
of its Steris and Marsam manufacturing facilities until such time as the volume
of manufactured products increases significantly. Continuing compliance with the
FDA cGMP standards and applicable environmental regulations will also affect the
Company's future results of operations. Significant investments which increase
the Company's
39
<PAGE>
overhead need to be made from time to time to maintain the required
infrastructure to comply with the FDA cGMP standards.
Various other legal matters remain unresolved in whole or in part. (See Note 12
of the footnotes to the Company's consolidated financial statements for further
discussion.) Although the Company has established reserves it believes
appropriate for these legal matters, the final outcome may exceed the estimates
used in establishing those reserves could have a material adverse effect on the
Company's consolidated financial condition, liquidity and results of operations.
YEAR 2000 COMPLIANCE
The Company did not encounter any disruptions to internal systems, its
supply-chain partners or public infrastructure services during the transition to
Year 2000 that could have impacted normal business operations and activities.
The Company devoted significant resources throughout its business operations to
avoid potential disruptions from the Year 2000 (Y2K) problem. In 1997, a Y2K
Compliance Initiative was established within the Company to address the
following areas that could have been impacted by Y2K issues.
- Business Transaction Systems
- Plant/Floor/Laboratory Applications & Devices
- Computer Network
- Supply-Chain Partner Compliance Readiness
- Contingency Planning
Business Transaction Systems--These applications process and handle the
Company's day-to-day business transactions and encompass customer order/billing,
finished goods inventory, distribution, manufacturing and laboratory support,
electronic data interchange (EDI), contract processing, forecasting and vendor
managed inventory. Thirteen of the nineteen applications were assessed as Y2K
non-compliant; twelve of the non-compliant systems were remediated and deployed
and one system retired. In addition, nine system services are provided by third
parties (e.g., payroll, employee savings and investment recordkeeping); three of
these applications were assessed as Y2K non-compliant and were updated to Y2K
compliant systems.
Plant Floor/Laboratory Applications & Devices--From an internal inventory and
subsequent audit by outside Y2K consultants, over 3,400 applications and devices
installed at the Company's manufacturing, laboratory, distribution and office
facilities were identified as possibly having date capabilities or containing
embedded systems. All the 187 identified non-compliant applications/devices
required for Year 2000 operations were remediated and deployed by year-end 1999.
Computer Network--The Computer Network includes 1,400 PC hardware devices,
software, applications and files installed on the Company's network devices and
standalone PCs. During 1999, all of the identified 556 non-compliant PCs were
remediated and deployed.
Supply-Chain Partner Compliance Readiness--To continue business activities with
the Company's trading partners (i.e., customers, suppliers, payers, financial
institutions, etc.), all entities that comprise the Company's supply-chain must
be Y2K compliant. The Company contacted its suppliers, customers and other
parties to determine their "state of readiness" for Y2K compliance. The Company
received compliance readiness statements from all of the Company's top twenty
customers (representing approximately 75% of the Company's net revenues) and an
additional 445 customers indicating that they would be Y2K compliant by year-end
1999. Also, all of the Company's 72 critical suppliers of active pharmaceutical
ingredients used to manufacture products representing over 85% of the Company's
gross profit, likewise provided statements that they were or would be Y2K
compliant by year-end 1999.
40
<PAGE>
Contingency Planning--The Company's plan included the assessment of Y2K related
risks/threats and the preparation of alternative work procedures in the event of
possible Y2K disruptions. The sources of risk included information technology
(IT) systems, embedded devices, EDI and external dependencies; potential
failures related to the occurrence of these risks included operational
disruptions; financial losses, damage to assets, personal safety and legal
liabilities. The Company completed the assessment of identifying risks/threats
covering individual business processes and implemented contingency plans in
1999.
The estimated $5.0 million of costs incurred through December 1999 associated
with Y2K compliance were expensed as incurred.
This Y2K Statement is designated a Year 2000 Readiness Disclosure under the Year
2000 Information and Readiness Disclosure Act and is subject to all protections
and exemptions of that Act.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
In order to manage interest rate exposure, the Company has entered into interest
rate swap agreements to exchange variable rate debt into fixed rate debt without
the exchange of the underlying principal amounts. Net payments or receipts under
the agreements are recorded as adjustments to interest expense.
As of December 25, 1999, the Company had $100 million notional amount
outstanding in interest rate swaps. These swaps are used to convert floating
rate debt to fixed rate debt to reduce the Company's exposure to interest rate
fluctuations. The net result was to substitute a weighted average fixed interest
rate of 5.41% for the variable LIBOR rate of 5.40% on the Company's debt. Under
the terms of the agreements, the swaps were canceled, at no cost to the Company,
in February 2000.
41
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, and notes thereto, are presented as set
forth below:
<TABLE>
<CAPTION>
PAGE
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES --------
<S> <C>
Report of Independent Certified Public Accountants.......... 43
Consolidated Balance Sheets as of December 25, 1999 and
December 26, 1998......................................... 44
Consolidated Statements of Operations for the years ended
December 25, 1999, December 26, 1998 and December 27,
1997...................................................... 45
Consolidated Statements of Stockholders' Equity for the
years ended December 25, 1999, December 26, 1998 and
December 27, 1997......................................... 46
Consolidated Statements of Cash Flows for the years ended
December 25, 1999, December 26, 1998 and December 27,
1997...................................................... 47
Consolidated Statements of Comprehensive Income (Loss) for
the years ended December 25, 1999, December 26, 1998 and
December 27, 1997......................................... 48
Notes to Consolidated Financial Statements.................. 49
</TABLE>
42
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Schein Pharmaceutical, Inc.
We have audited the accompanying consolidated balance sheets of Schein
Pharmaceutical, Inc. and subsidiaries as of December 26, 1998 and December 25,
1999, and the related consolidated statements of operations, stockholders'
equity, comprehensive income (loss) and cash flows for each of the three years
in the period ended December 25, 1999. 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 26, 1998 and December 25,
1999, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 25, 1999 in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
February 16, 2000, except for Note 20
which is as of March 31, 2000
43
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,821 $ 377
Accounts receivable, less allowance for possible losses of
$2,200 and $2,486....................................... 61,828 82,498
Inventories............................................... 128,726 106,351
Income taxes receivable................................... -- 15,900
Deferred income taxes..................................... 9,253 8,838
Other current assets...................................... 20,567 6,046
-------- --------
Total current assets.................................... 224,195 220,010
Property, plant and equipment, net.......................... 100,730 112,224
Product rights, licenses and regulatory approvals, net...... 51,557 107,769
Other assets................................................ 27,019 12,993
-------- --------
$403,501 $452,996
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $104,872 $ 99,122
Income taxes payable...................................... 7,511 8,626
Revolving credit and current maturities of long-term
debt.................................................... 128,631 103,975
-------- --------
Total current liabilities............................... 241,014 211,723
Long-term debt, less current maturities..................... 92,738 124,482
Deferred income taxes....................................... 6,780 29,719
Other non-current liabilities............................... 5,851 8,587
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 100,000 authorized shares;
issued and outstanding 32,943 and 32,499 shares......... 329 325
Additional paid-in capital................................ 101,357 97,176
Retained earnings (accumulated deficit)................... (52,931) (18,543)
Accumulated other comprehensive income (loss)............. 10,597 (473)
Subscription receivable................................... (2,234) --
-------- --------
Total stockholders' equity.............................. 57,118 78,485
-------- --------
$403,501 $452,996
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER SHARE)
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues..................................... $477,161 $ 523,229 $490,170
Cost of sales.................................... 306,019 349,140 329,761
-------- --------- --------
Gross profit..................................... 171,142 174,089 160,409
Costs and expenses:
Selling, general and administrative............ 92,157 87,162 81,809
Research and development....................... 27,951 29,245 29,387
Amortization of goodwill and other
intangibles.................................. 6,303 8,754 10,196
Restructuring charge........................... 86,971 161,200 --
-------- --------- --------
Operating income (loss).......................... (42,240) (112,272) 39,017
Interest expense, net............................ 18,661 20,626 26,578
Other expenses (income), net..................... 1,268 (2,246) (9,318)
-------- --------- --------
Income (loss) before provision (benefit) for
income taxes and extraordinary item............ (62,169) (130,652) 21,757
Provision (benefit) for income taxes............. (27,781) (14,286) 10,655
-------- --------- --------
Income (loss) before extraordinary item.......... (34,388) (116,366) 11,102
Extraordinary item: loss on early extinguishment
of debt, net of income tax of $1,144........... -- (1,660) --
-------- --------- --------
Net income (loss)................................ $(34,388) $(118,026) $ 11,102
======== ========= ========
Earnings (loss) per share, basic and diluted:
Income (loss) before extraordinary item........ $ (1.05) $ (3.72) $ 0.39
Extraordinary item............................. -- (0.05) --
-------- --------- --------
Net income (loss).............................. $ (1.05) $ (3.77) $ 0.39
======== ========= ========
Weighted average common shares and equivalents:
Basic.......................................... 32,638 31,332 28,693
Diluted........................................ 32,638 31,332 28,755
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER
COMMON STOCK ADDITIONAL EARNINGS COMPREHENSIVE
------------------- PAID-IN (ACCUMULATED INCOME
SHARES AMOUNT CAPITAL DEFICIT) (LOSS) OTHER
-------- -------- ---------- ------------ -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 28, 1996..... 28,693 $287 $ 38,592 $ 88,381 $ 3,497 $ (777)
Net income..................... -- -- -- 11,102 -- --
Amortization of options issued
as compensation.............. -- -- (98) -- -- 726
Decline in unrealized gains on
marketable securities........ -- -- -- -- (2,046) --
Foreign currency translation
adjustments.................. -- -- -- -- 51 --
------ ---- -------- --------- ------- -------
Balance, December 27, 1997..... 28,693 287 38,494 99,483 1,502 (51)
Net loss....................... -- -- -- (118,026) -- --
Shares issued in initial public
offering..................... 3,450 35 52,415 -- -- --
Shares issued upon exercise of
stock options, including tax
benefit...................... 249 2 5,212 -- -- --
Shares issued to employee stock
purchase plan................ 107 1 1,055 -- -- --
Amortization of options issued
as compensation.............. -- -- -- -- -- 51
Decline in unrealized gains on
marketable securities........ -- -- -- -- (2,096) --
Foreign currency translation
adjustments.................. -- -- -- -- 121 --
------ ---- -------- --------- ------- -------
Balance, December 26, 1998..... 32,499 325 97,176 (18,543) (473) --
Net loss....................... -- -- -- (34,388) -- --
Shares issued upon exercise of
stock options, including tax
benefit...................... 10 -- 143 -- -- --
Shares issued to employee stock
purchase plan................ 184 1 1,600 -- -- --
Subscription receivable........ 250 3 2,231 -- -- (2,234)
Stock warrants issued.......... -- -- 207 -- -- --
Unrealized gains on marketable
securities................... -- -- -- -- 11,037 --
Foreign currency translation
adjustments.................. -- -- -- -- 33 --
------ ---- -------- --------- ------- -------
Balance, December 25, 1999..... 32,943 $329 $101,357 $ (52,931) $10,597 $(2,234)
====== ==== ======== ========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
46
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $(34,388) $(118,026) $ 11,102
Adjustments to reconcile net income (loss) to net
cash flows from operating activities:
Depreciation and amortization..................... 24,543 24,600 25,474
Impairment of long-lived assets, due to
restructuring................................... 63,000 102,280 --
Inventory write-off, due to restructuring......... 13,953 30,500 --
Deferred income taxes............................. (30,228) (4,896) (2,676)
Gain on sale of marketable securities............. (684) (4,439) (12,745)
Extraordinary item: loss on early extinguishment
of debt, non-cash............................... -- 2,304 --
Other............................................. 4,439 (1,282) 3,698
Changes in operating assets and liabilities:
Accounts receivable............................... 21,372 6,060 (16,346)
Inventories....................................... (38,629) (17,709) 12,123
Prepaid expenses and other current assets......... (9,727) (2,707) (1,205)
Income taxes receivable........................... 15,330 (15,330) --
Accounts payable, income taxes payable, accrued
expenses and other liabilities.................. 13,180 6,502 15,450
-------- --------- ---------
Net cash provided by operating activities............. 42,161 7,857 34,875
-------- --------- ---------
Cash flows from investing activities:
Capital expenditures................................ (9,766) (22,381) (14,446)
Product rights and licenses......................... (20,038) (16,143) (150)
International investments........................... (4,579) (6,511) (173)
Proceeds from the sale of marketable securities..... 2,009 6,607 14,737
Investment in marketable securities................. (1,217) -- --
Other, net.......................................... 3,299 (872) 119
-------- --------- ---------
Net cash provided by (used in) investing activities... (30,292) (39,300) 87
-------- --------- ---------
Cash flows from financing activities:
Principal payments on, or repayments of, debt....... (185,501) (192,208) (287,090)
Proceeds from issuance of debt...................... 175,332 165,520 255,755
Net proceeds from initial public offering........... -- 52,450 --
Proceeds from employee stock purchase plan and
exercise
of stock options.................................. 1,744 5,367 --
Increase in other non-current assets................ -- (113) (4,962)
-------- --------- ---------
Net cash provided by (used in) financing activities... (8,425) 31,016 (36,297)
-------- --------- ---------
Net increase (decrease) in cash and cash
equivalents......................................... 3,444 (427) (1,335)
Cash and cash equivalents, beginning of year.......... 377 804 2,139
-------- --------- ---------
Cash and cash equivalents, end of year................ $ 3,821 $ 377 $ 804
======== ========= =========
Supplemental cash flow information:
Taxes paid.......................................... $ 2,549 $ 9,274 $ 7,546
Interest paid....................................... 18,638 20,317 25,182
Product rights and licenses acquired with
liabilities....................................... -- 12,289 --
Assumption of debt related to international
investment........................................ 3,364 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
47
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss)................................ $(34,388) $(118,026) $11,102
-------- --------- -------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment...... 33 121 51
Unrealized holding gains arising during
period..................................... 11,444 612 5,537
Less: reclassification adjustment for gains
included in net income..................... (407) (2,708) (7,583)
-------- --------- -------
Other comprehensive income (loss)................ 11,070 (1,975) (1,995)
-------- --------- -------
Comprehensive income (loss)...................... $(23,318) $(120,001) $ 9,107
======== ========= =======
</TABLE>
Components of accumulated other comprehensive income (loss) included in the
Company's consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
<S> <C> <C>
Unrealized gains on marketable securities................... $11,227 $ 190
Cumulative foreign currency translation adjustment.......... (630) (663)
------- -----
$10,597 $(473)
======= =====
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF ACCOUNTING POLICIES
THE COMPANY AND PRINCIPLES OF CONSOLIDATION
Schein Pharmaceutical, Inc. and its subsidiaries (the Company) are engaged in
developing, manufacturing, marketing and distributing generic pharmaceutical
products and a line of specialty branded pharmaceutical products. The Company
sells to drug store chains, retail pharmacies, dialysis chains, managed care
organizations, hospitals and other institutions, both through drug wholesalers
and directly, primarily in the United States. The Company operates in one
segment.
On April 9, 1998, the Company consummated an initial public offering of common
stock. In anticipation of the offering, the Company effected a 105-for-one stock
split, and increased its authorized common stock to 100,000,000 shares. All
applicable share and per share amounts in the accompanying consolidated
financial statements have been retroactively adjusted to reflect the stock
split.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Investments in unconsolidated affiliated
companies are accounted for using the equity method. All intercompany accounts
and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
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, liabilities, revenues and expenses
during the reporting period. This includes restructuring reserves, valuation of
long-lived assets, allowances established on net revenues, expense accruals and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
FISCAL YEAR
The Company reports its operations on a 52-53 week basis ending on the last
Saturday of December. All of the years presented in these statements include 52
weeks.
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.
STOCK-BASED COMPENSATION
The Company accounts for its stock option awards to employees under the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees". Under the
intrinsic value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at grant date or other measurement date over
the amount an employee must pay to acquire the stock. The Company provides pro
forma disclosures of net income (loss) and earnings (loss)
49
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
per share as if the fair value based method of accounting had been applied as
required by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation".
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share has been computed using the weighted average
number of shares of common stock outstanding. Diluted earnings (loss) per share
includes the assumed exercise of stock options and warrants using the treasury
stock method that could potentially dilute earnings (loss) per share. In all
periods presented, there were no differences between basic and diluted earnings
(loss) per common share because the assumed exercise of stock options was
anti-dilutive or had no effect. The assumed exercise of stock options and
warrants could potentially dilute basic earnings per share amounts in the
future.
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.
PRODUCT RIGHTS, LICENSES, REGULATORY APPROVALS AND GOODWILL
Product rights, licenses and regulatory approvals are amortized primarily on a
straight-line basis over the expected profitable and useful lives of the
underlying products and manufacturing facilities, generally for periods ranging
from 10 to 15 years. Goodwill was being amortized over 20 years on a
straight-line basis. Due to impairment losses, the remaining net book value of
goodwill was written off in 1998 and a substantial portion of regulatory
approvals was written off in 1999 (see Note 18).
DEFERRED LOAN FEES
Costs incurred in connection with debt agreements are capitalized and included
in other assets and amortized to interest expense using the effective interest
method over the expected term of the related debt.
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'
50
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
LONG-LIVED ASSETS
Long-lived assets, such as intangible assets and property and equipment, are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When such
impairment exists, the related assets will be written down to fair value. In
connection with regulatory matters at the Company's Marsam and Steris
facilities, the Company determined that certain long-lived assets were impaired
in 1999 and 1998, respectively (see Note 18).
TAXES ON INCOME
The Company accounts for income taxes under an asset and liability approach.
Accordingly, 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.
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.
In order to manage interest rate exposure, the Company had entered into interest
rate swap agreements to exchange variable rate debt into fixed rate debt without
the exchange of the underlying principal amounts. Net payments or receipts under
the agreements are recorded as adjustments to interest expense.
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 allowances and insurance to cover potential or anticipated
losses for uncollectible accounts.
FOREIGN CURRENCY TRANSLATIONS
Assets and liabilities of international affiliates, which are not material, 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.
51
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June, 1999, the FASB issued SFAS No. 137 which deferred the
effective date of adopting SFAS 133 until June 15, 2000. This statement will be
adopted in the Company's 2001 fiscal year. While management is still reviewing
the statement, it believes the adoption of this statement will not have a
material effect on the Company's consolidated financial position, results of
operations or cash flows, and any effect will generally be limited to the form
and content of its disclosures.
NOTE 2--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Finished products.............................. $ 46,421 $ 29,207
Work-in-process................................ 31,544 27,574
Raw materials and supplies..................... 50,761 49,570
-------- --------
$128,726 $106,351
======== ========
</TABLE>
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
FIXED ASSET DECEMBER 25, DECEMBER 26,
LIVES 1999 1998
------------ ------------ ------------
(In years) (In thousands)
<S> <C> <C> <C>
Land............................... $ 5,482 $ 5,482
Buildings and improvements......... 40 71,924 67,975
Plant and office equipment......... 3-10 96,625 103,213
Construction-in-progress........... 3,021 11,141
-------- --------
177,052 187,811
Less: Accumulated depreciation and
amortization................................... 76,322 75,587
-------- --------
$100,730 $112,224
======== ========
</TABLE>
Depreciation and amortization expense for property, plant and equipment amounted
to $13.0 million, $12.5 million and $11.7 million in 1999, 1998 and 1997
respectively.
52
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--INTANGIBLE ASSETS
Product rights, licenses and regulatory approvals, net, consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Product rights and licenses.................... $49,810 $ 41,250
Regulatory approvals, products (See Note 18)... 6,400 78,000
Regulatory approvals, facilities (See Note
18).......................................... 3,400 10,000
------- --------
59,610 129,250
Less: Accumulated amortization................. 8,053 21,481
------- --------
$51,557 $107,769
======= ========
</TABLE>
NOTE 5--MARKETABLE SECURITIES
Included in other assets in the accompanying consolidated balance sheets are
marketable equity securities available for sale consisting of:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Cost........................................... $ 8,594 $8,724
Gross unrealized gains......................... 18,228 320
------- ------
Fair value..................................... $26,822 $9,044
======= ======
</TABLE>
Included in other income for 1999, 1998, and 1997 are realized gains of
$0.7 million, $4.4 million, and $12.7 million respectively, from the sale of
marketable securities.
In 1998, the Company entered into a strategic alliance agreement with Cheminor
Drugs Limited and its subsidiaries (Cheminor) and Dr. Reddy's Laboratories
Limited and its subsidiaries (Reddy). As part of the arrangement, the Company
purchased two million shares of Cheminor (12.79% of the outstanding shares of
Cheminor) and other rights for $10.0 million, of which $6.2 million represented
the fair value of the stock and $3.8 million represented product rights and
other intangible assets. Pursuant to the agreement, Cheminor will make available
to the Company its present and future dosage form generic products on an
exclusive basis in the United States and certain other countries, and the
Company will make available to Cheminor and Reddy its present and future
products on an exclusive basis for sale in India and certain other countries.
Cheminor and Reddy will make available to the Company bulk active pharmaceutical
ingredients.
NOTE 6--INVESTMENTS IN INTERNATIONAL AFFILIATES
The Company's international affiliates are jointly owned with subsidiaries of
Bayer AG, the parent of Bayer Corporation, a minority investor in the Company.
In June 1999, the remaining 50% interest in a United Kingdom joint venture was
acquired from Bayer for a $1.2 million note payable and the assumption of
current liabilities, including $2.2 million of bank debt. During 1998 and 1997,
the Company invested approximately $0.3 million and $0.2 million, respectively,
in each of several international pharmaceutical businesses. There were no other
investments in international affiliates in 1999. At December 1999, the
53
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--INVESTMENTS IN INTERNATIONAL AFFILIATES (CONTINUED)
Company and Bayer had guaranteed $6.7 million of borrowings of these businesses.
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 1999, 1998 and 1997 are
included in other expenses (income), net, in the accompanying statements of
operations. In 1999 these jointly owned international businesses (including the
United Kingdom joint venture through June 1999) had $14.4 million in sales and
had expenses of $16.6 million resulting in a net loss of $2.2 million for the
year.
NOTE 7--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable, which total $68.0 million and $41.2 million, are
outstanding checks of approximately $0.3 million and $4.6 million as of
December 25, 1999 and December 26, 1998, respectively.
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Salaries and related expenses.................. $10,598 $16,773
Product rights and licenses.................... -- 12,289
Restructuring expenses (see Note 18)........... 1,606 7,232
Profit-sharing expenses........................ 5,073 5,242
Other.......................................... 19,646 16,337
------- -------
$36,923 $57,873
======= =======
</TABLE>
NOTE 8--TAXES ON INCOME
Provisions (benefits) for Federal, state and Puerto Rico income taxes consist of
the following:
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1999 1998 1997
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal........................................ $ 437 $(11,410) $10,952
State and Puerto Rico.......................... 2,010 876 2,379
-------- -------- -------
2,447 (10,534) 13,331
-------- -------- -------
Deferred:
Federal........................................ (21,667) (2,677) (1,705)
State and Puerto Rico.......................... (8,561) (2,219) (971)
-------- -------- -------
(30,228) (4,896) (2,676)
-------- -------- -------
$(27,781) $(15,430) $10,655
======== ======== =======
</TABLE>
54
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--TAXES ON INCOME (CONTINUED)
Differences between the Federal statutory rate and the Company's effective tax
rate are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1999 1998 1997
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Statutory rate................................... $(21,760) $(46,709) $ 7,615
Amortization / write-off of Marsam goodwill...... -- 34,428 1,515
Puerto Rico tax-exempt operations................ (2,303) (2,622) (752)
State and Puerto Rico taxes...................... (4,036) (1,437) 1,642
Equity in net loss of international affiliates... 915 632 494
Other............................................ (597) 278 141
-------- -------- -------
$(27,781) $(15,430) $10,655
======== ======== =======
</TABLE>
The Company has a tax grant in Puerto Rico which provides a 90% exclusion from
Puerto Rico income tax. The 15 year tax grant began in 1996. The grant benefits
are recognized in conjunction with the Company's election to compute its U.S.
tax under Internal Revenue Code Section 936 which reduces the tax by an amount
based on the Company's operations.
The exercise of stock options resulted in a tax benefit of $0.9 million in 1998,
which is reflected as an increase in additional paid-in capital.
Deferred income tax assets and liabilities are classified as current and
non-current as follows:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Deferred income taxes, current:
Deferred tax assets....................................... $ 9,253 $ 8,838
-------- --------
Deferred income taxes, non-current:
Deferred tax assets....................................... 12,982 8,779
Deferred tax liabilities.................................. (19,762) (38,498)
-------- --------
(6,780) (29,719)
-------- --------
$ 2,473 $(20,881)
======== ========
</TABLE>
55
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--TAXES ON INCOME (CONTINUED)
Temporary differences which give rise to a significant portion of deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Gross deferred tax assets:
Deferred compensation expenses............................ $ 2,760 $ 4,397
Restructuring charges..................................... 3,770 4,061
Net operating loss carryforwards.......................... 6,052 3,801
Inventory valuation....................................... 7,352 3,461
Accounts receivable allowances............................ 591 134
Other..................................................... 1,710 1,091
-------- --------
22,235 16,945
-------- --------
Gross deferred tax liabilities:
Write-up of acquired assets to fair value................. (3,518) (27,471)
Depreciation and amortization............................. (9,243) (10,228)
Unrealized gains from marketable securities............... (7,001) (127)
-------- --------
(19,762) (37,826)
-------- --------
$ 2,473 $(20,881)
======== ========
</TABLE>
The Company has net operating loss carryforwards for federal tax purposes of
$4.5 million, as well as various state net operating loss carryforwards, which
are available to offset future federal and state taxable income. These
carryforwards will expire at various times between 2000 and 2018.
NOTE 9--BORROWINGS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Revolving credit and loan agreement......................... $166,398 $175,898
Senior floating rate notes.................................. 50,000 50,000
Other....................................................... 4,971 2,559
-------- --------
221,369 228,457
Less: Current maturities.................................... 128,631 103,975
-------- --------
$ 92,738 $124,482
======== ========
</TABLE>
REVOLVING CREDIT AND LOAN AGREEMENT
In September 1995, the Company entered into a secured revolving credit and loan
agreement, as amended (the credit agreement), with a group of banks to provide
funds for an acquisition, the repayment of certain of its debt, working capital
and general corporate purposes. The credit agreement at December 1999
56
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--BORROWINGS (CONTINUED)
provided a term loan facility of $73.4 million and a revolving credit facility
of $100.0 million available through December 2001. The borrowings outstanding
under the revolving credit facility were $93.0 million and $75.0 million as of
December 25, 1999 and December 26, 1998, respectively. Amounts borrowed under
the revolving credit facility are classified as current in the accompanying
balance sheets.
The credit agreement contains limitations and restrictions concerning
investments, acquisitions, capital expenditures, debt, liens, transactions with
affiliates, 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, interest coverage and
fixed charge coverage. Amounts available for dividends as permitted by the
credit agreement as of December 25, 1999 were not material. Currently, the
Company's credit agreement and its senior floating rate notes contain
restrictions on the payment of dividends.
Interest under the credit agreement is payable at least quarterly and, prior to
the March 2000 amendment, discussed below, bore interest at a rate equal to the
bank's floating base rate plus a premium ranging from 0.50% to 2.00%, or at a
rate equal to LIBOR plus a premium ranging from 1.50% to 3.00%, depending upon
the type of borrowing and the Company's performance against certain leverage and
interest expense ratios. The effective borrowing rate was 8.56% and 7.71% at
December 25, 1999 and December 26, 1998, 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.
Due to the 1999 fourth quarter restructuring charge taken at Marsam, the Company
was not in compliance with certain financial covenants contained in its
revolving credit and loan agreement. In February and March 2000, the Company and
the lenders agreed to various amendments to the revolving credit and loan
agreement which together: (i) allowed the Company a waiver with respect to such
non-compliance, (ii) modified certain financial covenants, including leverage,
interest expense coverage, fixed charge and working capital ratios through the
end of 2000 and (iii) increased the interest rate on the outstanding loans and
fees payable as described below. Based upon its current and expected future
level of operations, the Company expects to be able to satisfy the amended
financial covenants during the next fiscal year. The amended agreement provides
that if the Company obtains at least $40 million of Additional Financing (as
defined) by April 30, 2000, the applicable interest rate under the revolving
credit and loan agreement will be increased from the current LIBOR + 3.0% to
LIBOR + 3.5% until August 31, 2000; then increase to LIBOR + 4.0% until
December 30, 2000; then increase to LIBOR + 4.25% thereafter. If such Additional
Financing is not obtained, the applicable interest rate under the revolving
credit and loan agreement will be LIBOR + 3.5% through April 30, 2000; LIBOR +
4.0% from May 1, 2000 through August 31, 2000; LIBOR + 4.25% from September 1,
2000 through December 31, 2000, and LIBOR + 4.5% thereafter. Additionally,
quarterly fees of 0.25% of the Company's outstanding borrowings under the term
loan and the revolving credit commitment are payable on March 31, 2000,
September 1, 2000 and December 31, 2000 and, if Additional Financing is not
obtained, a fee of 0.5% of the Company's outstanding borrowings under the term
loan and revolving credit commitment is due on May 1, 2000.
SENIOR FLOATING RATE NOTES
In December 1997, the Company issued $100.0 million of senior floating rate
notes due in 2004, the proceeds of which were used to repay a senior
subordinated loan. Interest on the notes is payable quarterly at a rate per
annum equal to LIBOR plus 3.0%. The effective borrowing rate was 9.18% and 8.47%
at December 25, 1999 and December 26, 1998, respectively.
57
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--BORROWINGS (CONTINUED)
In April 1998, the Company consummated an initial public offering and generated
net proceeds of $52.5 million. The majority of these proceeds were used to
retire $50.0 million of the senior floating rate notes. This resulted in an
extraordinary charge of $1.7 million, net of taxes, related to the early
extinguishment of debt, which included the write-off of deferred financing fees
as well as costs associated with the reacquisition of the notes. Deferred loan
fees amortized in 1999, 1998 and 1997 were $1.4 million, $1.9 million and
$3.3 million, respectively.
The Company's senior floating rate notes are fully and unconditionally
guaranteed jointly and severally by each of the Company's domestic wholly-owned
subsidiaries. These subsidiaries sell all of their products to Schein
Pharmaceutical, Inc., the parent company. Summarized financial information for
these wholly-owned subsidiary guarantors (using the push-down method of
accounting) is as follows:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Current assets:
Inventory................................................. $ 82,306 $ 82,164
Intercompany receivables.................................. 44,022 63,385
Other current assets...................................... 6,866 3,960
Property, plant and equipment, net.......................... 96,851 101,139
Product rights, licenses and regulatory approvals, goodwill,
net and other assets...................................... 20,325 69,459
Current liabilities......................................... 179,477 119,591
Deferred income taxes and other liabilities................. 6,420 38,271
Long-term debt (pushed down)................................ 92,738 120,000
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1999 1998 1997
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Net revenues..................................... $339,743 $ 433,775 $373,712
Gross profit..................................... 99,070 127,317 100,151
Operating income (loss).......................... (56,836) (131,787) 27,193
Net income (loss)................................ (41,084) (125,877) 7,383
</TABLE>
Separate financial statements of the wholly-owned domestic subsidiary guarantors
are not presented because management believes they would not be meaningful.
Included in interest expense is interest income in 1999, 1998 and 1997 of
$0.6 million, $0.2 million and $0.1 million, respectively.
At December 25, 1999, aggregate required principal payments under all borrowings
for the next five years are $35.6 million in 2000, $34.4 million in 2001,
$101.3 million in 2002 and $50.0 million in 2004. There are no required
principal payments in 2003.
58
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--FINANCIAL INSTRUMENTS
In February 1998, the Company entered into interest rate swap agreements with
certain finacial institutions. As of December 25, 1999, the Company had
$100 million notional amount of these interest rate swaps outstanding. These
swaps are used to convert floating rate debt to fixed rate debt to reduce the
Company's exposure to interest rate fluctuations. The net result was to
substitute a weighted average fixed interest rate of 5.41% for the variable
LIBOR rate of 5.40% on the Company's debt. Under the terms of the agreements,
the swaps were canceled, at no cost to the Company, in February 2000.
NOTE 11--STOCKHOLDERS' EQUITY
Currently the Company has one class of common stock. Prior to the initial public
offering in April 1998, the Company had Class A common shares and Class B common
shares. Each of the two classes of stock were identical except that the Class B
common shares were non-voting. Upon the initial public offering, the Class A
common shares and Class B common shares converted on a one-for-one basis to a
new share of the Company's common stock.
In connection with the offering, the Company's Board of Directors authorized the
issuance of up to 2,000,000 shares of preferred stock, par value $.01 per share.
In July 1999, the Company issued warrants to purchase 150,000 unregistered
shares of the Company's common stock to a financial services company in
consideration for financial advisory services. The term of the warrant is
10 years and exercisable at $12.00 per share. The warrants were valued using a
Black Scholes method and totaled $0.5 million; this amount is being expensed
over the service term of 15 months.
On November 18, 1999, the Company sold 250,000 shares of its Common Stock to the
President of the Company for $8.9375 per share, (an aggregate of $2,234,375),
the closing price of the Company's Common Stock on the date of the sale. In
consideration for such shares, the President executed a promissory note, payable
to the Company and maturing on November 18, 2004, which bears interest at a rate
equal to the interest rate on borrowings under the Company's revolving credit
and loan agreement. The sale of these securities was exempt from registration
under Section 4 (2) of the Securities Act of 1933, as amended.
NOTE 12--COMMITMENTS AND CONTINGENCIES
PRODUCT TECHNOLOGY LICENSING AND DEVELOPMENT
In 1999, the Company entered into several licensing and development agreements.
The agreements were for the license, development, and commercialization of
products for use in the U.S. and select non-U.S. countries. Under the terms of
the agreements, the Company is obligated to pay $14.9 million, dependent on the
achievement of certain milestones. In conjunction with these agreements, in 1999
the Company paid and capitalized $1.0 million and paid and expensed
$0.6 million.
In 1998, the Company entered into an agreement covering several products in
various stages of development in the areas of oral sustained-release and
transdermal products. Under the agreement and its amendments, the Company paid
license fees of $7.0 million in 1998 and $8.0 million in 1999. Additionally, the
Company may be obligated to pay approximately $3.5 million in additional fees as
and when certain milestones are achieved. Certain of these fees may be increased
by up to $2.0 million or decreased by up to $0.5 million depending on whether
certain other milestones are achieved.
In 1996, the Company entered into a marketing and distribution agreement with a
corporation to jointly commercialize Ferrlecit-Registered Trademark-
(Ferrlecit), which the Company launched in June 1999. Under the terms of the
59
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--COMMITMENTS AND CONTINGENCIES (CONTINUED)
agreement, the Company paid product licensing fees and development costs of
$12.0 million. Additionally, the Company is obligated to pay royalties on sales
of Ferrlecit, and is responsible for continuing certain clinical research for
Ferrlecit.
In 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 transdermal
products. Under the terms of the agreement, which was amended in March 2000, the
Company is obligated to pay product licensing fees and development costs
totaling $30.1 million, dependent on achievement of interim milestones. The
Company recognized $2.3 million in development expenses in 1997. No amounts were
expended in 1998 and 1999. As a result of the March 2000 amendment, the
remaining commitment under the agreement as of March 31, 2000 was $2.5 million,
subject to the completion of milestones.
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 25, 1999,
future net minimum annual rental payments under noncancelable leases are as
follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 5,992
2001........................................................ 5,623
2002........................................................ 3,938
2003........................................................ 3,485
2004........................................................ 3,413
2005-2007................................................... 4,918
-------
Total minimum lease payments................................ $27,369
=======
</TABLE>
Total rental expense for the years ended 1999, 1998 and 1997 was approximately
$5.0 million, $5.8 million and $5.6 million, respectively.
CONSULTING AGREEMENT
The Company had a series of agreements (collectively, the Consulting Agreement)
with a patent attorney (the Consultant) that are now terminated. The Consulting
Agreement generally provided that if a challenge based on an opinion of the
Consultant resulted in either a favorable judicial determination which enabled
the Company to market a generic version of the product or in a settlement, the
Company would 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, 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.
60
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SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--COMMITMENTS AND CONTINGENCIES (CONTINUED)
In 1994, the Company settled two such patent challenges. The first settlement
resulted in a series of cash payments to the Company. Included in net revenues
are settlement revenues $30.0 million and $25.0 million in 1998 and 1997,
respectively. Pursuant to the settlement, the Company paid profit sharing
expenses to the Consultant amounting to $15.0 million and $12.5 million in 1998
and 1997, respectively. Such amounts are included in cost of sales. No amounts
were received or paid in 1999.
The second settlement involved a license grant to the Company to begin
manufacturing and marketing a product which was the subject of the patent
challenge. Sales of such product commenced in 1996. In connection with the
license grant, profit sharing expenses amounted to $4.4 million and
$14.5 million in 1998 and 1997, respectively. Profit sharing expenses are
included in cost of sales. No amounts were received or paid in 1999.
LITIGATION
In September and October 1998, following the commencement of the seizure action
by the FDA against Steris on September 10, 1998, a number of substantially
similar class action complaints asserting claims under the federal securities
laws were filed in federal Court in the District of New Jersey against the
Company and certain of its officers and directors. On December 21, 1998, the
court entered an order consolidating the actions, appointing lead plaintiffs and
approving selection of lead and liaison counsel. On or about March 29, 1999,
lead plaintiffs filed a consolidated and amended class action complaint (the
Complaint), naming as defendants the Company, its directors at the time of the
Company's April 9, 1998 initial public offering (the Offering), and three of the
underwriters of the Offering. Plaintiffs purport to sue on behalf of a class of
persons who purchased shares of the Company's common stock pursuant or traceable
to the Offering during the period from April 9, 1998 through September 28, 1998.
They allege that defendants violated the Securities Exchange Act of 1934 and
Rule 10b-5 by making misrepresentations and omissions of material facts in
connection with the Offering and in the registration statement and prospectus
issued pursuant to the Offering and in statements made immediately following the
FDA seizure action on September 10, 1998. Plaintiffs allege, among other things,
that defendants failed to disclose or misrepresented facts concerning the status
of the Company's internal controls and ability to comply with government
regulations relating to its manufacturing activities, including the status of
the Company's corrective actions at the Steris facility and the effect of the
FDA enforcement action on the Company's operations. Plaintiffs on behalf of the
purported class seek damages, recision and/or recisionary damages. In May 1999,
the Company and the other defendants in this action filed a motion to dismiss
the Complaint. In March 2000, and prior to any decision on the motion to
dismiss, plaintiffs and defendants entered into a Memorandum of Understanding
(MOU) to settle the actions. The MOU provides for, among other things, the
certification of the class, for purposes of the settlement, and the taking of
additional discovery by plaintiffs appropriate and necessary to confirm the
fairness and reasonableness of the contemplated settlement. The MOU also
contemplates the execution of an appropriate Stipulation of Settlement and other
related documentation. In addition, the settlement can become effective only
upon notice to the proposed class and a hearing and approval by the Court. The
Company does not believe that, if approved, the contemplated settlement, which
is expected to be funded through insurance proceeds, will have a material
adverse effect upon its results of operations or financial condition.
In one of the Company's patent challenge litigations filed in the U.S. District
Court for the Southern District of New York, the trial judge ruled against the
Company and upheld the validity of the patent at issue. On October 1, 1998, the
Court awarded attorneys fees to the patent holder and its licensee, and on
61
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--COMMITMENTS AND CONTINGENCIES (CONTINUED)
June 22, 1999 the court fixed the fees at $2.0 million. On July 28, 1999, the
Company filed an appeal of this matter which is currently pending before the
appeals court.
In March 1999, an action entitled MARVIN SAMSON V. SCHEIN PHARMACEUTICAL, INC.,
MARTIN SPERBER AND MARSAM PHARMACEUTICALS INC. was commenced in Superior Court
of New Jersey, Camden County, Law Division, alleging, among other things,
breaches of plaintiff's employment agreement with Marsam and misrepresentations
concerning responsibilities that would be given to plaintiff, and seeks, among
other things, damages which plaintiff believes exceed $6 million and a
declaration that the "non-competition restrictions" in his employment agreement
are no longer effective. The Company intends to defend itself vigorously against
this action.
In November, 1999, the Company was informed by the U.S. Department of Justice
that it, along with several other pharmaceutical companies, is a defendant in a
QUI TAM action brought in 1995 under the U.S. False Claims Act currently pending
in the Federal District Court for the Southern District of Florida. As of
March 31, 2000, the Company has not been served in this action. A QUI TAM action
is a lawsuit brought by an individual for an alleged violation of a federal
statute, in which the Department of Justice has the right to intervene and take
over the prosecution of the lawsuit at its option. The Department of Justice has
not yet decided whether to intervene in the matter. Pursuant to applicable
federal law, the QUI TAM action is under seal and no details are available
concerning the name of the plaintiff, the various theories of liability or the
amount of damages sought from any of the defendants. Based on industry
information, the Company believes that the matter relates to pharmaceutical
pricing issues and whether allegedly improper efforts by pharmaceutical
manufacturers led to increased payments by Medicare and/or Medicaid. Because
detailed allegations have not been revealed to the Company by the Justice
Department, management does not have any basis on which to determine the
Company's liability, if any, in connection with the lawsuit or the likely amount
of any such liability, or whether any resolution of the lawsuit would be likely
to have a material adverse affect on the Company's financial position, results
of operations or liquidity.
In addition, 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 product
liability and other proceedings and claims (except for the matter set forth
immediately above for which it is too early to assess liability), individually
or in the aggregate, will not have a material adverse effect on the Company's
financial position, results of operations or liquidity.
NOTE 13--EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS
Under the Company's 1993 Stock Option Plan, 1995 Non-Employee Director Stock
Option Plan, 1997 Stock Option Plan and 1999 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 date of grant. Generally
the options may be exercised subject to continued service (up 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 9,259,190 shares under the plans. The Company does not intend to
issue 222,810 shares available for issuance under the 1993 Stock Option Plan.
62
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes information about stock options outstanding at
December 25, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Exercise prices:
$8.88--$9.52..................... 416,265 7.1 $ 9.23 190,172 $ 9.52
$12.13--$14.29................... 2,369,192 8.5 13.45 906,123 13.98
$15.19--$16.31................... 53,082 9.4 15.91 -- --
$17.00........................... 1,581,935 6.9 17.00 978,928 17.00
$19.05........................... 1,038,765 4.6 19.05 1,019,970 19.05
$26.19--$29.25................... 9,452 8.5 28.40 3,151 28.40
--------- ---------
5,468,691 7.0 $15.27 3,098,344 $16.52
========= =========
</TABLE>
Transactions under the stock option plans and individual non-qualified options
not under the plans are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------------------
DECEMBER 25, 1999 DECEMBER 26, 1998 DECEMBER 27, 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year....................... 4,782,344 $16.06 3,123,435 $17.36 2,521,575 $18.31
Granted...................... 1,051,944 11.66 2,063,485 14.75 887,145 14.29
Exercised.................... (10,171) 14.02 (248,626) 17.35 -- --
Canceled..................... (355,426) 15.62 (155,950) 18.14 (285,285) 16.67
--------- --------- ---------
Outstanding at end of year... 5,468,691 $15.27 4,782,344 $16.06 3,123,435 $17.36
========= ========= =========
Options exercisable at
year-end................... 3,098,344 $16.52 2,651,818 $16.57 1,917,405 $18.11
Options available for
grant...................... 3,790,499 1,076,656 2,735,565
</TABLE>
Under the accounting provisions of SFAS No. 123, the Company's pro-forma net
income (loss) and earnings (loss) per share would have been:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------------
DECEMBER 25, 1999 DECEMBER 26, 1998 DECEMBER 27, 1997
----------------- ----------------- -----------------
(In thousands, except per share amount)
<S> <C> <C> <C>
Net income (loss).................. $(37,775) $(123,265) $7,402
Net income (loss) per share:
Basic and diluted................ $ (1.16) $ (3.93) $ 0.26
</TABLE>
63
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--EMPLOYEE BENEFIT PLANS (CONTINUED)
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 assumptions:
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Dividend yield................................... 0% 0% 0%
Expected volatility.............................. 46% 29% 24%
Risk-free interest rate.......................... 5.8% 5.6% 6%-7%
Expected life--years............................. 10 10 10
Discount for marketability....................... 0% 0% 25%
Weighted average fair value of options granted... $6.88 $7.85 $6.26
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan to offer employees an incentive
to acquire an ownership interest in the Company. The plan permits eligible
employees to purchase, through payroll deductions, an aggregate of 500,000
shares of common stock at approximately 85% of the fair market value of such
shares. Under the plan, share purchases were 183,857 and 106,644 for the years
ended 1999 and 1998, respectively.
OTHER
In order to reduce the costs of employee turnover, in early 2000 the Company
instituted an employee retention program for all non-management employees. The
program is expected to result in expenses of approximately $6.5 million and
$10.0 million for the years ended 2000 and 2001, respectively. The Company also
has management employment contracts which provide for certain severance and
other benefits in the event of most involuntary terminations, including enhanced
benefits after a change in control of the Company (as defined).
The Company maintains a defined contribution retirement plan under which
discretionary contributions to the plan by the Company vest to employees over
five years. Additionally, employees are permitted to make pre-tax contributions
to the plan with the Company making matching contributions. The contributions,
which were charged to operations, amounted to approximately $1.8 million,
$5.9 million and $4.6 million for the years ended 1999, 1998 and 1997,
respectively.
The Company has entered into deferred compensation agreements with certain
officers of the Company. As of December 1999, future obligations under these
agreements were approximately $4.4 million, assuming the officers remain with
the Company over the remaining vesting periods of one to four years. These
agreements provide for accelerated vesting if there is a change in control of
the Company and under certain other conditions. The Company expensed
$1.0 million, $1.3 million and $0.8 million in the fiscal years ended 1999, 1998
and 1997, respectively, in connection with these agreements.
The Company established an unfunded supplemental retirement program for its CEO
during 1994. The estimated obligation of $2.2 million and $5.3 million, as of
December 25, 1999 and December 26, 1998, respectively, is included in other
liabilities.
64
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--SETTLEMENT AND PRODUCT RIGHTS REVENUES
Included in net revenues in 1999 and 1998 are $26.8 million and $30.0 million,
respectively, of settlement and product rights revenues. In 1999, the Company
recognized $13.5 million of product rights revenue for the sale of rights to
certain otic and ophthalmic products from the Company's Steris facility and
$13.3 million of revenues relating to settlement of litigation relating to the
development of a product. In 1998, the Company recognized $30.0 million of
revenues that relate to the final payment of a patent settlement (See Note 12).
NOTE 15--OTHER EXPENSES (INCOME), NET
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1999 1998 1997
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Equity in loss of unconsolidated international
ventures....................................... $ 1,079 $ 1,872 $ 3,372
Gain on sales of marketable securities........... (684) (4,439) (12,745)
Other............................................ 873 321 55
------- ------- -------
$ 1,268 $(2,246) $(9,318)
======= ======= =======
</TABLE>
NOTE 16--RELATED PARTY TRANSACTIONS
Under certain co-promotion agreements for its branded products with Bayer
Corporation, a minority investor in the Company, the Company shared with Bayer
Corporation financial results in excess of specified threshold amounts, in
exchange for promotional support. Included in selling, general and
administrative expenses are selling expenses under the agreements of
approximately $2.0 million, $3.0 million and $4.2 million 1999, 1998 and 1997,
respectively. Included in accrued expenses as of December 25, 1999 and
December 26, 1998 are approximately $0.3 million and $0.8 million, respectively,
under these agreements.
In the ordinary course of business, the Company sells pharmaceutical products to
affiliates for distribution to their customers. Net sales to the affiliates were
$3.4 million, $8.6 million and $12.8 million in fiscal 1999, 1998 and 1997,
respectively. Included in accounts receivable at December 25, 1999 and
December 26, 1998 are amounts due from the affiliates for sale of products of
approximately $1.6 million and $5.3 million, respectively.
In June 1999, the remaining 50% interest in a United Kingdom joint venture was
acquired from Bayer for a $1.2 million note payable and the assumption of
current liabilities including $2.2 million of bank debt.
65
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--MAJOR CUSTOMERS AND PRODUCT
The following customers are nationwide wholesalers through whom the majority of
the Company's products are distributed to the retail, institutional and managed
care markets (amounts as a percentage of net product sales):
<TABLE>
<CAPTION>
MAJOR CUSTOMERS
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Customer A.............................................. 22% 22% 19%
Customer B.............................................. 17% 14% 18%
Customer C.............................................. 12% 14% 10%
</TABLE>
One product, INFeD, generated 27%, 19%, and 21% of net revenues for 1999, 1998
and 1997, respectively.
NOTE 18--REGULATORY MATTERS AND RESTRUCTURING CHARGES
MARSAM FACILITY
On July 29, 1999, the FDA concluded an inspection of the Company's Marsam
sterile manufacturing facility, located in Cherry Hill, N.J. At the close of the
inspection, Marsam received a Form 483 detailing the FDA's inspectional
observations and noting a number of significant deficiencies in current good
manufacturing practices. During the inspection, Marsam initiated actions to
address a number of the FDA's inspectional observations by voluntarily recalling
all Marsam products within expiry and suspending manufacturing and testing
activities. In September, 1999 Marsam submitted its response to the FDA's
inspectional observations, together with its proposed corrective action plan
(Marsam Corrective Action Plan). A corrective action plan is a systematic
approach to assure that processes, quality assurance and quality control
programs, validation programs, employee training, and management controls comply
with cGMP regulations. The Marsam Corrective Action Plan contemplates resumption
of manufacturing on a product-by-product basis. On March 3, 2000 Marsam received
a Warning Letter from the FDA relating to the observations made during the
inspection. This FDA Warning Letter also acknowledged the commitments the
Company made under the Marsam Corrective Action Plan. The Company has confirmed
with the FDA in meetings with FDA representatives its approach to addressing
current cGMP deficiencies at Marsam on a voluntary basis. The Company does not
expect Marsam will be subject to further regulatory enforcement action related
to the 1999 inspection. Marsam is currently ineligible to receive new product
approvals, and the Company cannot predict when Marsam will resume manufacturing
specific products.
Following its suspension of operations at the Marsam facility, the Company
re-evaluated its sterile business and its assessment of the time and costs
required to reintroduce products. As a result, the Company has modified its
overall business plans to more aggressively reduce operating costs. These
measures included, among other things, a reduction in the Company's workforce,
and dividing Marsam's product line into products it will seek to manufacture
upon completion of the Marsam Corrective Action Plan, and those products it has
decided not to manufacture. Marsam contributed approximately seven percent of
the Company's revenues and a smaller percentage of the Company's gross profits
over the four quarters preceding the suspension of shipment of its products.
The Company intends to reactivate its penicillin operations as part of the first
phase of a plan to bring its Marsam facility back to operation. Pending
resumption of manufacturing at Marsam, the Company expects to reintroduce
Penicillin G-Potassium during the second quarter of 2000 supplied by third party
under a contract manufacturing agreement.
66
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18--REGULATORY MATTERS AND RESTRUCTURING CHARGES (CONTINUED)
As a result of the actions discussed above, in 1999 the Company recorded a
restructuring charge of approximately $87.0 million, or $52.2 million net of tax
benefit. Costs of restructuring consist largely of costs incurred at the Marsam
facility and relate to the impairment of intangible assets, product recalls,
inventory write-offs and severance. Recall costs and inventory write-offs are
those costs that the Company incurred related to the Marsam Corrective Action
Plan.
STERIS FACILITY
On September 10, 1998, the U.S., on behalf of the FDA, based on actions it filed
in Federal court in the Southern District of New York on September 9, 1998 and
the District of Arizona on September 10, 1998 initiated seizures of drugs and
drug related products manufactured by the Company's Steris facility. The actions
alleged certain instances in which the Steris facility, located in Phoenix,
Arizona, was not operating in conformity with cGMP regulations. The actions
resulted in the seizure of all drugs and drug related products in the Company's
possession manufactured at the Steris facility and halted the manufacture and
distribution of Steris manufactured products.
On October 16, 1998, Steris and certain of its officers, without admitting any
allegations of the complaints and disclaiming any liability in connection
therewith, entered into a consent agreement with the FDA (the Consent
Agreement). Under the terms of the Consent Agreement, Steris is required, among
other things, to demonstrate through independent certification that Steris'
processes, quality assurance and quality control programs, and management
controls comply with cGMP regulations. The Consent Agreement also provides for
independent certification of Steris' management controls, quality assurance and
quality control programs, and employee cGMP training. It further requires that
Steris develop a timeline and corrective action plan for implementing these
actions and for expert certification with respect to matters covered in previous
FDA inspections of the facility. Steris has submitted to the FDA the corrective
action plan provided for under the Consent Agreement (Steris Corrective Action
Plan) and is implementing the Steris Corrective Action Plan.
As a result of the Consent Agreement, Steris has divided its product line into
three categories: products that it will seek to manufacture under expedited
certification procedures under the Consent Agreement, products that it will seek
to manufacture once it satisfies all conditions under the Consent Agreement and
products it has decided not to manufacture in the near term. Expedited
certification procedures apply for certain products that are particularly
important to the medical community because they are primarily or exclusively
available from the Company or that are particularly significant to the Company.
In October, 1998 the Company resumed commercial distribution of INFeD, its
branded injectable iron product, from existing inventory. In the second quarter
of 1999, the Company began distribution of newly manufactured lots of INFeD
under the Consent Agreement and in the fourth quarter of 1999, the Company
resumed the manufacture of one other product deemed medically necessary under
the expedited certification procedures in the Consent Agreement. In March 2000,
the Company resumed the manufacture and commercial distribution of vecuronium
under the expedited certification procedures provided in the Consent Agreement.
Newly manufactured products must undergo certification by independent experts
and review by the FDA prior to commercial distribution.
On February 11, 2000 the FDA concluded an inspection at Steris. The Company
believes that the results of that inspection confirm that the Company is
complying with the requirements of the Steris Corrective Action Plan. Steris is
currently ineligible to receive new product approvals, and the Company cannot
predict when Steris will resume manufacturing additional products.
67
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18--REGULATORY MATTERS AND RESTRUCTURING CHARGES (CONTINUED)
Steris accounted for approximately 40% of the Company's net sales and 50% of its
gross profits for the first six months of 1998. The Steris products that the
Company has decided not to manufacture contributed approximately $65 million in
revenue in the 12-month period ended June 1998. The Company recorded a
restructuring charge in 1998 of $161.2 million pretax, or $135.0 million, net of
tax benefit, relating to the effects of the Consent Agreement.
There can be no assurance that the FDA will determine that the Company has
adequately corrected the deficiencies at its operating sites, that subsequent
inspectional observations will not result in additional deficiencies, that
approval of any of the pending or subsequently submitted ANDAs by the Company
will be granted or that the FDA will not seek to impose additional sanctions
against the Company or any of its subsidiaries. The range of possible sanctions
includes FDA issuance of adverse publicity, product recalls or seizures,
injunctions, and civil or criminal prosecution. Any such sanctions, if imposed,
could have a material adverse effect on the Company's business. Additionally,
significant delays in the review or approval of applications for new products or
in complying with the requirements of the Marsam Corrective Action Plan, the
Steris Corrective Action Plan or the Consent Agreement could have a material
adverse effect on the Company's business, results of operation and financial
condition.
RESTRUCTURING CHARGES--1999 AND 1998
As a result of the regulatory matters at the Company's sterile dosage
facilities, the Company recorded a restructuring charge of $52.2 million, net of
tax benefit, in 1999, and $135.0 million, net of tax benefit, in 1998. The
details of the restructuring charges are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
(in millions)
<S> <C> <C>
Costs of restructuring:
Recalls and related expenses.............................. $ 8.9 $ 2.0
Severance and related costs............................... 1.1 5.4
Regulatory and compliance related costs................... -- 12.7
Temporary manufacturing shutdown costs.................... -- 5.3
Other costs and expenses.................................. -- 3.0
------ -------
10.0 28.4
------ -------
Asset impairments:
Intangible asset impairement.............................. 54.6 --
Goodwill impairment....................................... -- 95.5
Inventory write-off....................................... 14.0 30.5
Fixed asset impairment.................................... 8.4 6.8
------ -------
77.0 132.8
------ -------
Total charges and impairment........................ 87.0 161.2
Income tax benefit.................................. (34.8) (26.2)
------ -------
$ 52.2 $ 135.0
====== =======
</TABLE>
68
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18--REGULATORY MATTERS AND RESTRUCTURING CHARGES (CONTINUED)
RESTRUCTURING CHARGE 1999--MARSAM
Costs of restructuring consist largely of costs incurred at the Marsam facility
and relate to the impairment of intangible assets, product recalls, inventory
write-offs and severance. Recall costs and inventory write-offs are those costs
that the Company incurred related to the Marsam Corrective Action Plan. As of
December 25, 1999, $76.5 million of costs have been charged against the
restructuring reserve of $87.0 million established in 1999.
The inventory write-off was determined based upon the Marsam Corrective Action
Plan that requires the Company to destroy certain finished goods and
work-in-process inventories. Additionally, valuation adjustments were recorded
for raw materials and supplies associated with products that the Company no
longer expects to market. Fixed asset impairments were recorded for plant and
equipment at the Marsam facility that is not expected to be utilized in
production.
The intangible asset impairment was recorded in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (SFAS 121). In 1995, the Company acquired Marsam, a manufacturer
and marketer of generic injectable products for the institutional market. As a
result of the Marsam Corrective Action Plan and the decision not to manufacture
a number of Marsam products, the Company re-evaluated the carrying value of the
intangible assets. Based upon an evaluation of projected non-discounted
operating cash flows for continuing products, management determined there was an
impairment. Fair value was then determined based upon discounted operating cash
flows (using a discount rate of 12%). Based on this analysis, the related
intangible assets were written down to their fair value.
RESTRUCTURING CHARGE 1998--STERIS
Costs of restructuring consist largely of costs incurred at the Steris facility
and, to a lesser extent, costs of closing one of the Company's distribution
centers and other steps taken by the Company to reduce its ongoing operating
costs, including workforce reductions. Regulatory and compliance related costs
consist primarily of costs related to products the Company will recondition and
validation testing of products in the market as required by the Consent
Agreement. Temporary manufacturing shutdown costs are the idle plant costs of
the Steris facility. Severance costs relate to reductions in workforce costs at
the Steris facility, the closed distribution center, and in the institutional
sales and marketing organization. Workforce reductions in 1998 totaled
approximately 370 individuals. Recalls and related expenses and other costs and
expenses are those costs that the Company estimates will be incurred related to
the Consent Agreement. As of December 25, 1999, $27.5 million had been charged
against the restructuring reserve of $28.4 million established in 1998.
The inventory write-off was determined based upon the terms of the Consent
Agreement that required the Company to destroy certain finished goods and
work-in-process inventories. Additionally, valuation adjustments were recorded
for raw materials and supplies associated with products that the Company no
longer expects to market. Fixed asset impairments were recorded for plant and
equipment at the Steris facility that is not expected to be utilized in
production.
The goodwill impairment was recorded in accordance with SFAS 121. In connection
with the 1995 acquisition of Marsam, which, like Steris, was a manufacturer and
marketer of generic injectable products for the institutional market, the
Company subsequently combined the two organizations' sales and marketing forces
with a goal of leveraging the combined product lines. Additionally, other
functions were
69
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18--REGULATORY MATTERS AND RESTRUCTURING CHARGES (CONTINUED)
combined, including manufacturing and research and development activities. As a
result of the Consent Agreement and the decision not to manufacture a
significant number of Steris products, the Company's opportunities in and
approach to the institutional market place were re-evaluated. As part of this
re-evaluation, management reviewed the carrying value of the goodwill. Based
upon an evaluation of projected non-discounted operating cash flows, management
determined there was an impairment to goodwill. Fair value was then determined
based upon discounted operating cash flows (using a discount rate of 9%). Based
on this analysis, the goodwill amount was written off since it was deemed to
have no remaining value. The activity in these restructuring reserves during
1999 and 1998 is as follows (in millions):
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING END
OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Restructuring Reserves--1999:
Inventory and other--Marsam....................... $ -- 87.0 (76.5) $10.5
Inventory and other--Steris....................... 32.4 -- (31.5) 0.9
----- ---- ------ -----
$32.4 87.0 (108.0) $11.4(1)
===== ==== ====== =====
Restructuring Reserves--1998:
Inventory and other--Steris....................... $ -- 65.7 (33.3) $32.4(2)
===== ==== ====== =====
</TABLE>
(1) Included in the 1999 restructuring reserve is $1.6 million classified as
accrued expenses (See Note 7).
(2) Included in the 1998 restructuring reserve is $7.2 million classified as
accrued expenses (See Note 7).
NOTE 19--QUARTERLY DATA (UNAUDITED)
A summary of the quarterly results of operations is as follows:
<TABLE>
<CAPTION>
FOURTH THIRD SECOND FIRST
1999 QUARTER QUARTER QUARTER QUARTER
- ---- --------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net revenues....................................... $ 110,077 $125,817 $135,404 $105,863
Gross profit....................................... 32,169 49,581 53,109 36,283
Operating income (loss)............................ (75,654) 12,083 12,712 8,619
Net income (loss).................................. (45,722) 4,283 4,827 2,224
Earnings (loss) per share, basic and diluted....... $ (1.40) $ 0.13 $ 0.15 $ .07
</TABLE>
Due to the year end strategic revaluation and decision regarding the Company's
sterile business, the Company recorded a $87.0 million, ($52.2 million net of
taxes) restructuring charge. To conform to the annual presentation, certain
amounts recorded in the second and third quarter are reclassified as
restructuring charges. Charges to net revenues amounting to $4.5 million and
$1.9 million in the second and third quarter, respectively, were reclassified to
restructuring costs. Additionally, inventory write-offs amounting to
$5.0 million and $4.0 million in the second and third quarter, respectively,
were reclassified to restructuring costs. As a result of these
reclassifications, gross profits were increased by $9.5 million and
$5.9 million in the second and third quarter, respectively. There was no change
to reported operating income or net income. In addition, certain estimated
incentive based employee benefit accruals, amounting
70
<PAGE>
SCHEIN PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--QUARTERLY DATA (UNAUDITED) (CONTINUED)
to $4.5 million and provided for in the current and prior years, were adjusted
and reduced in the fourth quarter in conjunction with year end results.
<TABLE>
<CAPTION>
FOURTH THIRD SECOND FIRST
1998 QUARTER QUARTER QUARTER QUARTER
- ---- --------- --------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net revenues....................................... $ 121,655 $ 116,922 $137,974 $146,678
Gross profit....................................... 37,198 38,853 46,153 51,885
Operating income (loss)............................ 2,890 (150,032) 14,278 20,592
Income (loss) before extraordinary item............ (1,111) (130,820) 6,443 9,122
Net income (loss).................................. (1,111) (130,820) 4,783 9,122
Earnings (loss) per share, basic and diluted:
Income (loss) before extraordinary item.......... $ (0.03) $ (4.04) $ 0.20 $ 0.32
Net income (loss)................................ $ (0.03) $ (4.04) $ 0.15 $ 0.32
</TABLE>
In 1998, the annual results included a provision for a restructuring charge of
$161.2 million ($135.0 million net of taxes). Of this amount, $156.6 was
recorded in the third quarter ($132.4 million net of taxes), and $4.6 million
was recorded in the fourth quarter ($2.6 million net of taxes).
NOTE 20--SUBSEQUENT EVENTS
In January 2000, the Company announced that it had retained financial advisors
to explore strategic alternatives to enhance the value of its business,
including the possible sale of all or part of the business. As of March 2000,
that process was still ongoing, and the Company cannot predict the timing or the
outcome of this process.
In February 2000, the Company reduced its workforce by approximately 16% as part
of an evaluation of its sterile business plan and to reduce operating costs. As
a result, the Company expects to incur a charge of approximately $3.5 million in
the first quarter of 2000.
In March 2000, the Company entered into a Memorandum of Understanding to settle
certain class action shareholder litigations (See Note 12).
In February and March 2000, the Company and the lenders under its revolving
credit and loan agreement agreed to various amendments which together:
(i) allowed the Company a waiver with respect to such non-compliance,
(ii) modified certain financial covenants, including leverage, interest expense
coverage, fixed charge and working capital ratios through the end of 2000 and
(iii) increased the interest rate on the outstanding loans and fees payable.
(See Note 9.)
71
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the fiscal year ended December 25, 1999, there have been no changes in
the independent accountants nor disagreements with such accountants as to
accounting and financial disclosures of the type required to be disclosed in
this Item 9.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information as to directors required by this Item 10 is hereby incorporated
by reference to this section entitled "Election of Directors" in the Company's
Proxy Statement. Information concerning executive officers required by this
Item 10 is provided in Item 4A of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by reference to
the section entitled "Executive Compensation" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated herein by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated herein by reference to
the section entitled "Restructuring Agreements" and "Certain Transactions" in
the Company's Proxy Statement.
72
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. List of Financial Statements
See Item 8 hereto.
2. Financial Statement Schedules
The following financial statement schedule of the Company included
herein on pages 75 and 76 should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included on
pages 42 through 71 of this Form 10-K.
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Report of Independent Certified Public Accountants on
Supplemental Schedule to the Consolidated Financial
Statements.................................................. 78
Schedule II--Valuation and Qualifying Accounts.............. 79
All other schedules for the Company are omitted because
either they are not applicable or the required information
is shown in the financial statements or notes thereto.
</TABLE>
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Note Description
- --------------------- -------- -----------
<S> <C> <C>
3.1 (Intentionally Omitted)
3.2 (Intentionally Omitted)
3.3 (1) Restated Certificate of Incorporation of the Company adopted
by the Company on March 6, 1998.
3.4 (1) Amended and Restated By-Laws of the Company adopted by the
Company on March 6, 1998.
4.1 (2) Amended and Restated Credit Agreement, dated as of November
6, 1998, amending and restating the 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 (Intentionally Omitted)
4.3 (1) 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 (1) Offering Memorandum, dated December 19, 1997, with respect
to the Company's $100,000,000 Senior Floating Rate Notes Due
2004.
4.5 (6) Waiver and First Amendment, dated as of February 7, 2000, to
the Amended and Restated Credit Agreement dated as of
November 6, 1998 among the Company, the Lenders Party and
The Chase Manhattan Bank.
4.6 (6) First Amendment and Consent, dated as of March 15, 2000, to
the Waiver and First Amendment dated as of February 7, 2000
of the Amended and Restated Credit Agreement dated as of
November 6, 1998 among the Company, the Lenders Party and
The Chase Manhattan Bank.
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Note Description
- --------------------- -------- -----------
<S> <C> <C>
4.7 (6) Second Amendment, dated as of March 24, 2000, to the Waiver
and First Amendment dated as of February 7, 2000, as amended
by the First Amendment and Consent dated as of March 15,
2000 of the Amended and Restated Credit Agreement dated as
of November 6, 1998, as amended by the Waiver, among the
Company, the Lenders Party and The Chase Manhattan Bank.
4.8 (6) Second Amendment, dated as of March 25, 2000, to the Amended
and Restated Credit Agreement dated as of November 6, 1998,
as amended by the Waiver and First Amendment dated as of
February 7, 2000 (as amended by the First Amendment and
Consent dated as of March 15, 2000 and the Second Amendment
dated as of March 24, 2000), among the Company, the Lenders
Party, and The Chase Manhattan Bank.
9.1 (1) Voting Trust Agreement, dated September 30, 1994, by and
among the Company, Marvin H. Schein, the trust established
by Marvin H. Schein under trust agreement dated December 31,
1993, the trust established by Marvin H. Schein under trust
agreement dated September 9, 1994, Pamela Schein, the trust
established by the Trustees under Article Fourth of the Will
of Jacob M. Schein for the benefit of Pamela Schein and her
issue under trust agreement dated September 29, 1994, Pamela
Joseph, and the trust established by Pamela Joseph under
trust agreement dated September 28, 1994, and Martin
Sperber, as voting trustee.
10.1 (1) Supply Agreement, dated May 1, 1992, between Abbott
Laboratories, and Steris Laboratories, Inc., including
Letter Amendment, dated December 2, 1993, and Letter
Amendment, dated June 9, 1995.
10.2 (1) Agreement, dated June 10, 1994, between Steris Laboratories,
Inc., Akzo Pharma International B.V., and Organon Inc.
10.3 (Intentionally Omitted)
10.4 (1) Sublicense, Co-marketing and Supply Agreement, dated
September 30, 1996, between the Company and Makoff R&D
Laboratories, Inc., dated September 30, 1996.
10.5 (1) Agreement, dated August 16, 1994, between the Company and
Elan Pharma Ltd. (currently Elan Corporation Plc).
10.6 (1) Custom Manufacturing Agreement, dated July 1, 1995, between
the Company and Johnson Matthey, Inc.
10.7 (Intentionally Omitted)
10.8 (1) Lease Agreement, dated March 30, 1992, between the Company
and Harold Lepler.
10.9 (1) Lease Agreement, dated February 16, 1990, between the
Company and Ronald G. Roth.
10.10 (1) Memorandum of Lease for Danbury, dated December 1, 1995
between Danbury Pharmacal, Inc. and Albert J. Salame.
10.11 (1) 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 (Intentionally Omitted)
10.13 (1)(3) Schein Holdings, Inc. 1993 Stock Option Plan (formerly the
Schein Pharmaceutical, Inc. 1993 Stock Option Plan) dated as
of November 5, 1993.
10.14 (1)(3) Schein Pharmaceutical, Inc. 1997 Stock Option Plan.
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Note Description
- --------------------- -------- -----------
<S> <C> <C>
10.15 (1)(3) Schein Pharmaceutical, Inc. 1995 Non-Employee Director Stock
Option Plan (amended and restated as of August 8, 1996).
10.16 (Intentionally Omitted)
10.17 (Intentionally Omitted)
10.18 (Intentionally Omitted)
10.19 (Intentionally Omitted)
10.20 (1)(3) Employment Agreement, dated September 30, 1994, between the
Company and Martin Sperber.
10.21 (1)(3) Option Agreement Pursuant to 1993 Stock Option Plan dated
September 30, 1994 between Schein Holdings, Inc. and Martin
Sperber.
10.22 (1)(3) Employment Agreement, dated as of July 28, 1995, between the
Company and Marvin Samson.
10.23 (1)(3) Compensation Continuation Agreement, dated October 19, 1991,
between the Company and Marvin Samson.
10.24 (1) Split Dollar Insurance Agreement, dated March 25, 1991,
between the Company, Michael Samson and Andrew Samson,
Trustees under Indenture of Trust of Marvin Samson.
10.25 (Intentionally Omitted)
10.26 (Intentionally Omitted)
10.27 (Intentionally Omitted)
10.28 (Intentionally Omitted)
10.29 (1) Form of Split Dollar Life Insurance Agreement.
10.30 (1) General Shareholders Agreement, dated September 30, 1994, by
and among the Company, Bayer Corporation (formerly Miles
Inc.), each of the family shareholders listed as such on
schedule A thereto, each of the other shareholders listed as
such on schedule A thereto and Martin Sperber, as trustee
under the Voting Trust Agreement.
10.31 (1) Continuing Shareholders Agreement, dated September 30, 1994,
by and among the Company and each of the shareholders listed
on schedule A thereto.
10.32 (1) Heads of Agreement between Company, Bayer Corporation
(formerly Miles Inc.) and Bayer A.G.
10.33 (Intentionally Omitted)
10.34 (1) License and Development Agreement, dated November 30, 1993,
between the Company and Ethical Holdings Plc.
10.35 (1) License and Development Agreement, dated January 15, 1993,
between the Company and Ethical Holdings Limited, including
Amendment, dated November 4, 1994.
10.36 (1) Letter Agreement, dated June 23, 1995, between the Company
and Ethical Holdings, Inc., including Revised Schedule 5,
effective July 21, 1995.
10.37 (1) (Intentionally Omitted)
10.38 (1) Multiproduct Technology Transfer, Development and License
Agreement, dated August 30, 1994, between the Company and
Ethical Holdings Plc.
10.39 (1) License and Development Agreement, dated March 31, 1994,
between the Company and Ethical Holdings Plc.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Note Description
- --------------------- -------- -----------
<S> <C> <C>
10.40 (Intentionally Omitted)
10.41 (Intentionally Omitted)
10.42 (Intentionally Omitted)
10.43 (Intentionally Omitted)
10.44 (1) Co-Promotion Agreement, dated August 1, 1994, between the
Company and Bayer Corporation (formerly Miles Inc.),
including Amendment Number 1, dated January 1, 1997,
Amendment Number 2, dated January 1, 1997 and Amendment
No. 3 dated as of January 28, 1998.
10.45 (1)(3) Schein Pharmaceutical, Inc. 1998 Employee Stock Purchase
Plan, dated January 28, 1998.
10.46 (1) Stock Purchase Agreement, dated February 6, 1998, between
the Company and Cheminor Drugs Limited.
10.47 (1) Shareholders Agreement, dated February 6, 1998, between the
Company, Cheminor Drugs Limited and the principal
shareholders of Cheminor Drugs Limited listed on Schedule A.
10.48 (1) Strategic Alliance Agreement, dated February 6, 1998, among
the Company, Cheminor Drugs Limited, Dr. Reddy's
Laboratories Limited and Reddy-Cheminor, Inc.
10.49 (1) Development, License and Supply Agreement, dated March 31,
1998, between the Company and Elan Corporation, Plc.
10.50 (4)(5) Amendment Number 4, dated February 11, 1999, to the
Co-Promotion Agreement, dated August 1, 1994, between the
Company and Bayer Corporation.
10.51 (4)(5) Amendment, dated February 25, 1999, to the Supply Agreement,
dated May 1, 1992, between Abbott Laboratories and Steris
Laboratories, Inc.
10.52 (4)(5) Supply Agreement, dated February 25, 1999, between the
Company and Abbott Laboratories.
10.53 (4) Amendment No. 1, dated September 4, 1998, to the Development
License and Supply Agreement, dated March 31, 1998, between
the Company and Elan Corporation Plc.
10.54 (4)(5) Amendment No. 2, dated December 1, 1998, to the Development
License and Supply Agreement, dated March 31, 1998, between
the Company and Elan Corporation Plc.
10.55 (Intentionally Omitted)
10.56 (3)(4) Schein Pharmaceutical, Inc. 1995 Non-Employee Director Stock
Option Plan (Amended and Restated as of August 24, 1998).
10.57 (3)(4) Schein Pharmaceutical, Inc. 1999 Stock Option Plan.
10.58 (6)(7) Co-Promotion Agreement, dated as of July 1, 1999, between
Bayer Corporation and the Company, including Amendment No.
1, dated as of March 1, 2000.
10.59 (3)(6) Employment Agreement, dated as of November 18, 1999, between
the Company and Dariush Ashrafi, including Amendment Number
1, dated as of December 31, 1999.
10.60 (3)(6) Amendment dated as of February 21, 1995 and Amendments Nos.
1-3 to the Employment Agreement, dated September 30, 1994,
between the Company and Martin Sperber.
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Note Description
- --------------------- -------- -----------
<S> <C> <C>
10.61 (3)(6) Employment Agreement, dated as of January 1, 2000, between
the Company and Paul Feuerman.
10.62 (3)(6) Employment Agreement, dated as of January 1, 2000, between
the Company and Whitney K. Stearns, Jr.
10.63 (3)(6) Employment Agreement, dated as of January 1, 2000, between
the Company and Paul Kleutghen.
10.64 (3)(6) Employment Agreement, dated as of August 1, 1999, between
the Company and Javier Cayado.
10.65 (3)(6) Employment Agreement, dated as of December 1, 1999, between
the Company and Donald Britt.
10.66 (3)(6) Retirement Plan of Schein Pharmaceutical, Inc. and
Affiliates as Amended and Restated as of January 1, 1998,
including Amendments Nos. 1--5.
10.67 (6)(7) Amendment Number 3, dated as of May 19, 1999 to Development,
License and Supply Agreement between Elan Corp Plc and the
Company.
10.68 (6)(7) Penicillin G Potassium Manufacturing and Supply Agreement,
effective February 15, 2000, between Pfizer Inc. and the
Company.
10.69 (6)(7) Amendment, dated February 28, 2000, to the Multiproduct
Technology Transfer Development and License Agreement,
between the Company and Amarin Corporation Plc (formerly
known as Ethical Holdings Plc).
10.70 (6)(7) Letter Agreement, dated March 24, 2000, between the Company
and Amarin Corporation Plc.
21.1 (6) List of Subsidiaries.
23.1 (6) Consent of BDO Seidman, LLP.
27.1 (6) Financial Data Schedule.
</TABLE>
<TABLE>
<CAPTION>
Notes to Exhibits
- -----------------
<C> <S>
(1) Incorporated herein by reference to the exhibit with the
corresponding number filed as part of the Company's
Registration Statement on Form S-1, dated December 3, 1997,
as amended (Registration No. 333-41413).
(2) Incorporated herein by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K filed on November 17,
1998.
(3) Management contracts or compensatory plans or arrangements
required to be filed pursuant to this Item 14.
(4) Incorporated herein by reference to the exhibit with the
corresponding number filed as part of the Company's Annual
Report on Form 10-K for the fiscal year ended December 26,
1998.
(5) Material was omitted from this Exhibit pursuant to a request
for confidential treatment, which request was granted on May
25, 1999. The omitted material was filed separately with the
Securities and Exchange Commission.
(6) Filed herewith.
(7) Material has been omitted from this Exhibit pursuant to a
request for confidential treatment. The omitted material has
been filed separately with the Securities and Exchange
Commission.
</TABLE>
(b) Reports on Form 8-K
None
77
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Schein Pharmaceutical, Inc.
The audits referred to in our report dated February 16, 2000 (except for
Note 20 which is as of March 31, 2000) relating to the consolidated financial
statements of Schein Pharmaceutical, Inc. and subsidiaries, which is contained
in Item 8 of this Form 10-K, included the audit of the financial statement
schedule listed in the accompanying index. 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 financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
New York, New York
February 16, 2000, except for Note 20
which is as of March 31, 2000
78
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END
OF PERIOD ADDITIONS DEDUCTIONS OTHER OF PERIOD
---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended December 25, 1999........ $2,486 -- $ (7) (279) $2,200
====== ==== ===== ==== ======
Year ended December 26, 1998........ $2,260 $467 $(241) -- $2,486
====== ==== ===== ==== ======
Year ended December 27, 1997........ $2,434 -- $(174) -- $2,260
====== ==== ===== ==== ======
</TABLE>
79
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
SCHEIN PHARMACEUTICAL, INC.
(Registrant)
By /s/ MARTIN SPERBER
-----------------------------------------
Martin Sperber
Chairman of the Board and
Chief Executive Officer
April 6, 2000
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ MARTIN SPERBER Chairman of the Board, Chief
-------------------------------------- Executive Officer And Director April 6, 2000
Martin Sperber (Principal Executive Officer)
/s/ DARIUSH ASHRAFI President, Chief Operating
-------------------------------------- Officer And Director April 6, 2000
Dariush Ashrafi
/s/ PAUL FEUERMAN Executive Vice President,
-------------------------------------- Corporate Affairs, General April 6, 2000
Paul Feuerman Counsel and Director
Senior Vice President and Chief
/s/ WHITNEY K. STEARNS, JR. Financial Officer (Principal
-------------------------------------- Financial and Accounting April 6, 2000
Whitney K. Stearns, Jr. Officer)
/s/ JOSEPH A. AKERS Director
-------------------------------------- April 6, 2000
Joseph A. Akers
/s/ RICHARD L. GOLDBERG Director
-------------------------------------- April 6, 2000
Richard L. Goldberg
/s/ HARVEY ROSENTHAL Director
-------------------------------------- April 6, 2000
Harvey Rosenthal
/s/ JUDITH HEMBERGER, Ph.D. Director
-------------------------------------- April 6, 2000
Judith Hemberger, Ph.D.
</TABLE>
80
<PAGE>
Exhibit 4.5
WAIVER AND FIRST AMENDMENT dated as of February 7, 2000
(this "Waiver and Amendment"), to the Amended and Restated
Credit Agreement dated as of November 6, 1998 (the "Credit
Agreement"), among SCHEIN PHARMACEUTICAL, INC., a Delaware
corporation (the "Borrower"), the lenders party hereto (the
"Lenders") and THE CHASE MANHATTAN BANK, a New York banking
corporation, as administrative agent for the Lenders (in such
capacity, the "Administrative Agent"), as issuing bank and as
collateral agent.
The Borrower has requested that the Lenders waive compliance with
certain covenants contained in the Credit Agreement, and the Lenders executing
this Waiver and Amendment are willing to waive compliance with such covenants on
the terms and conditions and for the period set forth below. Capitalized terms
used and not otherwise defined herein shall have the meanings assigned to them
in the Credit Agreement.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms and
subject to the conditions set forth herein, as follows:
SECTION 1. Waiver of Certain Covenants. (a) Subject to Section 5
below, the undersigned Lenders hereby waive compliance, at all times on or after
September 26, 1999, and on or prior to March 15, 2000, with the covenants
contained in (i) Section 6.14 of the Credit Agreement, but only so long as the
Leverage Ratio shall not at any time on or after September 26, 1999, have
exceeded 6.00 to 1.00; (ii) Section 6.17 of the Credit Agreement, but only so
long as the Fixed Charge Coverage Ratio shall not at any time on or after
September 26, 1999, have been less than 0.60 to 1.00; and (iii) Section 6.18 of
the Credit Agreement, but only so long as the Interest Expense Coverage Ratio
shall not at any time on or after September 26, 1999, have been less than 2.00
to 1.00. The waivers provided for in the preceding sentence will terminate on
the earlier of (x) 5:00 p.m., New York City time, on March 15, 2000, (y) any
date on which an Event of Default shall occur under the Credit Agreement (giving
effect to the waiver provided for in this Section) and (z) any date on which the
Borrower shall fail to perform any of its undertakings under this Waiver and
Amendment (the first to occur of the dates referred to in the preceding clauses
(x), (y) and (z) being called the "Termination Date").
(b) Notwithstanding any other provision of this Waiver and
Amendment, on the Termination Date, the waiver set forth in the preceding
paragraph (a) shall terminate and cease to be of any force or effect, and the
Administrative Agent, the Collateral Agent and the Lenders shall have all rights
under the Loan Documents that would have been available to them had such waiver
never been granted.
SECTION 2. Certain Amendments to Credit Agreement. (a) The
definition of "Applicable Percentage" in Section 1.01 of the Credit Agreement is
hereby amended by deleting clause (b) of the third sentence following the table
therein and inserting in its place the following:
"(b) subject to clause (a) above, Category 6 from and including
February
<PAGE>
2
7, 2000, through the Termination Date (as defined in the Waiver and
First Amendment dated as of February 7, 2000, to this Agreement").
(b) The definition of "Net Income" in Section 1.01 of the Credit
Agreement is hereby amended by inserting at the end thereof the following new
sentence:
"For any period including the fiscal quarter ended December 25,
1999, Net Income shall be determined without giving effect to a
non-cash impairment charge for Marsam Pharmaceutical, Inc. in a
pre-tax amount not to exceed $63,000,000 to be recorded by the
Borrower as of December 25, 1999."
(c) The definition of "Net Worth" in Section 1.01 of the Credit
Agreement is hereby amended to read as follows:
"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 Company
for the Marsam acquisition to the extent such charge is less than
$35,000,000 plus (a) the lesser of (i) the amount of any non-cash
Steris Charges taken by the Borrower and the Subsidiaries and (ii)
$117,000,000, plus (b) the amount of a non-cash impairment charge
for Marsam Pharmaceutical, Inc. in a pre-tax amount not to exceed
$63,000,000 to be recorded by the Borrower as of December 25, 1999.
SECTION 3. Certain Agreements of the Company. (a) The Borrower
agrees, not later than March 3, 2000, to deliver to the Administrative Agent,
with a copy for each Lender, (i) projected balance sheets, income statements,
statements of cash flows and covenant levels, including projection assumptions,
for each financial quarter from the date hereof to and including the Maturity
Date with respect to the Borrower and its consolidated Subsidiaries, (ii)
information, satisfactory to the Administrative Agent, with respect to the
extraordinary charges to be recorded by the Borrower as of December 25, 1999,
(iii) a balance sheet, income statement and statement of cash flows for the year
ended December 25, 1999 and (iv) an income statement for December, 1999.
(b) Without limiting the obligations of the Borrower under Section 9.05 of
the Credit Agreement, the Borrower agrees from time to time upon demand to pay
the reasonable fees and the out-of-pocket expenses of (i) financial advisors
retained by the Administrative Agent on behalf of the Lenders and (ii) such
additional counsel and other consultants as the Administrative Agent shall deem
it advisable to retain to provide advice to the Administrative Agent and the
Lenders.
(c) The Borrower agrees to pay to the Administrative Agent on the
Effective Date a fee of $100,000 to be distributed by the Administrative Agent
among the Lenders that shall have executed this Waiver and Amendment on or prior
to 12:00 noon, New York City time, on such date ratably in accordance with the
amounts of their outstanding Loans, L/C Exposures and unused Revolving Credit
Commitments.
(d) The Borrower agrees (i) subject to the obtaining of required consents
from landlords, promptly, and not later than March 1, 2000, to execute and
deliver and to cause the Domestic Subsidiaries to execute and deliver such
mortgages with respect to leasehold interests held by the Borrower and the
Domestic Subsidiaries as shall have
<PAGE>
3
been requested by the Collateral Agent and (ii) to use its best efforts promptly
to obtain all such landlord consents as shall be required to permit the
execution and delivery of the mortgages referred to in the preceding clause (i).
SECTION 4. Representations and Warranties. The Borrower represents
and warrants to each of the Lenders and the Administrative Agent that:
(i) After giving effect to this Waiver, the representations
and warranties set forth in Article III of the Credit Agreement are
true and correct in all material respects with the same effect as if
made on and as of the date hereof.
(ii) After giving effect to this Waiver, no Event of Default
or Default has occurred and is continuing.
SECTION 5. Conditions to Effectiveness of Waivers and Amendments.
The waivers set forth in Section 1 and the amendments set forth in Section 2
shall become effective as of the date of this Waiver and Amendment, but only
upon the satisfaction on or prior to the date hereof of the following conditions
precedent (the date on which the last of such conditions is satisfied being
called the "Effective Date"):
(a) the Administrative Agent shall have received counterparts
of this Waiver and Amendment that, when taken together, bear the
signatures of the Borrower and the Required Lenders;
(b) the Administrative Agent shall have received in
immediately available funds the Waiver Fee referred to in Section 3;
(c) the Administrative Agent shall have received such evidence
as it or its counsel shall have requested as to the corporate power
and authority of the Borrower to enter into and perform its
obligations under this Waiver and Amendment;
(d) the representations and warranties set forth in Section 4
shall be true and correct; and
(e) the Borrower and the Domestic Subsidiaries shall have
executed and delivered all such amendments to the Pledge Agreement
and other instruments and documents as shall have been requested by
the Collateral Agent in order to subject to the Lien of the Pledge
Agreement and to perfect the Lien of the Pledge Agreement in all
equity interests owned by the Borrower and the Domestic Subsidiaries
in persons that are not Subsidiaries.
SECTION 6. Credit Agreement. Except as expressly set forth herein,
this Waiver and Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders and the Administrative Agent under the Credit Agreement, or alter,
modify, amend or in any way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement, all of which are
ratified and affirmed in all respects and shall continue in full force and
effect. This Waiver and Amendment shall apply and be effective only with respect
to the provisions of the Credit Agreement specifically referred to herein. The
agreements set forth in this Waiver and Amendment shall be deemed for all
purposes to be covenants contained in Article VI of the Credit Agreement as
amended hereby, and
<PAGE>
4
the failure of the Borrower to perform any of such agreements in accordance with
the terms thereof shall constitute an Event of Default under the Credit
Agreement as so amended.
SECTION 7. Expenses. The Borrower agrees to reimburse the
Administrative Agent for (a) the fees and expenses referred to in Section 3(c)
and (b) its out-of-pocket expenses reasonably incurred in connection with this
Waiver and Amendment, including the reasonable fees, charges and disbursements
of Cravath, Swaine & Moore, counsel for the Administrative Agent.
SECTION 8. Applicable Law. THIS WAIVER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9. Counterparts. This Waiver and Amendment 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 contract. Delivery of an
executed counterpart of a signature page of this Waiver and Amendment by
telecopy shall be
<PAGE>
5
effective as delivery of a manually executed counterpart of this Waiver and
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver and
Amendment to be duly executed by their respective authorized officers as of the
day and year first written above.
SCHEIN PHARMACEUTICAL, INC.,
by /s/ James A. Meer
-----------------------------------------------
Name: James A. Meer
Title: Vice President & Treasurer
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent, Collateral Agent and Issuing
Bank,
by
-----------------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
by
-----------------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA,
by
-----------------------------------------------
Name:
Title:
<PAGE>
5
effective as delivery of a manually executed counterpart of this Waiver and
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver and
Amendment to be duly executed by their respective authorized officers as of the
day and year first written above.
SCHEIN PHARMACEUTICAL, INC.,
by
-----------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent, Collateral Agent and Issuing
Bank,
by /s/ Dawn Lee Lum
-----------------------------------------------
Name: Dawn Lee Lum
Title: Vice President
THE BANK OF NEW YORK,
by
-----------------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA,
by
-----------------------------------------------
Name:
Title:
<PAGE>
5
effective as delivery of a manually executed counterpart of this Waiver and
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver and
Amendment to be duly executed by their respective authorized officers as of the
day and year first written above.
SCHEIN PHARMACEUTICAL, INC.,
by
-----------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent, Collateral Agent and Issuing
Bank,
by
-----------------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
by /s/ Michael B. Scaduto
-----------------------------------------------
Name: Michael B. Scaduto
Title: Vice President
THE BANK OF NOVA SCOTIA,
by
-----------------------------------------------
Name:
Title:
<PAGE>
5
effective as delivery of a manually executed counterpart of this Waiver and
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver and
Amendment to be duly executed by their respective authorized officers as of the
day and year first written above.
SCHEIN PHARMACEUTICAL, INC.,
by
-----------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent, Collateral Agent and Issuing
Bank,
by
-----------------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
by
-----------------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA,
by /s/ John Campbell
-----------------------------------------------
Name: John Campbell
Title: Managing Director
<PAGE>
6
BANK OF TOKYO-MITSUBISHI TRUST COMPANY,
by
------------------------------------
Name:
Title:
BAYERISCHE HYPOTHEKEN-UND WECHSEL-
BANK AKTIENGESSELLSCHAFT, NEW YORK
BRANCH,
by
------------------------------------
Name:
Title:
by
------------------------------------
Name:
Title:
COMERICA BANK,
by /s/ Ashley S. Yashin
------------------------------------
Name: Ashley S. Yashin
Title: Account Officer
COMMERCIAL LOAN FUNDING TRUST I,
by LEHMAN COMMERCIAL PAPER, INC.,
not in its individual capacity but
solely as Administrative Agent
by
------------------------------------
Name:
Title:
COMMERZBANK AKTIENGESELLSHAFT, NEW
YORK BRANCH,
by
------------------------------------
Name:
Title:
by
------------------------------------
Name:
Title:
<PAGE>
6
BANK OF TOKYO-MITSUBISHI 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:
COMMERCIAL LOAN FUNDING TRUST I,
by LEHMAN COMMERCIAL PAPER, INC.,
not in its individual capacity but
solely as Administrative Agent
by /s/ William J. Gallagher
------------------------------------
Name: WILLIAM J. GALLAGHER
Title: AUTHORIZED SIGNATORY
COMMERZBANK AKTIENGESELLSHAFT, NEW
YORK BRANCH,
by
------------------------------------
Name:
Title:
by
------------------------------------
Name:
Title:
<PAGE>
6
BANK OF TOKYO-MITSUBISHI 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:
COMMERCIAL LOAN FUNDING TRUST I,
by LEHMAN COMMERCIAL PAPER, INC.,
not in its individual capacity but
solely as Administrative Agent
by
------------------------------------
Name:
Title:
COMMERZBANK AKTIENGESELLSHAFT, NEW
YORK BRANCH,
by /s/ Andrew R. Campbell
------------------------------------
Name: Andrew R. Campbell
Title: Assistant Vice President
by /s/ G. Rod McWalters
------------------------------------
Name: G. Rod McWalters
Title: Senior Vice President
<PAGE>
7
COOPERATIEVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by /s/ Nancy J. O'Connor
------------------------------------
Name: Nancy J. O'Connor
Title: Vice President
by /s/ Richard [ILLEGIBLE]
------------------------------------
Name: Richard [ILLEGIBLE]
Title: V.P
<PAGE>
8
DEUTSCHE BANK, A.G., NEW YORK AND/OR CAYMAN
ISLAND BRANCHES,
by /s/ Iain Stewart
----------------------------------------
Name: Iain Stewart
Title: Vice President
by /s/ [ILLEGIBLE] Spear
----------------------------------------
Name: [ILLEGIBLE] Spear
Title: Director
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLAND BRANCH,
by
----------------------------------------
Name:
Title:
by
----------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK,
by
----------------------------------------
Name:
Title:
FLEET BANK, N.A. (formerly known as
NatWest Bank, N.A.),
by
----------------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
by
----------------------------------------
Name:
Title:
<PAGE>
8
DEUTSCHE BANK, A.G., NEW YORK AND/OR CAYMAN
ISLAND BRANCHES,
by
----------------------------------------
Name:
Title:
by
----------------------------------------
Name:
Title:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, AG
CAYMAN ISLAND BRANCH,
by /s/ Sabine Wendt
----------------------------------------
Name: SABINE WENDT
Title: Vice President
by
----------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK,
by
----------------------------------------
Name:
Title:
FLEET BANK, N.A. (formerly known as
NatWest Bank, N.A.),
by
----------------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
by
----------------------------------------
Name:
Title:
<PAGE>
8
DEUTSCHE BANK, A.G., NEW YORK AND/OR CAYMAN
ISLAND BRANCHES,
by
----------------------------------------
Name:
Title:
by
----------------------------------------
Name:
Title:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, AG
CAYMAN ISLAND BRANCH,
by
----------------------------------------
Name:
Title:
by
----------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK,
by /s/ Stuart Kratter
----------------------------------------
Name: STUART KRATTER
Title: SVP
FLEET BANK, N.A. (formerly known as
NatWest Bank, N.A.),
by
----------------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
by
----------------------------------------
Name:
Title:
<PAGE>
8
DEUTSCHE BANK, A.G., NEW YORK AND/OR CAYMAN
ISLAND BRANCHES,
by
----------------------------------------
Name:
Title:
by
----------------------------------------
Name:
Title:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, AG
CAYMAN ISLAND BRANCH,
by
----------------------------------------
Name:
Title:
by
----------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK,
by
----------------------------------------
Name:
Title:
FLEET BANK, N.A. (formerly known as
NatWest Bank, N.A.),
by /s/ [ILLEGIBLE]
----------------------------------------
Name: [ILLEGIBLE]
Title: VICE PRESIDENT
KEYBANK NATIONAL ASSOCIATION,
by
----------------------------------------
Name:
Title:
<PAGE>
9
MELLON BANK, N.A.,
by /s/ Walter J. Letts
----------------------------------
Name: WALTER J. LETTS
Title: VICE PRESIDENT
PNC BANK, N.A.,
by
----------------------------------
Name:
Title:
SOCIETE GENERALE, NEW YORK BRANCH,
by
----------------------------------
Name:
Title:
SUMMIT BANK,
by
----------------------------------
Name:
Title:
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
by
----------------------------------
Name:
Title:
by
----------------------------------
Name:
Title:
<PAGE>
9
MELLON BANK, N.A.,
by
----------------------------------
Name:
Title:
PNC BANK, N.A.,
by /s/ Michael Nardo
----------------------------------
Name: Michael Nardo
Title: Vice President
SOCIETE GENERALE, NEW YORK BRANCH,
by
----------------------------------
Name:
Title:
SUMMIT BANK,
by
----------------------------------
Name:
Title:
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
by
----------------------------------
Name:
Title:
by
----------------------------------
Name:
Title:
<PAGE>
9
MELLON BANK, N.A.,
by
----------------------------------
Name:
Title:
PNC BANK, N.A.,
by
----------------------------------
Name:
Title:
SOCIETE GENERALE, NEW YORK BRANCH,
by /s/ Cynthia A. Jay
----------------------------------
Name: Cynthia A. Jay
Title: Managing Director
SUMMIT BANK,
by
----------------------------------
Name:
Title:
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
by
----------------------------------
Name:
Title:
by
----------------------------------
Name:
Title:
<PAGE>
9
MELLON BANK, N.A.,
by
----------------------------------
Name:
Title:
PNC BANK, N.A.,
by
----------------------------------
Name:
Title:
SOCIETE GENERALE, NEW YORK BRANCH,
by
----------------------------------
Name:
Title:
SUMMIT BANK,
by /s/ Christopher P. Klegkowski
----------------------------------
Name: Christopher P. Klegkowski
Title: SVP
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
by
----------------------------------
Name:
Title:
by
----------------------------------
Name:
Title:
<PAGE>
9
MELLON BANK, N.A.,
by
----------------------------------
Name:
Title:
PNC BANK, N.A.,
by
----------------------------------
Name:
Title:
SOCIETE GENERALE, NEW YORK BRANCH,
by
----------------------------------
Name:
Title:
SUMMIT BANK,
by
----------------------------------
Name:
Title:
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
by /s/ Richard J. Pearse
----------------------------------
Name: Richard J. Pearse
Title: Managing Director
by /s/ Elisabeth R. Wilds
----------------------------------
Name: Elisabeth R. Wilds
Title: Associate
<PAGE>
13
BAYERISCHE HYPO-UND
VEREINSBANK AG
by
----------------------------------
Name:
Title:
COMMERZBANK AG, NEW YORK
BRANCH
by
----------------------------------
Name:
Title:
BAYERISCHE LANDESBANK
GIROZENTRALE,
by
----------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN ISLANDS,
by /s/ John P. Fieseler
----------------------------------
Name: John P. Fieseler
Title: Senior Vice President
/s/ Patrick A. Keleher
-------------------------------------
Name: PATRICK A. KELEHER
Title: Vice President
<PAGE>
CONFORMED COPY
FIRST AMENDMENT AND CONSENT dated as of March 15, 2000
(this "Amendment"), to the Waiver and First Amendment dated as
of February 7, 2000 (the "Waiver") of the Amended and Restated
Credit Agreement (the "Credit Agreement") dated as of November
6, 1998, as amended by the Waiver, among SCHEIN
PHARMACEUTICAL, INC., a Delaware corporation (the "Borrower"),
the lenders party hereto (the "Lenders") and THE CHASE
MANHATTAN BANK, a New York banking corporation, as
administrative agent for the Lenders (in such capacity, the
"Administrative Agent"), as issuing bank and as collateral
agent.
A. Pursuant to the Credit Agreement, the Lenders and the Issuing
Bank have extended credit to the Borrower, and have agreed to extend credit to
the Borrower, in each case pursuant to the terms and subject to the conditions
set forth therein.
B. The Borrower has requested that the Waiver be amended as set
forth herein.
C. The Borrower has also informed the Administrative Agent that it
intends to sell all of its 135,000 shares of capital stock of Bone Care
International (the "Bone Care Sale"). The Borrower has requested that the
Lenders consent to such sale and to the retention and reinvestment of any
proceeds from such sale in the Borrower's business.
D. The Required Lenders are willing to amend the Waiver and grant
the requested consent pursuant to the terms and subject to the conditions set
forth herein.
E. Capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms and
subject to the conditions set forth herein, as follows:
SECTION 1. Amendment to the Waiver.
(a) Section 1 of the Waiver is hereby amended and restated in its
entirety as follows:
(a) Subject to Section 5 below, the undersigned Lenders hereby
waive compliance, at all times on or after September 26, 1999, and
on or prior to March 24, 2000, with the covenants contained in (i)
Section 6.14 of the Credit Agreement; (ii) Section 6.17 of the
Credit Agreement; and (iii) Section 6.18 of the Credit Agreement.
The waivers provided for in the preceding sentence will terminate on
the earlier of (x) 5:00 p.m., New York City time, on March 24, 2000,
(y) any date on which an Event of Default shall occur under the
Credit Agreement (giving effect to the waiver provided for in this
Section) and (z) any date on which the Borrower shall fail to
perform any of its undertakings under this Waiver
<PAGE>
2
and Amendment (the first to occur of the dates referred to in the
preceding clauses (x), (y) and (z) being called the "Termination
Date").
SECTION 2. Consent. The Lenders hereby consent to the Bone Care
Sale and to the retention and reinvestment of all proceeds therefrom in the
business of the Borrower.
SECTION 3. Representations and Warranties. The Borrower represents
and warrants to each of the Lenders and the Administrative Agent that:
(i) 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 with the same effect as if made on and as
of the date hereof.
(ii) After giving effect to this Amendment, no Event of Default or
Default has occurred and is continuing.
SECTION 4. Conditions to Effectiveness of Amendments. The amendment
set forth in Section 1 shall become effective as of the date of this Amendment,
but only upon the satisfaction on or prior to the date hereof of the following
conditions precedent (the date on which the last of such conditions is satisfied
being called the "Effective Date"):
(a) the Administrative Agent shall have received counterparts of
this Amendment that, when taken together, bear the signatures of the
Borrower and the Required Lenders; and
(b) the representations and warranties set forth in Section 3 shall
be true and correct.
SECTION 5. Credit Agreement. 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 and the
Administrative Agent under the Credit Agreement, or alter, modify, amend or in
any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement, all of which are ratified and
affirmed in all respects and shall continue in full force and effect. This
Amendment shall apply and be effective only with respect to the provisions of
the Credit Agreement specifically referred to herein. The agreements set forth
in this Amendment shall be deemed for all purposes to be covenants contained in
Article VI of the Credit Agreement as amended hereby, and the failure of the
Borrower to perform any of such agreements in accordance with the terms thereof
shall constitute an Event of Default under the Credit Agreement as so amended.
This Amendment shall constitute a "Loan Document" for all purposes of the Credit
Agreement and the other Loan Documents.
SECTION 6. Expenses. The Borrower agrees to reimburse the
Administrative Agent for its out-of-pocket expenses reasonably incurred in
connection with this Amendment, including, without limitation, the reasonable
fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the
Administrative Agent.
<PAGE>
3
SECTION 7. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. Counterparts. This Amendment 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 contract. Delivery of an executed
counterpart of a signature page of this Amendment by facsimile shall be
effective as delivery of a manually executed counterpart of this Amendment.
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first written above.
SCHEIN PHARMACEUTICAL, INC.,
by /s/ James A. Meer
-----------------------------------------
Name: James. A. Meer
Title: Vice President & Treasurer
THE CHASE MANHATTAN BANK, individually
and as Administrative Agent, Collateral Agent and
Issuing Bank,
by /s/ Dawn Lee Lum
-----------------------------------------
Name: Dawn Lee Lum
Title: Vice President
AG CAPITAL FUNDING PARTNERS, L.P.,
by /s/ Jeff Aronson
-----------------------------------------
Name: Jeff Aronson
Title: Managing Director
BEAR, STEARNS & CO. INC.,
by /s/ Gregory A. Hanley
-----------------------------------------
Name: Gregory A. Hanley
Title: Senior Managing Director
COMMERCIAL LOAN FUNDING TRUST I,
by: LEHMAN COMMERCIAL PAPER,
INC., not in its individual capacity but
solely as Administrative Agent
by /s/ Michele Swanson
-----------------------------------------
Name: Michele Swanson
Title: Authorized Signatory
<PAGE>
5
COOPERATIEVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by /s/ Richard Matther
-----------------------------------------
Name: Richard Matther
Title: Vice President
by /s/ Jeffrey Vollack
-----------------------------------------
Name: Jeffrey Vollack
Title: Senior Vice President
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CAYMAN
ISLAND BRANCH,
by /s/ Sabine Wendt
-----------------------------------------
Name: Sabine Wendt
Title: Vice President
by /s/ Rob T. Jokhai
-----------------------------------------
Name: Rob T. Jokhai
Title: Vice President
FIRST UNION NATIONAL BANK,
by /s/ Stuart Kratter
-----------------------------------------
Name: Stuart Kratter
Title: Senior Vice President
FLEET BANK, N.A. (formerly known as NatWest
Bank, N.A.),
by /s/ Edward J. Walsh
-----------------------------------------
Name: Edward J. Walsh
Title: Senior Vice President
MELLON BANK, N.A.,
by /s/ Walter J. Letts
-----------------------------------------
Name: Walter J. Letts
Title: Vice President
<PAGE>
6
SOCIETE GENERALE, NEW YORK BRANCH,
by /s/ Cynthia A. Jay
-----------------------------------------
Name: Cynthia A. Jay
Title: Managing Director
THE BANK OF NOVA SCOTIA,
by /s/ Brian S. Allen
-----------------------------------------
Name: Brian S. Allen
Title: Managing Director
BANK OF TOKYO-MITSUBISHI 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:
<PAGE>
7
DEUTSCHE BANK, A.G. NEW YORK AND/OR
CAYMAN ISLAND BRANCHES,
by
_________________________________________
Name:
Title:
by
_________________________________________
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
by
_________________________________________
Name:
Title:
PNC BANK, N.A.,
by
_________________________________________
Name:
Title:
SUMMIT BANK,
by
_________________________________________
Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA,
by /s/ Brian S. Allen
----------------------------------------
Name: Brian S. Allen
Title: Managing Director
<PAGE>
EXECUTION COPY
SECOND AMENDMENT dated as of March 24, 2000 (this
"Amendment"), to the Waiver and First Amendment dated as of
February 7, 2000, as amended by the First Amendment and
Consent dated as of March 15, 2000 (the "Waiver") of the
Amended and Restated Credit Agreement (the "Credit Agreement")
dated as of November 6, 1998, as amended by the Waiver, among
SCHEIN PHARMACEUTICAL, INC., a Delaware corporation (the
"Borrower"), the lenders party hereto (the "Lenders") and THE
CHASE MANHATTAN BANK, a New York banking corporation, as
administrative agent for the Lenders (in such capacity, the
"Administrative Agent"), as issuing bank and as collateral
agent.
A. Pursuant to the Credit Agreement, the Lenders and the Issuing
Bank have extended credit to the Borrower, and have agreed to extend credit to
the Borrower, in each case pursuant to the terms and subject to the conditions
set forth therein.
B. The Borrower has requested that the Waiver be amended as set
forth herein.
C. The Required Lenders are willing to amend the Waiver pursuant to
the terms and subject to the conditions set forth herein.
D. Capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms and
subject to the conditions set forth herein, as follows:
SECTION 1. Amendment to the Waiver.
(a) Section 1 of the Waiver is hereby amended and restated in its
entirety as follows:
"(a) Subject to Section 5 below, the undersigned Lenders
hereby waive compliance, at all times on or after September
26, 1999, and on or prior to March 31, 2000, with the
covenants contained in (i) Section 6.14 of the Credit
Agreement; (ii) Section 6.17 of the Credit Agreement; and
(iii) Section 6.18 of the Credit Agreement. The waivers
provided for in the preceding sentence will terminate on the
earlier of (x) 5:00 p.m., New York City time, on March 31,
2000, (y) any date on which an Event of Default shall occur
under the Credit Agreement (giving effect to the waiver
provided for in this Section) and (z) any date on which the
Borrower shall fail to perform any of its undertakings under
this
<PAGE>
2
Waiver and Amendment (the first to occur of the dates
referred to in the preceding clauses (x), (y) and (z) being
called the "Termination Date")."
SECTION 2. Representations and Warranties. The Borrower
represents and warrants to each of the Lenders and the Administrative Agent
that:
(i) 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 with the same effect as if
made on and as of the date hereof.
(ii) After giving effect to this Amendment, no Event of
Default or Default has occurred and is continuing.
SECTION 3. Conditions to Effectiveness of Amendments. The
amendment set forth in Section 1 shall become effective as of the date of this
Amendment, but only upon the satisfaction on or prior to the date hereof of the
following conditions precedent (the date on which the last of such conditions is
satisfied being called the "Effective Date"):
(a) the Administrative Agent shall have received counterparts
of this Amendment that, when taken together, bear the signatures of
the Borrower and the Required Lenders; and
(b) the representations and warranties set forth in Section 2
shall be true and correct.
SECTION 4. Credit Agreement. 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 and the Administrative Agent under the Credit Agreement, or alter,
modify, amend or in any way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement, all of which are
ratified and affirmed in all respects and shall continue in full force and
effect. This Amendment shall apply and be effective only with respect to the
provisions of the Credit Agreement specifically referred to herein. The
agreements set forth in this Amendment shall be deemed for all purposes to be
covenants contained in Article VI of the Credit Agreement as amended hereby, and
the failure of the Borrower to perform any of such agreements in accordance with
the terms thereof shall constitute an Event of Default under the Credit
Agreement as so amended. This Amendment shall constitute a "Loan Document" for
all purposes of the Credit Agreement and the other Loan Documents.
SECTION 5. Expenses. The Borrower agrees to reimburse the
Administrative Agent for its out-of-pocket expenses reasonably incurred in
<PAGE>
3
connection with this Amendment, including, without limitation, the reasonable
fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the
Administrative Agent.
SECTION 6. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Counterparts. This Amendment 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 contract. Delivery of an
executed counterpart of a signature page of this Amendment by facsimile shall be
effective as delivery of a manually executed counterpart of this Amendment.
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first written above.
SCHEIN PHARMACEUTICAL, INC.,
by
______________________________________
Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK, individually
and as Administrative Agent, Collateral
Agent and Issuing Bank,
by
_____________________________________
Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA,
by
_____________________________________
Name:
Title:
<PAGE>
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY,
by
_____________________________________
Name:
Title:
<PAGE>
BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK
AKTIENGESSELLSCHAFT, NEW YORK BRANCH,
by
_____________________________________
Name:
Title:
by
_____________________________________
Name:
Title:
<PAGE>
COMERICA BANK,
by
_____________________________________
Name:
Title:
<PAGE>
COMMERCIAL LOAN FUNDING TRUST I,
by: LEHMAN COMMERCIAL PAPER, INC.,
not in its individual capacity but
solely as Administrative Agent
by
_____________________________________
Name:
Title:
<PAGE>
COOPERATIEVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by
_____________________________________
Name:
Title:
by
_____________________________________
Name:
Title:
<PAGE>
DEUTSCHE BANK, A.G., NEW YORK AND/OR
CAYMAN ISLAND BRANCHES,
by
_____________________________________
Name:
Title:
by
_____________________________________
Name:
Title:
<PAGE>
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLAND BRANCH,
by
_____________________________________
Name:
Title:
by
_____________________________________
Name:
Title:
<PAGE>
FIRST UNION NATIONAL BANK,
by
_____________________________________
Name:
Title:
<PAGE>
FLEET BANK, N.A. (formerly known as
NatWest Bank, N.A.),
by
_____________________________________
Name:
Title:
<PAGE>
KEYBANK NATIONAL ASSOCIATION,
by
_____________________________________
Name:
Title:
<PAGE>
MELLON BANK, N.A.,
by
_____________________________________
Name:
Title:
<PAGE>
PNC BANK, N.A.,
by
_____________________________________
Name:
Title:
<PAGE>
SOCIETE GENERALE, NEW YORK BRANCH,
by
_____________________________________
Name:
Title:
<PAGE>
SUMMIT BANK,
by
_____________________________________
Name:
Title:
<PAGE>
AG CAPITAL FUNDING PARTNERS, L.P.,
by
_____________________________________
Name:
Title:
<PAGE>
BEAR, STEARNS & CO. INC.,
by
_____________________________________
Name:
Title:
<PAGE>
Exhibit 4.8
EXECUTION COPY
SECOND AMENDMENT dated as of March 25, 2000 (this
"Amendment"), to the Amended and Restated Credit Agreement
dated as of November 6, 1998, as amended by the Waiver and
First Amendment dated as of February 7, 2000 (as amended by
the First Amendment and Consent dated as of March 15, 2000 and
the Second Amendment dated as of March 24, 2000) (the "Credit
Agreement"), among SCHEIN PHARMACEUTICAL, INC., a Delaware
corporation (the "Borrower"), the lenders party hereto (the
"Lenders") and THE CHASE MANHATTAN BANK, a New York banking
corporation, as administrative agent for the Lenders (in such
capacity, the "Administrative Agent"), as issuing bank and as
collateral agent.
A. Pursuant to the Credit Agreement, the Lenders and the Issuing
Bank have extended credit to the Borrower, and have agreed to extend credit to
the Borrower, in each case pursuant to the terms and subject to the conditions
set forth therein.
B. The Borrower has requested that the Credit Agreement be amended
as set forth herein.
C. The Required Lenders are willing to amend the Credit Agreement
pursuant to the terms and subject to the conditions set forth herein.
D. Capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms and
subject to the conditions set forth herein, as follows:
SECTION 1. Certain Amendments to Credit Agreement.
(a) Section 1.01 of the Credit Agreement is hereby amended as
follows:
(i) by inserting the following sentence at the end of the
definition of "Net Income":
<PAGE>
2
"For the fiscal quarter ended (i) December 25, 1999, Net
Income shall be determined without giving effect to a
restructuring charge in a pre-tax amount not to exceed
$87,000,000 to be recorded by the Borrower as of December 25,
1999 and (ii) March 25, 2000, Net Income shall be determined
without giving effect to a severance charge in a pre-tax
amount not to exceed $3,500,000 to be recorded by the Borrower
as of March 25, 2000.".
(ii) by inserting the following sentence at the end of the
definition of "Net Worth":
"Notwithstanding the foregoing, for the fiscal quarter ended
(i) December 25, 1999, Net Worth shall be determined without
giving effect to a restructuring charge in an after-tax amount
not to exceed $52,200,000 and (ii) March 25, 2000, Net Worth
shall be determined without giving effect to a severance
charge in an after-tax amount not to exceed $2,500,000.".
(b) Section 6.14 of the Credit Agreement is hereby amended and
restated in its entirety as follows:
"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 1996 to but excluding the
last day of the second fiscal
quarter of 1997 6.50 to 1.00
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 5.00 to 1.00
the third fiscal quarter of 1998
From and including the last day of
the third fiscal quarter of 1998 to
and including the last day of
fiscal 1998 4.50 to 1.00
<PAGE>
3
From and including the first day of
fiscal 1999 to but excluding the
last day of the third fiscal
quarter of 1999 5.00 to 1.00
From and including the last day of
the third fiscal quarter of 1999 to
and including the last day of
fiscal 1999 4.25 to 1.00
From and including the first day of
the first fiscal quarter of 2000 to
and including the last day of the
first fiscal quarter of 2000 5.60 to 1.00
From and including the first day of
the second fiscal quarter of 2000
to and including the last day of
the second fiscal quarter of 2000 5.60 to 1.00
From and including the first day of
the third fiscal quarter of 2000 to
and including the last day of the
third fiscal quarter of 2000 4.50 to 1.00
From and including the first day of
the fourth fiscal quarter of 2000
to and including the last day of
the fourth fiscal quarter of 2000 3.50 to 1.00
Thereafter 3.50 to 1.00".
(c) Section 6.16 of the Credit Agreement is hereby amended and
restated in its entirety as follows:
"SECTION 6.16. Working Capital. Permit the ratio of Current
Assets to Current Liabilities as of the last day of any fiscal quarter
ending (i) at or before the end of fiscal 2000 to be less than 1.50 to
1.00, or (ii) after the end of fiscal 2000 to be less than 1.75 to 1.00,
provided that Indebtedness incurred under the Senior Floating Rate Notes
shall in no event be classified as Current Liabilities for purposes of
this Section.".
(d) Section 6.17 of the Credit Agreement is hereby amended and
restated in its entirety as follows:
"SECTION 6.17. Fixed Charge Coverage Ratio. Permit the Fixed
Charge Coverage Ratio as of any date during any period specified below to
be less than the ratio set forth below next to such period:
Period Ratio
------ -----
From and including the last day of
fiscal 1996 to but excluding the
last day of 1.00 to 1.00
<PAGE>
4
fiscal 1997
From and including the last day of
fiscal 1997 to and including the 1.10 to 1.00
last day of fiscal 1998
From and including the first day of
fiscal 1999 to but excluding the
last day of the second fiscal
quarter of 1999 0.75 to 1.00
From and including the last day of
the second fiscal quarter of 1999
to but excluding the last day of
the third fiscal quarter of 1999 0.80 to 1.00
From and including the last day of
the third fiscal quarter of 1999 to
and including the last day of
fiscal 1999 0.90 to 1.00
From and including the first day of
the first fiscal quarter of 2000 to
and including the last day of the
first fiscal quarter of 2000 0.50 to 1.00
From and including the first day of
the second fiscal quarter of 2000
to and including the last day of
the second fiscal quarter of 2000 0.50 to 1.00
From and including the first day of
the third fiscal quarter of 2000 to
and including the last day of the
third fiscal quarter of 2000 0.50 to 1.00
From and including the first day of
the fourth fiscal quarter of 2000
to and including the last day of
the fourth fiscal quarter of 2000 0.60 to 1.00
Thereafter 1.50 to 1.00".
(e) Section 6.18 of the Credit Agreement is hereby amended and
restated in its entirety as follows:
"SECTION 6.18. Interest Expense Coverage Ratio. Permit the
Interest Expense Coverage Ratio as of any date during any period specified
below to be less than the ratio set forth below next to such period:
Period Ratio
------ -----
From and including the last day of
the third fiscal quarter of 1998 to
and including the last day of
fiscal 1998 2.50 to 1.00
<PAGE>
5
From and including the first day of
fiscal 1999 to and including the
last day of the second fiscal
quarter of 1999 2.25 to 1.00
From and including the first day of
the third fiscal quarter of 1999 to
and including the last day of the
third fiscal quarter of 1999 2.50 to 1.00
From and including the first day of
the fourth fiscal quarter of 1999
to and including the last day of
the fourth fiscal quarter of 1999 2.75 to 1.00
From and including the first day of
the first fiscal quarter of 2000 to
and including the last day of the
first fiscal quarter of 2000 1.80 to 1.00
From and including the first day of
the second fiscal quarter of 2000
to and including the last day of
the second fiscal quarter of 2000 1.80 to 1.00
From and including the first day of
the third fiscal quarter of 2000 to
and including the last day of the
third fiscal quarter of 2000 2.00 to 1.00
From and including the first day of
the fourth fiscal quarter of 2000
to and including the last day of
the fourth fiscal quarter of 2000 2.50 to 1.00
Thereafter 2.75 to 1.00".
SECTION 2. Certain Agreements of the Company. (a) For purposes
of this Section, "Additional Financing" shall mean any combination of
committed credit facilities, equity, junior-lien financing, asset sales
(provided that such sale complies with the terms of the Credit Agreement)
and subordinated debt obtained no later than May 1, 2000, in an aggregate
amount of at least $40,000,000 with a maturity of no sooner than January
2, 2001 and otherwise on terms reasonably satisfactory to the Required
Lenders.
(b) The Borrower agrees to pay to each Lender, through the
Administrative Agent, on the Effective Date, an amendment fee (i) equal to
0.25% of the sum of such Lender's outstanding Term Loan and Revolving
Credit Commitment (whether used or unused on such date), provided that
such Lender shall have executed this Amendment on or prior to 3:00 p.m.,
New York City time, on March 31, 2000, and (ii) with respect to any Lender
not subject to clause (i) above, 0.125% of the sum of such Lender's
outstanding Term Loan and Revolving Credit Commitment (whether used or
unused on such date) ((i) and (ii), collectively, the "Amendment Fee").
<PAGE>
6
(c) In the event that the Borrower does not obtain the Additional
Financing, the Borrower agrees as follows:
(i) Notwithstanding the definition of "Applicable Percentage" or any
other provision of the Credit Agreement, the Borrower agrees that
(i) the "Eurodollar Spread" shall be (w) 3.500% from the Effective
Date through April 30, 2000, (x) 4.000% from May 1, 2000 through
August 31, 2000, (y) 4.250% from September 1, 2000 through December
31, 2000, and (z) 4.500% thereafter and (ii) the "ABR Spread" shall
be (w) 2.500% from the Effective Date through April 30, 2000, (x)
3.000% from May 1, 2000 through August 31, 2000, (y) 3.250% from
September 1, 2000 through December 30, 2000, and (z) 3.500%
thereafter.
(ii) The Borrower agrees that it shall pay to each Lender, through
the Administrative Agent, on May 1, 2000, a fee equal to 0.50% of
the sum of such Lender's outstanding Term Loan and Revolving Credit
Commitment (whether used or unused on such date).
(iii) The Borrower agrees that it shall pay to each Lender, through
the Administrative Agent, on September 1, 2000, a fee equal to 0.25%
of the sum of such Lender's outstanding Term Loan and Revolving
Credit Commitment (whether used or unused on such date).
(iv) The Borrower agrees that it shall pay to each Lender, through
the Administrative Agent, on December 31, 2000, a fee equal to 0.25%
of the sum of such Lender's outstanding Term Loan and Revolving
Credit Commitment (whether used or unused on such date).
(d) In the event that the Borrower does obtain the Additional
Financing, the Borrower agrees as follows:
(i) Notwithstanding the definition of "Applicable Percentage" or any
other provision of the Credit Agreement, the Borrower agrees that
(i) the "Eurodollar Spread" shall be (x) 3.500% from the Effective
Date through August 31, 2000, (y) 4.000% from September 1, 2000
through December 31, 2000, and (z) 4.250% thereafter and (ii) the
"ABR Spread" shall be (x) 2.500% from the Effective Date through
August 31, 2000, (y) 3.000% from September 1, 2000 through December
30, 2000, and (z) 3.250% thereafter.
(ii) The Borrower agrees that it shall pay to each Lender, through
the Administrative Agent, on September 1, 2000, a fee equal to 0.25%
of the sum of such Lender's outstanding Term Loan and Revolving
Credit Commitment (whether used or unused on such date).
(iii) The Borrower agrees that it shall pay to each Lender, through
the Administrative Agent, on December 31, 2000, a fee equal to 0.25%
of the sum of such Lender's outstanding Term Loan and Revolving
Credit Commitment (whether used or unused on such date).
<PAGE>
7
(e) The Borrower agrees to use its best efforts promptly to obtain
the Additional Financing.
(f) The Borrower agrees, not later than two weeks after the end of
each month, to deliver to the Administrative Agent, (i) a three-month
projection of cash flows with respect to the Borrower and its consolidated
Subsidiaries, with weekly projections for the first month of the
forecasting period and monthly projections for the second and third months
of the forecasting period and (ii) concurrently with the delivery of the
projections referred to in clause (i), a statement reconciling the
previous months' actual cash flows with the projections previously
delivered for that month.
(g) Without limiting the obligations of the Borrower under Section
9.05 of the Credit Agreement, the Borrower agrees from time to time upon
demand to pay the reasonable fees and the out-of-pocket expenses of (i)
financial advisors retained by the Administrative Agent on behalf of the
Lenders and (ii) such additional counsel, including, without limitation,
Wachtell, Lipton, Rosen & Katz, and other consultants as the
Administrative Agent shall deem it advisable to retain to provide advice
to the Administrative Agent and the Lenders.
SECTION 3. Representations and Warranties. The Borrower
represents and warrants to each of the Lenders and the Administrative
Agent that:
(i) 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 with the same effect as if
made on and as of the date hereof.
(ii) After giving effect to this Amendment, no Event of
Default or Default has occurred and is continuing.
SECTION 4. Conditions to Effectiveness of Amendments. The
amendments set forth herein shall become effective as of the date of this
Amendment, but only upon the satisfaction of the following conditions (the
date on which the last of such conditions is satisfied being called the
"Effective Date"):
(a) the Administrative Agent shall have received counterparts
of this Amendment that, when taken together, bear the signatures of
the Borrower and the Required Lenders;
(b) the Administrative Agent shall have received in
immediately available funds the Amendment Fee referred to in Section
2; and
(c) the representations and warranties set forth in Section 3
shall be true and correct.
SECTION 5. Credit Agreement. 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 and the Administrative Agent under the Credit
Agreement, or alter, modify, amend or in any way affect any of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement, all of which are ratified and affirmed in all respects and
shall continue in full force and effect. This Amendment shall apply and be
effective only with respect to the
<PAGE>
8
provisions of the Credit Agreement specifically referred to herein. The
agreements set forth in this Amendment shall be deemed for all purposes to
be covenants contained in Article VI of the Credit Agreement as amended
hereby, and the failure of the Borrower to perform any of such agreements
in accordance with the terms thereof shall constitute an Event of Default
under the Credit Agreement as so amended. This Amendment shall constitute
a "Loan Document" for all purposes of the Credit Agreement and the other
Loan Documents.
SECTION 6. Expenses. The Borrower agrees to reimburse the
Administrative Agent for (a) the fees and expenses referred to in Section
2 and (b) its out-of-pocket expenses reasonably incurred in connection
with this Amendment, including the reasonable fees, charges and
disbursements of Cravath, Swaine & Moore, counsel for the Administrative
Agent.
SECTION 7. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
9
SECTION 8. Counterparts. This Amendment 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 contract. Delivery
of an executed counterpart of a signature page of this Amendment by
facsimile shall be effective as delivery of a manually executed
counterpart of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective authorized officers as
of the day and year first written above.
SCHEIN PHARMACEUTICAL, INC.,
by
------------------------------------
Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK, individually
and as Administrative Agent, Collateral
Agent and Issuing Bank,
by
------------------------------------
Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA,
by
------------------------------------
Name:
Title:
<PAGE>
BANK OF TOKYO-MITSUBISHI TRUST COMPANY,
by
------------------------------------
Name:
Title:
<PAGE>
BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK
AKTIENGESSELLSCHAFT, NEW YORK BRANCH,
by
------------------------------------
Name:
Title:
by
------------------------------------
Name:
Title:
<PAGE>
COMERICA BANK,
by
------------------------------------
Name:
Title:
<PAGE>
COMMERCIAL LOAN FUNDING TRUST I,
by: LEHMAN COMMERCIAL PAPER,
INC., not in its individual
capacity but solely as
Administrative Agent
by
------------------------------------
Name:
Title:
<PAGE>
COOPERATIEVE CENTRALE RAIFFEIFEN-
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by
------------------------------------
Name:
Title:
by
------------------------------------
Name:
Title:
<PAGE>
DEUTSCHE BANK, A.G., NEW YORK AND/OR
CAYMAN ISLAND BRANCHES,
by
------------------------------------
Name:
Title:
by
------------------------------------
Name:
Title:
<PAGE>
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CAYMAN
ISLAND BRANCH,
by
------------------------------------
Name:
Title:
by
------------------------------------
Name:
Title:
<PAGE>
FIRST UNION NATIONAL BANK,
by
------------------------------------
Name:
Title:
<PAGE>
FLEET BANK, N.A. (formerly known as
NatWest Bank, N.A.),
by
------------------------------------
Name:
Title:
<PAGE>
KEYBANK NATIONAL ASSOCIATION,
by
------------------------------------
Name:
Title:
<PAGE>
MELLON BANK, N.A.,
by
------------------------------------
Name:
Title:
<PAGE>
PNC BANK, N.A.,
by
------------------------------------
Name:
Title:
<PAGE>
SOCIETE GENERALE, NEW YORK BRANCH,
by
------------------------------------
Name:
Title:
<PAGE>
SUMMIT BANK,
by
------------------------------------
Name:
Title:
<PAGE>
AG CAPITAL FUNDING PARTNERS, L.P.,
by
------------------------------------
Name:
Title:
<PAGE>
BEAR STEANS & CO. INC.,
by
------------------------------------
Name:
Title:
<PAGE>
Exhibit 10.58
CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
CO-PROMOTION AGREEMENT
This Agreement ("Agreement") is made and effective as of the 1st day of July,
1999, (hereinafter referred to as the "Effective Date"), by and between Bayer
Corporation, a corporation of the State of Indiana (hereinafter "Bayer") and
Schein Pharmaceutical, Inc. a corporation of the State of Delaware (hereinafter
"Schein").
W I T N E S S E T H:
WHEREAS, Schein has an exclusive Sublicense, Co-Marketing and Supply
Agreement with Makoff R&D Laboratories Inc. covering a sodium ferric gluconate
complex in sucrose injection pharmaceutical product marketed by Schein under the
brand name Ferrlecit(R) (hereinafter "Product") indicated for treating iron
deficiency, and Schein desires to enhance market share of Product in the United
States pharmaceutical market place; and
WHEREAS, Bayer has considerable knowledge in promoting, detailing and
marketing pharmaceutical products in the United States and has in place a large,
well-experienced detailing force; and
WHEREAS, Bayer and Schein believe that a joint promotion and detailing
arrangement regarding Product would be desirable and fully compatible with each
party's business objectives.
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, Bayer and Schein hereby agree as follows:
1. ARTICLE I: DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
following meanings:
1.1. "Affiliate" shall mean:
(a) An organization which owns, directly or indirectly, a controlling
interest in Bayer or Schein by stock ownership or otherwise; or
(b) An organization controlled by or having its majority ownership
directly or indirectly common to the majority ownership of Bayer or
Schein.
1.2. "Confidential Information" shall mean information which relates to the
Product, including financial statements, costs and expense data,
production data, trade secrets, secret processes and formulae, marketing
and consumer data or any other information which is not generally
ascertainable from public or published information, regardless of
whether such information was provided pursuant to the terms of this
Agreement, by request of the other party or in any other manner. Schein
reserves the right to limit the disclosure to Bayer of any Confidential
Information which, in the sole opinion of Schein, is not necessary to
achieve the purposes of this Agreement.
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1.3. "Customer" shall mean hospitals, dialysis clinics affiliated with
hospitals, clinical pharmacists, nephrology nurses, nephrologists including
residents & fellows and pharmaceutical & therapeutic committee members.
1.4. "DDD" shall mean IMS America Ltd. Drug Distribution Data.
1.5. Joint Detailing Period" shall mean the period of time commencing on July 1,
1999 and ending on February 28, 2000, subject to extension as provided in
Article VI, below.
1.6. "Product" shall mean sodium ferric gluconate Ferrlecit(R).
1.7. "Territory" shall mean the United States of America
excluding its territories and possessions.
1.8. In the terms defined herein, the singular shall include the plural and VICE
VERSA.
2. ARTICLE II: GRANTS AND OBLIGATIONS
2.1. Grant of Rights. Schein hereby grants to Bayer during the Joint Detailing
Period the right to promote and detail the Product to Customers in the
Territory jointly with Schein in accordance with the provisions of this
Agreement.
2.2. Obligations of Bayer.
(a) During the Joint Detailing Period, Bayer will be diligent in its
efforts consistent with its customary business practices and legal
requirements to deploy its sales force to promote and detail to
Customers throughout the Territory the Product in such manner and with
such expedition as Bayer itself would have adopted in promoting and
detailing a pharmaceutical product of its own invention. During the
Joint Detailing Period and for a period of one (1) year thereafter,
Bayer will not promote or detail any pharmaceutical product with
indications similar to those of the Product.
(b) The Product will be presented in a primary position in at least *
percent (*) of Bayer's sales representative calls to dialysis
centers and nephrologists and in no less than a secondary position
in the remainder of such calls.
(c) Without limiting the generality of the foregoing, Bayer will assign
no fewer than * biological sales representatives and managers to
promote and detail the Product to Customers. Bayer shall also use
its best efforts to insure a sufficient amount of selling time will
be allotted to promote and detail the Product, but in all events
not less than between *-* of such representatives sales time and *
of a representative's bonus potential will be allocated to the
Product.
2.3. Obligations of Schein
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and
Exchange Commission.
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(a) During the Joint Detailing Period, Schein will be diligent in its
efforts consistent with its customary business practice and legal
requirements to deploy its sales force to promote and detail the
Product throughout the Territory to prospective prescribers or users
of the Product other than Customers.
(b) During the Joint Detailing Period, Schein will furnish to Bayer, at
Schein's expense, all sales, training, marketing and promotional
materials made available by Schein for use by its sales
representatives, at such time or times as such materials are available
for distribution to Schein's sales representatives and in such
quantities as Bayer may reasonably request for use in detailing by its
sales representatives.
(c) Schein will reimburse Bayer for all out-of-pocket expenses incurred by
Bayer in sponsoring, producing or participating in promotional,
scientific or educational programs, conventions or forums undertaken
at the request of or with the prior written approval of Schein.
(d) Subject to Bayer's obligation of confidentiality set forth herein,
once per calender year during normal business hours and upon
reasonable prior written notice, Schein agrees to make available to
Bayer or its agent or representative (subject to such representative
or agent being reasonably acceptable to Schein and subject further to
such representative or agent signing a confidentiality undertaking)
such information in its possession as may permit Bayer to confirm, for
all proper purposes contemplated by this Agreement, sales, returns and
market share, including without limitation production, quality
assurance/quality control, inventory, orders, sales, deliveries and
return records with respect to the Product.
3. ARTICLE III: PAYMENTS
3.1. Service Fee. In consideration for Bayer's agreement to promote and
detail the Product to Customers in the Territory during the Joint
Detailing Period, Schein shall pay to Bayer a service fee at the rate of
* for each three month period of the Joint Detailing Period, with the
first three month period beginning on July 1, 1999; provided, however,
that the service fee for the two month period ending February 28, 2000,
will be a pro-rated share of the * per quarter or *. The service fee
will be due thirty (30) days after the end of each three month period
or, with respect to the service fee payment for the two month period
ending February 28, 2000, thirty (30) days after expiration of the
initial term of Joint Detailing Period, without regard to any extension
thereof.
3.2. Sales Commissions. For the initial Joint Detailing Period ending February
28, 2000, Schein shall pay to Bayer amounts equal to the following
percentages of sales of Product to Customers in the Territory by Bayer as
reported by DDD:
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and
Exchange Commission.
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DDD Reported Sales Commissions
------------------ -----------
Up to * *
Sales in excess of * but
not in excess of * *
Sales in excess of * *
A sample calculation of sales commissions is contained in Exhibit A to this
Agreement.
In the event that Bayer has reason to believe that sales of Product to
Customers in the Territory has been under-reported by DDD, Schein shall pay
Bayer commission on such additional sales as if such sales had been
reported by DDD provided, if in Schein's sole determination Bayer can
substantiate such additional sales with a reasonable amount of independent
proof.
3.3. All sums due to Bayer shall be payable to Bayer in U.S. dollars by Schein
at the following address:
Bayer Inc.
Pharmaceutical Division
400 Morgan Lane
West Haven, Connecticut 06516
or at such other address within the United States that Bayer may designate
in writing to Schein.
3.4. EXTENSION OF JOINT DETAILING PERIOD. In the event the Joint Detailing
Period is extended in accordance with Article VI, hereof, the parties agree
to negotiate in good faith any appropriate adjustment to baseline sales
figures and commission payout levels within thirty (30) days of the
commencement of any extension period.
3.5. PAYMENT OF COMMISSIONS. Within ninety (90) days after the close of each
quarter during the Joint Detailing Period, Schein shall remit to Bayer all
commissions accruing under this Article during such quarter. The payment
shall be accompanied by the DDD report for such Product sales both as to
aggregate quantities and dollar amounts of such sales of the Product
reported by DDD subject to payments hereunder for such quarter.
4. ARTICLE IV: COOPERATION, RIGHTS AND RESPONSIBILITIES
4.1. COOPERATION OF PARTIES. It is among the objectives of the parties to
jointly promote and detail the Product to Customers in the Territory in the
most effective and efficient fashion during the Joint Detailing Period. To
achieve this objective, the parties agree, during the
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and
Exchange Commission.
4
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Joint Detailing Period, as follows:
(a) The parties shall each appoint an authorized representative
("Coordinator") between whom communications will be directed. Each
party will notify the other as to the name of the individual so
appointed. Each party may replace its Coordinator at any time, upon
written notice to the other party.
(b) The Coordinators shall establish a team ("Team") directed by the
Coordinators and consisting of representatives of each party which
will meet from time to time, at mutually agreeable times and
locations, to discuss and coordinate the joint promotion and
detailing of the Product in the Territory and the strategies and
programs that should be developed to maximize sales of the Product.
Illustratively, the Team shall guide all continuing joint promotion
and detailing efforts with respect to the Product in the Territory.
Notwithstanding the foregoing, Schein will have the final authority
and responsibility, with the cooperation and assistance of Bayer,
for developing detailing, marketing and promotional strategies and
other matters with respect to the Product, and Schein shall have
the final right of approval for all such strategies and other
matters.
(c) From time to time, but in no event less than once a year, the Team
shall develop and formulate joint marketing plans for specified
periods (collectively the "Marketing Plan") which shall set forth
detailing, promotion and marketing strategies relating to the Product.
The marketing planning process shall be a joint effort under the
leadership and authority of Schein. The provisions of the Marketing
Plan shall be agreed to by the Coordinators, and if the Coordinators
cannot agree, then the matters in dispute shall be referred to the
President of Bayer Pharmaceutical Division and the Chairman of Schein.
Schein, however, shall have the final responsibility for, and control
over, and the final right of approval for, the development and content
of the Marketing Plan. Schein retains the right to determine in its
discretion the appropriate manner and timing of execution of all
marketing and promotional plans and strategies, including without
limitation the selection of ad agencies, the development and
production of promotional materials.
(d) A party shall have the right to comment upon and make recommendations
to the other party regarding the other party's activities under this
Agreement, which recommendations the other party shall thoroughly
evaluate and consider.
(e) Each party shall bear its own costs associated with its participation
in the Team and associated with its detailing, marketing, promotional
and training/launch activities under this Agreement, except as
otherwise provided herein.
4.2. During the Joint Detailing Period and subject to any other provision of
this Agreement, each party will provide the other with all information
which the disclosing party deems significant and relevant to the
detailing and promotion of the Product within a reasonable
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time after such information becomes known to the party, provided such
information is not received under a secrecy obligation. Within thirty
(30) days after the close of each quarter during the Joint Detailing
Period, Bayer will provide to Schein a report of Bayer Product detail
call activity by medical specialty for the quarter then ended, along
with a summary of feedback from Bayer sales representatives concerning
their detailing efforts for that quarter.
4.3. During the Joint Detailing Period, each party shall promptly notify the
other party of all information coming into its possession concerning
unexpected side effects, injury, toxicity or sensitivity reactions as
provided in Appendix I hereto.
4.4. Schein shall retain all proprietary and property interests in the Product
until the point of sale and in all supporting sales and promotional
material. Bayer will not have nor represent that it has any control or
proprietary or property interests in the Product or in any sales or
promotional material. Nothing contained herein shall be deemed to grant
Bayer, either expressly or impliedly, a license or other right or interest
in any patent, trademark or other similar property of Schein or its
Affiliates except as may be necessary for Bayer to promote and detail the
Product as provided in this Agreement. Bayer acknowledges that Schein shall
retain all copyrights in and to all sales, promotional and training
materials created or used in connection with the promotion of the Product.
4.5. Bayer shall not be required to distribute any sales and promotional
material which:
(a) does not mention the Product; or
(b) includes reference to another Schein pharmaceutical in addition to the
Product. At Schein's request and at Bayer's sole option, Bayer may
distribute sales and promotion material of the type identified in this
subsection. Should Bayer elect to distribute such material, it shall
be supplied to Bayer by Schein free of all charge.
4.6. Schein shall not be required to distribute any sales and promotion material
which contains a reference:
(a) to Bayer (other than in connection with the joint detailing and
promotion of the Product in accordance with this Agreement); or
(b) any Bayer pharmaceutical.
4.7 During the Joint Detailing Period, Schein shall also provide Bayer, at
Schein's cost, with reasonable quantities of training materials which have
been created and developed by Schein relating to the Product. Bayer shall
have the responsibility for, and control over, the manner in which it
trains its sales force with guidance from Schein that the training is
consistent with Schein's sales force training with respect to the Product.
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4.8 In implementing the obligations contained in Article II, each party shall
have sole discretion as to the manner (which shall not be inconsistent with
the Marketing Plan, and provided that Bayer will not utilize any
promotional materials not created by Schein) in which it promotes and
details (including any expenditure of funds in connection therewith) the
Product in the Territory. Each party shall bear its own costs incurred in
the performance of any obligations hereunder, subject to the provisions of
Article III. Neither party shall have any responsibility for the hiring,
firing or compensation of the other party's employees or for any
employee benefits. No employee or representative of a party shall have
any authority to bind or obligate the other party to this Agreement for
any sum or in any manner whatsoever, or to create or impose any
contractual or other liability on the other party without said party's
authorized written approval. For all purposes, and notwithstanding any
other provisions of this Agreement to the contrary Bayer's legal
relationship under this Agreement to Schein shall be that of independent
contractor. Each party shall be responsible for ensuring that its
promotional activities under this Agreement are in full compliance with
all applicable laws, rules, regulations and orders, including without
limitation applicable FDA regulations, and are consistent with the
Product approval and package insert. Notwithstanding the foregoing,
Schein shall be solely responsible for ensuring that all sales,
training, marketing and promotional materials furnished by Schein to
Bayer are in such full compliance.
4.9 Schein shall use commercially reasonable efforts consistent with Schein's
overall business strategy, as determined by Schein, to insure that
sufficient stock of the Product will be available in its inventory to
promptly fill orders procured by Bayer from Customers during the Joint
Detailing Period for sales of the Product in the Territory. In the event
that there is an insufficient stock of Product available to fill all orders
so procured by Bayer, Schein will use commercially reasonable efforts to
equitably allocate available Product stock among all orders received by
Schein, whether such orders originated from Bayer Customers or from
customers of Schein. Notwithstanding the foregoing, all orders for Products
are subject to acceptance by Schein, in whole or in part.
4.10 Prior to or upon the signing of this Agreement and at least thirty (30)
days prior to each calendar quarter during the Joint Detailing Period and
any extension thereof, Bayer and Schein will confer to establish a forecast
of anticipated sales of Product by month for the succeeding twelve (12)
month period. Such forecasts shall be made to assist Schein in planning its
Product production and shall be non-binding.
4.11 Neither party shall distribute or have distributed any such information
which bears the name of the other without the prior written approval of the
other, which approval shall not be unreasonably withheld. Nothing herein
contained shall require the Bayer name or logo to appear on the Product's
label, container label or package insert.
4.12 Each party, at its option, may issue press releases or other public
announcements relating to the Product or the arrangement contemplated by
this Agreement, provided, however, that:
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(a) neither party shall issue a press release or public announcement which
has, as a major focus, either the joint detailing and promotion of the
Product in the Territory or such arrangement, without the prior
written approval of the other party, which approval shall not be
unreasonably withheld; and
(b) all other press releases and public announcements will describe the
Product and the arrangement contemplated by this Agreement in a manner
consistent with those releases and announcements previously approved
by the other party.
4.13 Subject to Bayer's indemnification obligations confirmed in Section 5.5
hereof, Schein shall have the sole right and responsibility for, and shall
bear all costs related to, obtaining and maintaining the authorization
and/or ability to market a pharmaceutical product in the Territory in
accordance with the terms of its Agreement with Makoff R&D Laboratories
Inc. and applicable laws and regulations including, without limitation, the
following:
(a) RESPONSE TO PRODUCT COMPLAINTS AND/OR ADVERSE EVENTS THAT ARE REPORTED
WITH RESPECT TO THE PRODUCT. Bayer agrees that it shall refer any such
complaints which it receives to Schein in accordance with Appendix I
hereto;
(b) ALL PRODUCT RETURNS MUST BE AUTHORIZED BY SCHEIN. Bayer shall not
solicit or accept any returns of Product and shall advise the customer
that Product is to be returned to Schein. If despite the foregoing any
Product is returned to Bayer, then it shall be shipped to Schein's
nearest distribution facility or, at Schein's option, may be handled
through the One Box return system.
(c) HANDLING ALL RECALLS OF THE PRODUCT. At Schein's request and Bayer's
option, Bayer will assist Schein in receiving the recalled Product and
any direct documented costs incurred by Bayer with respect to
participating in such recall shall be reimbursed by Schein.
4.14 Each party shall respond to medical questions or inquiries relating to the
Product directed to such party. Within a reasonable time from the date of
this Agreement, Schein shall provide Bayer with all reasonably necessary
information which would enable Bayer to respond properly and promptly to
any such questions or inquiries. Schein shall use its best efforts to keep
such information current. Schein and Bayer shall coordinate responses to
anticipated inquiries and questions. Each party shall be responsible for
ensuring that its responses are in full compliance with all applicable
laws, rules, regulations and orders, including without limitation
applicable FDA regulations, and are consistent with the Product approval
and package insert.
4.15 Bayer shall furnish Schein with a bi-weekly report highlighting medical
information inquiries and responses that will provide detail on:
Customer Name
Customer Title
Customer Address
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Customer Phone #
Inquiry/Reason for Call
Response submitted
Date of Inquiry
Date of Response
This report shall be forwarded to the Director of Professional Affairs at
Schein, or designee.
4.16 Notwithstanding the Marketing Plan or any other provision herein to the
contrary, Schein will have the right and responsibility for establishing
and modifying the terms and conditions with respect to the sale of the
Product, including the price at which the Product will be sold, any
discount attributable to payments on receivables, distribution of the
Product and the like.
4.17 At the end of the Joint Detailing Period (or any extension thereof or upon
termination under any circumstance) Bayer shall have no further obligations
to promote and detail the Product and, upon request by Schein, shall return
to Schein all sales, marketing, training and other materials which it has
in its possession relating to Product. Schein shall have the right to
continue to distribute materials bearing the Bayer name, until the
inventories of such materials are depleted.
5. ARTICLE V: WARRANTIES AND INDEMNIFICATION
5.1. Each party warrants and represents to the other that it has the full right
and authority to enter into this Agreement, and that it is not aware of any
impediment that would inhibit its ability to perform its obligations under
this Agreement. Without limiting the foregoing, Schein warrants and
represents to Bayer that neither the entry into this Agreement nor the
performance hereof by Schein and Bayer shall violate or create a default
under Schein's Sublicence, Co-Marketing and Supply Agreement with Makeoff R
& D Laboratories Inc.
5.2. Schein warrants and represents that, to the best of its knowledge, the
Product package insert adequately describes the toxicity and sensitivity
reactions associated with the Product when administered in accordance with
the package insert.
5.3 Schein warrants and represents that it has no knowledge of the existence of
any patent which would prevent Schein from making, using or selling the
Product in the Territory or would prevent Schein and Bayer from jointly
promoting or detailing the Product in the Territory. Bayer acknowledges
that neither Schein nor any of its Affiliates holds any patent covering the
Product.
5.4 Schein shall indemnify, defend and hold Bayer harmless against any and all
damages, costs, expenses, lawsuits and liabilities directly or indirectly
resulting from claims, suits or judgments with respect to (i) the Product
or components thereof; (ii) breach of
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Schein's obligations hereunder; or (iii) breach of Schein's
representations hereunder. Bayer shall promptly notify Schein of any
claims or suits for which Bayer may assert contribution or
indemnification from Schein hereunder and Bayer shall permit Schein, or
its insurer, at Schein's expense, to assume the defense of any and all
such claims or suits and Bayer shall reasonably cooperate with Schein or
its insurer in such defense when requested to do so.
5.5 Bayer shall indemnify, defend and hold Schein harmless against any and all
damages, costs, expenses, lawsuits, and liabilities directly or indirectly
resulting from claims, suits or judgments with respect to (i) the
detailing, promoting, marketing or sale of Product by Bayer hereunder;
(ii) breach by Bayer of any of its obligations hereunder; or (iii)
breach by Bayer of any of its representations hereunder. Schein shall
promptly notify Bayer of any such claims or suits for which Schein may
assert contribution or indemnification from Bayer and Schein shall
permit Bayer or its insurer at Bayer's expense, to assume the defense of
any and all such claims or suits and Schein shall reasonably cooperate
with Bayer or its insurer in such defense when requested to do so.
5.6 Without limitation, as between Bayer and Schein, if an above described
claim, suit or judgment (or any portion thereof) is based solely on:
(a) the failure of the Product to meet any specifications in both the
exclusive Sublicense, Co-Marketing and Supply Agreement with Makoff
R&D Laboratories Inc., and the Makoff R&D Laboratories New Drug
Application approved by the U.S. Food and Drug Administration ("FDA")
or supplements thereto; or
(b) misrepresentations or deficiencies in or omissions from the Product's
package insert approved by the FDA or in or from Product sales,
training, marketing and promotional materials supplied to Bayer by
Schein;
then Bayer shall not be deemed negligent with respect to such matters and
shall be fully and completely indemnified by Schein under section 5.4 with
respect to such claim, suit or judgment (or portion thereof) which solely
involved such matters, and Schein shall be permitted, at its sole cost, to
assume full control over the defense of any such claim or suit (or portion
thereof).
5.7 This Article V shall survive the termination of this Agreement.
6. ARTICLE VI: TERM AND TERMINATION
6.1 The joint promotion and detailing of the Product shall cease at the end
of the initial Joint Detailing Period ending February 28, 2000;
provided, however, Bayer, in its discretion, shall have the right but
not the obligation to extend the term of the Joint Detailing Period and
this Agreement on the condition that during the six (6) month period
beginning July 1, 1999 and ending December 31, 1999, the percentage
share of sales of Product by Bayer to Customers in the Territory to
sales of all iron replacement therapies used by Customers
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during such six (6) month term exceeds by more than ten percent (10%)
the percentage share during such term of sales of the Product by Schein
(exclusive of sales to Bayer Customers) to sales of all iron replacement
therapies in use (exclusive of sales to Bayer Customers). Market share
shall be measured using the market information available as of December
31, 1999 such that Bayer may give written notice to Schein of its
election prior to February 28, 2000. Upon the proper election by Bayer,
the Joint Detailing Period and this Agreement shall be extended at
Bayer's option for one or two consecutive but separate terms, with the
first renewal term ending June 30, 2000 and the second renewal term
ending December 31, 2000. In the event that Bayer fails to make such
election, and Schein, in its discretion, desires to extend the term of
the Joint Detailing Period and this Agreement, Schein shall advise Bayer
of its desire as promptly as possible, so that the parties may timely
negotiate the terms of such extension.
6.2 Either party may terminate this Agreement, and its performance hereunder,
for cause upon thirty (30) days prior written notice in the event that the
other party has breached or failed to perform any of its material
obligations hereunder, however, if the party to whom such notice is
directed cures the breach or non-performance described in the notice within
said thirty (30) day notice period, such notice of termination shall be
given no effect and this Agreement shall continue in full force in
accordance with its terms.
6.3 This Agreement, and the Joint Detailing Period established hereunder, shall
terminate automatically upon termination of Schein's Sub-license,
Co-Marketing and Supply Agreement with Makoff R&D Laboratories Inc. Schein
shall notify Bayer in writing of any such termination. Bayer's performance
obligations under this Agreement, however, will terminate immediately upon
a termination of said Sub-license Agreement, whether or not Schein has
provided Bayer with the required notice. Schein will indemnify Bayer
pursuant to Section 5.4 against any action Makoff R&D Laboratories Inc. may
take against Bayer for activities by Bayer during the period following the
termination of said Sub-license agreement and prior to Bayer's receipt of
such notice from Schein.
6.4 Termination of this Agreement shall be without prejudice to either party's
right to obtain performance of any obligations provided for in this
Agreement which survive termination by their terms.
7. ARTICLE VII: FORCE MAJEURE
7.1 The performance by either party of any covenants or obligations on its part
to be performed hereunder (other than an obligation of either to pay money
to the other) shall be excused by floods, strikes or other labor
disturbances, riots, fires, accidents, wars, embargoes, delays of carriers,
inability to obtain materials from sources of supply, acts, injunctions, or
restraints of governments (whether or not now threatened), or any cause
preventing such performance whether similar or dissimilar to the foregoing
beyond the reasonable control of the party bound by such covenant or its
obligation, provided, however, that the party affected shall exert its
reasonable diligent efforts to eliminate or
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cure or overcome any of such causes and to resume performance of its
covenants with all possible speed.
8. ARTICLE VIII: DISPUTE RESOLUTION
8.1 Both parties are obligated to undertake all reasonable efforts in order to
solve in an amicable way any controversy arising in connection with this
Agreement. However, in the event that disputes arise that cannot be
resolved at the immediate level, the dispute shall be referred to the
President of Bayer Pharmaceutical Division and the Chairman and CEO of
Schein.
9. ARTICLE IX: CONFIDENTIALITY; NON-SOLICITATION
9.1 For a period of ten (10) years from the Effective Date of this Agreement or
five (5) years from the termination hereof, whichever occurs later:
(a) each party agrees not to use Confidential Information furnished by the
other party for any purpose inconsistent with this Agreement; and
(b) each party will treat Confidential Information furnished by the other
party as if it were its own proprietary information and will not
disclose it to any third party other than its Affiliates or
consultants without the prior written consent of the other party who
furnished such information.
9.2 Bayer shall not have the right for a period of five (5) years from the
termination of this Agreement to disclose, publish and/or use for its
benefit or for the benefit of any third party any Confidential
Information, sales, marketing, training or other information provided to
Bayer by or on behalf of Schein or its Affiliates received under this
Agreement to promote, achieve and/or maintain the sale and use of the
Product or any other pharmaceutical specialty with indications similar
to those of Product without the prior written consent of Schein.
9.3 A party shall be relieved of any and all of the obligations of Sections 9.1
and 9.2 with respect to Confidential Information if:
(a) such Confidential Information was known to the party receiving the
Confidential Information prior to receipt from the disclosing party;
or
(b) such Confidential Information was at the time of disclosure to the
party receiving the Confidential Information generally available to
the public or which became generally available to the public through
no fault attributable to the party receiving the Confidential
Information; or
(c) such Confidential Information was made available to the party
receiving the Confidential Information for its use or disclosure from
any third person who was at the time of transmitting such Confidential
Information not under a non-
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disclosure obligation to the other party.
9.4 Each of Schein and Bayer agrees that during the term of this Agreement and
for a period of one year after the termination of this Agreement for any
reason, neither it nor any of its Affiliates shall, except with the prior
written consent of the other party, offer employment to or employ any
person in the other party's sales force if such person was involved in
promoting the Product under this Agreement.
10 ARTICLE X: MISCELLANEOUS PROVISIONS
10.1 This Agreement shall be governed by and interpreted under the laws of the
United States and of the State of New Jersey.
10.2 This Agreement shall be binding upon, and shall inure to the benefit of
successors to a party hereto, but shall not otherwise be assignable without
the prior written consent of both parties.
10.3 Any notice required to be given hereunder shall be considered properly
given and deemed received within four (4) business days of mailing if sent
by certified mail, return receipt requested , or shall be deemed received
upon receipt if sent by messenger or overnight delivery, or by telecopier
(provided an additional copy is sent by certified mail, return receipt
requested within two (2) business days) if sent to the respective address
of each party as follows:
10.4 If to Bayer to: Office of the President
Bayer Inc.
Pharmaceutical Division
400 Morgan Lane
West Haven, Connecticut 06516
If to Schein to: Chairman of the Board
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
or to such other address as the addressee shall have last furnished in
writing in accord with this provision to the addresser.
10.5 If any provision of this Agreement is held to be invalid, such invalidity
shall not affect the validity of the remaining provisions.
10.6 All captions herein are for convenience only and shall not be interpreted
as having any substantive meaning.
13
<PAGE>
10.7 All covenants, agreements, representations and warranties made hereunder
shall be deemed to have been relied upon notwithstanding any investigation
heretofore or hereafter made and shall survive the execution of this
Agreement.
10.8 This Agreement constitutes the entire agreement between the parties hereto
with respect to the within subject matter and supersedes all previous
agreements relating to the co-promotion of pharmaceutical products by
Schein and Bayer, whether written or oral, including, without limitation,
that certain Co-Promotion Agreement, dated August 1, 1994, as amended,
which shall be deemed terminated as of the Effective Date in accordance
with the provisions set forth therein. This Agreement may be changed only
in writing signed by properly authorized representatives of Bayer and
Schein.
IN WITNESS WHEREOF, Bayer and Schein have caused this Agreement to be duly
executed by their authorized representatives, in duplicate as of the date first
set forth above.
BAYER INC.
By: /s/ Gerald Rosenberg
---------------------------------------
Gerald Rosenberg
Sr. Vice President & Gen. Mgr.
Pharma USA
Bayer Corporation
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Adam A. Levitt
---------------------------------------
Adam A. Levitt
Vice President
Brand Products Group
14
<PAGE>
APPENDIX I
COMPLAINT GUIDELINE PROCEDURES
The purpose of this appendix is to establish written procedures for the
communication and processing of Product complaints received by Bayer.
Acting in accord with this Agreement will facilitate compliance with Federal
Requirements as set forth in 21 CFR 211.198 (complaint files) and 21 CFR
310.305/21 CFR 314.80 (reporting of post-marketing adverse drug reactions).
A. COMPLAINT REPORTING:
1. Complaints reported directly to Bayer will be summarized, and forwarded
immediately by fax to the Manager of Professional Affairs, or designee, at
Schein. Bayer personnel will utilize and complete the Schein developed Drug
Experience Report (DER) Form as per instructions when recording the adverse
event/product complaint (Form attached.), or such other format as the
parties may agree.
2. All adverse drug experience complaints reported to Bayer will be
communicated to Schein within 2 days of report receipt. Schein will be
responsible for completion and submission to the Food and Drug
Administration of Form FDA 3500A, and other, where appropriate.
3. Complaint reports which may meet NDA-Field Alert Report Criteria [21 CFR
314.81 (b) (1)] will be promptly communicated to Schein within 2 days,
enabling FDA notification by Schein within 3 working days. Schein will
advise Bayer of NDA Field Alert Report submission and forward a copy of any
such report to the Complaint Coordinator of Bayer.
B. COMPLAINT INVESTIGATION:
1. Schein will coordinate the investigations of all complaints, including
complaints associated with Product's active or inactive ingredients,
container/closure system, general Product quality, distribution or
handling. At times, personnel from Bayer may be contacted to assist in
identifying or locating the complainant in order to obtain additional
information pertinent to the complaint.
C. COMMUNICATIONS WITH COMPLAINANT:
1. Schein will be responsible for review of complaint evaluation information
and preparation of a written response when appropriate.
2. In situations requiring submission of adverse drug experience reports,
Schein will be responsible for any follow-up communications which may be
required in order to facilitate timely completion and submission of FDA
Form-3500A, and other, as appropriate. (See Appendix 1, Part B for
potential Bayer interaction.)
D. PRODUCT RECALL:
1. In carrying out a recall, both parties will fully cooperate in notifying
customers to follow instructions agreed upon by the parties.
15
<PAGE>
EXHIBIT A
CALCULATION OF COMMISSIONS
If total DDD Reported Sales of the Product by Bayer to Customers in the
Territory equal * Bayer's commissions would be calculated as follows:
DDD Reported Sales Commission Percentage Commission
* x * = *
* x * = *
* x * = *
-----------------------------------------------------------
Total Commission *
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and
Exchange Commission.
16
<PAGE>
SCHEIN CONTROL NO.:
SCHEIN PHARMACEUTICAL, INC.
---------------------------
DRUG EXPERIENCE REPORT (DER) FORM
INSTRUCTIONS: A. USE THIS FORM TO REPORT ADVERSE EVENT TO BRAND PROFESSIONAL
AFFAIRS DEPARTMENT. AN ADVERSE EVENT IS ANY UNDESIRABLE EXPERIENCE WHICH
OCCURRED IN A HUMAN DURING OR SHORTLY AFTER THE USE OF A DRUG, REGARDLESS OF
WHETHER THE DRUG CAUSED THE EVENT. AN ADVERSE EVENT WHICH OCCURRED AS A
RESULT OF OVERDOSE (INTENTIONAL OR ACCIDENTAL), FAILURE OF PHARMACOLOGICAL
ACTION OR DRUG WITHDRAWAL; OR WHICH RESULTED IN DRUG ABUSE OR DRUG DEPENDENCY
SHOULD ALSO BE REPORTED TO PROFESSIONAL AFFAIRS.
B. If report is serious*, telephone Professional Affairs (888-397-1766)
IMMEDIATELY to report the event; then fax the completed DER form WITHIN 1
WORKING DAY to 973-693-5656. Original copies of all faxed and phoned reports
must be mailed to Brand Professional Affairs Dept. Schein Pharmaceutical,
Inc., 100 Campus Drive, Florham Park, NJ 07932. If report is non-serious, you
do not have to telephone; just fax then mail the original DER form to
Professional Affairs.
C. DO NOT USE THIS FORM (1) TO REPORT AN ADVERSE EVENT WHICH OCCURRED IN A
PATIENT WHO WAS PARTICIPATING IN A STUDY INVOLVING THE DRUG IN QUESTION, (2)
TO PROCESS A REQUEST FOR MEDICAL INFORMATION, OR (3) TO RETURN GOODS. ALSO DO
NOT USE THIS FORM FOR MULTIPLE REPORTS; USE ONE FORM PER PATIENT. IF
NECESSARY, MAKE A PHOTOCOPY OF A BLANK DER FORM IF YOU DO NOT HAVE SUFFICIENT
BLANK DER FORMS TO ASSURE ONE PATIENT REPORT PER COPY.
- --------------------------------------------------------------------------------
REPORTER'S FULL NAME |_|MD |_|DO |_|PHARMD |_|RPM |_|RN
- ------------------------------
ADDRESS |_|PSD |_|LPN |_|MED ASST |_|CONSUMER
- ------------------------------
|_|OTHER (Specify)________________________________
- --------------------------------------------------------------------------------
CITY | STATE | ZIP
| |
- --------------------------------------------------------------------------------
TEL. NO. | OTHER TEL. NO. | FAX NO.
| |
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUSPECT DRUG NAME DOSE | DATES OF USE | LOT NO
| |
- --------------------------------------------------------------------------------
DESCRIBE THE EVENT AS REPORTED TO YOU (INCLUDE PATIENT IDENTIFIERS SUCH AS
GENDER, INITIALS, AGE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PHYSICIAN OR OTHER HEALTHCARE | IF PATIENT WAS HOSPITALIZED, PROVIDE
PROFESSIONAL WHO PRESCRIBED THE | NAME, ADDRESS AND TELEPHONE NUMBER OF
SUSPECT DRUG | HOSPITAL BELOW
SAME AS REPORTER ABOVE? |
|_|YES |_|NO |_|UNKNOWN |
- --------------------------------------------------------------------------------
IF DIFFERENT FROM ABOVE, SPECIFY THE | HOSPITAL NAME
PRESCRIBER BELOW: |
|
- --------------------------------------------------------------------------------
NAME |
|
- --------------------------------------------------------------------------------
ADDRESS | HOSPITAL ADDRESS
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
TEL. NO | TEL. NO
|
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEIN REP. EMPLOYEE NAME TEL. NO | VOICEMAIL DATE NOTIFIED | TODAY'S DATE
| |
- --------------------------------------------------------------------------------
================================================================================
*An adverse event is considered serious if any of the following occurred:
|_| death __ in-patient hospitalization or
prolongation of in-patient
hospitalization
|_| immediately life threatening __ persistent or significant disability
incapacity
|_| congenital anomaly or birth defect __ medical or surgical intervention to
prevent one of the outcomes above
|_| drug dependency or drug abuse __ medically important in the opinion of
the healthcare professional reporter
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT NUMBER 1 TO CO-PROMOTION AGREEMENT
This Amendment Number 1 to the Co-Promotion Agreement (the "Amendment") is
entered into as of 1st day of March 2000 between Bayer Corporation, a
corporation of the State of Indiana (hereinafter "Bayer") and Schein
Pharmaceutical, Inc., a corporation of the State of Delaware (hereinafter
"Schein").
WITNESSETH:
WHEREAS, Bayer and Schein entered into a Co-Promotion Agreement dated July
1, 1999 (the "Agreement");
WHEREAS, pursuant to the terms of the Agreement, Bayer and Schein agreed to
jointly promote and detail the Product (as defined in the Agreement);
WHEREAS, the parties wish to amend the Agreement in accordance with the
terms of this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and for other good and valuable consideration, it is agreed as
follows:
1. DEFINITIONS IN THIS AMENDMENT AND INCORPORATION. Unless otherwise defined
herein, all terms used herein shall have the meaning ascribed to them in
the Agreement, and the terms and provisions of the Agreement are
incorporated herein by reference as though set forth in full.
2. TERM. Bayer and Schein hereby agree that the term of the Agreement shall
terminate on September 30, 2000. The period commencing on March 1, 2000 to
September 30, 2000 is hereinafter referred to as the "Extended Period."
3. OBLIGATIONS. Unless otherwise provided herein, all obligations of the
parties during the Joint Detailing Period shall apply to the Extended
Period.
4. PAYMENT. Section 3.1 and 3.2 shall be deleted in its entirety and replaced
with the following:
3.1 SERVICE FEE. Bayer and Schein acknowledge and agree that the service
fee payable by Schein to Bayer for the Extended Period shall be as
follows:
(a) For the period commencing on March 1, 2000 to March 31, 2000, the
service fee shall be *.
(b) For each three month period commencing on April 1, 2000, the
service fee shall be at a rate of *.
The service fee shall be due thirty (30) days after the end of the
applicable period.
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and
Exchange Commission.
<PAGE>
3.2 SALES COMMISSION. For the Extended Period, Schein shall pay to Bayer
amounts equal to the following percentage of sales of Product to
Customers in the Territory by Bayer as reported by DDD:
DDD Sales Commission %
--------- ------------
Up to $* *
Sales in excess of $* but
not in excess of $* *
Sales in excess of $* *
5. REAFFIRMATION OF AGREEMENT AND OTHER DOCUMENTS. Except as modified herein,
all of the covenants, terms and conditions of the Agreement remain in full
force and effect and are hereby ratified and reaffirmed in all respects. In
the event of any conflict, inconsistency or incongruity between the terms
and conditions of this Amendment and the covenants, terms and conditions of
the Agreement the terms and conditions of this Amendment shall govern and
control.
6. COUNTERPARTS. This Amendment may be executed in two or more counterparts,
each of which together shall constitute an original but which, when taken
together, shall constitute but one instrument and shall become effective
when copies hereof, when taken together, bear the signatures of all
required parties and persons.
IN WITNESS WHEREOF, this Amendment is executed as of the day and year first
above written.
BAYER CORPORATION
By: /s/ Gerald Rosenberg
----------------------------------------
Name: Gerald Rosenberg
--------------------------------------
Title: SR VP/General Manager
-------------------------------------
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Adam Levitt
----------------------------------------
Name: Adam Levitt
Title: Senior Vice President, Brand Products
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and
Exchange Commission.
<PAGE>
Exhibit 10.59
AMENDMENT NO. 1
TO THE
EMPLOYMENT AGREEMENT DATED
NOVEMBER 18, 1999 BETWEEN
SCHEIN PHARMACEUTICAL, INC. AND DARIUSH ASHRAFI
Reference is made to the Employment Agreement dated November 18, 1999 between
Schein Pharmaceutical, Inc. and Dariush Ashrafi (the "Employment Agreement").
Capitalized terms not otherwise defined herein shall have the meaning ascribed
thereto in the Employment Agreement.
1. Section 11.8 of the Employment Agreement is deleted and restated to read
as follows:
"11.8 Maximum Payment. Notwithstanding anything herein to the
contrary, if it is determined that any payment made to the Executive,
whether pursuant to the terms of this Agreement or otherwise (including
but not limited to any stock option agreement), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended, or any interest or penalties with respect to such excise tax
(such excise tax, together with any interest or penalties thereon, is
herein referred to as an "Excise Tax"), then the Executive shall be
entitled to an additional payment or payments (a "Gross-Up Payment") in an
amount that will place him in the same after-tax economic position that he
would have enjoyed if the Excise Tax had not applied. The amount of the
Gross-Up Payment shall be determined by the nationally recognized firm of
accountants serving as the Company's independent auditors immediately
prior to the Change of Control which resulted in the application of the
Excise Tax, in their sole discretion, and shall be payable upon the
Executive's demand."
Except as amended hereby, the Employment Agreement shall continue in full force
and effect.
Dated as of December 31, 1999
/s/ Dariush Ashrafi SCHEIN PHARMACEUTICAL, INC.
- -----------------------------
Dariush Ashrafi
By: /s/ Martin Sperber
-------------------------------
Martin Sperber
Chairman and CEO
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of this 18th day of November,
1999 by and between Schein Pharmaceutical, Inc. (the "Company"), a Delaware
corporation, and Dariush Ashrafi (the "Executive").
The Executive is presently employed by the Company as the Executive Vice
President and Chief Financial Officer;
The Company desires to employ the Executive and the Executive is willing
to be employed by the Company as the President and Chief Operating Officer; and
The Company and the Executive desire to set forth the terms and conditions
of such employment.
In consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration, the adequacy and receipt of which is acknowledged, the
parties hereto agree as follows:
1. Term of Employment
The Company hereby agrees to employ the Executive and the Executive
hereby accepts employment, in accordance with the terms and conditions set forth
herein, for a term commencing on the date hereof (the "Effective Date") and
terminating, unless otherwise terminated earlier in accordance with Section 5
hereof, on the fifth anniversary of the Effective Date (the "Employment Term"),
provided that, on the fifth anniversary of the Effective Date, and on each
anniversary of the Effective Date thereafter (each such date, an "Anniversary
Date"), the Employment Term shall be automatically extended, subject to earlier
termination as provided in Section 5 hereof, for additional one year periods,
unless, at least six months prior to the fifth anniversary of the Effective Date
or any Anniversary Date, as applicable, the Company or the Executive has
notified the other in writing that the Employment Term shall terminate at the
end of the then current term. If such original Employment Term is so extended,
such extended term shall thereafter be the "Employment Term" for purposes of
this Agreement.
2. Position and Responsibilities
During the Employment Term, the Executive shall serve as the
President and Chief Operating Officer of the Company. The Executive shall report
to the Chief Executive Officer. The Executive shall, to the extent appointed or
elected, serve on the Board of Directors of the Company (the "Board") as a
director and as a member of any committee of the Board, in each case, without
additional compensation. The Company shall use its reasonable best efforts to
include the Executive in the slate of nominees for the Board. The Executive
shall, to the extent appointed or elected, serve as a director or as a member of
any committee of the Board (or the equivalent bodies in a non-corporate
subsidiary or affiliate) of any of the Company's subsidiaries
<PAGE>
or affiliates and as an officer or employee (in a capacity commensurate with his
position with the Company) of any such subsidiaries or affiliates, in all cases,
without additional compensation or benefits and any compensation paid to the
Executive, or benefits provided to the Executive, in such capacities shall be a
credit with regard to the amounts due hereunder from the Company. The Executive
shall have reporting responsibility for the areas set forth on Exhibit A hereto.
The Executive shall devote substantially all of his business time, attention and
energies to the performance of his duties hereunder, provided the foregoing will
not prevent the Executive from participating in charitable, community or
industry affairs and from managing his and his family's personal passive
investments, provided that these activities do not materially interfere with the
performance of his duties hereunder or create a potential business conflict or
the appearance thereof.
3. Compensation and Benefits
During the Employment Term, the Company shall pay and provide the
Executive the following:
3.1 Base Salary. The Company shall pay the Executive a base salary
(the "Base Salary") in the amount of $550,000 per year plus additional
compensation (the "Additional Compensation") of $75,000 per year for the
Employment Term. The Base Salary shall be paid to the Executive in accordance
with the Company's normal payroll practices for its senior executives. The
Additional Compensation shall be paid in four equal quarterly installments on
the first normal Company payroll date that falls within each fiscal quarter. If
the Base Salary (or Additional Compensation, as the case may be) is increased,
it shall not thereafter be decreased and shall thereafter, as increased, be the
Base Salary (or Additional Compensation, as the case may be) hereunder. The
Additional Compensation shall not be included in any calculation of retirement
benefits or other employee benefits, except as provided for herein. The
Executive's aggregate Base Salary and Additional Compensation shall be reviewed
annually and shall be increased based upon the Executive's performance and
consistent with the increases received by other senior officers.
3.2 Annual Bonus. The Company shall pay to the Executive as an
annual bonus (the "Annual Bonus") with respect to each fiscal year ending during
the Employment Term beginning with fiscal year 2000, an amount which is a
percentage of the sum of the Executive's then current Base Salary and Additional
Compensation, which percentage is calculated by multiplying two times the
percentage increase in the Company's EPS (as hereinafter defined) for the bonus
year over the greater of the EPS for the prior year and the Company's Base EPS
(as hereinafter defined) for such bonus year; provided, however, that no bonus
shall be paid with respect to any fiscal year when such percentage increase is
not at least 15%. The Annual Bonus for any given year shall be paid to the
Executive no later than the thirty-first day of March, in the year following the
year in which such Annual Bonus is earned, or such other date in accordance with
the Company's practice for other senior executives. The Company's Earnings Per
Share ("EPS") for any fiscal year shall be the Earnings Per Share, as reflected
in the Company's audited
2
<PAGE>
Consolidated Statement of Operations prepared in accordance with generally
accepted accounting principals for such fiscal year; provided, however, that the
Compensation Committee (the "Compensation Committee") of the Board shall
determine whether extraordinary items shall be included or excluded in the
calculation of EPS for purposes of this Agreement in any given year. The
Company's Base Earnings Per Share (the "Base EPS") shall equal (i) for the year
2000, the EPS for 1999 and (ii) for each subsequent year, 110% of the Base EPS
for the immediately preceding fiscal year. Notwithstanding the foregoing, the
Executive shall have no right to receive any bonus payment in excess of two
times the sum of the Executive's then current Base Salary and Additional
Compensation, unless such bonus payment is first approved by the Compensation
Committee, in its sole discretion. If the exclusion or inclusion of
extraordinary items in determining EPS affects the amount of the Executive's
bonus for any given year, or the Compensation Committee does not approve a bonus
in excess of two times the sum of the Executive's current Base Salary and
Additional Compensation, the bonus formula for calculating an increase in EPS in
determining the Executive's bonus the following year will reflect an adjustment
from EPS in the prior year to the amount of EPS that would have resulted in the
bonus actually paid to the Executive for such year. Notwithstanding any
provision contained herein to the contrary, the Executive's 1999 Annual Bonus
shall be determined in accordance with the Company's Management Incentive
Program as in effect immediately prior to the Effective Date, and the payment of
such bonus shall not be adversely affected by the provisions of this Agreement.
3.3 Long-Term Incentives: Options. During the Employment Term, the
Executive will be granted a stock option (each, an "Annual Option"), on the
Effective Date and on such date in each fiscal year that option grants are
generally made to senior executives, under the Schein Pharmaceutical, Inc. 1999
Stock Option Plan or other Company plan (the "Plan") to purchase such number of
shares of the Company's common stock (the "Common Stock"), on a basis and in a
manner commensurate with the Executive's position and consistent with the
Company's practice with respect to its other senior executives; provided,
however, that in no event shall Annual Options be granted during any fiscal year
to purchase less than an aggregate of fifty thousand shares of Common Stock
(subject to any adjustment for stock splits, dividends, recapitalizations and
similar corporate events). The exercise price with respect to each share of
Common Stock subject to an Annual Option shall be the fair market value on the
date of grant, determined in accordance with the Plan. Each Annual Option will
become exercisable in three equal annual installments beginning one year after
the date of grant, provided that the Executive is employed by the Company on
such vesting date.
3.4 Long-Term Incentives: Stock.
(a) The Company shall sell and the Executive shall purchase 250,000
shares of Common Stock (the "Incentive Shares"), at the closing
price of the Common Stock on the New York Stock Exchange on the
Effective Date (the "Purchase Price"). The Company shall loan the
Purchase Price to the Executive to purchase the Incentive Shares,
which loan shall be evidenced by a promissory note
3
<PAGE>
substantially in the form attached hereto as Exhibit B. If the loan
or interest is due and the Incentive Shares are not then registered
for resale and if Rule 144 is unavailable, at the Executive's
request during the Employment Term, the Executive shall sell, and
the Company shall purchase from the Executive, such number of the
Incentive Shares as shall be sufficient to satisfy the Executive's
obligation to the Company. The Company shall purchase such Incentive
Shares at the average closing price of the Common Stock on the New
York Stock Exchange for the 20 trading days prior to the date the
Company receives such request, subject to any contractual or legal
limitations on the Company's ability to purchase the Incentive
Shares. Certificates representing the Incentive Shares shall contain
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM. IN ADDITION, THESE SECURITIES WERE ISSUED
PURSUANT TO THAT CERTAIN EMPLOYMENT AGREEMENT DATED AS
NOVEMBER 18, 1999 BETWEEN DARIUSH ASHRAFI AND THE COMPANY AND
ARE SUBJECT TO THE PROVISIONS OF THE EMPLOYMENT AGREEMENT AND
THE PROMISSORY NOTE DATED AS OF NOVEMBER 18, 1999, ISSUED BY
DARIUSH ASHRAFI TO THE COMPANY IN CONNECTION WITH THE PAYMENT
FOR THE SECURITIES."
(b) Each time that the Company proposes to register any of its
securities under the Securities Act (other than pursuant to a
registration on Form S-4, S-8 or any successor form), whether or not
for sale for its own account, it will each such time give written
notice to the Executive of its intention to do so, not less than 30
days prior to filing such registration statement. Upon the written
request of the Executive made within 15 days after the receipt of
any such notice (which request shall specify the Incentive Shares
intended to be disposed of by the Executive and the intended method
of disposition thereof), the Company will use its reasonable best
efforts, consistent with the Company's existing agreements, to
effect the registration under the Securities Act of all Incentive
Shares which the Company has been so requested to register by the
Executive, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the
Incentive Shares so to be registered, provided, that, if at any time
after giving written notice of its intention to register any
securities and prior to the effective
4
<PAGE>
date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company
may, at its election, give written notice of such determination to
the Executive and, thereupon, (i) in the case of a determination not
to register, shall be relieved of its obligation to register any
Incentive Shares in connection with such registration and (ii) in
the case of a determination to delay registering, shall be permitted
to delay registering any Incentive Shares, for the same period as
the delay in registering such other securities. The Company will pay
all registration expenses in connection with each registration of
Incentive Shares requested pursuant to this Section.
3.5 Employee Benefits. The Executive shall, to the extent eligible,
be entitled to participate at a level commensurate with his position in all
employee benefit welfare and retirement plans and programs, as well as equity
plans, generally provided by the Company to its senior executives in accordance
with the terms thereof as in effect from time to time.
3.6 Perquisites. The Company shall provide to the Executive, at the
Company's sole expense, all perquisites which other senior executives of the
Company are generally entitled to receive from time to time, commensurate with
his position as a senior executive of the Company. The Company will furnish the
Executive with an automobile or an automobile allowance, and will reimburse the
Executive for all normal operating costs including insurance, gas, normal
maintenance and repairs, in keeping with the Company's automobile policy in
effect for senior executives from time to time.
3.7 Right to Change Plans. The Company shall not be obligated by
reason of this Section 3 to institute, maintain, or refrain from changing,
amending, or discontinuing any benefit plan, program, or perquisite prior to a
Change of Control (as hereinafter defined), so long as such changes are
similarly applicable to all senior executives generally. However, if the split
dollar life insurance in place with respect to the Executive on the Effective
Date is adversely changed or eliminated, or if the Company does not grant the
Executive options to purchase 50,000 shares (as such number may be adjusted in
accordance with Section 3.3 herein) in a given year, another benefit of
equivalent value shall be given to the Executive. Following a Change of Control,
the Company shall not change, amend or discontinue any benefit plan, program, or
perquisite in a manner which results in a diminution of benefits to the
Executive without the approval of the Incumbent Board (as hereinafter defined).
4. Expenses
Upon submission of appropriate documentation, in accordance with its
generally-applicable policies in effect from time to time, the Company shall
pay, or reimburse the Executive for, all ordinary and necessary expenses, in a
reasonable amount, which the Executive incurs in performing his duties under
this Agreement including, but not limited to, travel, entertainment,
professional dues and subscriptions, and all dues, fees, and expenses associated
5
<PAGE>
with membership in various professional, business, and civic associations and
societies in which the Executive participates in accordance with the Company's
generally-applicable policies in effect from time to time.
5. Termination and Definition of Certain Terms
5.1 Termination of Employment. The Executive's employment with the
Company (including but not limited to any subsidiary or affiliate of the
Company) and the Employment Term shall terminate upon the occurrence of the
first of the following events:
(a) Automatically on the date of the Executive's death.
(b) Upon the Disability of the Executive.
(c) Upon written notice by the Company to the Executive of a termination
for Cause, in accordance with the provisions of Section 5.3 hereof,
provided such termination for Cause has been approved by a majority
of the Board. Such notice shall include the Board's determination as
to whether the Cause may be cured, and shall be of no effect if the
Executive so cures to the Board's sole satisfaction within ten
business days of the Company's giving of the notice.
(d) Upon thirty days written notice by the Company to the Executive of
an involuntary termination without Cause.
(e) Upon thirty days written notice by the Executive to the Company of a
termination for Good Reason (which notice sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for
such termination) unless the Good Reason event is cured within such
thirty day period. Anything contained herein to the contrary
notwithstanding, the Executive may only terminate his employment for
Good Reason if he gives notice to the Company within thirty days
from the date that he becomes aware of the event that constitutes
the Good Reason for terminating his employment.
(f) Upon thirty days written notice by the Executive to the Company of
the Executive's voluntary termination of employment without Good
Reason (which the Company may, in its sole discretion, make
effective earlier than any notice date).
5.2 Definition of Disability. The Executive shall be considered to
have a "Disability" if he satisfies the definition set forth in the Company's
long-term disability benefit plan in which he is enrolled at the time of the
determination or if there is no such plan, for a continuous period of six
months, he is unable to perform his duties under this Agreement for reasons of
health, and, in the opinion of a physician appointed by the Company and
reasonably
6
<PAGE>
acceptable to the Executive, such disability will continue for a prolonged
period of time.
5.3 Definition of Cause. The term "Cause" shall mean the occurrence
of any of the following:
(a) The Executive's willful and continued failure to substantially
perform his duties under this Agreement for the Company or its
affiliates (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness) after a
written demand for substantial performance is delivered by the
Board, which demand specifically identifies the manner in which the
Board believes that the Executive has not substantially performed
his duties;
(b) The willful commission by the Executive of fraud, misappropriation
or intentional material damage to the property or business of the
Company; or
(c) The conviction of the Executive for the commission of a felony. No
act or failure to act shall be "willful" unless done, or omitted to
be done, not in good faith and without reasonable belief that the
act or failure to act was in the best interests of the Company.
5.4 Definition of Good Reason. The term "Good Reason" shall mean the
occurrence of any of the following:
(a) The Company assigning the Executive to duties or responsibilities
that are inconsistent, in any significant respect, with the scope of
duties or responsibilities provided for under this Agreement, unless
such assignment is temporary and as a result of medical reasons
affecting the Executive; provided, however, if the Chief Financial
Officer begins reporting to the Chief Executive Officer it shall not
constitute Good Reason under this Agreement;
(b) Any reduction in the Executive's Base Salary or Additional
Compensation provided for under this Agreement;
(c) Except where expressly approved by the Executive, (i) the relocation
of the Executive's principal place of business from more than a 20
mile radius of the Executive's principal place of business as of the
date of this Agreement and (ii) in the event of a Change of Control,
the relocation of the Executive's principal place of business as of
the date immediately prior to such Change of Control;
(d) After the Executive gives notice pursuant to Section 5.1(e) and the
Company has not cured the failure contained in the notice within
thirty days of receipt of the notice by the Company, the failure of
the Company to pay to the Executive any portion of the Executive's
current compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred
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compensation program of the Company;
(e) The failure by the Company (i) to continue in effect any
compensation plan in which the Executive participates unless (A)
other senior executives of the Company are similarly affected or (B)
an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan or (ii) to
continue the Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially less
favorable than that in effect immediately prior to such failure,
unless other senior executives of the Company are similarly
affected; provided, however, if the split dollar life insurance in
place with respect to the Executive on the Effective Date is
adversely changed or eliminated, or if the Company does not grant
the Executive options to purchase 50,000 shares (as such number may
be adjusted in accordance with Section 3.3 herein) in a given year,
it shall constitute Good Reason under this Agreement; or
(f) The failure of a successor, as such term is used in Section 9.1
herein, to assume this Agreement, by operation of law or otherwise.
5.5 Definition of Change of Control. As used herein, "Change of
Control" shall mean the occurrence of any of the following:
(a) An acquisition by any individual, entity or group (within the
meaning of Section 13d-3 or 14d-1 of the Securities Exchange Act of
1934, as amended (the "Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Act) of more
than 50% of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election
of directors to the Board (the "Outstanding Company Voting
Securities"); excluding, however, the following: (x) any acquisition
by the Company, (y) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or (z) any
acquisition by any corporation pursuant to a reorganization, merger,
consolidation or similar corporate transaction (in each case, a
"Corporate Transaction"), if, pursuant to such Corporate
Transaction, the conditions described in (A), (B) and (C) of clause
(c) of this Section 5.5 are satisfied;
(b) A change in the composition of the Board such that the individuals
who, as of the Effective Date, constitute the Board (the Board as of
the Effective Date shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided that, for purposes of this paragraph
(b), any individual who becomes a member of the Board subsequent to
the Effective Date and whose election, or nomination for election by
the Company's stockholders, was approved by a majority of the
members of the Board who also are members of the Incumbent Board (or
so deemed to be pursuant to
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this proviso) shall be deemed a member of the Incumbent Board; but,
provided further, that any such individual whose initial assumption
of office is in connection with a Change of Control described in
paragraphs (a), (c) or (d) of this Section 5.5 or whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so deemed a member of the
Incumbent Board; or
(c) The approval by the stockholders of the Company of a Corporate
Transaction or, if consummation of such Corporate Transaction is
subject, at the time of such approval by stockholders, to the
consent of any government or governmental agency, the obtaining of
such consent (either explicitly or implicitly by consummation);
excluding, however, such a Corporate Transaction pursuant to which
(A) the beneficial owners (or beneficiaries of the beneficial
owners) of the Outstanding Company Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly
or indirectly, more than 60% of the outstanding shares of common
stock of the corporation resulting from such Corporate Transaction,
in substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the Outstanding
Company Voting Securities, (B) no Person (other than the Company,
any employee benefit plan (or related trust) of the Company or the
corporation resulting from such Corporate Transaction and any Person
beneficially owning, immediately prior to such Corporate
Transaction, directly or indirectly, 20% or more of the Outstanding
Company Voting Securities) will beneficially own, directly or
indirectly, 20% or more of the outstanding shares of common stock of
the corporation resulting from such Corporate Transaction and (C)
individuals who were members of the Incumbent Board will constitute
at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(d) The approval of the stockholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all the assets of the Company;
excluding, however, such a sale or other disposition to a
corporation with respect to which, following such sale or other
disposition, (x) more than 60% of the then outstanding shares of
common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled
to vote generally in the election of directors will be then
beneficially owned, directly or indirectly, by the individuals and
entities who were the beneficial owners (or beneficiaries of the
beneficial owners), of the Outstanding Company Voting Securities
immediately prior to such sale or other disposition in substantially
the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company
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Voting Securities, (y) no Person (other than the Company and any
employee benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 20% or more
of the Outstanding Company Voting Securities) will beneficially own,
directly or indirectly, 20% or more of the combined voting power of
the then outstanding voting securities of such corporation entitled
to vote generally in the election of directors and (z) individuals
who were members of the Incumbent Board will constitute at least a
majority of the members of the board of directors of such
corporation.
Section 6. Consequences of a Termination of Employment
6.1 Reference Salary/Reference Bonus.
(a) As used herein, "Reference Bonus" shall mean the higher of (i) the
highest annual bonus earned by the Executive in respect of any of
the three years ending immediately prior to the date of termination
or, if higher, immediately prior to the year in which the first
event constituting Good Reason occurs or (ii) if at least 50% of the
then-current year has elapsed as of the date of termination, the
higher of (A) the highest Annual Bonus earned by the Executive in
respect of any of the two years ending immediately prior to
termination or (B) the Annual Bonus that would be payable for such
year, calculated assuming the results for such year equal the
annualized results for such elapsed period.
(b) As used herein, "Reference Salary" shall mean the sum of the
Executive's Base Salary and Additional Compensation as in effect
immediately prior to the date of termination or, if higher, as in
effect immediately prior to the first event constituting Good Reason
hereunder.
6.2 Termination Due to Death or Disability. If the Employment Term ends on
account of the Executive's termination due to death pursuant to Section 5.1(a)
or Disability pursuant to Section 5.1(b) above, the Executive (or, in the event
of death, the Executive's surviving spouse, or other beneficiary as so
designated by the Executive during his lifetime, or to the Executive's estate,
as appropriate) shall be entitled, in lieu of any other payments or benefits, to
the following:
(a) The Executive's unpaid Base Salary and Additional Compensation
through the date of termination;
(b) Any incentive compensation awarded to the Executive but not yet paid
for the year preceding the year of termination;
(c) A pro rata bonus equal to the product of (i) the Reference Bonus and
(ii) a
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fraction, the numerator of which is the number of days in the year
of termination through and including the date of termination and the
denominator of which is 365;
(d) reimbursement for any unreimbursed business expenses incurred in
accordance with Section 4 hereof prior to the date of termination;
(e) any amounts or benefits due under any equity or benefit plan, grant
or program in accordance with the terms of said plan, grant or
program but without duplication (such amounts specified in clauses
(a), (b), (c), (d) and (e) are hereinafter referred to as the
"Accrued Obligations"); and
(f) To the extent participating immediately prior to the date of
termination, continued participation for the Executive and the
Executive's dependents (to the extent participating at the time of
termination) in all welfare plans (including, in the case of
Disability, the split dollar life insurance policy if and to the
extent in effect at the time of termination) for the period of one
year from the date of termination or such longer period with respect
to any welfare plan as is then the policy of the Company with
respect to senior officers following such a termination, provided,
however, that in the event the Executive obtains other employment
that offers substantially similar or improved benefits, as to any
particular welfare plan, such continuation of coverage by the
Company for such benefits under such plan shall immediately cease.
To the extent such coverage cannot be provided under the Company's
welfare benefit plans without jeopardizing the tax status of such
plans, for underwriting reasons or because of the tax impact on the
Executive, the Company shall pay the Executive an amount such that
the Executive can purchase such benefits separately.
6.3 Involuntary Termination by the Company Without Cause or Termination by
the Executive for Good Reason. If the Executive is involuntarily terminated by
the Company without Cause in accordance with Section 5.1(d) above or the
Executive terminates his employment for Good Reason in accordance with Section
5.1(e) above, the Executive shall be entitled, in lieu of any other payments or
benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the
following:
(a) (i) If the termination occurs prior to the third anniversary of the
Effective Date, a severance payment of at least $1.5 million, equal
to the product of two times the sum of the Reference Salary and
Reference Bonus, payable in equal amounts over a two year period in
accordance with the Company's normal payroll practices provided,
however, that if a Change of Control occurs while the Executive is
receiving severance payments pursuant to this Section, the remaining
severance payments shall be payable to the Executive in one lump
sum;
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(ii) If the termination occurs on or after the third anniversary of
the Effective Date, a severance payment equal to the product of the
sum of the Reference Salary plus the Reference Bonus multiplied by a
fraction (in no event less than one), the numerator of which is the
remaining number of full months (counting the month in which such
termination occurs as a full month) in the Employment Term and the
denominator which is twelve, payable in equal amounts over the
remaining term of the Agreement, but not less than one year, in
accordance with the Company's normal payroll practices (plus, if
such fraction is less than 3/2, up to six months (so that the total
period for which severance payments are being made is 18 months) at
a 50% rate, payable in the same manner) provided, however, that if a
Change of Control occurs while the Executive is receiving severance
payments pursuant to this Section, the remaining severance payments
shall be payable to the Executive in one lump sum;
(iii) If the termination occurs following a Change of Control, a
severance payment equal to two times the sum of the Reference Salary
and the Reference Bonus, but not less than $1.5 million, payable in
a lump sum payment;
(b) To the extent participating immediately prior to the date of
termination (or immediately prior to the first event constituting
Good Reason, if more favorable), continued participation for the
Executive and the Executive's dependents (to the extent
participating at the time of termination) in all welfare plans
(including the split dollar life insurance policy if and to the
extent in effect at the time of termination or the time of the event
constituting Good Reason, as applicable) for the period of severance
payments (or, in the event of an accelerated lump sum payment under
Section 6.3(a)(i) or (ii), the original period of severance payments
without regard to such acceleration or, in the event of a lump sum
payment under Section 6.3(a)(ii), two years) or such longer period
with respect to any welfare plan as is then the policy of the
Company with respect to senior officers following such a
termination, provided, however, that in the event the Executive
obtains other employment that offers substantially similar or
improved benefits, as to any particular welfare plan, such
continuation of coverage by the Company for such benefits under such
plan shall immediately cease. To the extent such coverage cannot be
provided under the Company's welfare benefit plans without
jeopardizing the tax status of such plans, for underwriting reasons
or because of the tax impact on the Executive, the Company shall pay
the Executive an amount such that the Executive can purchase such
benefits separately;
(c) Immediate full vesting of any outstanding stock options including,
but not limited to, any Annual Options. The term of all of the
Executive's outstanding stock options shall terminate on the earlier
of (i) three years from the date of termination of the Executive's
employment by the Company without Cause or by the Executive for Good
Reason or (ii) the original remaining term applicable to such
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options; and
(d) Payment for up to one year of executive outplacement services from a
major outplacement service firm of the Executive's choosing.
6.4 Termination by the Company for Cause or Termination by the Executive
without Good Reason. If the Executive is terminated by the Company for Cause
pursuant to Section 5.1(c) or the Executive terminates his employment without
Good Reason pursuant to Section 5.1(e), the Executive shall be entitled to
receive all Accrued Obligations (other than the obligation specified in clause
(c) of Section 6.2 hereof).
6.5 Nonrenewal of the Employment Term. If the Company elects not to renew
the Agreement at the end of the Employment Term, the Company shall pay the
Executive (i) for twelve months following the date of termination of the
Employment Term, an amount equal to the sum of his Reference Salary plus his
Reference Bonus payable in equal amounts over a twelve month period, in
accordance with the Company's normal payroll practices and (ii) for six months
thereafter, an amount equal to one-half times the sum of the Reference Salary
plus the Reference Bonus, payable in the same manner over a six month period;
provided, however, that if a Change of Control occurs while the Executive is
receiving severance payments pursuant to this Section, the remaining severance
payments shall be payable to the Executive in one lump sum. In addition, the
Executive and the Executive's dependents will, to the extent participating
immediately prior to the date of termination, continue to participate in all
welfare plans (other than the split dollar life insurance policy) for the period
of eighteen months from the date of termination of the Employment Term or such
longer period with respect to any welfare plan as is then the policy of the
Company with respect to senior officers following such a termination, provided,
however, that in the event the Executive obtains other employment that offers
substantially similar or improved benefits, as to any particular welfare plan,
such continuation of coverage by the Company for such benefits under such plan
shall immediately cease. To the extent such coverage cannot be provided under
the Company's welfare benefit plans without jeopardizing the tax status of such
plans, for underwriting reasons or because of the tax impact on the Executive,
the Company shall pay the Executive an amount such that the Executive can
purchase such benefits separately
Section 7. No Mitigation/No Offset/Release
(a) In the event of any termination of employment hereunder, the Executive
shall be under no obligation to seek other employment and, except as
provided in Section 6.2 (b) hereof, there shall be no offset against any
amounts due the Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that the Executive
may obtain. The amounts payable hereunder shall not be subject to setoff,
counterclaim, recoupment, defense or other right which the Company may
have against the Executive or others.
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(b) Any amounts payable and benefits or additional rights provided to
the Executive from a termination due to Disability pursuant to
Section 6.2 or pursuant to Section 6.3 beyond Accrued Obligations
and amounts or rights due under law, and, in the case of a
termination due to Disability pursuant to Section 6.2 or in the case
of Section 6.3, beyond the sum of any amounts due (without execution
of a release) under the Company severance program then in effect,
shall only be payable if the Executive delivers to the Company a
release of all claims of the Executive (other than those
specifically payable or providable hereunder on or upon the
applicable type of termination and any rights of indemnification
under the Company's organizational documents) with regard to the
Company, its subsidiaries and related entities and their respective
past or present officers, directors and employees in substantially
the form attached hereto as Exhibit C.
(c) Upon any termination of employment, upon the request of the Company,
the Executive shall deliver to the Company a resignation from all
offices and directorships and fiduciary positions of the Executive
in which the Executive is serving with, or at the request of, the
Company or its subsidiaries, affiliates or benefit plans.
(d) The amounts and benefits provided under Section 6 hereof are
intended to be inclusive and not duplicative of the amounts and
benefits due under the Company's employee benefit plans and programs
to the extent they are duplicative.
8. Noncompetition and Confidentiality
8.1 Confidential Information. The Executive shall not, without the
prior written consent of the Company, communicate or divulge (other than in the
regular course of the Company's business) to anyone other than the Company, its
subsidiaries and those designated by it, any confidential information, knowledge
or data relating to the Company or any of its subsidiaries or affiliates, or to
any of their respective businesses, obtained by the Executive before or during
the Employment Term from the Company or any of its subsidiaries, except to the
extent (A) the Executive determines in good faith that it is in the best
interest of the Company to do so, (B) the Executive is compelled pursuant to an
order of a court or other body having jurisdiction over such matter to do so (in
which case the Company shall be given prompt notice of such intention to divulge
and an opportunity to object to such disclosure), or (C) such information,
knowledge or data is public knowledge or generally known within the Company's
industry other than through improper disclosure by the Executive.
8.2 Agreement Not to Compete.
(a) Until the eighteen month anniversary of the date on which the
Company makes its final Base Salary payment to the Executive
pursuant to this Agreement, the
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Executive will not (other than on behalf of the Company) directly or
indirectly;
(i) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender,
consultant or in any other capacity whatsoever (other than as
the holder of not more than three percent of the total
outstanding stock of a publicly held company), engage in any
business which competes directly with the Company in the
generic drug business (provided that a business which derives
less than 20% of its revenues from generic drug products will
not be deemed to be competing directly with the Company) or
has products in the iron management field; or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company (other than his personal
secretary) to terminate their employment with, or otherwise
cease their relationship with, the Company.
(b) If any restriction set forth in Section 8.2 hereof is found by any
court of competent jurisdiction or arbitrator to be unenforceable
because it extends for too long a period of time or over too great a
range of activities or in too broad a geographic area, it shall be
interpreted to extend only over the maximum period of time, range of
activities or geographic area as to which it may be enforceable.
8.3 Remedies. The restrictions contained in Sections 8.1 and 8.2
hereof are necessary for the protection of the business and goodwill of the
Company and are considered by the Executive to be reasonable to such purpose.
The Executive agrees that any breach of Sections 8.1 or 8.2 hereof will cause
the Company substantial and irreparable damage and therefore, in the event of
any such breach, in addition to such other remedies which may be available, the
Company shall have the right to seek specific performance and injunctive relief.
In no event shall an asserted violation of the provisions of Sections 8.1 or 8.2
hereof constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
8.4 Delivery of Documents. Upon termination of the Executive's
employment with the Company, the Executive shall promptly deliver to the Company
all records, files, memoranda, notes, data, reports, price lists, customer
lists, plans, computer programs, software, software documentation, laboratory
and research notebooks and other documents (and all copies or reproductions of
such materials in his possession or control) belonging to the Company.
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9. Assignment
9.1 Assignment by the Company. This Agreement may and shall be
assigned or transferred to, and shall be binding upon and shall inure to the
benefit of, any successor of the Company, and any such successor shall be deemed
substituted for all purposes of the "Company" under the terms of this Agreement.
As used in this Agreement, the term "successor" shall mean any person, firm,
corporation or business entity which at any time, whether by merger, purchase,
or otherwise, acquires all or substantially all of the assets of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder. Except as herein
provided, this Agreement may not otherwise be assigned by the Company.
9.2 Assignment by the Executive. This Agreement is not assignable by
the Executive. This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, and
administrators, successors, heirs, distributees, devisees, and legatees. If the
Executive should die while any amounts payable to the Executive hereunder remain
outstanding, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
10. Legal Remedies
10.1 Payment of Legal Fees. If the Executive sues to collect or
negotiates and reaches a settlement for any part or all of the payments provided
for hereunder (or otherwise successfully enforces the terms of this Agreement)
by or through a lawyer or lawyers, the Company shall advance all reasonable
costs of such collection or enforcement, including reasonable legal fees and
disbursements and other fees and expenses which the Executive may incur,
promptly after submission of documentation reasonably acceptable to the Company
in respect of such costs and expenses. All amounts paid by the Company shall
promptly be refunded to the Company if and when a court of competent
jurisdiction issues an unappealable order to the effect that the Company is
entitled to have such sums refunded. In addition, the Company shall reimburse
the Executive for his legal fees incurred in connection with the negotiation of
this Agreement.
10.2 Notice. Any notices, requests, demands, or other communications
provided for by this Agreement shall be sufficient if in writing and if
delivered personally, sent by telecopier, sent by an overnight service or sent
by registered or certified mail. Notice to the Executive not delivered
personally (or by telecopy where the Executive is known to be) shall be sent to
the last address on the books of the Company, and notice to the Company not
delivered personally (or by telecopy to the known personal telecopy of the
person it is being sent to) shall be sent to it at its principal office. All
notices to the Company shall be delivered to the Chief Executive Officer with a
copy to the senior legal officer. Delivery shall be deemed to occur on the
earlier of actual receipt or tender and rejection by the intended recipient.
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11. Miscellaneous
11.1 Entire Agreement. This Agreement, except to the extent
specifically provided otherwise herein, supersedes any prior agreements or
understandings, including but not limited to the letter of employment from the
Company to the Executive, dated April 17, 1995 and the employment agreement
dated May 1, 1995, oral or written, between the parties hereto or between the
Executive and the Company, with respect to the subject matter hereof and
constitutes the entire Agreement of the parties with respect to the subject
matter hereof. To the extent any severance plan or program of the Company that
would apply to the Executive is more generous to the Executive than the
provisions hereof, the Executive shall be entitled to any additional payments or
benefits which are not duplicative, but shall otherwise not be eligible for such
plan or program.
11.2 Modification. This Agreement shall not be varied, altered,
modified, canceled, changed, or in any way amended, nor any provision hereof
waived, except by mutual agreement of the parties in a written instrument
executed by the parties hereto or their legal representatives.
11.3 Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect.
11.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
11.5 Tax Withholding. The Company may withhold from any benefits
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
11.6 Beneficiaries. The Executive may designate one or more persons
or entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a signed
writing acceptable to the Board or the Board's designee. The Executive may make
or change such designation at any time.
11.7 Representation. The Executive represents that the Executive's
employment by the Company and the performance by the Executive of his
obligations under this Agreement do not, and shall not, breach any agreement
that obligates him to keep in confidence any trade secrets or confidential or
proprietary information of his or of any other party, to write or consult to any
other party or to refrain from competing, directly or indirectly, with the
business of any other party. The Executive shall not disclose to the Company,
and the Company shall not request that the Executive disclose, any trade secrets
or confidential or proprietary information of
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any other party.
11.8 Maximum Payment. Notwithstanding anything herein to the
contrary, if it is determined that any payment made to the Executive, whether
pursuant to the terms of this Agreement or otherwise, would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended, or any interest or penalties with respect to such excise tax (such
excise tax, together with any interest or penalties thereon, is herein referred
to as an "Excise Tax"), then the Executive shall be entitled to an additional
payment (a "Gross-Up Payment") in an amount that will place him in the same
after-tax economic position that he would have enjoyed if the Excise Tax had not
applied. The amount of the Gross-Up Payment shall be determined by the
nationally recognized firm of accountants serving as the Company's independent
auditors immediately prior to the Change of Control which resulted in the
application of the Excise Tax, in their sole discretion.
12. Governing Law
The provisions of this Agreement shall be construed and enforced in
accordance with the laws of the state of New Jersey, without regard to any
otherwise applicable principles of conflicts of laws.
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IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement, as of the day and year first above written.
/s/ DARIUSH ASHRAFI
-----------------------------------------
DARIUSH ASHRAFI
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Martin Sperber
--------------------------------------
Name: Martin Sperber
Title: Chairman and Chief Executive
Officer
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EXHIBIT A
Duties, Authorities and Responsibilities
The individuals responsible for the management and decision making for the
following functions shall report to the Executive:
Finance and Administration
Manufacturing Operations
Distribution
Brand Business
Generic Sales and Marketing
Research and Development
Business Development
International
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EXHIBIT B
PROMISSORY NOTE
$2,234,375.00 November 18, 1999
FOR VALUE RECEIVED, the undersigned, Dariush Ashrafi (the "Borrower"),
promises to pay to the order of Schein Pharmaceutical, Inc. (the "Company"), the
principal amount of two million two hundred thirty four thousand three hundred
seventy five dollars ($2,234,375.00) (the "Principal Amount") and all accrued
interest thereon in accordance with the terms hereof (the "Note Indebtedness").
Interest. Interest shall accrue on the Principal Amount and Accrued
Interest (as hereinafter defined) outstanding from time to time at an interest
rate equal to the interest rate payable from time to time by the Company under
its principal bank revolving credit facility. Interest shall be payable annually
on the fifth business day after the Borrower receives his annual bonus
compensation, if any (the "Annual Bonus"), for serving in his capacity as an
employee of the Company (each such date, a "Payment Date"). If the after-tax
amount of any Annual Bonus is insufficient to pay all interest accrued on the
immediately following Payment Date, the unpaid portion will continue to accrue
("Accrued Interest") until the earlier of (i) such time as such Accrued Interest
is paid pursuant to the immediately preceding sentence and (ii) the Maturity
Date, except as otherwise provided herein.
Term. The Note Indebtedness shall become due and payable in full on the
earlier of November 18, 2004 and the date six months following the date of
termination of the Borrower's employment with the Company by the Company for
Cause or the Borrower without Good Reason (as such terms are defined in the
Employment Agreement dated as of the date hereof between the Borrower and the
Company (the "Employment Agreement") (the "Maturity Date"). The Borrower shall
have the right to prepay this Promissory Note, in full or in part, at any time
without premium or penalty.
Prepayment. The proceeds of this Promissory Note were used to purchase
250,000 shares of common stock, par value $.01 per share, of the Company (the
"Incentive Shares") pursuant to the terms of the Employment Agreement. In the
event that all or from time to time a portion of the Incentive Shares are sold
by the Borrower prior to the repayment of the Note Indebtedness, the proceeds
from any such sale shall be used to repay all or a portion of the Note
Indebtedness equal to the amount of the Note Indebtedness then outstanding
multiplied by a fraction, the numerator of which is the number of Incentive
Shares sold and the denominator of which is the total number of Incentive Shares
held by the Borrower immediately prior to such sale. Each such payment shall be
applied to payment of principal of and interest on this Promissory Note in
<PAGE>
proportion to the respective unpaid amounts thereof on the date of payment. The
Borrower shall give the Company written notice of any proposed sale of Incentive
Shares not less than five business days prior to such sale.
Representations and Warranties. The Borrower represents to the Company
that he has the legal capacity to execute this Promissory Note and to carry out
all of the terms, conditions, covenants and provisions contained herein and that
there is no state of facts existing on the date hereof which would constitute an
Event of Default (as hereinafter defined).
Default. Each of the following events or conditions constitutes an "Event
of Default":
a. Failure by the Borrower to make any payment of principal or interest
under this Promissory Note on or before thirty (30) days after the date
such payment is due.
b. Failure by the Borrower to comply with any other provision of this
Promissory Note and the continuance of such failure for thirty (30) days
or more after written notice from the Company.
c. Any representation, warranty or other statement by or on behalf of the
Borrower contained in this Promissory Note is false or misleading in any
material respect when made.
d. The Borrower becomes insolvent or bankrupt or makes an assignment for
the benefit of creditors, or consents to the appointment of a trustee,
receiver or liquidator.
e. Bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings are instituted by or against the Borrower, which proceedings
are not dismissed or stayed within sixty (60) days after they are
instituted.
If at any time during the term of this Agreement, there shall have occurred an
Event of Default, the Company shall have at any time thereafter the rights and
remedies provided by law, and without limiting the generality of the foregoing,
(i) the right to declare all amounts then remaining unpaid under this Promissory
Note to be immediately due and payable, and (ii) the right to take any available
action or proceeding, at law or in equity, which it deems necessary or advisable
for its protection and security. During the continuance of an Event of Default,
the Company shall have the right to offset any amounts owing by the Company to
the Borrower for any reason, including but not limited to, salary or bonus,
against any outstanding Note Indebtedness. If any action is brought to collect
this Promissory Note, the Company shall be entitled to recover from the Borrower
all the costs and expenses of that action, including, but not limited to,
reasonable attorney's fees, and the Company shall be entitled to judgment for
those additional amounts (in addition to the unpaid Note Indebtedness).
Waiver of Rights. No failure or delay on the part of the Company to
exercise any right or remedy granted to the Company in this Promissory Note or
otherwise provided by law shall
<PAGE>
operate as a waiver of any such right or remedy. The Borrower hereby waives
presentment, demand, notice of dishonor, notice of protest and all other notices
and demands in connection with any delivery, acceptance, performance or default
of this Promissory Note and agrees that this Promissory Note may be modified
only by an agreement in writing signed by the Borrower and the Company.
Governing Law. This Promissory Note shall be governed and interpreted in
accordance with the laws of the state of New Jersey, without regard to any
otherwise applicable principles of conflicts of laws.
Accepted and Acknowledged by: Accepted and Acknowledged by:
SCHEIN PHARMACEUTICAL, INC. BORROWER
By:_________________________________ ___________________________________
Name: Martin Sperber Dariush Ashrafi
Title: Chairman and Chief Executive
Officer
<PAGE>
EXHIBIT C
GENERAL RELEASE OF ALL CLAIMS
This General Release of all Claims (this "Agreement") is entered into by
and among Dariush Ashrafi (the "Executive"), and Schein Pharmaceutical, Inc., a
Delaware corporation (as it may be renamed from time to time, and including its
subsidiaries and affiliates) (collectively, the "Corporation"), effective as of
|_|.
In consideration of the promises set forth in the Employment Agreement
between the Executive and the Corporation, dated November 18, 1999, (the
"Employment Agreement"), as well as any promises set forth in this Agreement,
the Executive and the Corporation agree as follows:
(1) Return of Property
All Corporation files, access keys, desk keys, ID badges and credit cards,
and such other property of the Corporation as the Corporation may
reasonably request, in the Executive's possession must be returned no
later than the date of the Executive's termination from the Corporation
(the "Termination Date").
(2) General Release and Waiver of Claims
Except as provided in the last sentence of this paragraph (2), in
consideration of the payments made and to be made, and benefits provided
and to be provided, to the Executive pursuant to the Employment Agreement,
the Executive hereby unconditionally and forever releases, discharges and
waives any and all claims of any nature whatsoever, whether legal,
equitable or otherwise, which the Executive may have against the
Corporation arising at any time on or before the Termination Date, other
than the Excluded Obligations. This release of claims extends to any and
all claims of any nature whatsoever, other than with respect to the
Excluded Obligations, whether known, unknown or capable or incapable of
being known as of the Termination Date or thereafter. This Agreement is a
release of all claims of any nature whatsoever by the Executive against
the Corporation, other than with respect to the Excluded Obligations, and
includes, other than as herein provided, any and all claims, demands,
causes of action, liabilities whether known or unknown including those
caused by, arising from or related to the Executive's employment
relationship with the Corporation including, without limitation, any and
all alleged discrimination or acts of discrimination which occurred or may
have occurred on or before the Termination Date based upon race, color,
sex, creed, national origin, age, disability or any other violation of any
Equal Employment Opportunity Law, ordinance, rule, regulation or order,
including, but not limited to, Title VII of the Civil Rights Act of 1964,
as amended; the Civil Rights Act of 1991; the Age Discrimination in
Employment Act, as amended (as further described in Section 4 below); the
Americans with Disabilities Act; claims under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); or any other Federal,
state or local laws or regulations regarding employment discrimination or
termination of employment. This also includes claims
<PAGE>
for wrongful discharge, fraud, or misrepresentation under any statute,
rule, regulation or under the common law.
The Executive agrees and understands and knowingly agrees to this release
because it is his or her intent in executing this Agreement to forever
discharge the Corporation from any and all present, future, foreseen or
unforeseen causes of action except for the Excluded Obligations.
Notwithstanding the foregoing, the Executive does not release, discharge
or waive any rights (the "Excluded Obligations") (i) to payments and
benefits provided for in the applicable subsection of Section 6 of the
Employment Agreement, (ii) to payments provided for in Section 10.1 and
Section 11.8 of the Employment Agreement and (iii) to indemnification that
he or she may have under the By-Laws of the Corporation, the laws of the
State of Delaware, any indemnification agreement between the Executive and
the Corporation or any insurance coverage maintained by or on behalf of
the Corporation.
(3) Release and Waiver of Claims Under the Age Discrimination in Employment
Act
The Executive acknowledges that the Corporation advised him or her to
consult with an attorney of his or her choosing, and through this
Agreement advises him or her to consult with his or her attorney with
respect to possible claims under the Age Discrimination in Employment Act
of 1967, as amended ("ADEA"), and the Executive acknowledges that he or
she understands that ADEA is a Federal statute that prohibits
discrimination, on the basis of age, in employment, benefits, and benefit
plans. The Executive wishes to waive any and all claims under the ADEA
that he or she may have, as of the Termination Date, against the
Corporation, and their respective shareholders, employees, or successors,
and hereby waives such claims. The Executive further understands that by
signing this Agreement he or she is in fact waiving, releasing and forever
giving up any claim under the ADEA against the Corporation that may have
existed on or prior to the Termination Date. The Executive acknowledges
that the Corporation have informed him or her that he or she has, at his
or her option, twenty-one (21) days following the Termination Date in
which to sign the waiver of this claim under ADEA, and he or she does
hereby knowingly and voluntarily waive said twenty-one (21) day period.
The Executive also understands that he or she has seven (7) days following
the date on which he or she signs this Agreement within which to revoke
the release contained in this paragraph by providing to the Corporation a
written notice of his or her revocation of the release and waiver
contained in this paragraph. The Executive further understands that this
right to revoke the release contained in this paragraph relates only to
this paragraph and does not act as a revocation of any other term of this
Agreement.
<PAGE>
(4) Proceedings
The Executive has not filed, and agrees not to initiate or cause to be
initiated on his or her behalf, any complaint, charge, claim or proceeding
against the Corporation before any local, state or Federal agency, court
or other body relating to his or her employment or the termination of his
or her employment, other than with respect to the Excluded Obligations
(each individually, a "Proceeding"), and agrees not to voluntarily
participate in any Proceeding. The Executive waives any right he or she
may have to benefit in any manner from any relief (whether monetary or
otherwise) arising out of any Proceeding.
(5) Remedies
In the event the Executive initiates or voluntarily participates in any
Proceeding, or if he or she fails to abide by any of the terms of this
Agreement, or if he or she revokes the ADEA release contained in Paragraph
3 of this Agreement within the seven-day period provided under Paragraph
3, the Corporation may, in addition to any other remedies it may have,
reclaim any amounts paid to him or her under the termination provisions of
the Employment Agreement or terminate any benefits or payments that are
subsequently due under the Employment Agreement, without waiving the
release granted herein. The Executive acknowledges and agrees that the
remedy at law available to the Corporation for breach of any of his or her
post-termination obligations under the Employment Agreement or his or her
obligations under Paragraphs 2, 3 and 4 of this Agreement would be
inadequate and that damages flowing from such a breach may not readily be
susceptible to being measured in monetary terms. Accordingly, the
Executive acknowledges, consents and agrees that, in addition to any other
rights or remedies which the Corporation may have at law, in equity or
under this Agreement, upon adequate proof of his or her violation of any
such provision of this Agreement, the Corporation shall be entitled to
immediate injunctive relief and may obtain a temporary order restraining
any threatened or further breach, without the necessity of proof of actual
damage.
The Executive understands that by entering into this Agreement he or she
will be limiting the availability of certain remedies that he or she may
have against the Corporation and limiting also his or her ability to
pursue certain claims against the Corporation.
(6) Severability Clause
In the event any provision or part of this Agreement is found to be
invalid or unenforceable, only that particular provision or part so found,
and not the entire Agreement, will be inoperative.
<PAGE>
(7) Non-Admission
Nothing contained in this Agreement will be deemed or construed as an
admission of wrongdoing or liability on the part of the Corporation.
(8) Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey, applicable to agreements made and to be
performed in that State, without regard to conflicts of law principles;
and the parties agree to the jurisdiction of the U.S. District Court for
the District of New Jersey, and agree to appear in any action in such
courts by service of process by certified mail, return receipt requested,
at the following addresses:
To the Corporation: 100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
To the Executive: [Insert Address]
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT AND THAT HE FULLY
KNOWS, UNDERSTANDS, AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES
THE SAME AND MAKES THIS AGREEMENT AND THE RELEASE AND AGREEMENTS PROVIDED FOR
HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this as of the date first
set forth above.
SCHEIN PHARMACEUTICAL, INC.
By:_________________________________________
Name:
Title:
EXECUTIVE
____________________________________________
Dariush Ashrafi
<PAGE>
AMENDMENT DATED AS OF FEBRUARY 21, 1995 TO EMPLOYMENT AGREEMENT between Schein
Pharmaceutical, Inc. (the "Company") and Martin Sperber ("Sperber").
The Company and Sperber are parties to an employment agreement dated September
30, 1994 (the "Employment Agreement"), pursuant to which Sperber is employed as
the Company's Chairman of the Board, Chief Executive Officer and President.
The Company and Sperber agree as follows:
1. Section 2.1 of the Employment Agreement is hereby amended to read in its
entirety as follows:
"As compensation for Sperber's employment hereunder, Sperber shall be
entitled to receive a base salary (the "Base Salary") of $600,000 per
annum for the first year of the Employment Period, $650,000 per annum for
the second year of the Employment Period and $700,000 per annum for the
third, fourth and fifth years of the Employment Period, payable in
accordance with the Company's normal payroll practices for tits senior
executive officers from time to time in effect."
2. Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Employment Agreement. Except as expressly amended
hereby, all provisions of the Employment Agreement shall remain in full force
and effect.
SCHEIN PHARMACEUTICAL, INC.
/s/ Martin Sperber By: /s/ [ILLEGIBLE]
- ----------------------------------- -------------------------------------
MARTIN SPERBER Executive Vice President and
Chief Operating Officer
<PAGE>
AMENDMENT NO 1
TO THE
EMPLOYMENT AGREEMENT DATED
SEPTEMBER 30, 1994 BETWEEN
SCHEIN PHARMACEUTICAL, INC. AND MARTIN SPERBER
Reference in made to the Employment Agreement dated September 30, 1994 between
Schein Pharmaceutical, Inc. and Martin Sperber (the "Employment Agreement").
Capitalized terms not otherwise defined herein shall have the meaning ascribed
thereto in the Employment Agreement.
1. Section 1.2 of the Employment Agreement is amended to read in its entirety as
follows:
"1.2 Employment Period. Sperber's employment shall be for the period
commencing on January 1, 1994 and ending on January 1, 2000 (the
"Employment Expiration Date"), unless terminated earlier pursuant to the
Section 4 hereof (the "Employment Period")."
2. In Section 3.2 of the Employment Agreement the definition of "Average Total
Cash Compensation" shall be amended to read as follows:
'"Average Total Cash Compensation" shall mean the average of the highest
three of the last six fiscal years of Total Cash Compensation (as defined
below) occurring prior to the date Sperber's employment is terminated;'
Except as amended hereby, the Employment Agreement shall continue in full force
and effect.
Dated as of March 6, 1998
SCHEIN PHARMACEUTICAL, INC.
/s/ Martin Sperber By: /s/ [ILLEGIBLE]
- ----------------------------------- -------------------------------------
Martin Sperber Authorized Officer
<PAGE>
AMENDMENT NO. 2
TO THE
EMPLOYMENT AGREEMENT DATED
SEPTEMBER 30, 1994 BETWEEN
SCHEIN PHARMACEUTICAL, INC. AND MARTIN SPERBER
Reference is made to the Employment Agreement dated September 30, 1994 between
Schein Pharmaceutical, Inc. and Martin Sperber, as amended by Amendment No. 1
thereto dated as of March 6, 1998 (the "Employment Agreement"). Capitalized
terms not otherwise defined herein shall have the meaning ascribed thereto in
the Employment Agreement.
1. Section 1.2 of the Employment Agreement is amended to read in its entirety as
follows:
"1.2 Employment Period. Sperber's employment shall be for the period
commencing on January 1, 1994 and ending on January 1, 2001 (the
"Employment Expiration Date"), unless terminated earlier pursuant to
Section 4 hereof (the "Employment Period")."
2. Section 2.1 of the Employment Agreement is amended to read in its entirety as
follows:
"2.1 Base Salary. As compensation for Sperber's employment
hereunder, Sperber shall be entitled to receive a base salary (the "Base
Salary") at a rate of $600,000 per annum for the first two years of the
Employment Period and $700,000 per annum for the next five years of the
Employment Period, payable in accordance with the Company's normal payroll
practices for its senior executive officers from time to time in effect."
3. In Section 3.2 of the Employment Agreement, the definition of "Average Total
Cash Compensation" shall be amended to read as follows:
'"Average Total Cash Compensation" shall mean the average of the
highest three of the last seven full fiscal years of Total Cash
Compensation (as defined below) occurring prior to the date Sperber's
employment is terminated;'
4. A new Section 3.3 is added to the Employment Agreement to read in its
entirety as follows:
"3.3 Stock Options. In the event Sperber's employment is terminated
pursuant to Section 4.1 upon Sperber's death, Disability, retirement at or
after age 65, or by the Company other than with Cause, all unvested stock
options held by Sperber on the date of such termination or retirement
shall immediately vest and be fully exercisable, and all stock options
held by Sperber (including those vesting by reason of the preceding
<PAGE>
provision) shall remain exercisable (to the extent not exercised) for a
period of three years from the date of such termination or retirement."
Except as amended hereby, the Employment Agreement shall continued in full force
and effect.
Dated as of November 18, 1999
SCHEIN PHARMACEUTICAL, INC.
/s/ Martin Sperber By: /s/ Paul Feuerman
- ----------------------------------- -------------------------------------
Martin Sperber Name: Paul Feuerman
Title: SR VP & GEN COUNSEL
<PAGE>
AMENDMENT NO. 3
TO THE
EMPLOYMENT AGREEMENT DATED
SEPTEMBER 30, 1994 BETWEEN
SCHEIN PHARMACEUTICAL, INC. AND MARTIN SPERBER
Reference is made to the Employment Agreement dated September 30, 1994 between
Schein Pharmaceutical, Inc. and Martin Sperber, as amended by Amendment No. 1
thereto dated as of March 6, 1998 and Amendment No. 2 thereto dated as of
November 18, 1999 (the "Employment Agreement"). Capitalized terms not otherwise
defined herein shall have the meaning ascribed thereto in the Employment
Agreement.
1. A new Section 5.6 is added to the Employment Agreement as follows:
"5.6 FAILURE TO OFFER EXTENSION. If the Company fails to offer
Sperber in writing, on or prior to any Employment Expiration Date during
the Employment Period, the opportunity to extend the then Employment
Expiration Date to a date one year after such date, the Company shall pay
to Sperber, in a lump sum in cash within 30 days of such Employment
Expiration Date, an amount equal to his Base Salary on such Employment
Expiration Date plus $375,000 (the "Reference Bonus"). Nothing contained in
this Section 5.6 shall be deemed to limit in any way Sperber's and his
spouse's right to receive the benefits referred to in Section 3.1 and 3.2
hereto."
2. A new Section 5.7 is added to the Employment Agreement as follows:
"5.7 CHANGE OF CONTROL. If Sperber's employment with the Company is
terminated by the Company for any reason, other than upon his death or
Disability or for Cause, or by Sperber pursuant to Section 4.1(c), in
each case within two years following a Change of Control (as such term is
defined in the Company's 1999 Stock Option Plan) or 90 days prior to such
Change of Control, the Company shall pay to Sperber, in a lump sum in cash
within 30 days of the later of such termination date and the Change of
Control date, an amount equal to twice the sum of his Base Salary on such
termination date plus the Reference Bonus, reduced by any amount paid or
payable to Sperber pursuant to Sections 5.4(b) and (c). Nothing contained
in this Section 5.7 shall be deemed to limit in any way Sperber's or his
spouse's right to receive the benefits referred to in Sections 3.1 and 3.2
hereto."
3. A new Section 11 is added to the Employment Agreement as follows:
"11. MAXIMUM PAYMENT. Notwithstanding anything herein to the
contrary, if it is determined that any payment made to Sperber, whether
pursuant to the terms of this Agreement or otherwise (including but not
limited to any stock option agreement), would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code, or any interest
or penalties with respect to such excise tax (such excise tax, together
with any interest or penalties thereon, is herein referred to as an
"EXCISE TAX"), then Sperber shall be entitled to an additional payment or
payments (a "GROSS-UP PAYMENT") in an amount that will place him in the
same after-tax economic position that he would have enjoyed if the Excise
Tax had not applied. The amount of the Gross-Up Payment shall be determined
by the nationally recognized firm of accountants serving as the
Corporation's independent auditors immediately prior to the Change of
Control which resulted in the application of the Excise Tax, in their sole
discretion, and shall be payable upon Sperber's demand."
Except as amended hereby, the Employment Agreement shall continue in full
force and effect.
Dated as of December 31, 1999
/s/ Martin Sperber
- ---------------------------------- SCHEIN PHARMACEUTICAL, INC.
Martin Sperber
By: /s/ Dariush Ashrafi
-------------------------
Dariush Ashrafi
President and
Chief Operating Officer
<PAGE>
Exhibit 10.61
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1,
2000 (the "Effective Date"), is made and entered into by and between Schein
Pharmaceutical, Inc., a Delaware corporation (the "Corporation"), and Paul
Feuerman (the "Executive").
The Executive is currently employed as a Sr. Vice President of the
Corporation pursuant to an employment agreement, dated November 29, 1993 (the
"Prior Agreement"); and
The Corporation desires to secure the Executive's continued
participation in the manner hereinafter specified in the business of the
Corporation and to make provision for payment of reasonable compensation to the
Executive for such services and the Executive is willing to continue his or her
employment with the Corporation to perform the duties incident to such
employment upon the terms and conditions hereinafter set forth and thus to
forego opportunities elsewhere; and
In replacement of the Prior Agreement, the parties desire to enter
into this Agreement, as of the Effective Date, setting forth the terms and
conditions of the employment relationship of the Executive with the Corporation
during the Term (as such term is hereinafter defined).
In consideration of the premises and the mutual covenants herein
contained, the parties hereby agree as follows:
1. Employment Duties.
(a) Employment. The Corporation hereby agrees to employ the
Executive, and the Executive hereby agrees to serve, as Executive Vice
President, Corporate Affairs and General Counsel of the Corporation.
(b) Duties. The Executive shall report to the Chief Executive
Officer of the Corporation and will have full authority to act on behalf of the
Corporation in a manner that is consistent with his or her title and position.
In such capacity, the Executive also agrees to perform such duties and exercise
such powers commensurate with his or her position as may from time to time be
reasonably requested of him or her by the Chief Executive Officer or the Board
of Directors of the Corporation (the "Board") or vested in him or her by the
bylaws of the Corporation. During the Term, the Executive shall:
<PAGE>
2
(1) devote substantially all of his or her business time, attention
and abilities to the business of the Corporation (including its
subsidiaries or affiliates, when so required); and
(2) faithfully serve the Corporation and use his or her best efforts
to promote and develop the interests of the Corporation.
2. Term of Employment. The term (the "Term") of the Executive's
employment hereunder shall be for a period commencing on the Effective Date, and
continuing until terminated by either the Corporation or the Executive in
accordance with the terms of Paragraph 4(a) below upon giving sixty (60) days
written notice ("Non-Continuation Notice").
3. Compensation. Subject to the terms of this Agreement and until
the termination of the Term as provided in Paragraph 2, the Corporation shall
pay compensation and provide benefits to the Executive as follows:
(a) Base Salary. The Corporation shall pay to the Executive a base
salary of $350,000 per annum during the Term (the "Base Salary"). The Executive
shall receive his or her salary in equal installments in accordance with the
Corporation's payroll practices in effect from time to time. The Corporation
will review the Executive's Base Salary at least once per year and may, in its
discretion, increase the Base Salary in accordance with the compensation
policies of the Corporation, as in effect from time to time.
(b) Benefit Continuation and Perquisites. The Executive shall
participate during the Term, in such pension, life insurance, health, disability
and medical insurance plans, and such other employee benefit plans and programs
(including an automobile or automobile allowance), for the benefit of employees
of the Corporation, and as may be maintained from time to time during the Term,
in each case to the extent and in the manner available to other executives or
officers of the Corporation of comparable level or position and subject to the
terms and provisions of such plans or programs.
(c) Incentive Bonus. The Corporation may pay a bonus to the
Executive as determined by the Corporation in accordance with the Corporation's
incentive plan or policies as in effect from time to time.
(d) Stock Options. From time to time as so approved by the Board or
the Stock Option Committee of the Board, the Executive may become eligible for
the grant of options to purchase shares of the Corporation's common stock, par
value of $0.01 per share (the "Shares"), pursuant to and subject to the terms
and conditions of the Corporation's 1999 Stock Option Plan (or other plan of the
Corporation) and any stock option agreement entered into by the Executive and
the Corporation.
<PAGE>
3
(e) Reimbursement of Expenses. The Corporation shall reimburse the
Executive for all reasonable expenses incurred personally by him or her on
behalf of the Corporation in accordance with the policies and procedures
applicable to similarly situated executives of the Corporation.
(f) Additional Compensation. The Corporation shall pay the Executive
additional compensation (the "Additional Compensation") which will be payable in
four (4) annual installments as follows: $150,000 on December 31, 2000, $150,000
on December 31, 2001, $150,000 on December 31, 2002 and $150,000 on December 31,
2003.
4. Termination and Compensation Payable Upon Termination or
Resignation.
(a) Earlier Termination of Term. Upon giving a Non-Continuation
Notice by either the Corporation or the Executive pursuant to Paragraph 2, and
subject to the Corporation's compliance with Paragraph 4(g), the Executive's
employment with the Corporation may be terminated or the Executive may resign
such employment prior to the expiration of the Term effective as of the end of
the sixty-day (60) day period following the date of the Non-Continuation Notice
(the "Termination Date") is given as follows:
(1) The Corporation may terminate the Executive's employment
hereunder for Cause (as defined hereunder), without Cause or upon the
Executive's Disability;
(2) The Executive's employment hereunder shall terminate
automatically upon his or her death; or
(3) The Executive may resign from his or her employment with the
Corporation with or without Good Reason (as defined hereunder).
(b) Definition of "Target Bonus". As used herein, the "Target Bonus"
shall mean the higher of 35% of the Executive's then-current Base Salary, and
(y) the highest annual bonus earned by the Executive in respect of any of the
two (2) years ending immediately prior to the Termination Date.
(c) Definition of "Cause". As used herein, "Cause" shall mean,
during the Term of this Agreement, the occurrence of any of the following:
(1) the Executive's willful and continued failure to substantially
perform his or her duties under this Agreement for the Corporation or its
affiliates;
<PAGE>
4
(2) the commission by the Executive of fraud, misappropriation or
intentional material damage to the property or business of the
Corporation; or
(3) the commission of a felony by the Executive.
(d) Definition of "Disability". The Executive shall be considered to
have a "Disability" if he or she satisfies the definition set forth in the
Corporation's long-term disability benefit plan in which he or she is enrolled
at the time of the determination or if there is no such plan, for a continuous
period of six (6) months, he or she is unable to perform his or her duties under
this Agreement for reasons of health, and, in the opinion of a physician
appointed by the Corporation and reasonably acceptable to the Executive, such
disability will continue for a prolonged period of time.
(e) Definition of "Good Reason". As used herein, "Good Reason" shall
mean the occurrence of any of the following:
(1) the Corporation assigning the Executive to duties or
responsibilities that are inconsistent, in any significant respect, with
the scope of duties or responsibilities provided for under this Agreement;
(2) any reduction in the Executive's Base Salary or Additional
Compensation provided for under this Agreement; or
(3) except where expressly approved by the Executive, the relocation
of the Executive's principal place of business beyond a forty (40) mile
automobile drive from the New York side of the Lincoln Tunnel.
(f) Definition of "Change of Control". As used herein, "Change of
Control" shall mean the occurrence of any of the following:
(1) an acquisition by any individual, entity or group (within the
meaning of Section 13d-3 or 14d-1 of the Securities Exchange Act of 1934,
as amended (the "Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Act) of more than 50% of the
combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors to the
Board (the "Outstanding Corporation Voting Securities"); excluding,
however, the following: (x) any acquisition by the Corporation, (y) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Corporation or (z) any acquisition by any corporation
pursuant to a reorganization, merger, consolidation or similar corporate
transaction (in each case, a "Corporate
<PAGE>
5
Transaction"), if, pursuant to such Corporate Transaction, the conditions
described in (A), (B) and (C) of clause (3) of this Paragraph Section 4(f)
are satisfied;
(2) a change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (the Board
as of the Effective Date shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided that, for purposes of this Paragraph 4(e)(2), any
individual who becomes a member of the Board subsequent to the Effective
Date and whose election, or nomination for election by the Corporation's
stockholders, was approved by a majority of the members of the Board who
also are members of the Incumbent Board (or so deemed to be pursuant to
this proviso) shall be deemed a member of the Incumbent Board; but,
provided further, that any such individual whose initial assumption of
office is in connection with a Change of Control described in (1), (3) or
(4) of this Paragraph 4(f) or whose initial assumption of office occurs as
a result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Act) or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board shall not be so deemed a member of
the Incumbent Board; or
(3) the approval by the stockholders of the Corporation of a
Corporate Transaction or, if consummation of such Corporate Transaction is
subject, at the time of such approval by stockholders, to the consent of
any government or governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation); excluding, however,
such a Corporate Transaction pursuant to which (A) the beneficial owners
(or beneficiaries of the beneficial owners) of the outstanding Shares and
Outstanding Corporation Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly, more
than 60% of, respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction and the combined
voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors, in substantially
the same proportions as their ownership, immediately prior to such
Corporate Transaction, of the outstanding Shares and Outstanding
Corporation Voting Securities, as the case may be, (B) no Person (other
than the Corporation, any employee benefit plan (or related trust) of the
Corporation or the corporation resulting from such Corporate Transaction
and any Person beneficially owning, immediately prior to such Corporate
Transaction, directly or indirectly, 20% or more of the outstanding Shares
or Outstanding Corporation Voting Securities, as the case may be) will
beneficially own, directly or indirectly, 20% or more of, respectively,
the outstanding shares of common stock of the corporation resulting from
such Corporate Transaction or the combined voting power of the then
outstanding securities of such corporation entitled to vote generally in
the election of directors and (C) individuals
<PAGE>
6
who were members of the Incumbent Board will constitute at least a
majority of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
(4) the approval of the stockholders of the Corporation of (A) a
complete liquidation or dissolution of the Corporation or (B) the sale or
other disposition of all or substantially all the assets of the
Corporation; excluding, however, such a sale or other disposition to a
corporation with respect to which, following such sale or other
disposition, (x) more than 60% of the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors will be then beneficially owned,
directly or indirectly, by the individuals and entities who were the
beneficial owners (or beneficiaries of the beneficial owners),
respectively, of the outstanding Shares and Outstanding Corporation Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the outstanding Shares and Outstanding
Corporation Voting Securities, as the case may be, (y) no Person (other
than the Corporation and any employee benefit plan (or related trust) of
the Corporation or such corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or
indirectly, 20% or more of the outstanding Shares or Outstanding
Corporation Voting Securities, as the case may be) will beneficially own,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (z) individuals who were
members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of such corporation.
(g) Payments to the Executive Upon Termination of Employment. In the
event that the Executive's employment with the Corporation is terminated prior
to the expiration of the Term pursuant to a Non-Continuation Notice for any of
the reasons provided in Paragraph 4(a), then the Corporation shall pay to the
Executive the following amounts on the date of such termination, and shall
provide to the Executive the following benefits, as applicable:
(1) In the event that the Executive's employment hereunder
terminates for any reason whatsoever (including for Cause), the
Corporation shall pay to the Executive: (i) an amount equal to his or her
accrued but unpaid Base Salary; (ii) any incentive compensation awarded to
the Executive but not yet paid for the year preceding the year of
termination; (iii) reimbursement for any unreimbursed business expenses
incurred in accordance with Paragraph 3(e) prior to the Termination Date;
and
<PAGE>
7
(iv) any amounts or benefits due under any equity or benefit plan, grant
or program in accordance with the terms of said plan, grant or program but
without duplication (such amounts specified in clauses (i), (ii), (iii),
and (iv) referred to as "Accrued Obligations"). In addition, for
terminations other than cause, the Corporation will provide the Executive
with up to one year of outplacement services chosen by the Corporation at
a location convenient to the Executive.
(2) In the event that: (i) the Executive's employment hereunder is
terminated by the Corporation for any reason other than for Cause,
Disability or death, or (ii) the Executive terminates his or her
employment with Good Reason, in addition to the Accrued Obligations, the
Corporation shall also pay or provide to the Executive: (A) 100% of the
Executive's then-current Base Salary, payable in a lump sum no later than
thirty (30) days following such termination; (B) a lump sum payment equal
to the Target Bonus, payable no later than thirty (30) days following such
termination; (C) any unpaid Additional Compensation, payable in a lump sum
no later than thirty (30) days following such termination; and (D)
continued participation in the Corporation's welfare plans (as applicable
and including without limitation the split dollar insurance program, if
applicable) for the twelve (12) month period following the Termination
Date; provided that, such welfare coverage shall cease if the Executive
obtains other full-time employment providing for comparable welfare
benefits prior to the expiration of such twelve (12) month period. The
benefits provided under this clause (2) are in lieu of payments under any
severance policy of the Corporation.
(3) In the event that: (i) the Executive's employment hereunder is
terminated by the Corporation for any reason other than for Cause,
Disability or death within two (2) years following a Change of Control or
ninety (90) days prior to a Change of Control, or (ii) the Executive
terminates his or her employment with Good Reason within two (2) years
following a Change of Control or ninety (90) day prior to a Change of
Control, in lieu of the amounts described in clauses 2(A) and (B) above
and the benefits described in clause 2(D) above, in addition to the
Accrued Obligations and payment of any unpaid Additional Compensation as
provided in clause 2(C) above, the Corporation shall pay or provide to the
Executive: (A) a lump sum payment equal to three(3) times the sum (x) of
the Executive's then-current Base Salary, (y) the Target Bonus, and (z)
any Additional Compensation payable with respect to the year of
termination under Paragraph 3(f), payable no later than thirty (30) days
following such termination; and (B) continued participation in the
Corporation's welfare plans (as applicable, and including without
limitation the split-dollar insurance program, if applicable) for the
thirty-six (36) month period following the Termination Date; provided
that, such welfare plan coverage shall cease if the Executive obtains
other full-time employment providing for comparable welfare benefits prior
to the expiration of
<PAGE>
8
such thirty-six (36) month period. The benefits provided under this clause
(3) are in lieu of payments under any severance policy of the Corporation.
(h) Waiver and Release. No payment will be made under Paragraph
4(g), unless (x) the Executive first executes and delivers to the Corporation a
release in substantially the same form attached as Appendix A to this Agreement,
and (y) to the extent any portion of such release is subject to the seven-day
revocation period prescribed by the Age Discrimination in Employment Act, as
amended, or to any similar revocation period in effect on the date of
termination of the Executive's employment, such revocation period has expired.
5. Maximum Payment. Notwithstanding anything herein to the contrary,
if it is determined that any payment made to the Executive, whether pursuant to
the terms of this Agreement or otherwise (including but not limited to any stock
option agreement), would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended, or any interest or penalties with
respect to such excise tax (such excise tax, together with any interest or
penalties thereon, is herein referred to as an "Excise Tax"), then the Executive
shall be entitled to an additional payment or payments (a "Gross-Up Payment") in
an amount that will place him or her in the same after-tax economic position
that he or she would have enjoyed if the Excise Tax had not applied. The amount
of the Gross-Up Payment shall be determined by the nationally recognized firm of
accountants serving as the Corporation's independent auditors immediately prior
to the Change of Control which resulted in the application of the Excise Tax, in
their sole discretion, and shall be payable upon the Executive's demand.
6. Protection of the Corporation's Interests.
(a) Non-Competition Covenant. The Executive hereby covenants and
agrees that during the Term and for six (6) months following the end of the
Term, the Executive will not, without the prior written consent of the
Corporation, engage in Competition (as defined below) with the Corporation. For
purposes of this Agreement, if the Executive takes any of the following actions
the Executive will be engaged in "Competition": directly or indirectly accepting
employment or engaging in any business activity which would require the
Executive to be involved in the formulation, development, manufacture or sale of
any product which is the same as any product for which the Executive was engaged
in on behalf of the Corporation; provided, however, that "Competition" will not
include (x) working or engaging in any business activity with a new employer
that manufactured and sold the same product for which the Executive was engaged
in on behalf of the Corporation prior to the Executive's employment with such
new employer, (y) the mere passive ownership of securities representing less
than two percent (2%) of the vote or value of all the securities of any
enterprise and the exercise of rights appurtenant thereto or (z) participation
in management of any enterprise or business operation
<PAGE>
9
thereof other than in connection with the operation of such enterprise that is
engaged in Competition with the Corporation.
(b) Non-Solicitation Covenant. The Executive hereby covenants and
agrees that during the Term and for one (1) year following the end of the Term,
the Executive will not, without the prior written consent of the Corporation
attempt to, directly or indirectly, induce or influence any present or future
employee of the Corporation to give up, or to not commence, employment or a
business relationship with the Corporation.
(c) Confidentiality. The Executive recognizes and acknowledges that
in the course of the Executive's employment with the Corporation the Executive
has obtained, or may obtain, confidential information, whether specifically
designated as such or not, and the Executive agrees to maintain in confidence
any confidential information obtained by or from the Corporation and will not,
during the Term or any time thereafter, either directly or indirectly, disclose
or use confidential information except with the prior written consent of the
Corporation or until such confidential information will be in the public domain
(other than as a result of an unauthorized disclosure by the Executive).
(d) Disparagement. The Executive agrees not to publicly or privately
disparage the Corporation or any of the Corporation's products, services,
divisions, affiliates, related companies or current or former officers,
directors, trustees, employees, agents, administrators, representatives or
fiduciaries. Notwithstanding the foregoing, neither the Executive nor the
Corporation will be restricted from providing information about the other as
required by a court or governmental agency or by applicable law. Further, the
Corporation and the Executive shall not be restricted from reporting information
regarding his or her performance while employed by the Corporation to internal
or external auditors, special counsel or investigators, any applicable
enforcement agencies, regulatory agencies, insurance carriers or in litigation
involving the Executive or the Corporation. The Corporation agrees that it will
not publicly or privately disparage the Executive.
(e) Remedies.
(i) The Executive acknowledges that a breach of any of the covenants
contained in Paragraphs 6(a), (b), (c) or (d) may result in material
irreparable injury to the Corporation for which there is no adequate
remedy at law, that it will not be possible to measure damages for such
injury precisely and that, in the event of such a breach or threat
thereof, the Corporation shall be entitled to a temporary restraining
order and/or a preliminary or permanent injunction, restraining the
Executive from engaging in such prohibited activities or such other relief
as may be required specifically to enforce any of the covenants contained
therein. Nothing herein shall be construed as prohibiting the Corporation
from pursuing any other remedies for such breach or threatened breach.
<PAGE>
10
(ii) The restrictions set forth in Paragraphs 6(a), (b), (c) and (d)
are considered by the parties hereto to be reasonable for the purposes of
protecting the business of the Corporation. However, if any such
restriction is found by a court of competent jurisdiction to be
unenforceable because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it is the
intention of the parties that such restriction shall be interpreted to
extend only over the maximum period of time, range of activities or
geographic area as to which it may be enforceable.
7. Indemnification. The Corporation agrees to indemnify, defend and
hold harmless the Executive from and against any and all liabilities to which he
or she may be subject as a result of his or her employment hereunder (as a
result of his or her service as an officer or director of the Corporation or as
an officer or director of any of its subsidiaries or affiliates), as well as the
costs, including attorney's and other professional fees and disbursements, of
any legal action brought or threatened against him or her as a result of such
employment in accordance with the indemnification policies of the Corporation
and the indemnification agreement entered into between the Executive and the
Corporation, dated November 8, 1994 (the "Indemnification Agreement"), to the
fullest extent permitted by, and subject to the limitations of, applicable
corporate law.
8. Reimbursement of Legal and Related Expenses. In the event that
any dispute shall arise between the Executive and the Corporation relating to
his or her rights under this Agreement on or after a Change of Control, the
Corporation shall pay to the Executive all reasonable legal fees and expenses
incurred in connection with such dispute, unless it is finally determined that
the Executive's position in such dispute was frivolous.
9. Successors; Binding Agreement.
(a) Assumption by Successor. The Corporation will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the
Corporation expressly to assume and to agree to perform this Agreement in the
same manner and to the same extent that the Corporation would be required to
perform it if no such succession had taken place; provided, however, that no
such assumption shall relieve the Corporation of its obligations hereunder. As
used in this Agreement, the "Corporation" shall mean the Corporation as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
(b) Enforceability; Beneficiaries. This Agreement shall be binding
upon and inure to the benefit of the Executive (and his or her personal
representatives and heirs) and the
<PAGE>
11
Corporation and any organization which succeeds to substantially all of the
business or assets of the Corporation, whether by means of merger,
consolidation, acquisition of all or substantially all of the assets of the
Corporation or otherwise, including, without limitation, by operation of law.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees or other beneficiaries.
If the Executive should die while any amount would still be payable to him or
her hereunder if he or she had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his or her beneficiary.
10. Assignment. Neither party may assign this Agreement or any of
his or her or its rights, benefits, obligations or duties hereunder to any other
person, firm, corporation or other entity.
11 Withholding. The Corporation shall be authorized to withhold from
any award or payment it makes under the Agreement, the amount of withholding
taxes due with respect to such award or payment and to take such other action as
may be necessary in the opinion of the Corporation to satisfy all obligations
for the payment of such taxes.
12. Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given when personally delivered or on the fourth business day after being placed
in the mail, postage prepaid, addressed to the parties hereto as follows
(provided that notice of change of address shall be deemed given only when
actually received):
As to the Corporation: Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
As to the Executive: To the address indicated on the signature page of this
Agreement (or if no address is indicated, to the last
known address of the Executive shown in the
Corporation's records)
The address of any of the parties may be changed from time to time by such party
serving notice upon the other parties.
13. Law Applicable. This Agreement shall be governed by the laws of
New Jersey (other than New Jersey principles of conflicts of laws). Any dispute
between the parties
<PAGE>
12
relating to this Agreement may be heard only in the federal
or state courts of New Jersey and both parties hereby submit to the exclusive
jurisdiction of such courts.
14. Entire Agreement; Modification. Other than any stock option
agreement between the Corporation and the Executive and the Indemnification
Agreement, this Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes and cancels all prior
or contemporaneous oral or written agreements and understandings between them
with respect to the subject matter hereof (including but not limited to the
Prior Agreement). This Agreement may not be changed or modified orally but only
by an instrument in writing signed by the parties hereto, which instrument
states that it is an amendment to this Agreement.
15. Severability. Should any provision of this Agreement or any part
thereof be held invalid or unenforceable, the same shall not affect or impair
any other provision of this Agreement or any part thereof and the invalidity or
unenforceability of any provision of this Agreement shall not have any effect on
or impair the obligations of the Corporation or the Executive.
16. Rules of Construction. The captions in this Agreement are for
convenience of reference only and in no way define, limit or describe the scope
or intent of any provisions or Paragraphs of this Agreement. All references in
this Agreement to particular Paragraphs are references to the Paragraphs of this
Agreement, unless some other reference is clearly indicated.
17. Execution. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement.
<PAGE>
13
IN WITNESS WHEREOF, the Corporation and the Executive have executed
this Agreement, all as of the day and year first above written.
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Oliver N. Esnon
-----------------------------------
Authorized Officer
EXECUTIVE
/s/ [ILLEGIBLE]
--------------------------------------
Address: 77 Park Avenue #2G
------------------------------
NY NY 10016
------------------------------
<PAGE>
Appendix A
GENERAL RELEASE OF ALL CLAIMS
This General Release of all Claims (this "Agreement") is entered into by
and among _____________ (the "Executive"), and Schein Pharmaceutical, Inc., a
Delaware corporation (as it may be renamed from time to time, and including its
subsidiaries and affiliates) (collectively, the "Corporation"), effective as of
_________ __, ____.
In consideration of the promises set forth in the Employment Agreement
between the Executive and the Corporation, dated ____________ __, _____, (the
"Employment Agreement"), as well as any promises set forth in this Agreement,
the Executive and the Corporation agree as follows:
(1) Return of Property
All Corporation files, access keys, desk keys, ID badges and credit cards,
and such other property of the Corporation as the Corporation may
reasonably request, in the Executive's possession must be returned no
later than the date of the Executive's termination from the Corporation
(the "Termination Date").
(2) General Release and Waiver of Claims
Except as provided in the last sentence of this paragraph (2), in
consideration of the payments made and to be made, and benefits provided
and to be provided, to the Executive pursuant to the Employment Agreement,
the Executive hereby unconditionally and forever releases, discharges and
waives any and all claims of any nature whatsoever, whether legal,
equitable or otherwise, which the Executive may have against the
Corporation arising at any time on or before the Termination Date, other
than the Excluded Obligations. This release of claims extends to any and
all claims of any nature whatsoever, other than with respect to the
Excluded Obligations, whether known, unknown or capable or incapable of
being known as of the Termination Date or thereafter. This Agreement is a
release of all claims of any nature whatsoever by the Executive against
the Corporation, other than with respect to the Excluded Obligations, and
includes, other than as herein provided, any and all claims, demands,
causes of action, liabilities whether known or unknown including those
caused by, arising from or related to the Executive's employment
relationship with the Corporation including, without limitation, any and
all alleged discrimination or acts of discrimination which occurred or may
have occurred on or before the Termination Date based upon race, color,
sex, creed, national origin, age, disability or any other violation of any
Equal Employment Opportunity Law, ordinance, rule, regulation or order,
including, but not limited to, Title VII of the Civil Rights Act of 1964,
as
<PAGE>
amended; the Civil Rights Act of 1991; the Age Discrimination in
Employment Act, as amended (as further described in Section 4 below); the
Americans with Disabilities Act; claims under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); or any other Federal,
state or local laws or regulations regarding employment discrimination or
termination of employment. This also includes claims for wrongful
discharge, fraud, or misrepresentation under any statute, rule, regulation
or under the common law.
The Executive agrees and understands and knowingly agrees to this release
because it is his or her intent in executing this Agreement to forever
discharge the Corporation from any and all present, future, foreseen or
unforeseen causes of action except for the obligations of the Corporation
set forth in the Employment Agreement.
Notwithstanding the foregoing, the Executive does not release, discharge
or waive any rights (the "Excluded Obligations") (i) to payments and
benefits provided for in the applicable subsection of Paragraph 4 of the
Employment Agreement, (ii) to payments provided for under Paragraphs 5 and
8 of the Employment Agreement, and (iii) to indemnification that he or she
may have under the By-Laws of the Corporation, the laws of the State of
Delaware, any indemnification agreement between the Executive and the
Corporation or any insurance coverage maintained by or on behalf of the
Corporation.
(3) Release and Waiver of Claims Under the Age Discrimination in Employment
Act
The Executive acknowledges that the Corporation advised him or her to
consult with an attorney of his or her choosing, and through this
Agreement advises him or her to consult with his or her attorney with
respect to possible claims under the Age Discrimination in Employment Act
of 1967, as amended ("ADEA"), and the Executive acknowledges that he or
she understands that ADEA is a Federal statute that prohibits
discrimination, on the basis of age, in employment, benefits, and benefit
plans. The Executive wishes to waive any and all claims under the ADEA
that he or she may have, as of the Termination Date, against the
Corporation, and their respective shareholders, employees, or successors,
and hereby waives such claims. The Executive further understands that by
signing this Agreement he or she is in fact waiving, releasing and forever
giving up any claim under the ADEA against the Corporation that may have
existed on or prior to the Termination Date. The Executive acknowledges
that the Corporation have informed him or her that he or she has, at his
or her option, twenty-one (21) days following the Termination Date in
which to sign the waiver of this claim under ADEA, and he or she does
hereby knowingly and voluntarily waive said twenty-one (21) day period.
The Executive also understands that he or she has seven (7) days following
the date on which he or she signs this Agreement within which to
<PAGE>
revoke the release contained in this paragraph by providing to the
Corporation a written notice of his or her revocation of the release and
waiver contained in this paragraph. The Executive further understands that
this right to revoke the release contained in this paragraph relates only
to this paragraph and does not act as a revocation of any other term of
this Agreement.
(4) Proceedings
The Executive has not filed, and agrees not to initiate or cause to be
initiated on his or her behalf, any complaint, charge, claim or proceeding
against the Corporation before any local, state or Federal agency, court
or other body relating to his or her employment or the termination of his
or her employment, other than with respect to the obligations of the
Corporation to the Executive under the Employment Agreement (each
individually, a "Proceeding"), and agrees not to voluntarily participate
in any Proceeding. The Executive waives any right he or she may have to
benefit in any manner from any relief (whether monetary or otherwise)
arising out of any Proceeding.
(5) Remedies
In the event the Executive initiates or voluntarily participates in any
Proceeding, or if he or she fails to abide by any of the terms of this
Agreement or his or her post-termination obligations contained in the
Employment Agreement, or if he or she revokes the ADEA release contained
in Paragraph 3 of this Agreement within the seven-day period provided
under Paragraph 3, the Corporation may, in addition to any other remedies
it may have, reclaim any amounts paid to him or her under the termination
provisions of the Employment Agreement or terminate any benefits or
payments that are subsequently due under the Employment Agreement, without
waiving the release granted herein. The Executive acknowledges and agrees
that the remedy at law available to the Corporation for breach of any of
his or her post-termination obligations under the Employment Agreement or
his or her obligations under Paragraphs 2, 3 and 4 of this Agreement would
be inadequate and that damages flowing from such a breach may not readily
be susceptible to being measured in monetary terms. Accordingly, the
Executive acknowledges, consents and agrees that, in addition to any other
rights or remedies which the Corporation may have at law, in equity or
under this Agreement, upon adequate proof of his or her violation of any
such provision of this Agreement, the Corporation shall be entitled to
immediate injunctive relief and may obtain a temporary order restraining
any threatened or further breach, without the necessity of proof of actual
damage.
The Executive understands that by entering into this Agreement he or she
will be limiting the availability of certain remedies that he or she may
have against the
<PAGE>
Corporation and limiting also his or her ability to pursue certain claims
against the Corporation.
(6) Severability Clause
In the event any provision or part of this Agreement is found to be
invalid or unenforceable, only that particular provision or part so found,
and not the entire Agreement, will be inoperative.
(7) Non-Admission
Nothing contained in this Agreement will be deemed or construed as an
admission of wrongdoing or liability on the part of the Corporation.
(8) Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, applicable to agreements made and to be
performed in that State, without regard to conflicts of law principles;
and the parties agree to the jurisdiction of the U.S. District Court for
the District of Delaware, and agree to appear in any action in such courts
by service of process by certified mail, return receipt requested, at the
following addresses:
To the Corporation: 100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
To the Executive: To the address indicated on the signature page of
this Agreement (or if no address is indicated, to
the last known address of the Executive as shown
in the Corporation's records)
THE EXECUTIVE ACKNOWLEDGES THAT HE OR SHE HAS READ THIS AGREEMENT AND THAT HE OR
SHE FULLY KNOWS, UNDERSTANDS, AND APPRECIATES ITS CONTENTS, AND THAT HE OR SHE
HEREBY EXECUTES THE SAME AND MAKES THIS AGREEMENT AND THE RELEASE AND AGREEMENTS
PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OR HER OWN FREE WILL.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this AGREEMENT as of the
date first set forth above.
SCHEIN PHARMACEUTICAL, INC.
By:
------------------------------
Authorized Officer
EXECUTIVE
---------------------------------
Address:
-------------------------
-------------------------
<PAGE>
Exhibit 10.62
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1,
2000 (the "Effective Date"), is made and entered into by and between Schein
Pharmaceutical, Inc., a Delaware corporation (the "Corporation"), and Whitney
Stearns (the "Executive").
The Executive is currently employed as a Sr. Vice President of the
Corporation pursuant to an employment agreement, dated November 29, 1993 (the
"Prior Agreement"); and
The Corporation desires to secure the Executive's continued
participation in the manner hereinafter specified in the business of the
Corporation and to make provision for payment of reasonable compensation to the
Executive for such services and the Executive is willing to continue his or her
employment with the Corporation to perform the duties incident to such
employment upon the terms and conditions hereinafter set forth and thus to
forego opportunities elsewhere; and
In replacement of the Prior Agreement, the parties desire to enter
into this Agreement, as of the Effective Date, setting forth the terms and
conditions of the employment relationship of the Executive with the Corporation
during the Term (as such term is hereinafter defined).
In consideration of the premises and the mutual covenants herein
contained, the parties hereby agree as follows:
1. Employment Duties.
(a) Employment. The Corporation hereby agrees to employ the
Executive, and the Executive hereby agrees to serve, as Sr. Vice President and
Chief Financial Officer of the Corporation.
(b) Duties. The Executive will have full authority to act on behalf
of the Corporation in a manner that is consistent with his or her title and
position. In such capacity, the Executive also agrees to perform such duties and
exercise such powers commensurate with his or her position as may from time to
time be reasonably requested of him or her by such Executive's immediate
supervisor (or such other supervising officer) or the Board of Directors of the
Corporation (the "Board") or vested in him or her by the bylaws of the
Corporation. During the Term, the Executive shall:
(1) devote substantially all of his or her business time, attention
and abilities to the business of the Corporation (including its
subsidiaries or affiliates, when so required); and
<PAGE>
2
(2) faithfully serve the Corporation and use his or her best efforts
to promote and develop the interests of the Corporation.
2. Term of Employment. The term (the "Term") of the Executive's
employment hereunder shall be for a period commencing on the Effective Date, and
continuing until terminated by either the Corporation or the Executive in
accordance with the terms of Paragraph 4(a) below upon giving sixty (60) days
written notice ("Non-Continuation Notice").
3. Compensation. Subject to the terms of this Agreement and until
the termination of the Term as provided in Paragraph 2, the Corporation shall
pay compensation and provide benefits to the Executive as follows:
(a) Base Salary. The Corporation shall pay to the Executive a base
salary of $250,000 per annum during the Term (the "Base Salary"). The Executive
shall receive his or her salary in equal installments in accordance with the
Corporation's payroll practices in effect from time to time. The Corporation
will review the Executive's Base Salary at least once per year and may, in its
discretion, increase the Base Salary in accordance with the compensation
policies of the Corporation, as in effect from time to time.
(b) Benefit Continuation and Perquisites. The Executive shall
participate during the Term, in such pension, life insurance, health, disability
and medical insurance plans, and such other employee benefit plans and programs
(including an automobile or automobile allowance), for the benefit of employees
of the Corporation, and as may be maintained from time to time during the Term,
in each case to the extent and in the manner available to other executives or
officers of the Corporation of comparable level or position and subject to the
terms and provisions of such plans or programs.
(c) Incentive Bonus. The Corporation may pay a bonus to the
Executive as determined by the Corporation in accordance with the Corporation's
incentive plan or policies as in effect from time to time.
(d) Stock Options. From time to time as so approved by the Board or
the Stock Option Committee of the Board, the Executive may become eligible for
the grant of options to purchase shares of the Corporation's common stock, par
value of $0.01 per share (the "Shares"), pursuant to and subject to the terms
and conditions of the Corporation's 1999 Stock Option Plan (or other plan of the
Corporation) and any stock option agreement entered into by the Executive and
the Corporation.
(e) Reimbursement of Expenses. The Corporation shall reimburse the
Executive for all reasonable expenses incurred personally by him or her on
behalf of the
<PAGE>
3
Corporation in accordance with the policies and procedures applicable to
similarly situated executives of the Corporation.
(f) Additional Compensation. The Corporation shall pay the Executive
additional compensation (the "Additional Compensation") which will be payable in
four (4) annual installments as follows: $100,000 on December 31, 2000, $100,000
on December 31, 2001, $100,000 on December 31, 2002 and $100,000 on December 31,
2003.
4. Termination and Compensation Payable Upon Termination or
Resignation.
(a) Earlier Termination of Term. Upon giving a Non-Continuation
Notice by either the Corporation or the Executive pursuant to Paragraph 2, and
subject to the Corporation's compliance with Paragraph 4(g), the Executive's
employment with the Corporation may be terminated or the Executive may resign
such employment prior to the expiration of the Term effective as of the end of
the sixty-day (60) day period following the date of the Non-Continuation Notice
(the "Termination Date") is given as follows:
(1) The Corporation may terminate the Executive's employment
hereunder for Cause (as defined hereunder), without Cause or upon the
Executive's Disability;
(2) The Executive's employment hereunder shall terminate
automatically upon his or her death; or
(3) The Executive may resign from his or her employment with the
Corporation with or without Good Reason (as defined hereunder).
(b) Definition of "Target Bonus". As used herein, the "Target Bonus"
shall mean the higher of (x) 30% of the Executive's then-current Base Salary,
and (y) the highest annual bonus earned by the Executive in respect of any of
the two (2) years ending immediately prior to the Termination Date.
(c) Definition of "Cause". As used herein, "Cause" shall mean,
during the Term of this Agreement, the occurrence of any of the following:
(1) the Executive's willful and continued failure to substantially
perform his or her duties under this Agreement for the Corporation or its
affiliates;
(2) the commission by the Executive of fraud, misappropriation or
intentional material damage to the property or business of the
Corporation; or
<PAGE>
4
(3) the commission of a felony by the Executive.
(d) Definition of "Disability". The Executive shall be considered to
have a "Disability" if he or she satisfies the definition set forth in the
Corporation's long-term disability benefit plan in which he or she is enrolled
at the time of the determination or if there is no such plan, for a continuous
period of six (6) months, he or she is unable to perform his or her duties under
this Agreement for reasons of health, and, in the opinion of a physician
appointed by the Corporation and reasonably acceptable to the Executive, such
disability will continue for a prolonged period of time.
(e) Definition of "Good Reason". As used herein, "Good Reason" shall
mean the occurrence of any of the following:
(1) the Corporation assigning the Executive to duties or
responsibilities that are inconsistent, in any significant respect, with
the scope of duties or responsibilities provided for under this Agreement;
(2) any reduction in the Executive's Base Salary or Additional
Compensation provided for under this Agreement; or
(3) except where expressly approved by the Executive, (x) the
relocation of the Executive's principal place of business from more than a
thirty (30) mile radius of the Executive's principal place of business as
of the date of this Agreement, other than a relocation to the
Corporation's Florham Park, New Jersey headquarters, or (y) if the
Executive's principal place of business as of the date of this Agreement
was New Jersey, the relocation of his or her principal place of business
to New York, New York at any time following the date of this Agreement.
(f) Definition of "Change of Control". As used herein, "Change of
Control" shall mean the occurrence of any of the following:
(1) an acquisition by any individual, entity or group (within the
meaning of Section 13d-3 or 14d-1 of the Securities Exchange Act of 1934,
as amended (the "Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Act) of more than 50% of the
combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors to the
Board (the "Outstanding Corporation Voting Securities"); excluding,
however, the following: (x) any acquisition by the Corporation, (y) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Corporation or (z) any acquisition by any corporation
pursuant to a reorganization, merger, consolidation or similar corporate
transaction (in each case, a "Corporate
<PAGE>
5
Transaction"), if, pursuant to such Corporate Transaction, the conditions
described in (A), (B) and (C) of clause (3) of this Paragraph Section 4(f)
are satisfied;
(2) a change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (the Board
as of the Effective Date shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided that, for purposes of this Paragraph 4(e)(2), any
individual who becomes a member of the Board subsequent to the Effective
Date and whose election, or nomination for election by the Corporation's
stockholders, was approved by a majority of the members of the Board who
also are members of the Incumbent Board (or so deemed to be pursuant to
this proviso) shall be deemed a member of the Incumbent Board; but,
provided further, that any such individual whose initial assumption of
office is in connection with a Change of Control described in (1), (3) or
(4) of this Paragraph 4(f) or whose initial assumption of office occurs as
a result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Act) or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board shall not be so deemed a member of
the Incumbent Board; or
(3) the approval by the stockholders of the Corporation of a
Corporate Transaction or, if consummation of such Corporate Transaction is
subject, at the time of such approval by stockholders, to the consent of
any government or governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation); excluding, however,
such a Corporate Transaction pursuant to which (A) the beneficial owners
(or beneficiaries of the beneficial owners) of the outstanding Shares and
Outstanding Corporation Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly, more
than 60% of, respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction and the combined
voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors, in substantially
the same proportions as their ownership, immediately prior to such
Corporate Transaction, of the outstanding Shares and Outstanding
Corporation Voting Securities, as the case may be, (B) no Person (other
than the Corporation, any employee benefit plan (or related trust) of the
Corporation or the corporation resulting from such Corporate Transaction
and any Person beneficially owning, immediately prior to such Corporate
Transaction, directly or indirectly, 20% or more of the outstanding Shares
or Outstanding Corporation Voting Securities, as the case may be) will
beneficially own, directly or indirectly, 20% or more of, respectively,
the outstanding shares of common stock of the corporation resulting from
such Corporate Transaction or the combined voting power of the then
outstanding securities of such corporation entitled to vote generally in
the election of directors and (C) individuals
<PAGE>
6
who were members of the Incumbent Board will constitute at least a
majority of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
(4) the approval of the stockholders of the Corporation of (A) a
complete liquidation or dissolution of the Corporation or (B) the sale or
other disposition of all or substantially all the assets of the
Corporation; excluding, however, such a sale or other disposition to a
corporation with respect to which, following such sale or other
disposition, (x) more than 60% of the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors will be then beneficially owned,
directly or indirectly, by the individuals and entities who were the
beneficial owners (or beneficiaries of the beneficial owners),
respectively, of the outstanding Shares and Outstanding Corporation Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the outstanding Shares and Outstanding
Corporation Voting Securities, as the case may be, (y) no Person (other
than the Corporation and any employee benefit plan (or related trust) of
the Corporation or such corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or
indirectly, 20% or more of the outstanding Shares or Outstanding
Corporation Voting Securities, as the case may be) will beneficially own,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (z) individuals who were
members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of such corporation.
(g) Payments to the Executive Upon Termination of Employment. In the
event that the Executive's employment with the Corporation is terminated prior
to the expiration of the Term pursuant to a Non-Continuation Notice for any of
the reasons provided in Paragraph 4(a), then the Corporation shall pay to the
Executive the following amounts on the date of such termination, and shall
provide to the Executive the following benefits, as applicable:
(1) In the event that the Executive's employment hereunder
terminates for any reason whatsoever (including for Cause), the
Corporation shall pay to the Executive: (i) an amount equal to his or her
accrued but unpaid Base Salary; (ii) any incentive compensation awarded to
the Executive but not yet paid for the year preceding the year of
termination; (iii) reimbursement for any unreimbursed business expenses
incurred in accordance with Paragraph 3(e) prior to the Termination Date;
and
<PAGE>
7
(iv) any amounts or benefits due under any equity or benefit plan, grant
or program in accordance with the terms of said plan, grant or program but
without duplication (such amounts specified in clauses (i), (ii), (iii),
and (iv) referred to as "Accrued Obligations"). In addition, for
terminations other than cause, the Corporation will provide the Executive
with up to one year of outplacement services chosen by the Corporation at
a location convenient to the Executive.
(2) In the event that: (i) the Executive's employment hereunder is
terminated by the Corporation for any reason other than for Cause,
Disability or death, or (ii) the Executive terminates his or her
employment with Good Reason, in addition to the Accrued Obligations, the
Corporation shall also pay or provide to the Executive: (A) 100% of the
Executive's then-current Base Salary, payable in a lump sum no later than
thirty (30) days following such termination; (B) a lump sum payment equal
to the Target Bonus, payable no later than thirty (30) days following such
termination; (C) any unpaid Additional Compensation, payable in a lump sum
no later than thirty (30) days following such termination; and (D)
continued participation in the Corporation's welfare plans (as applicable
and including without limitation the split dollar insurance program, if
applicable) for the twelve (12) month period following the Termination
Date; provided that, such welfare coverage shall cease if the Executive
obtains other full-time employment providing for comparable welfare
benefits prior to the expiration of such twelve (12) month period. The
benefits provided under this clause (2) are in lieu of payments under any
severance policy of the Corporation.
(3) In the event that: (i) the Executive's employment hereunder is
terminated by the Corporation for any reason other than for Cause,
Disability or death within two (2) years following a Change of Control or
ninety (90) days prior to a Change of Control, or (ii) the Executive
terminates his or her employment with Good Reason within two (2) years
following a Change of Control or ninety (90) day prior to a Change of
Control, in lieu of the amounts described in clauses 2(A) and (B) above
and the benefits described in clause 2(D) above, in addition to the
Accrued Obligations and payment of any unpaid Additional Compensation as
provided in clause 2(C) above, the Corporation shall pay or provide to the
Executive: (A) a lump sum payment equal to two (2) times the sum (x) of
the Executive's then-current Base Salary, (y) the Target Bonus, and (z)
any Additional Compensation payable with respect to the year of
termination under Paragraph 3(f), payable no later than thirty (30) days
following such termination; and (B) continued participation in the
Corporation's welfare plans (as applicable, and including without
limitation the split-dollar insurance program, if applicable) for the
twenty-four (24) month period following the Termination Date; provided
that, such welfare plan coverage shall cease if the Executive obtains
other full-time employment providing for comparable welfare benefits prior
to the expiration of
<PAGE>
8
such twenty-four (24) month period. The benefits provided under this
clause (3) are in lieu of payments under any severance policy of the
Corporation.
(h) Waiver and Release. No payment will be made under Paragraph
4(g), unless (x) the Executive first executes and delivers to the Corporation a
release in substantially the same form attached as Appendix A to this Agreement,
and (y) to the extent any portion of such release is subject to the seven-day
revocation period prescribed by the Age Discrimination in Employment Act, as
amended, or to any similar revocation period in effect on the date of
termination of the Executive's employment, such revocation period has expired.
5. Maximum Payment. Notwithstanding anything herein to the contrary,
if it is determined that any payment made to the Executive, whether pursuant to
the terms of this Agreement or otherwise (including but not limited to any stock
option agreement), would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended, or any interest or penalties with
respect to such excise tax (such excise tax, together with any interest or
penalties thereon, is herein referred to as an "Excise Tax"), then the Executive
shall be entitled to an additional payment or payments (a "Gross-Up Payment") in
an amount that will place him or her in the same after-tax economic position
that he or she would have enjoyed if the Excise Tax had not applied. The amount
of the Gross-Up Payment shall be determined by the nationally recognized firm of
accountants serving as the Corporation's independent auditors immediately prior
to the Change of Control which resulted in the application of the Excise Tax, in
their sole discretion, and shall be payable upon the Executive's demand.
6. Protection of the Corporation's Interests.
(a) Non-Competition Covenant. The Executive hereby covenants and
agrees that during the Term and for six (6) months following the end of the
Term, the Executive will not, without the prior written consent of the
Corporation, engage in Competition (as defined below) with the Corporation. For
purposes of this Agreement, if the Executive takes any of the following actions
the Executive will be engaged in "Competition": directly or indirectly accepting
employment or engaging in any business activity which would require the
Executive to be involved in the formulation, development, manufacture or sale of
any product which is the same as any product for which the Executive was engaged
in on behalf of the Corporation; provided, however, that "Competition" will not
include (x) working or engaging in any business activity with a new employer
that manufactured and sold the same product for which the Executive was engaged
in on behalf of the Corporation prior to the Executive's employment with such
new employer, (y) the mere passive ownership of securities representing less
than two percent (2%) of the vote or value of all the securities of any
enterprise and the exercise of rights appurtenant thereto or (z) participation
in management of any enterprise or business operation
<PAGE>
9
thereof other than in connection with the operation of such enterprise that is
engaged in Competition with the Corporation.
(b) Non-Solicitation Covenant. The Executive hereby covenants and
agrees that during the Term and for one (1) year following the end of the Term,
the Executive will not, without the prior written consent of the Corporation
attempt to, directly or indirectly, induce or influence any present or future
employee of the Corporation to give up, or to not commence, employment or a
business relationship with the Corporation.
(c) Confidentiality. The Executive recognizes and acknowledges that
in the course of the Executive's employment with the Corporation the Executive
has obtained, or may obtain, confidential information, whether specifically
designated as such or not, and the Executive agrees to maintain in confidence
any confidential information obtained by or from the Corporation and will not,
during the Term or any time thereafter, either directly or indirectly, disclose
or use confidential information except with the prior written consent of the
Corporation or until such confidential information will be in the public domain
(other than as a result of an unauthorized disclosure by the Executive).
(d) Disparagement. The Executive agrees not to publicly or privately
disparage the Corporation or any of the Corporation's products, services,
divisions, affiliates, related companies or current or former officers,
directors, trustees, employees, agents, administrators, representatives or
fiduciaries. Notwithstanding the foregoing, neither the Executive nor the
Corporation will be restricted from providing information about the other as
required by a court or governmental agency or by applicable law. Further, the
Corporation and the Executive shall not be restricted from reporting information
regarding his or her performance while employed by the Corporation to internal
or external auditors, special counsel or investigators, any applicable
enforcement agencies, regulatory agencies, insurance carriers or in litigation
involving the Executive or the Corporation. The Corporation agrees that it will
not publicly or privately disparage the Executive.
(e) Remedies.
(i) The Executive acknowledges that a breach of any of the
covenants contained in Paragraphs 6(a), (b), (c) or (d) may result in
material irreparable injury to the Corporation for which there is no
adequate remedy at law, that it will not be possible to measure damages
for such injury precisely and that, in the event of such a breach or
threat thereof, the Corporation shall be entitled to a temporary
restraining order and/or a preliminary or permanent injunction,
restraining the Executive from engaging in such prohibited activities or
such other relief as may be required specifically to enforce any of the
covenants contained therein. Nothing herein shall be construed as
prohibiting the Corporation from pursuing any other remedies for such
breach or threatened breach.
<PAGE>
10
(ii) The restrictions set forth in Paragraphs 6(a), (b), (c)
and (d) are considered by the parties hereto to be reasonable for the
purposes of protecting the business of the Corporation. However, if any
such restriction is found by a court of competent jurisdiction to be
unenforceable because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it is the
intention of the parties that such restriction shall be interpreted to
extend only over the maximum period of time, range of activities or
geographic area as to which it may be enforceable.
7. Indemnification. The Corporation agrees to indemnify, defend and
hold harmless the Executive from and against any and all liabilities to
which he or she may be subject as a result of his or her employment
hereunder (as a result of his or her service as an officer or director of
the Corporation or as an officer or director of any of its subsidiaries or
affiliates), as well as the costs, including attorney's and other
professional fees and disbursements, of any legal action brought or
threatened against him or her as a result of such employment in accordance
with the indemnification policies of the Corporation and the
indemnification agreement entered into between the Executive and the
Corporation, dated November 8, 1994 (the "Indemnification Agreement"), to
the fullest extent permitted by, and subject to the limitations of,
applicable corporate law.
8. Reimbursement of Legal and Related Expenses. In the event that
any dispute shall arise between the Executive and the Corporation relating to
his or her rights under this Agreement on or after a Change of Control, the
Corporation shall pay to the Executive all reasonable legal fees and expenses
incurred in connection with such dispute, unless it is finally determined that
the Executive's position in such dispute was frivolous.
9. Successors; Binding Agreement.
(a) Assumption by Successor. The Corporation will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the
Corporation expressly to assume and to agree to perform this Agreement in the
same manner and to the same extent that the Corporation would be required to
perform it if no such succession had taken place; provided, however, that no
such assumption shall relieve the Corporation of its obligations hereunder. As
used in this Agreement, the "Corporation" shall mean the Corporation as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
(b) Enforceability; Beneficiaries. This Agreement shall be binding
upon and inure to the benefit of the Executive (and his or her personal
representatives and heirs) and the
<PAGE>
11
Corporation and any organization which succeeds to substantially all of the
business or assets of the Corporation, whether by means of merger,
consolidation, acquisition of all or substantially all of the assets of the
Corporation or otherwise, including, without limitation, by operation of law.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees or other beneficiaries.
If the Executive should die while any amount would still be payable to him or
her hereunder if he or she had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his or her beneficiary.
10. Assignment. Neither party may assign this Agreement or any of
his or her or its rights, benefits, obligations or duties hereunder to any other
person, firm, corporation or other entity.
11 Withholding. The Corporation shall be authorized to withhold from
any award or payment it makes under the Agreement, the amount of withholding
taxes due with respect to such award or payment and to take such other action as
may be necessary in the opinion of the Corporation to satisfy all obligations
for the payment of such taxes.
12. Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given when personally delivered or on the fourth business day after being placed
in the mail, postage prepaid, addressed to the parties hereto as follows
(provided that notice of change of address shall be deemed given only when
actually received):
As to the Corporation: Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
As to the Executive: To the address indicated on the signature page of this
Agreement (or if no address is indicated, to the last
known address of the Executive shown in the
Corporation's records)
The address of any of the parties may be changed from time to time by such party
serving notice upon the other parties.
13. Law Applicable. This Agreement shall be governed by the laws of
New Jersey (other than New Jersey principles of conflicts of laws). Any dispute
between the parties
<PAGE>
12
relating to this Agreement may be heard only in the federal or state courts of
New Jersey and both parties hereby submit to the exclusive jurisdiction of such
courts.
14. Entire Agreement; Modification. Other than any stock option
agreement between the Corporation and the Executive and the Indemnification
Agreement, this Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes and cancels all prior
or contemporaneous oral or written agreements and understandings between them
with respect to the subject matter hereof (including but not limited to the
Prior Agreement). This Agreement may not be changed or modified orally but only
by an instrument in writing signed by the parties hereto, which instrument
states that it is an amendment to this Agreement.
15. Severability. Should any provision of this Agreement or any part
thereof be held invalid or unenforceable, the same shall not affect or impair
any other provision of this Agreement or any part thereof and the invalidity or
unenforceability of any provision of this Agreement shall not have any effect on
or impair the obligations of the Corporation or the Executive.
16. Rules of Construction. The captions in this Agreement are for
convenience of reference only and in no way define, limit or describe the scope
or intent of any provisions or Paragraphs of this Agreement. All references in
this Agreement to particular Paragraphs are references to the Paragraphs of this
Agreement, unless some other reference is clearly indicated.
17. Execution. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement.
<PAGE>
13
IN WITNESS WHEREOF, the Corporation and the Executive have executed
this Agreement, all as of the day and year first above written.
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Oliver D. Esnon
-----------------------------------
Authorized Officer
EXECUTIVE
/s/ [ILLEGIBLE]
--------------------------------------
Address: 289 MORRIS AVE.
------------------------------
MOUNTAIN NJ
------------------------------
<PAGE>
Appendix A
GENERAL RELEASE OF ALL CLAIMS
This General Release of all Claims (this "Agreement") is entered into by
and among _____________ (the "Executive"), and Schein Pharmaceutical, Inc., a
Delaware corporation (as it may be renamed from time to time, and including its
subsidiaries and affiliates) (collectively, the "Corporation"), effective as of
_________ __, ____.
In consideration of the promises set forth in the Employment Agreement
between the Executive and the Corporation, dated ____________ __, _____, (the
"Employment Agreement"), as well as any promises set forth in this Agreement,
the Executive and the Corporation agree as follows:
(1) Return of Property
All Corporation files, access keys, desk keys, ID badges and credit cards,
and such other property of the Corporation as the Corporation may
reasonably request, in the Executive's possession must be returned no
later than the date of the Executive's termination from the Corporation
(the "Termination Date").
(2) General Release and Waiver of Claims
Except as provided in the last sentence of this paragraph (2), in
consideration of the payments made and to be made, and benefits provided
and to be provided, to the Executive pursuant to the Employment Agreement,
the Executive hereby unconditionally and forever releases, discharges and
waives any and all claims of any nature whatsoever, whether legal,
equitable or otherwise, which the Executive may have against the
Corporation arising at any time on or before the Termination Date, other
than the Excluded Obligations. This release of claims extends to any and
all claims of any nature whatsoever, other than with respect to the
Excluded Obligations, whether known, unknown or capable or incapable of
being known as of the Termination Date or thereafter. This Agreement is a
release of all claims of any nature whatsoever by the Executive against
the Corporation, other than with respect to the Excluded Obligations, and
includes, other than as herein provided, any and all claims, demands,
causes of action, liabilities whether known or unknown including those
caused by, arising from or related to the Executive's employment
relationship with the Corporation including, without limitation, any and
all alleged discrimination or acts of discrimination which occurred or may
have occurred on or before the Termination Date based upon race, color,
sex, creed, national origin, age, disability or any other violation of any
Equal Employment Opportunity Law, ordinance, rule, regulation or order,
including, but not limited to, Title VII of the Civil Rights Act of 1964,
as
<PAGE>
amended; the Civil Rights Act of 1991; the Age Discrimination in
Employment Act, as amended (as further described in Section 4 below); the
Americans with Disabilities Act; claims under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); or any other Federal,
state or local laws or regulations regarding employment discrimination or
termination of employment. This also includes claims for wrongful
discharge, fraud, or misrepresentation under any statute, rule, regulation
or under the common law.
The Executive agrees and understands and knowingly agrees to this release
because it is his or her intent in executing this Agreement to forever
discharge the Corporation from any and all present, future, foreseen or
unforeseen causes of action except for the obligations of the Corporation
set forth in the Employment Agreement.
Notwithstanding the foregoing, the Executive does not release, discharge
or waive any rights (the "Excluded Obligations") (i) to payments and
benefits provided for in the applicable subsection of Paragraph 4 of the
Employment Agreement, (ii) to payments provided for under Paragraphs 5 and
8 of the Employment Agreement, and (iii) to indemnification that he or she
may have under the By-Laws of the Corporation, the laws of the State of
Delaware, any indemnification agreement between the Executive and the
Corporation or any insurance coverage maintained by or on behalf of the
Corporation.
(3) Release and Waiver of Claims Under the Age Discrimination in Employment
Act
The Executive acknowledges that the Corporation advised him or her to
consult with an attorney of his or her choosing, and through this
Agreement advises him or her to consult with his or her attorney with
respect to possible claims under the Age Discrimination in Employment Act
of 1967, as amended ("ADEA"), and the Executive acknowledges that he or
she understands that ADEA is a Federal statute that prohibits
discrimination, on the basis of age, in employment, benefits, and benefit
plans. The Executive wishes to waive any and all claims under the ADEA
that he or she may have, as of the Termination Date, against the
Corporation, and their respective shareholders, employees, or successors,
and hereby waives such claims. The Executive further understands that by
signing this Agreement he or she is in fact waiving, releasing and forever
giving up any claim under the ADEA against the Corporation that may have
existed on or prior to the Termination Date. The Executive acknowledges
that the Corporation have informed him or her that he or she has, at his
or her option, twenty-one (21) days following the Termination Date in
which to sign the waiver of this claim under ADEA, and he or she does
hereby knowingly and voluntarily waive said twenty-one (21) day period.
The Executive also understands that he or she has seven (7) days following
the date on which he or she signs this Agreement within which to
<PAGE>
revoke the release contained in this paragraph by providing to the
Corporation a written notice of his or her revocation of the release and
waiver contained in this paragraph. The Executive further understands that
this right to revoke the release contained in this paragraph relates only
to this paragraph and does not act as a revocation of any other term of
this Agreement.
(4) Proceedings
The Executive has not filed, and agrees not to initiate or cause to be
initiated on his or her behalf, any complaint, charge, claim or proceeding
against the Corporation before any local, state or Federal agency, court
or other body relating to his or her employment or the termination of his
or her employment, other than with respect to the obligations of the
Corporation to the Executive under the Employment Agreement (each
individually, a "Proceeding"), and agrees not to voluntarily participate
in any Proceeding. The Executive waives any right he or she may have to
benefit in any manner from any relief (whether monetary or otherwise)
arising out of any Proceeding.
(5) Remedies
In the event the Executive initiates or voluntarily participates in any
Proceeding, or if he or she fails to abide by any of the terms of this
Agreement or his or her post-termination obligations contained in the
Employment Agreement, or if he or she revokes the ADEA release contained
in Paragraph 3 of this Agreement within the seven-day period provided
under Paragraph 3, the Corporation may, in addition to any other remedies
it may have, reclaim any amounts paid to him or her under the termination
provisions of the Employment Agreement or terminate any benefits or
payments that are subsequently due under the Employment Agreement, without
waiving the release granted herein. The Executive acknowledges and agrees
that the remedy at law available to the Corporation for breach of any of
his or her post-termination obligations under the Employment Agreement or
his or her obligations under Paragraphs 2, 3 and 4 of this Agreement would
be inadequate and that damages flowing from such a breach may not readily
be susceptible to being measured in monetary terms. Accordingly, the
Executive acknowledges, consents and agrees that, in addition to any other
rights or remedies which the Corporation may have at law, in equity or
under this Agreement, upon adequate proof of his or her violation of any
such provision of this Agreement, the Corporation shall be entitled to
immediate injunctive relief and may obtain a temporary order restraining
any threatened or further breach, without the necessity of proof of actual
damage.
The Executive understands that by entering into this Agreement he or she
will be limiting the availability of certain remedies that he or she may
have against the
<PAGE>
Corporation and limiting also his or her ability to pursue certain claims
against the Corporation.
(6) Severability Clause
In the event any provision or part of this Agreement is found to be
invalid or unenforceable, only that particular provision or part so found,
and not the entire Agreement, will be inoperative.
(7) Non-Admission
Nothing contained in this Agreement will be deemed or construed as an
admission of wrongdoing or liability on the part of the Corporation.
(8) Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, applicable to agreements made and to be
performed in that State, without regard to conflicts of law principles;
and the parties agree to the jurisdiction of the U.S. District Court for
the District of Delaware, and agree to appear in any action in such courts
by service of process by certified mail, return receipt requested, at the
following addresses:
To the Corporation: 100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
To the Executive: To the address indicated on the signature page of
this Agreement (or if no address is indicated, to
the last known address of the Executive as shown
in the Corporation's records)
THE EXECUTIVE ACKNOWLEDGES THAT HE OR SHE HAS READ THIS AGREEMENT AND THAT HE OR
SHE FULLY KNOWS, UNDERSTANDS, AND APPRECIATES ITS CONTENTS, AND THAT HE OR SHE
HEREBY EXECUTES THE SAME AND MAKES THIS AGREEMENT AND THE RELEASE AND AGREEMENTS
PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OR HER OWN FREE WILL.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this AGREEMENT as of the
date first set forth above.
SCHEIN PHARMACEUTICAL, INC.
By:
------------------------------
Authorized Officer
EXECUTIVE
---------------------------------
Address:
-------------------------
-------------------------
<PAGE>
Exhibit 10.63
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1,
2000 (the "Effective Date"), is made and entered into by and between Schein
Pharmaceutical, Inc., a Delaware corporation (the "Corporation"), and Paul
Kleutghen (the "Executive").
The Executive is currently employed as a Sr. Vice President of the
Corporation pursuant to an employment agreement, dated November 29, 1993 (the
"Prior Agreement"); and
The Corporation desires to secure the Executive's continued
participation in the manner hereinafter specified in the business of the
Corporation and to make provision for payment of reasonable compensation to the
Executive for such services and the Executive is willing to continue his or her
employment with the Corporation to perform the duties incident to such
employment upon the terms and conditions hereinafter set forth and thus to
forego opportunities elsewhere; and
In replacement of the Prior Agreement, the parties desire to enter
into this Agreement, as of the Effective Date, setting forth the terms and
conditions of the employment relationship of the Executive with the Corporation
during the Term (as such term is hereinafter defined).
In consideration of the premises and the mutual covenants herein
contained, the parties hereby agree as follows:
1. Employment Duties.
(a) Employment. The Corporation hereby agrees to employ the
Executive, and the Executive hereby agrees to serve, as Sr. Vice President,
Strategic Development of the Corporation.
(b) Duties. The Executive will have full authority to act on behalf
of the Corporation in a manner that is consistent with his or her title and
position. In such capacity, the Executive also agrees to perform such duties and
exercise such powers commensurate with his or her position as may from time to
time be reasonably requested of him or her by such Executive's immediate
supervisor (or such other supervising officer) or the Board of Directors of the
Corporation (the "Board") or vested in him or her by the bylaws of the
Corporation. During the Term, the Executive shall:
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2
(1) devote substantially all of his or her business time, attention
and abilities to the business of the Corporation (including its
subsidiaries or affiliates, when so required); and
(2) faithfully serve the Corporation and use his or her best efforts
to promote and develop the interests of the Corporation.
2. Term of Employment. The term (the "Term") of the Executive's
employment hereunder shall be for a period commencing on the Effective Date, and
continuing until terminated by either the Corporation or the Executive in
accordance with the terms of Paragraph 4(a) below upon giving sixty (60) days
written notice ("Non-Continuation Notice").
3. Compensation. Subject to the terms of this Agreement and until
the termination of the Term as provided in Paragraph 2, the Corporation shall
pay compensation and provide benefits to the Executive as follows:
(a) Base Salary. The Corporation shall pay to the Executive a base
salary of $265,000 per annum during the Term (the "Base Salary"). The Executive
shall receive his or her salary in equal installments in accordance with the
Corporation's payroll practices in effect from time to time. The Corporation
will review the Executive's Base Salary at least once per year and may, in its
discretion, increase the Base Salary in accordance with the compensation
policies of the Corporation, as in effect from time to time.
(b) Benefit Continuation and Perquisites. The Executive shall
participate during the Term, in such pension, life insurance, health, disability
and medical insurance plans, and such other employee benefit plans and programs
(including an automobile or automobile allowance), for the benefit of employees
of the Corporation, and as may be maintained from time to time during the Term,
in each case to the extent and in the manner available to other executives or
officers of the Corporation of comparable level or position and subject to the
terms and provisions of such plans or programs.
(c) Incentive Bonus. The Corporation may pay a bonus to the
Executive as determined by the Corporation in accordance with the Corporation's
incentive plan or policies as in effect from time to time.
(d) Stock Options. From time to time as so approved by the Board or
the Stock Option Committee of the Board, the Executive may become eligible for
the grant of options to purchase shares of the Corporation's common stock, par
value of $0.01 per share (the "Shares"), pursuant to and subject to the terms
and conditions of the Corporation's 1999 Stock Option Plan (or other plan of the
Corporation) and any stock option agreement entered into by the Executive and
the Corporation.
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3
(e) Reimbursement of Expenses. The Corporation shall reimburse the
Executive for all reasonable expenses incurred personally by him or her on
behalf of the Corporation in accordance with the policies and procedures
applicable to similarly situated executives of the Corporation.
(f) Additional Compensation. The Corporation shall pay the Executive
additional compensation (the "Additional Compensation") which will be payable in
four (4) annual installments as follows: $150,000 on December 31, 2000, $150,000
on December 31, 2001, $150,000 on December 31, 2002 and $150,000 on December 31,
2003.
4. Termination and Compensation Payable Upon Termination or
Resignation.
(a) Earlier Termination of Term. Upon giving a Non-Continuation
Notice by either the Corporation or the Executive pursuant to Paragraph 2, and
subject to the Corporation's compliance with Paragraph 4(g), the Executive's
employment with the Corporation may be terminated or the Executive may resign
such employment prior to the expiration of the Term effective as of the end of
the sixty-day (60) day period following the date of the Non-Continuation Notice
(the "Termination Date") is given as follows:
(1) The Corporation may terminate the Executive's employment
hereunder for Cause (as defined hereunder), without Cause or upon the
Executive's Disability;
(2) The Executive's employment hereunder shall terminate
automatically upon his or her death; or
(3) The Executive may resign from his or her employment with the
Corporation with or without Good Reason (as defined hereunder).
(b) Definition of "Target Bonus". As used herein, the "Target Bonus"
shall mean the higher of (x) 30% of the Executive's then-current Base Salary,
and (y) the highest annual bonus earned by the Executive in respect of any of
the two (2) years ending immediately prior to the Termination Date.
(c) Definition of "Cause". As used herein, "Cause" shall mean,
during the Term of this Agreement, the occurrence of any of the following:
(1) the Executive's willful and continued failure to substantially
perform his or her duties under this Agreement for the Corporation or its
affiliates;
<PAGE>
4
(2) the commission by the Executive of fraud, misappropriation or
intentional material damage to the property or business of the
Corporation; or
(3) the commission of a felony by the Executive.
(d) Definition of "Disability". The Executive shall be considered to
have a "Disability" if he or she satisfies the definition set forth in the
Corporation's long-term disability benefit plan in which he or she is enrolled
at the time of the determination or if there is no such plan, for a continuous
period of six (6) months, he or she is unable to perform his or her duties under
this Agreement for reasons of health, and, in the opinion of a physician
appointed by the Corporation and reasonably acceptable to the Executive, such
disability will continue for a prolonged period of time.
(e) Definition of "Good Reason". As used herein, "Good Reason" shall
mean the occurrence of any of the following:
(1) the Corporation assigning the Executive to duties or
responsibilities that are inconsistent, in any significant respect, with
the scope of duties or responsibilities provided for under this Agreement;
(2) any reduction in the Executive's Base Salary or Additional
Compensation provided for under this Agreement; or
(3) except where expressly approved by the Executive, (x) the
relocation of the Executive's principal place of business from more than a
thirty (30) mile radius of the Executive's principal place of business as
of the date of this Agreement, other than a relocation to the
Corporation's Florham Park, New Jersey headquarters, or (y) if the
Executive's principal place of business as of the date of this Agreement
was New Jersey, the relocation of his or her principal place of business
to New York, New York at any time following the date of this Agreement.
(f) Definition of "Change of Control". As used herein, "Change of
Control" shall mean the occurrence of any of the following:
(1) an acquisition by any individual, entity or group (within the
meaning of Section 13d-3 or 14d-1 of the Securities Exchange Act of 1934,
as amended (the "Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Act) of more than 50% of the
combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors to the
Board (the "Outstanding Corporation Voting Securities"); excluding,
however, the following: (x) any acquisition by the Corporation, (y) any
acquisition by an
<PAGE>
5
employee benefit plan (or related trust) sponsored or maintained by the
Corporation or (z) any acquisition by any corporation pursuant to a
reorganization, merger, consolidation or similar corporate transaction (in
each case, a "Corporate Transaction"), if, pursuant to such Corporate
Transaction, the conditions described in (A), (B) and (C) of clause (3) of
this Paragraph Section 4(f) are satisfied;
(2) a change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (the Board
as of the Effective Date shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided that, for purposes of this Paragraph 4(e)(2), any
individual who becomes a member of the Board subsequent to the Effective
Date and whose election, or nomination for election by the Corporation's
stockholders, was approved by a majority of the members of the Board who
also are members of the Incumbent Board (or so deemed to be pursuant to
this proviso) shall be deemed a member of the Incumbent Board; but,
provided further, that any such individual whose initial assumption of
office is in connection with a Change of Control described in (1), (3) or
(4) of this Paragraph 4(f) or whose initial assumption of office occurs as
a result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Act) or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board shall not be so deemed a member of
the Incumbent Board; or
(3) the approval by the stockholders of the Corporation of a
Corporate Transaction or, if consummation of such Corporate Transaction is
subject, at the time of such approval by stockholders, to the consent of
any government or governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation); excluding, however,
such a Corporate Transaction pursuant to which (A) the beneficial owners
(or beneficiaries of the beneficial owners) of the outstanding Shares and
Outstanding Corporation Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly, more
than 60% of, respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction and the combined
voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors, in substantially
the same proportions as their ownership, immediately prior to such
Corporate Transaction, of the outstanding Shares and Outstanding
Corporation Voting Securities, as the case may be, (B) no Person (other
than the Corporation, any employee benefit plan (or related trust) of the
Corporation or the corporation resulting from such Corporate Transaction
and any Person beneficially owning, immediately prior to such Corporate
Transaction, directly or indirectly, 20% or more of the outstanding Shares
or Outstanding Corporation Voting Securities, as the case may be) will
beneficially own, directly or indirectly, 20% or more of, respectively,
the
<PAGE>
6
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in the election
of directors and (C) individuals who were members of the Incumbent Board
will constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction; or
(4) the approval of the stockholders of the Corporation of (A) a
complete liquidation or dissolution of the Corporation or (B) the sale or
other disposition of all or substantially all the assets of the
Corporation; excluding, however, such a sale or other disposition to a
corporation with respect to which, following such sale or other
disposition, (x) more than 60% of the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors will be then beneficially owned,
directly or indirectly, by the individuals and entities who were the
beneficial owners (or beneficiaries of the beneficial owners),
respectively, of the outstanding Shares and Outstanding Corporation Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the outstanding Shares and Outstanding
Corporation Voting Securities, as the case may be, (y) no Person (other
than the Corporation and any employee benefit plan (or related trust) of
the Corporation or such corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or
indirectly, 20% or more of the outstanding Shares or Outstanding
Corporation Voting Securities, as the case may be) will beneficially own,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (z) individuals who were
members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of such corporation.
(g) Payments to the Executive Upon Termination of Employment. In the
event that the Executive's employment with the Corporation is terminated prior
to the expiration of the Term pursuant to a Non-Continuation Notice for any of
the reasons provided in Paragraph 4(a), then the Corporation shall pay to the
Executive the following amounts on the date of such termination, and shall
provide to the Executive the following benefits, as applicable:
(1) In the event that the Executive's employment hereunder
terminates for any reason whatsoever (including for Cause), the
Corporation shall pay to the Executive: (i) an amount equal to his or her
accrued but unpaid Base Salary; (ii) any
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7
incentive compensation awarded to the Executive but not yet paid for the
year preceding the year of termination; (iii) reimbursement for any
unreimbursed business expenses incurred in accordance with Paragraph 3(e)
prior to the Termination Date; and (iv) any amounts or benefits due under
any equity or benefit plan, grant or program in accordance with the terms
of said plan, grant or program but without duplication (such amounts
specified in clauses (i), (ii), (iii), and (iv) referred to as "Accrued
Obligations"). In addition, for terminations other than cause, the
Corporation will provide the Executive with up to one year of outplacement
services chosen by the Corporation at a location convenient to the
Executive.
(2) In the event that: (i) the Executive's employment hereunder is
terminated by the Corporation for any reason other than for Cause,
Disability or death, or (ii) the Executive terminates his or her
employment with Good Reason, in addition to the Accrued Obligations, the
Corporation shall also pay or provide to the Executive: (A) 100% of the
Executive's then-current Base Salary, payable in a lump sum no later than
thirty (30) days following such termination; (B) a lump sum payment equal
to the Target Bonus, payable no later than thirty (30) days following such
termination; (C) any unpaid Additional Compensation, payable in a lump sum
no later than thirty (30) days following such termination; and (D)
continued participation in the Corporation's welfare plans (as applicable
and including without limitation the split dollar insurance program, if
applicable) for the twelve (12) month period following the Termination
Date; provided that, such welfare coverage shall cease if the Executive
obtains other full-time employment providing for comparable welfare
benefits prior to the expiration of such twelve (12) month period. The
benefits provided under this clause (2) are in lieu of payments under any
severance policy of the Corporation.
(3) In the event that: (i) the Executive's employment hereunder is
terminated by the Corporation for any reason other than for Cause,
Disability or death within two (2) years following a Change of Control or
ninety (90) days prior to a Change of Control, or (ii) the Executive
terminates his or her employment with Good Reason within two (2) years
following a Change of Control or ninety (90) day prior to a Change of
Control, in lieu of the amounts described in clauses 2(A) and (B) above
and the benefits described in clause 2(D) above, in addition to the
Accrued Obligations and payment of any unpaid Additional Compensation as
provided in clause 2(C) above, the Corporation shall pay or provide to the
Executive: (A) a lump sum payment equal to two (2) times the sum (x) of
the Executive's then-current Base Salary, (y) the Target Bonus, and (z)
any Additional Compensation payable with respect to the year of
termination under Paragraph 3(f), payable no later than thirty (30) days
following such termination; and (B) continued participation in the
Corporation's welfare plans (as applicable, and including without
limitation the split-dollar insurance program, if applicable) for the
twenty-four (24) month period following the Termination Date;
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8
provided that, such welfare plan coverage shall cease if the Executive
obtains other full-time employment providing for comparable welfare
benefits prior to the expiration of such twenty-four (24) month period.
The benefits provided under this clause (3) are in lieu of payments under
any severance policy of the Corporation.
(h) Waiver and Release. No payment will be made under Paragraph
4(g), unless (x) the Executive first executes and delivers to the Corporation a
release in substantially the same form attached as Appendix A to this Agreement,
and (y) to the extent any portion of such release is subject to the seven-day
revocation period prescribed by the Age Discrimination in Employment Act, as
amended, or to any similar revocation period in effect on the date of
termination of the Executive's employment, such revocation period has expired.
5. Maximum Payment. Notwithstanding anything herein to the contrary,
if it is determined that any payment made to the Executive, whether pursuant to
the terms of this Agreement or otherwise (including but not limited to any stock
option agreement), would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended, or any interest or penalties with
respect to such excise tax (such excise tax, together with any interest or
penalties thereon, is herein referred to as an "Excise Tax"), then the Executive
shall be entitled to an additional payment or payments (a "Gross-Up Payment") in
an amount that will place him or her in the same after-tax economic position
that he or she would have enjoyed if the Excise Tax had not applied. The amount
of the Gross-Up Payment shall be determined by the nationally recognized firm of
accountants serving as the Corporation's independent auditors immediately prior
to the Change of Control which resulted in the application of the Excise Tax, in
their sole discretion, and shall be payable upon the Executive's demand.
6. Protection of the Corporation's Interests.
(a) Non-Competition Covenant. The Executive hereby covenants and
agrees that during the Term and for six (6) months following the end of the
Term, the Executive will not, without the prior written consent of the
Corporation, engage in Competition (as defined below) with the Corporation. For
purposes of this Agreement, if the Executive takes any of the following actions
the Executive will be engaged in "Competition": directly or indirectly accepting
employment or engaging in any business activity which would require the
Executive to be involved in the formulation, development, manufacture or sale of
any product which is the same as any product for which the Executive was engaged
in on behalf of the Corporation; provided, however, that "Competition" will not
include (x) working or engaging in any business activity with a new employer
that manufactured and sold the same product for which the Executive was engaged
in on behalf of the Corporation prior to the Executive's employment with such
new employer, (y) the mere passive ownership of securities representing less
than two percent (2%) of the vote or value of all the securities of any
enterprise and the exercise of rights
<PAGE>
9
appurtenant thereto or (z) participation in management of any enterprise or
business operation thereof other than in connection with the operation of such
enterprise that is engaged in Competition with the Corporation.
(b) Non-Solicitation Covenant. The Executive hereby covenants and
agrees that during the Term and for one (1) year following the end of the Term,
the Executive will not, without the prior written consent of the Corporation
attempt to, directly or indirectly, induce or influence any present or future
employee of the Corporation to give up, or to not commence, employment or a
business relationship with the Corporation.
(c) Confidentiality. The Executive recognizes and acknowledges that
in the course of the Executive's employment with the Corporation the Executive
has obtained, or may obtain, confidential information, whether specifically
designated as such or not, and the Executive agrees to maintain in confidence
any confidential information obtained by or from the Corporation and will not,
during the Term or any time thereafter, either directly or indirectly, disclose
or use confidential information except with the prior written consent of the
Corporation or until such confidential information will be in the public domain
(other than as a result of an unauthorized disclosure by the Executive).
(d) Disparagement. The Executive agrees not to publicly or privately
disparage the Corporation or any of the Corporation's products, services,
divisions, affiliates, related companies or current or former officers,
directors, trustees, employees, agents, administrators, representatives or
fiduciaries. Notwithstanding the foregoing, neither the Executive nor the
Corporation will be restricted from providing information about the other as
required by a court or governmental agency or by applicable law. Further, the
Corporation and the Executive shall not be restricted from reporting information
regarding his or her performance while employed by the Corporation to internal
or external auditors, special counsel or investigators, any applicable
enforcement agencies, regulatory agencies, insurance carriers or in litigation
involving the Executive or the Corporation. The Corporation agrees that it will
not publicly or privately disparage the Executive.
(e) Remedies.
(i) The Executive acknowledges that a breach of any of the
covenants contained in Paragraphs 6(a), (b), (c) or (d) may result in
material irreparable injury to the Corporation for which there is no
adequate remedy at law, that it will not be possible to measure damages
for such injury precisely and that, in the event of such a breach or
threat thereof, the Corporation shall be entitled to a temporary
restraining order and/or a preliminary or permanent injunction,
restraining the Executive from engaging in such prohibited activities or
such other relief as may be required specifically to enforce any of
<PAGE>
10
the covenants contained therein. Nothing herein shall be construed as
prohibiting the Corporation from pursuing any other remedies for such
breach or threatened breach.
(ii) The restrictions set forth in Paragraphs 6(a), (b), (c)
and (d) are considered by the parties hereto to be reasonable for the
purposes of protecting the business of the Corporation. However, if any
such restriction is found by a court of competent jurisdiction to be
unenforceable because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it is the
intention of the parties that such restriction shall be interpreted to
extend only over the maximum period of time, range of activities or
geographic area as to which it may be enforceable.
7. Indemnification. The Corporation agrees to indemnify, defend and
hold harmless the Executive from and against any and all liabilities to
which he or she may be subject as a result of his or her employment
hereunder (as a result of his or her service as an officer or director of
the Corporation or as an officer or director of any of its subsidiaries or
affiliates), as well as the costs, including attorney's and other
professional fees and disbursements, of any legal action brought or
threatened against him or her as a result of such employment in accordance
with the indemnification policies of the Corporation and the
indemnification agreement entered into between the Executive and the
Corporation, dated June 6, 1997 (the "Indemnification Agreement"), to the
fullest extent permitted by, and subject to the limitations of, applicable
corporate law.
8. Reimbursement of Legal and Related Expenses. In the event that
any dispute shall arise between the Executive and the Corporation relating to
his or her rights under this Agreement on or after a Change of Control, the
Corporation shall pay to the Executive all reasonable legal fees and expenses
incurred in connection with such dispute, unless it is finally determined that
the Executive's position in such dispute was frivolous.
9. Successors; Binding Agreement.
(a) Assumption by Successor. The Corporation will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the
Corporation expressly to assume and to agree to perform this Agreement in the
same manner and to the same extent that the Corporation would be required to
perform it if no such succession had taken place; provided, however, that no
such assumption shall relieve the Corporation of its obligations hereunder. As
used in this Agreement, the "Corporation" shall mean the Corporation as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
<PAGE>
11
(b) Enforceability; Beneficiaries. This Agreement shall be binding
upon and inure to the benefit of the Executive (and his or her personal
representatives and heirs) and the Corporation and any organization which
succeeds to substantially all of the business or assets of the Corporation,
whether by means of merger, consolidation, acquisition of all or substantially
all of the assets of the Corporation or otherwise, including, without
limitation, by operation of law. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees or other beneficiaries. If the Executive should die while any amount
would still be payable to him or her hereunder if he or she had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to his or her beneficiary.
10. Assignment. Neither party may assign this Agreement or any of
his or her or its rights, benefits, obligations or duties hereunder to any other
person, firm, corporation or other entity.
11 Withholding. The Corporation shall be authorized to withhold from
any award or payment it makes under the Agreement, the amount of withholding
taxes due with respect to such award or payment and to take such other action as
may be necessary in the opinion of the Corporation to satisfy all obligations
for the payment of such taxes.
12. Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given when personally delivered or on the fourth business day after being placed
in the mail, postage prepaid, addressed to the parties hereto as follows
(provided that notice of change of address shall be deemed given only when
actually received):
As to the Corporation: Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
As to the Executive: To the address indicated on the signature page of this
Agreement (or if no address is indicated, to the last
known address of the Executive shown in the
Corporation's records)
The address of any of the parties may be changed from time to time by such party
serving notice upon the other parties.
<PAGE>
12
13. Law Applicable. This Agreement shall be governed by the laws of
New Jersey (other than New Jersey principles of conflicts of laws). Any dispute
between the parties relating to this Agreement may be heard only in the federal
or state courts of New Jersey and both parties hereby submit to the exclusive
jurisdiction of such courts.
14. Entire Agreement; Modification. Other than any stock option
agreement between the Corporation and the Executive and the Indemnification
Agreement, this Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes and cancels all prior
or contemporaneous oral or written agreements and understandings between them
with respect to the subject matter hereof (including but not limited to the
Prior Agreement). This Agreement may not be changed or modified orally but only
by an instrument in writing signed by the parties hereto, which instrument
states that it is an amendment to this Agreement.
15. Severability. Should any provision of this Agreement or any part
thereof be held invalid or unenforceable, the same shall not affect or impair
any other provision of this Agreement or any part thereof and the invalidity or
unenforceability of any provision of this Agreement shall not have any effect on
or impair the obligations of the Corporation or the Executive.
16. Rules of Construction. The captions in this Agreement are for
convenience of reference only and in no way define, limit or describe the scope
or intent of any provisions or Paragraphs of this Agreement. All references in
this Agreement to particular Paragraphs are references to the Paragraphs of this
Agreement, unless some other reference is clearly indicated.
17. Execution. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement.
<PAGE>
13
IN WITNESS WHEREOF, the Corporation and the Executive have executed
this Agreement, all as of the day and year first above written.
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Oliver Esnan
-----------------------------------
Authorized Officer
EXECUTIVE
/s/ [ILLEGIBLE]
--------------------------------------
Address: [ILLEGIBLE]
------------------------------
[ILLEGIBLE]
------------------------------
<PAGE>
Appendix A
GENERAL RELEASE OF ALL CLAIMS
This General Release of all Claims (this "Agreement") is entered into by
and among _____________ (the "Executive"), and Schein Pharmaceutical, Inc., a
Delaware corporation (as it may be renamed from time to time, and including its
subsidiaries and affiliates) (collectively, the "Corporation"), effective as of
_________ __, ____.
In consideration of the promises set forth in the Employment Agreement
between the Executive and the Corporation, dated ____________ __, _____, (the
"Employment Agreement"), as well as any promises set forth in this Agreement,
the Executive and the Corporation agree as follows:
(1) Return of Property
All Corporation files, access keys, desk keys, ID badges and credit cards,
and such other property of the Corporation as the Corporation may
reasonably request, in the Executive's possession must be returned no
later than the date of the Executive's termination from the Corporation
(the "Termination Date").
(2) General Release and Waiver of Claims
Except as provided in the last sentence of this paragraph (2), in
consideration of the payments made and to be made, and benefits provided
and to be provided, to the Executive pursuant to the Employment Agreement,
the Executive hereby unconditionally and forever releases, discharges and
waives any and all claims of any nature whatsoever, whether legal,
equitable or otherwise, which the Executive may have against the
Corporation arising at any time on or before the Termination Date, other
than the Excluded Obligations. This release of claims extends to any and
all claims of any nature whatsoever, other than with respect to the
Excluded Obligations, whether known, unknown or capable or incapable of
being known as of the Termination Date or thereafter. This Agreement is a
release of all claims of any nature whatsoever by the Executive against
the Corporation, other than with respect to the Excluded Obligations, and
includes, other than as herein provided, any and all claims, demands,
causes of action, liabilities whether known or unknown including those
caused by, arising from or related to the Executive's employment
relationship with the Corporation including, without limitation, any and
all alleged discrimination or acts of discrimination which occurred or may
have occurred on or before the Termination Date based upon race, color,
sex, creed, national origin, age, disability or any other violation of any
Equal Employment Opportunity Law, ordinance, rule, regulation or order,
including, but not limited to, Title VII of the Civil Rights Act of 1964,
as
<PAGE>
amended; the Civil Rights Act of 1991; the Age Discrimination in
Employment Act, as amended (as further described in Section 4 below); the
Americans with Disabilities Act; claims under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); or any other Federal,
state or local laws or regulations regarding employment discrimination or
termination of employment. This also includes claims for wrongful
discharge, fraud, or misrepresentation under any statute, rule, regulation
or under the common law.
The Executive agrees and understands and knowingly agrees to this release
because it is his or her intent in executing this Agreement to forever
discharge the Corporation from any and all present, future, foreseen or
unforeseen causes of action except for the obligations of the Corporation
set forth in the Employment Agreement.
Notwithstanding the foregoing, the Executive does not release, discharge
or waive any rights (the "Excluded Obligations") (i) to payments and
benefits provided for in the applicable subsection of Paragraph 4 of the
Employment Agreement, (ii) to payments provided for under Paragraphs 5 and
8 of the Employment Agreement, and (iii) to indemnification that he or she
may have under the By-Laws of the Corporation, the laws of the State of
Delaware, any indemnification agreement between the Executive and the
Corporation or any insurance coverage maintained by or on behalf of the
Corporation.
(3) Release and Waiver of Claims Under the Age Discrimination in Employment
Act
The Executive acknowledges that the Corporation advised him or her to
consult with an attorney of his or her choosing, and through this
Agreement advises him or her to consult with his or her attorney with
respect to possible claims under the Age Discrimination in Employment Act
of 1967, as amended ("ADEA"), and the Executive acknowledges that he or
she understands that ADEA is a Federal statute that prohibits
discrimination, on the basis of age, in employment, benefits, and benefit
plans. The Executive wishes to waive any and all claims under the ADEA
that he or she may have, as of the Termination Date, against the
Corporation, and their respective shareholders, employees, or successors,
and hereby waives such claims. The Executive further understands that by
signing this Agreement he or she is in fact waiving, releasing and forever
giving up any claim under the ADEA against the Corporation that may have
existed on or prior to the Termination Date. The Executive acknowledges
that the Corporation have informed him or her that he or she has, at his
or her option, twenty-one (21) days following the Termination Date in
which to sign the waiver of this claim under ADEA, and he or she does
hereby knowingly and voluntarily waive said twenty-one (21) day period.
The Executive also understands that he or she has seven (7) days following
the date on which he or she signs this Agreement within which to revoke
the release contained in this paragraph by providing to the Corporation a
written
<PAGE>
notice of his or her revocation of the release and waiver contained in
this paragraph. The Executive further understands that this right to
revoke the release contained in this paragraph relates only to this
paragraph and does not act as a revocation of any other term of this
Agreement.
(4) Proceedings
The Executive has not filed, and agrees not to initiate or cause to be
initiated on his or her behalf, any complaint, charge, claim or proceeding
against the Corporation before any local, state or Federal agency, court
or other body relating to his or her employment or the termination of his
or her employment, other than with respect to the obligations of the
Corporation to the Executive under the Employment Agreement (each
individually, a "Proceeding"), and agrees not to voluntarily participate
in any Proceeding. The Executive waives any right he or she may have to
benefit in any manner from any relief (whether monetary or otherwise)
arising out of any Proceeding.
(5) Remedies
In the event the Executive initiates or voluntarily participates in any
Proceeding, or if he or she fails to abide by any of the terms of this
Agreement or his or her post-termination obligations contained in the
Employment Agreement, or if he or she revokes the ADEA release contained
in Paragraph 3 of this Agreement within the seven-day period provided
under Paragraph 3, the Corporation may, in addition to any other remedies
it may have, reclaim any amounts paid to him or her under the termination
provisions of the Employment Agreement or terminate any benefits or
payments that are subsequently due under the Employment Agreement, without
waiving the release granted herein. The Executive acknowledges and agrees
that the remedy at law available to the Corporation for breach of any of
his or her post-termination obligations under the Employment Agreement or
his or her obligations under Paragraphs 2, 3 and 4 of this Agreement would
be inadequate and that damages flowing from such a breach may not readily
be susceptible to being measured in monetary terms. Accordingly, the
Executive acknowledges, consents and agrees that, in addition to any other
rights or remedies which the Corporation may have at law, in equity or
under this Agreement, upon adequate proof of his or her violation of any
such provision of this Agreement, the Corporation shall be entitled to
immediate injunctive relief and may obtain a temporary order restraining
any threatened or further breach, without the necessity of proof of actual
damage.
The Executive understands that by entering into this Agreement he or she
will be limiting the availability of certain remedies that he or she may
have against the Corporation and limiting also his or her ability to
pursue certain claims against the Corporation.
<PAGE>
(6) Severability Clause
In the event any provision or part of this Agreement is found to be
invalid or unenforceable, only that particular provision or part so found,
and not the entire Agreement, will be inoperative.
(7) Non-Admission
Nothing contained in this Agreement will be deemed or construed as an
admission of wrongdoing or liability on the part of the Corporation.
(8) Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, applicable to agreements made and to be
performed in that State, without regard to conflicts of law principles;
and the parties agree to the jurisdiction of the U.S. District Court for
the District of Delaware, and agree to appear in any action in such courts
by service of process by certified mail, return receipt requested, at the
following addresses:
To the Corporation: 100 Campus Drive
Florham Park, New Jersey 07932
Attention: General Counsel
To the Executive: To the address indicated on the signature page of
this Agreement (or if no address is indicated, to
the last known address of the Executive as shown
in the Corporation's records)
THE EXECUTIVE ACKNOWLEDGES THAT HE OR SHE HAS READ THIS AGREEMENT AND THAT HE OR
SHE FULLY KNOWS, UNDERSTANDS, AND APPRECIATES ITS CONTENTS, AND THAT HE OR SHE
HEREBY EXECUTES THE SAME AND MAKES THIS AGREEMENT AND THE RELEASE AND AGREEMENTS
PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OR HER OWN FREE WILL.
<PAGE>
5
IN WITNESS WHEREOF, the parties have executed this AGREEMENT as of the
date first set forth above.
SCHEIN PHARMACEUTICAL, INC.
By:
------------------------------
Authorized Officer
EXECUTIVE
---------------------------------
Address:
-------------------------
-------------------------
<PAGE>
[Schein Letterhead]
August 1, 1999
Mr. Javier Cayado
30 Sail Harbor
New Fairfield, CT 06470
Dear Jay:
In connection with your transition from full-time employee to part-time
employee, we are confirming all of our agreements as follows:
1. Notwithstanding anything to the contrary contained in the employment
agreement (the "Employment Agreement") dated November 22, 1993 between you
and Schein Pharmaceutical, Inc. (the "Company"), the status of your
employment with the Company will change from full-time employee to
part-time employee effective August 1, 1999 (such date hereinafter
referred to as the "Transition Date").
2. Effective upon the Transition Date, the Employment Agreement will be
superceded by this Agreement, and the Employment Agreement will no longer
be of any force or effect.
3. The term of this Agreement shall be the two-year period commencing on the
Transition Date and ending on July 31, 2001, subject to earlier
termination or extension as provided herein (the "Term"). The Term may be
extended at the election of the Company for successive one-year periods
unless at least 90 days prior to end of then Term you notify the Company
in writing that the Term shall terminate at the end of the then Term. You
may terminate the Term upon 90 days' written notice to the Company. In
addition, the Term shall terminate upon your death and may be terminated
by the Company at any time for Cause. For purposes of this Agreement,
"Cause" means (i) your wilful 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.
4. During the Term, the Company will employ you, and you agree to be so
employed, as Senior Vice President on a part-time basis on the following
terms:
(a) You will be paid base compensation ("Base Compensation")
of $150,000 per year during the period beginning on the
Transition Date through the end of the Term, payable in
equal quarterly installments of $37,500 on the first day
of each quarter (the "Quarterly Installment"), and
otherwise in accordance with the normal payroll
practices of the Company.
(b) You will be paid fees ("Assignment Fees") for
assignments that may be offered to you from time to time
by the Company in its sole discretion at a rate of
$3,000 per day, plus reasonable expenses. Each Quarterly
Installment will be credited
<PAGE>
against any Assignment Fees earned for such quarter. You
will not be required to repay any Quarterly Installment,
or any part thereof, if the Assignment Fees earned for
such quarter are less than the Quarterly Installment.
(c) You will be available to the Company during the Term, as
reasonably requested by the Company, to, among other
things, assist the Company in connection with its
manufacturing and technical operations, and generally
assist in such other matters as the Company may
reasonably request. You will be available to meet in
person with Company executives and others and to travel
as reasonably requested by the Company. The Company will
endeavor to give you reasonable prior notice of any
occasion for which your presence is required and of any
travel which may be so requested. You will be reimbursed
by the Company for all expenses reasonably incurred by
you in connection with any such travel in accordance
with the Company's usual practices.
(d) You will continue to be an employee of the Company and
not an independent contractor.
5. From and after the Transition Date, the Company and you each will pay its
respective portion of the premiums to continue health, dental, vision and
life insurance coverage for you, your spouse and dependents, in each
instance with such coverage as is in effect from time to time under the
applicable Company program, through the Term.
6. From and after the Transition Date through the Term, you will continue to
be eligible to contribute, but will not be eligible for any additional
contribution or matching contribution by the Company, to your account
under the Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates
(the "Plan") for any calendar year unless you work more than 1,000 hours
in such year. The balance in your account will continue to be invested at
your direction in accordance with the terms and conditions of the Plan,
and will reflect your investment results.
7. Each of your option agreements (the "Option Agreements") with the Company
shall remain in effect in accordance with their terms and all Options (as
defined in the Option Agreements) shall continue to vest in accordance
with the terms of the Option Agreements. If this Agreement terminates
other than for Cause prior to July 31, 2001, all unvested Options shall be
fully vested as of the date of such termination, and each Option not
previously exercised shall be exercisable immediately in full and shall
remain exercisable thereunder until the earlier of the first anniversary
of the date of such termination and the tenth anniversary of the date of
grant of such Option.
8. Your Deferred Compensation Agreement with the Company dated November 22,
1993 (the "Deferred Compensation Agreement") is hereby amended, effective
as of the Transition Date, to provide that if this Agreement terminates
other than for Cause prior to September 30, 2000, you will be paid
promptly after such termination any remaining unpaid Deferred Compensation
Amount (as defined in the Deferred Compensation Agreement), whether or not
then due under the Deferred Compensation
2
<PAGE>
Agreement. Except as amended hereby, the Deferred Compensation Agreement
shall remain in full force and effect, without modification.
9. Your employee confidentiality and non-disclosure undertaking with the
Company dated December 27, 1993 (the "Confidentiality and Non-Disclosure
Undertaking") shall remain in full force and effect, without modification.
10. In addition to the programs specifically referenced in this Agreement, you
may participate in other benefit plans maintained by the Company from time
to time in which part-time employees are eligible to participate, in
accordance with the terms and conditions of such plans.
11. You will not, at any time during your employment by the Company and for
one year thereafter (the "Restrictive Period"), directly or indirectly,
any place within the United States, engage in or become interested in (as
owner, stockholder, partner, director, officer, employee, consultant,
agent or otherwise) any business competitive with the business conducted
by the Company. You acknowledge that this provision is necessary for the
Company's protection and is reasonable, since you are able to obtain
employment with companies whose businesses are not competitive with those
of the Company and with companies in other areas. If, however, any
provision of this paragraph is held to be unenforceable because of the
duration, geographical area or scope of the restriction, the court making
that determination shall modify that provision to the extent necessary to
make it valid. Ownership of less than 5% of any class of securities
registered under Section 12(b) or 12(g) of the Securities Exchange Act of
1934 shall not be considered a violation of the provisions of this
paragraph.
You will not, during the Restrictive Period, directly or indirectly employ
or retain, solicit the employment or retention of, or be associated with
any entity that employs or retains or solicits the employment or retention
of, any person who was an employee of the Company at any time during the
twelve months preceding the termination of your employment or during the
Restrictive Period.
Any discovery, design or improvement that you develop during your
employment or during the Restrictive Period (whether or not during your
regular working hours or on the Company's premises) and that is related to
the Company's business or research activities as then conducted or
contemplated, shall belong to the Company and shall be promptly disclosed
to the Company. During your employment and thereafter you shall, without
additional compensation, execute and deliver to the Company any
instruments of transfer and take any other action that the Company may
request to carry out the provisions of this paragraph.
Since a breach by you of the provisions of this paragraph 11 or the
Confidentiality and Non-Disclosure Undertaking would injure the Company in
a way that could not be adequately compensated for by damages, in addition
to any other remedies available to
3
<PAGE>
the Company it may obtain an injunction restraining any such breach,
without the necessity of showing actual damage and without any bond or
other security being required.
12. You acknowledge and agree that the payments referred to in paragraph 4
above exceed any payments to which you are or might otherwise be entitled
to under any policy, plan, practice, procedure or prior agreement or
contract. In consideration of the Company entering into this Agreement,
you hereby release the Company, its subsidiaries, directors, officers,
agents and employees and any of its successors, assigns or affiliates and
their heirs, successors and assigns, from any and all liabilities, claims
and causes of action, known or unknown, now existing or which may
hereafter accrue, which relate to or arise out of your employment through
the Transition Date, including, but not limited to, claims under the
Employment Agreement, Title VII of the Civil Rights Act of 1964, as
amended in 1991, the Equal Pay Act, the Rehabilitation Act of 1973, the
Americans with Disabilities Act, the Fair Labor Standards Act, the Family
and Medical Leave Act, the Age Discrimination In Employment Act, ERISA and
any other federal, state and local law or any common law. You are not,
however, releasing any claims relating to the Company's failure to perform
it obligations under this Agreement.
You understand that by releasing the Company, it is not intended to imply
that the Company has done anything unlawful or wrong and the acceptance of
this release and the payments made and benefits allowed to you pursuant to
this Agreement do not constitute an admission of any liability by either
party. In consideration of the Company entering into this Agreement, you
also promise never to file a lawsuit asserting any claims that are
released in the preceding paragraph. You agree that under no circumstances
will you induce, encourage, solicit or assist any person or entity to file
or pursue any claim or proceeding of any kind against any person or entity
released by you in this Agreement.
13. Both you and the Company acknowledge that this Agreement, the Deferred
Compensation Agreement, the Option Agreements and the Confidentiality and
Nondisclosure Undertaking constitute the entire agreement of the parties
hereto with respect to the subject matter hereof and that there are no
other agreements or understandings, oral or written, between the parties
with respect to the subject matter hereof. You agree that you will keep
the terms and existence of this Agreement strictly confidential; provided,
however, that you may discuss this Agreement and its terms with your
professional advisors and members of your immediate family who will not
disclose the terms or existence of this Agreement. But for this Agreement,
you would not be entitled to the benefits provided herein under the
Company's policies or procedures.
You understand and acknowledge that your representations and commitments
contained in this Agreement are essential, material and indispensable
conditions of this Agreement and that the Company would not be entering
into the agreements hereunder, except for these representations and
commitments. It is agreed that in the event you take any action or engage
in any conduct in violation of this Agreement or you seek to challenge the
enforceability of any provision of this Agreement, or such action or
conduct is taken on
4
<PAGE>
your behalf, the Company may, at its option, void this entire Agreement
and cease to pay or provide any benefits provided to you pursuant to this
Agreement and recover from you as liquidated damages the amounts paid to
you under the terms of the agreements hereunder.
You will be given a period of 21 days to review and consider this
Agreement. You may use as much of this 21 day period as you wish prior to
signing this Agreement. You may revoke this Agreement within 7 days of
signing it. Revocation can be made by delivering a written notice of
revocation to Oliver N. Esman, Senior Vice President, Corporate Human
Resources and Information Systems. For this revocation to be effective,
written notice must be received no later than the close of business on the
eighth day after you sign this Agreement. If you revoke this Agreement, it
shall not be effective or enforceable.
You are strongly encouraged to consult with your attorney before signing
this Agreement. It is your decision whether or not to do so. By signing
this Agreement, you acknowledge that (a) you have carefully reviewed and
understand the contents of this Agreement, (b) you have been given
sufficient time to review it with any person of your choosing in order to
determine whether or not to enter into this Agreement and (c) you
acknowledge that you are voluntarily entering into this Agreement.
14. 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.
15. This Agreement is enforceable under the laws of the State of New Jersey.
5
<PAGE>
If you wish to accept this offer under the terms outlined above, please sign
below, date your signature and return the signed document to me.
Sincerely,
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Oliver N. Esman
-----------------------------------
Oliver N. Esman, Senior Vice
President,
Corporate Human Resources
and Information Systems
ACCEPTED AND AGREED AS OF THE
DATE FIRST SET FORTH ABOVE:
/s/ Javier Cayado
------------------------------------
Javier Cayado
6
<PAGE>
Exhibit 10.65
[SCHEIN LETTERHEAD]
December 1, 1999
Mr. Don Britt
10 Riders Run
Newtown Square, PA 19073
Dear Don:
It is my pleasure to extend to you an offer of employment as a key member of the
senior management team. Martin Sperber and the senior management leadership at
Schein believe you will make a substantial contribution to the future success of
the company. The specifics of your offer are described below.
TITLE: Your title will be Senior Vice President of Quality.
REPORTING RELATIONSHIP: You will report to Martin Sperber, Chairman and CEO of
Schein.
BASE SALARY: Your base salary will be $ 350,000 per annum, subject to increase,
not reduction, from time to time.
BONUS: You will be eligible to receive an annual discretionary bonus with a
target award of 30 % of base salary with a range of 0-60% of base salary. This
bonus plan is based on both the performance of the Company and the completion of
certain agreed upon goals. For calendar year 2000 you will be eligible to
receive a bonus in the range of $100,000 to $300,000 should you meet certain
mutually agreed upon goals negotiated between you and Martin Sperber.
ADDITIONAL COMPENSATION: You will receive additional compensation in the amount
of $300,000 earned and payable as follows. The first payment of $104,000 will be
paid during your first week of employment with the Company. If you voluntarily
leave the Company to accept employment elsewhere prior to the end of the first
year of employment, you will repay the Company the first payment. The second
payment of $100,000 will be paid on the first anniversary of your employment.
The third and final payment of $96,000 will be paid on the second anniversary of
your employment. In the event that you voluntarily leave the company prior to
any payment date, you will lose the remaining unpaid balance. If, on the other
hand, prior to the end of the second year your employment is terminated for any
reason whatsoever (including death or permanent disability), other than your
voluntarily terminating employment without
<PAGE>
cause or by the Company for cause, the Company will pay you the remaining
balance. Upon a change in control of the Company, the entire remaining balance
of the additional compensation will be paid by the Company to you.
EMPLOYMENT CONTRACT: The Company will offer you an Employment Contract which
specifies initial salary, benefits and title, including a two year severance
benefit for termination without cause including base salary, target bonus and
immediate vesting of all unvested stock options. A reduction in salary or job
status will also trigger termination of employment benefits.
If there is a change in control and you are terminated or choose not to remain
with the Company, you will receive a payment equal to two years base salary and
target bonus. In addition, all options will immediately vest.
COMPANY CAR: The Company will lease you an automobile with a negotiated sticker
price up to $40,000. The Company will reimburse you for all normal operating
costs including insurance, gas, regular maintenance and repairs. If you choose,
the Company will provide you with a monthly stipend of $1,381, which will allow
you to obtain a car outside the program. To qualify for the monthly stipend, the
Company will require you to maintain a minimum of one million dollars in
liability coverage.
LONG TERM INCENTIVE PLAN: The Company maintains a Stock Option Plan. You will
receive an initial grant of 65,000 fair market options with the price fixed on
your first day of work. In addition, the Company will also grant you 65,000
below market options with a grant price of 50% of the fair market value price on
your first day of work. Options granted under the Schein Pharmaceutical Stock
Option Plan carry a three-year vesting formula and a ten-year term.
RETIREMENT PLAN: The Company has a defined contribution plan and a 401(k).
Annually, the Company makes a discretionary contribution to the Retirement Plan.
In recent years that discretionary contribution has been 5% of eligible
compensation. The Company contribution vests over seven years.
In addition to the ERISA plans described above, the Company offers officers a
Supplemental Retirement Plan that contributes 7% of compensation above the
eligible ERISA maximum compensation of $150,000. This contribution is in the
form of an unfunded deferred account which is governed by the same vesting
formulas as the Retirement plan. The balance in this Plan is credited with 8%
interest per year.
COMPANY BENEFITS: You are eligible for the Company's full benefit program. You
will be eligible to accrue vacation eligibility at the rate of four weeks per
year
<PAGE>
RELOCATION: Your relocation package covers the marketing, sale and if necessary,
the purchase of your home in Pennsylvania by the Company, the closing costs
associated with the purchase of a home in close proximity to Florham Park, NJ,
temporary living and transportation of your household effects from Pennsylvania
to the above mentioned proximity. Your relocation expense will be eligible for
tax assistance as per Company policy.
For a period of three years from your date of hire the Company will provide you
a furnished apartment including utilities and a washer/dryer in close proximity
to the Florham Park, NJ, corporate headquarters.
Our relocation services are managed by Relocation Solutions, Inc. They will
assist in the sale of your existing home if necessary and the purchase/rental of
your new home in New Jersey. To begin you relocation process, please call Ms.
Jody O'Donnell, President of Relocation Solutions at 800/635-0303.
FINANCIAL COUNSELING: The Company offers an annual financial planning benefit
that reimburses participants at the rate of 50% of eligible expenses to a
maximum of $1,500 per year. Covered financial counseling services include tax
preparation, investment advice and estate planning.
This offer is contingent upon a successful drug screening.
Don, we are looking forward to building a long-term relationship with you as a
senior member of the leadership team at Schein. I look forward to your joining
our Company.
Sincerely,
/s/ Oliver Esman
Oliver Esman
Senior Vice President, Human Resources
OE/dt
Enclosure
Accepted: /s/ Don Britt 12/21/99
--------------------- -----------------
Don Britt Date
<PAGE>
(b) Definition of "Cause". As used herein, "Cause" shall mean, during the
Term of this Agreement, the occurrence of any of the following:
(1) the Executive's willful and continued failure to substantially perform
his or her duties under this Agreement for the Corporation or its affiliates;
(2) the commission by the Executive of fraud, misappropriation or
intentional material damage to the property or business of the Corporation; or
(3) the commission of a felony by the Executive.
<PAGE>
Exhibit 10.66
THE RETIREMENT PLAN OF
SCHEIN PHARMACEUTICAL INC.
& AFFILIATES
Amended and Restated as of January 1, 1998
<PAGE>
PREAMBLE
Schein Pharmaceutical, Inc. (the "Company") established the Schein
Pharmaceutical, Inc. Profit Sharing Plan (the "Plan") for the benefit of its
eligible employees effective December 27, 1987. The Plan was subsequently
amended. Effective January 1, 1992, four other plans were merged into the Plan,
Danbury Pharmacal, Inc. 401(k) Plan, Danbury Pharmacal, Inc. Profit-Sharing
Plan, Steris Laboratories, Inc. 401(k) Plan and Steris Laboratories, Inc.
Profit-Sharing Plan, collectively (the "Merged Plans"). Each of the Merged Plans
were either originally effective January 1, 1989 or amended to comply with the
law in effect at the time of the merger. The Plan was also redesignated as The
Retirement Plan of Schein Pharmaceutical, Inc. & Affiliates.
The Plan was again amended and restated in its entirety effective January
1, 1992 in order to comply with the Tax Reform Act of 1986. the Omnibus Budget
Reconciliation Acts of 1989 and 1993, the Revenue Reconciliation Act of 1990 and
the Unemployment Compensation Amendments Act of 1992. Thereafter, the Plan was
amended several times. Effective as of July 1, 1996, the Marsam Pharmaceuticals,
Inc. 401(k) Retirement Savings Plan merged into the Plan.
Effective as of January 1, 1998, the Plan is hereby again amended and
restated in its entirety, in order to comply with certain provisions of the
Small Business Job Protection Act of 1996 and the Taxpayer Relief Act of 1997.
The restated Plan contained herein will apply to participants, or beneficiaries
of such participants, who retire, die or terminate employment at any time on or
after January 1, 1997.
<PAGE>
TABLE OF CONTENTS
Article Contents Page
----
I Definitions 1
II Participation 14
III Participant Salary Reduction 17
IV Employer Contributions 24
V Participant Contributions 34
VI Termination of Service 36
VII Time and Method of Payment of Benefits 42
VIII Withdrawals 48
IX Investment of Contributions 50
X Loans 54
XI Employer Administrative Provisions 57
XII Participant Administrative Provisions 59
XIII Committee Duties With Respect to
Participant's Account 63
XIV Fiduciary Duties and Responsibilities 66
XV Top Heavy Rules 67
XVI Exclusive Benefit, Amendment, and Termination 72
Appendix A - Procedures Regarding Qualified
Domestic Relations Orders 78
<PAGE>
ARTICLE I
DEFINITIONS
Whenever the following words and phrases appear in the Plan, they
shall have the respective meaning set forth below, unless the context clearly
indicates otherwise:
1.01 "Accounting Date" shall be any day that the New York Stock
Exchange is open for business, or any other date chosen by the Committee. The
fair market value of the Trust's assets will be determined on the Accounting
Date. All contributions, earnings and losses under the Plan will be allocated as
of the Accounting Date.
1.02 "Account Balance" shall mean the aggregate of the amount in the
Participant's Salary Reduction Contribution Account, Voluntary Contribution
Account, Rollover Contribution Account, Matching Contribution Account, Historic
Account, Qualified Non-Elective Contribution Account and Base Contribution
Account as of any date, less any Excess Amounts which must be returned to the
Participant in order to avoid exceeding the limitations of Article IV.
1.03 "Annual Addition" shall mean for any Plan Year the sum of (a)
Employer contributions, (b) Employee contributions, (c) forfeitures, and (d)
amounts allocated to an individual medical account, as defined in Section
415(l)(2) of the Code which is part of a pension or annuity plan maintained by
the Employer, and amounts derived from contributions paid or accrued which are
attributable to post-retirement medical benefits allocated to the separate
account of a key employee, as defined in Section 419A(d)(3) of the Code, under a
welfare benefit fund, as defined in Section 419(e) of the Code, maintained by
the Employer.
<PAGE>
1.04 "Base Contribution Account" shall mean the account maintained
for a Participant to record base contributions made by the employer pursuant to
Article IV.
1.05 "Beneficiary" is a person designated by a Participant who is or
may become entitled to a benefit under the Plan.
1.06 "Break in Service" shall mean a Plan Year during which an
Employee completes less than 501 Hours of Service.
1.07 "Code" means the Internal Revenue Code of 1986, as amended.
1.08 "Committee" shall mean the Plan Committee appointed by the
Company to administer this Plan pursuant to Article XIII hereof. In addition to
its other duties, the Committee shall have full responsibility for compliance
with the reporting and disclosure rules under ERISA as respects this Plan. Each
Committee member is designated a Named Fiduciary under the Plan.
1.09 "Company" means Schein Pharmaceutical, Inc.
1.10 "Compensation" shall mean the total remuneration paid by the
Employer to an Employee for services rendered to the Employer as reflected on
Form W-2 for Federal income tax withholding purposes, including salary,
commissions, overtime and bonuses, reduced by reimbursements or other expense
allowances, fringe benefits (cash and non-cash), moving expenses, deferred
compensation (e.g. stock options), and welfare benefits, but including amounts
deferred pursuant to Article III. In the case of any self-employed individual,
Compensation shall mean Earned Income.
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<PAGE>
In addition to other applicable limitations set forth in the Plan,
and notwithstanding any other provision of the Plan to contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA'93 Annual
Compensation Limit. The OBRA'93 Annual Compensation Limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect
for a calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA'93
Annual Compensation Limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference
in this Plan to the limitation under Section 401(a)(17) of the Code shall mean
the OBRA'93 Annual Compensation Limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA'93
Annual Compensation Limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA'93 Annual
Compensation Limit is $150,000.
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<PAGE>
In determining the Compensation of a Participant for purposes of
this limitation, the rules of Section 414(q)(6) of the Code shall apply, except
in applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age 19 before the close of the Plan Year. If, as a result of the application of
such rules the OBRA'93 Annual Compensation Limit is exceeded, then the
limitation shall be prorated among the affected individuals in proportion to
each such individual's Compensation prior to the application of this limitation.
1.11 "Earned Income" shall mean the net earnings from
self-employment in the trade or business with respect to which the Plan is
established, for which personal services of the individual are a material
income-producing factor. Net earnings will be determined without regard to items
not included in gross income and the deductions allocable to such items. Net
earnings are reduced by (1) contributions by the Employer to a qualified plan to
the extent deductible under Section 404 of the Code, and (2) the deduction
allowed to the employer by Section 164(f) of the Code.
1.12 "Effective Date" of this Plan is January 1, 1998.
1.13 "Employee" shall mean any employee of the Employer or of any
other employer required to be aggregated under Sections 414(b), (c), (m), (n) or
(o) of the Code.
1.14 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
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<PAGE>
1.15 "Employer" shall mean the Company and any Participating
Employer which adopts this Plan, as well as any predecessors or successors to
the Employer.
1. 16 "Employment Commencement, Date" shall mean the date on which
the Employee first performs an Hour of Service for the Employer.
1.17 "Enrollment Period" shall mean the twenty-one (21) day period
preceding the P[ILLEGIBLE] Entry Date
1.18 "Highly Compensated Employee" shall mean an Employee who:
(a) at any time during the Plan year or the preceding year is a more
than 5% owner of the Employer (applying the constructive
ownership rules of Section 318 of the Code); or
(b) for the preceding year has Compensation in excess of $80,000 (as
adjusted by the Commissioner of Internal Revenue for the relevant
year).
The term "Highly Compensated Employee" also includes any former
Employee who separated from service (or has a deemed separation from service, as
determined under Treasury regulations) prior to the Plan Year, performs no
service for the Employer during the Plan Year, and was a Highly Compensated
Employee either for the separation year or any Plan Year ending on or after his
55th birthday. If the former Employee's separation from service occurred prior
to January 1, 1987, he is a Highly Compensated Employee only if he satisfied
clause (a) of this Section 1.18 or received Compensation in excess of $550,000
during: (1) the year of his separation from service (or the prior year); or (2)
any year ending after his 54th birthday.
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<PAGE>
The Committee shall also have discretion to use any other definition
or "Highly Compensated Employee" promulgated by the Secretary of Treasury.
1.19 "Historic Account" shall mean the account maintained for a
Participant to record any interest as of December 31, 1991 in any Merged Plan,
and earnings and losses thereon.
1.20 "Hour of Service" shall mean:
(a) Each hour of service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled
to payment, for the performance of duties during the Plan Year. The
Committee shall credit Hours of Service under this subsection (a) to
the Employee for the Plan Year in which the Employee performs the
duties, irrespective of when paid;
(b) Each hour of service for back pay, irrespective of mitigation of
damages, which the Employer has agreed to pay, or for which the
Employee has received an award. The Committee shall credit Hours of
Service under this subsection (b) to the Employee for the Plan
Year(s) to which the award of the agreement pertains, rather than
for the Plan Year in which the award, agreement or payment is made;
and
(c) Each hour of service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled
to payment (irrespective of whether the employment relationship is
terminated), for reasons other than for the performance of duties
during a Plan Year, such as Leave of Absence, vacation, holiday,
sick leave, illness, incapacity (including disability), layoff, jury
duty. Military Leave of Absence, or Maternity and Paternity Leave.
The Committee shall not credit more than five hundred one (501)
Hours of Service under this subsection (c) to an Employee on account
of any single continuous period during which the Employee does not
perform any duties (whether or not such period occurs during a
single Plan Year). Notwithstanding the above, the Committee shall
credit an Employee with a Military Leave of Absence to the extent
required by law. The Committee shall credit Hours of Service under
this subsection (c) in accordance with the rules of subsections (b)
and (c) of Department of Labor Reg. ss. 2530.200(b)-2, which the
Plan, by this reference, specifically incorporates in full within
this subsection (c).
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<PAGE>
The Committee shall nor credit an Hour of service under more than
one of the above subsections. Furthermore, if the Committee to credit Hours of
Service to an Employee for the twelve month period beginning with the Employee's
Employment Commencement Date or with an anniversary of such date, then such
twelve month period shall be substituted for the term "Plan Year" wherever the
latter term appears in this Section 1.20. The Committee shall resolve any
ambiguity with respect to the crediting of an Hour of Service in favor of the
Employee.
The Committee shall credit every Employee compensated on an hourly
basis with Hours of Service on the basis of the "actual" method. For purposes of
the Plan, "actual" method means the determination of Hours of Service from
records of hours worked and hours for which the Employer makes payment or for
which payment is due from the Employer.
Employees compensated on other than an hourly basis and for whom
hours are not required to be counted and recorded by any other federal law, such
as the Fair Labor Standards Act, shall be credited with forty-five (45) hours
per week for any week during which the Employee is credited with one (1) Hour of
Service.
1.21 "Investment Committee" shall mean the Committee appointed by
the Company to manage the assets of the Plan pursuant to Articles IX and XIII
hereof. Each Investment Committee member is designated a Named Fiduciary under
the Plan.
1.22 "Leased Employee" shall mean an individual (who otherwise is
not an Employee of the Employer) who, pursuant to a leasing agreement between
the Employer and any other person, has performed services for the Employer (or
for the Employer and any persons
- 7 -
<PAGE>
related to the Employer within the meaning of Section 414(n)(6) of the Code) on
a substantially full time basis for at least one year and who performs services
historically performed by employees in the Employer's business field. The Plan
does not treat a Leased Employee as an Employee of the Employer.
1.23 A "Leave of Absence" shall mean any absence approved by the
Employer, other than absence which qualifies as a Maternity and Paternity Leave
or Military Leave of Absence, including but not limited to, sick or disability
time.
1.24 "Matching Contribution Account" shall mean the account
maintained for a Participant to record matching contributions made by the
Employer pursuant to Article IV.
1.25 "Maternity and Paternity Leave" shall mean an absence from
work for any period by reason of the Employee's pregnancy, birth of the
Employee's child, placement of the child with the Employee in connection with
the adoption of such child, or any absence for the purpose of caring for such
child for a period immediately following the birth or placement. For this
purpose, Hours of Service shall be credited for the computation period in which
the absence from work begins, only if credit therefore is necessary to prevent
the Employee from incurring a one year Break in Service, or in the immediately
following computation period. The Hours of Service credited for a Maternity and
Paternity Leave shall be those which would have normally been credited but for
such absence, or, in any case in which the Committee is unable to determine such
hours normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a Maternity and Paternity Leave shall not
exceed 501.
- 8 -
<PAGE>
1.26 "Merged Plans" shall mean Danbury Pharmacal, Inc. 4014(k) Plan,
the Danbury Pharmacal, Inc. Profit-Sharing Plan, the Schein Pharmaceutical, Inc.
Profit-Sharing Plan, the Steris Laboratories, Inc. 401(k) Plan, the Steris
Laboratories, Inc. Profit-Sharing Plan and the Marsam Pharmaceuticals, Inc.
401(k) Retirement Savings Plan or any of them individually.
1.27 "Military Leave of Absence" shall mean the absence of an
Employee in military service for the United States of America, provided that the
Employee returns to the employ of the Employer prior to the end of any period
prescribed by the laws of the United States during which he has reemployment
rights with the Employer.
1.28 "Named Fiduciary" shall mean a person designated a fiduciary
under this Plan.
1.29 "Nonforfeitable" shall mean a Participant's or Beneficiary's
unconditional claim, legally enforceable against the Plan, to the Participant's
Account Balance.
1.30 "Normal Retirement Date" shall mean the date the Participant
attains age 65 and five (5) Years of Service.
1.31 "Owner-Employee" shall mean an individual who is a sole
proprietor, or who is a partner owning more than 10 percent of either the
capital or profits interest of the partnership. If this Plan provides
contributions or benefits for one or more Owner-Employees who control both the
business for which this Plan is established and one or more other trades or
businesses, this Plan and the plan established for other trades or businesses
must, when looked at
- 9 -
<PAGE>
as a single plan, satisfy Sections 401(a) and (d) of the Code for the employees
of this and all other trades or businesses.
If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a plan which
satisfies Sections 401(a) and (d) of the Code and which provides contribution
benefits not less favorable than provided for Owner-Employees under this plan.
If an individual is covered as an Owner-Employee under the plans of
two or more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions or benefits of the
employees under the plan of the trades or businesses which are controlled must
be as favorable as those provided for him under the most favorable plan of the
trade or business which is not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two
or more Owner-Employee, will be considered to control a trade or businesses if
the Owner-Employee, or two or more Owner-Employees together:
(1) own the entire interest in an unincorporated trade or
business, or
(2) in the case of a partnership, own more than 50 percent of
either the capital interest or the profits interest in the
partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or
more Owner-Employees shall be treated as owning any interest in a partnership
which is owned,
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<PAGE>
directly or indirectly, by a partnership which such Owner-Employee, or such two
or more Owner-Employees, are considered to control within the meaning of the
preceding sentence.
1.32 "Participant" is an Employee who is eligible to be and becomes
a Participant in accordance with the provisions of Article II.
l.33 "Participating Employer" shall mean any member of a controlled
group of corporations, as defined in Section 1563(a) of the Code, of which the
Company is a member, which, with the written consent of the Company, adopts
this Plan.
1.34 "Payment Starting Date" shall mean the first day of the first
period for which the Plan pays an amount in any form.
1.35 "Plan" shall mean The Retirement Plan of Schein Pharmaceutical,
Inc. & Affiliates.
1.36 "Plan Entry Dates" shall mean the Effective Date and
thereafter the first day of the first pay period coincident with, or next
following, the date on which an Employee completes Six Months of Service.
1.37 "Plan Year" shall mean the twelve (12) consecutive month period
commencing on January 1 and ending on December 31.
1.38 "Qualified Non-Elective Contribution Account" shall mean the
account maintained for a Participant to record Qualified Non-Elective
Contributions made by the Employer pursuant to Section 3.05.
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<PAGE>
1.39 "Rollover Contribution Account" mean the account maintained for
an Employee to record any Rollover Contributions accepted pursuant to Section
5.02.
1.40 "Salary Reduction Contribution" shall mean the amount by which
the Participant elects to reduce his Compensation which is then contributed to
the Trust by the Employer.
1.41 "Salary Reduction Contribution Account" shall mean the account
maintained for a Participant to record Salary Reduction Contributions made on
his behalf by the Employer.
1.42 "Salary Reduction Agreement" shall mean the agreement between
the Participant and the Employer whereby the Participant directs the Employer to
contribute a designated percentage of his Compensation to the Trust.
1.43 "Self-Employed Individual" shall mean an individual who has
Earned Income for the taxable year from the trade or business for which the Plan
is established or an individual who would have had Earned Income but for the
fact that the trade or business has no net profits for the taxable year.
1.44 "Six Months of Service" shall mean a period of six (6)
consecutive calendar months during which an Employee completes at least 500
Hours of Service.
1.45 A "Temporary Employee" shall mean a Leased Employee, any agent
or an independent contractor.
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<PAGE>
1.46 "Trust" shall mean the trust created under the Plan, known as
the Henry Schein, Inc. Affiliates 401(k) Trust. Effective July 1, 1994, the
Trust is known as the Employee Benefit Plan Trust, as well as any successor
thereto.
1.47 "Trust Fund" shall mean all property of every kind held or
acquired by the Trustee pursuant to this Plan. Trust assets will be valued at
fair market value.
1.48 "Trustee" shall mean the person or entity appointed as trustee
under the governing Trust document.
1.49 "Voluntary Contribution Account" shall mean the account
maintained for a Participant to record any voluntary contributions made by the
Participant pursuant to Section 5.01 and any amount recharacterized as voluntary
contributions.
1.50 "Year of Service" shall mean a twelve-month period, beginning
on an Employee's date of hire or any anniversary thereof, during which an
Employee has at least one thousand (1,000) Hours of Service. For purposes of
eligibility and vesting, service with SB Pharma, Ltd. shall be considered to be
service with the Company.
1.51 Wherever used herein, the singular shall include the plural
and the masculine shall include the feminine and the neuter, unless the context
clearly indicates otherwise.
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<PAGE>
ARTICLE II
PARTICIPATION
2.01 ELIGIBILITY. Each Participant in the Plan or in any of the
Merged Plans as of December 31, 1991 who is in the employ of the Employer on the
Effective date shall become a Participant on the Effective Date. Each other
Employee shall become a Participant on the Plan Entry Date.
Notwithstanding the foregoing, any person who is a non-resident
alien (within the meaning of Code Section 7701(b)), a Temporary Employee or is
a member of a collective bargaining unit is excluded from participation. If a
Participant does not terminate employment but becomes a member of a collective
bargaining unit, then unless the applicable collective bargaining agreement
provides otherwise, during the period that such Participant is a member of a
collective bargaining unit, the Committee shall limit that Participant's sharing
in the allocation of Employer contributions and Participant forfeitures, if any,
under the Plan to the extent of his Compensation paid by the Employer for
services rendered while he is not a member of a collective bargaining unit.
However, during such period, the Participant's Account Balance shall continue
to share fully in Trust Fund earnings and losses.
If an Employee who is not a Participant ceases to be a member of a
collective bargaining unit, he shall participate in the Plan immediately if he
has satisfied the service condition of this Section 2.01 and would have been a
Participant had he not been a member of a collective bargaining unit during his
period of service with the Employer. Furthermore, an Employee shall receive
vesting credit under Article VI for each included Year of Service during
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<PAGE>
his period or service with the Employer without regard to whether the Employee
is a member of a collective bargaining unit.
For purposes of this Section 2.01, an Employee is a member of a
collective bargaining unit if he is included in a unit of Employees covered by
an agreement which the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives and one (1) or more employers if
there is evidence that retirement benefits were the subject of good faith
bargaining between such employee representatives and such employer or employers.
The term "employee representatives" does not include an organization of which
more than one half the members are owners, officers or executives of the
Employer.
If an individual, who is not participating in the Plan by virtue of
his or her not being considered to be an Employee by' the Company, is later
recharacterized as an employee of the Company by the Internal Revenue Service or
other governmental authority, that individual will not be entitled to benefits
hereunder on a retroactive basis. Rather, he or she shall be considered for
eligibility on a prospective basis only.
2.02 MONTH OF SERVICE - PARTICIPATION. For purposes of participation
under Section 2.0l, the Plan shall take into account all of an Employee's
consecutive calendar Months of Service with the Employer. Months of Service
shall include all consecutive calendar Months of Service an Employee completes
with an Employer or any entity which is required to be aggregated with the
Employer pursuant to Sections 414(b), (c), (m), (n), or (o) of the Code.
- 15 -
<PAGE>
2.03 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose
employment terminates shall re-enter the Plan as a Participant on the date of
his re-employment. An Employee who has satisfied the eligibility condition of
Section 2.01, but who terminates employment prior to becoming a Participant,
shall become a Participant in the Plan on the date of his re-employment. Any
other Employee whose employment terminates and who is subsequently re-employed
shall become a Participant in accordance with the provisions of Section 2.01 and
Section 2.02.
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<PAGE>
ARTICLE III
PARTICIPANT SALARY REDUCTION
3.01 SALARY REDUCTION AGREEMENT. A Participant may elect to enter
into a Salary Reduction Agreement with the Employer which will be applicable to
all payroll periods within such Plan Year after the Plan Entry Date following
execution of the Salary Reduction Agreement. The terms of any such Salary
Reduction Agreement shall provide that the Participant agrees to a reduction in
Compensation from the Employer equal to any whole percentage from one percent
(1%) to twelve percent (14%) of his Compensation for each payroll period within
such Plan Year. A Participant who does not elect to enter into a Salary
Reduction Agreement with the Employer shall continue to receive his entire
amount of Compensation in cash.
3.02 CHANGE IN SALARY REDUCTION RATE. A Participant may suspend his
contributions under his Salary Reduction Agreement at any time. A Participant
may amend his Salary Reduction Agreement during any Plan Year as of the first
day of the first pay period in any calendar quarter by filing twenty-one (21)
days advance written notice of any change. Salary Reduction Agreement amendments
shall be effective as of the first day of the first pay period after the
twenty-one (21) days advance notice. Notwithstanding the above limitations, the
Employer may decrease at any time the Salary Reduction Contribution of any
Participant by any percentage, whether whole or fractional, if the Committee
notifies the Employer that such decrease is necessary to ensure that the
limitations of Sections 3.04, 3.05 or 4.07 are met for the Plan Year.
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<PAGE>
3.03 VESTING - SALARY REDUCTION CONTRIBUTION ACCOUNTS. Amounts
credited to a Participant's Salary Reduction Contribution Account shall be 100%
vested and Nonforfeitable at all times. The Committee shall pay all Salary
Reduction Contributions over to the Trust no later than ninety (90) days after
the date the funds were withheld from the Participant's Compensation.
3.04 SALARY REDUCTION CONTRIBUTION LIMITATIONS. Notwithstanding
Section 3.01 hereof, the maximum amount of Compensation a Participant is
permitted to defer during any calendar year is limited to $7,000 as adjusted by
the Secretary of Treasury pursuant to Section 402(g) (5) of the Code. Any amount
that cannot be credited to the Participant's Salary Reduction Contribution
Account due to the foregoing limit shall be paid to the Participant in cash. For
purposes of the limitation of this Section 3.04, the amount contributed to a
Participant's Salary Reduction Contribution Account shall not include any Salary
Reduction Contributions properly returned to the Participant as excess Annual
Additions under Section 4.07.
If a Participant would exceed the limitation of this Section 3.04
when the amount the Participant elects to contribute to his Salary Redaction
Contribution Account is aggregated with the amounts deferred by the Participant
under other plans of arrangements described in Sections 401(k), 408(k), 403(b).
457 or 501(c)(18) of the Code, the Participant may request that the Committee
distribute the excess deferrals to him. Such excess deferrals and income or loss
allocable thereto may be distributed no later than April 15 of the year
following the year in which any such excess deferrals are contributed, to
Participants who claim such allocable deferral contributions for the preceding
calendar year. The Participant's claim shall be in writing; shall
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<PAGE>
be submitted to the committee no later than March 1; shall specify the
Participant's deferral contribution amount for the preceeding calendar year; and
shall be accompanied by the Participant's written statement that if such amounts
are not distributed, such deferral contributions, when added to amounts deferred
under other plans or arrangements described in Sections 401(k), 408(k), 403(b),
457 or 501(c)(18) of the Code, exceed the limit imposed on the Participant in
accordance with the applicable provisions of the Code for the year in which the
deferral occurred. To the extent the excess deferral arises under this Plan when
combined with other plans of the Employer, the individual will be deemed to have
notified the Committee of the excess deferral and requested distribution of the
excess deferral.
The income or loss allocable to the excess deferrals shall be the
sum of (1) the amount determined by multiplying the income or loss allocable to
the Participant's accounts containing the excess deferrals for the calendar year
by a fraction, the numerator of which is the excess deferrals on behalf of the
Participant for the calendar year and the denominator of which is the
Participant's account balance in his accounts containing the excess deferrals as
of the last day of the calendar year in which the excess deferrals are made
without regard to any gain or loss allocable to such total amount for the
calendar year; and (2) ten (10) percent of the amount determined under (1)
multiplied by the number of whole calendar months between the end of the
calendar year in which the excess deferrals were made and the date of
distribution, counting the month of distribution if distribution occurs after
the 15th day of such month. Excess deferrals shall be treated as Annual
Additions, unless such amounts are distributed to the Participant no later than
April 15 of the year following the year in which any such excess deferrals are
contributed.
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<PAGE>
3.05 SALARY REDUCTION DISCRIMINATION LIMITATION. The Employer shall
not permit a Participant to defer an amount of Compensation that would cause the
Plan to not satisfy at least one of the following tests in any Plan Year:
(a) The Actual Deferral Percentage for the group of Highly
Compensated Employees shall not exceed the Actual Deferral
Percentage of all other eligible Employees multiplied by 1.25; or
(b) The actual Deferral Percentage for the group of Highly
Compensated Employees shall not exceed the Actual Deferral
Percentage for all other eligible Employees multiplied by 2.0,
provided that the Actual Deferral Percentage for the group of Highly
Compensated Employees does not exceed the Actual Deferral Percentage
of all other eligible Employees by more than two (2) percentage
points or such lesser amount as the Secretary & the Treasury shall
prescribe to prevent the multiple use of this alternative limitation
with respect to any Highly Compensated Employee.
The Actual Deferral Percentage for a specified group of Employees for a Plan
Year shall be the average of ratios (calculated separately for each Employee in
such group) of (i) the amount of Salary Reduction Contributions actually paid
over to the Trust on behalf of each such Employee for such Plan Year, to (ii)
the Employee's Compensation for that portion of the Plan Year during which the
Employee was eligible to participate. In computing the Actual Deferral
Percentage, Salary Reduction Contributions shall not include any amounts
properly returned to (i) the Participant as excess Annual Additions under
Section 4.07; or (ii) a non-Highly Compensated Employee as excess deferrals
under Section 3.04. The Actual Deferral Percentage for a Participant who makes
no Salary Reduction Contributions during a Plan Year shall be 0%. Contributions
taken into account for purposes of determining the Actual Deferral Percentage
test must be made before the last day of the twelve-month period immediately
following the Plan Year to which the contributions relate. In computing the
Actual Deferral Percentage, the
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<PAGE>
Committee may include in subparagraph (i) above, the amount of any Employee
contributions which are 100% vested when made and are subject to the same
withdrawal restrictions applicable to Salary Reduction Contributions. These
contributions shall be named "Qualified Non-Elective Contributions" and shall be
placed in the Qualified Non-Elective Contribution Account of only the non-
Highly Compensated Employees. If matching contributions are taken into account
for purposes of this subparagraph (i), they must meet the requirements
applicable to Employer contributions in the preceding sentence and cannot be
taken into account under Section 4.02(i). In the event Salary Reduction
Contributions are used to satisfy the Actual Contribution Percentage test under
Section 4.02, the Actual Deferral Percentage test must be satisfied both with
and without inclusion of the Salary Reduction Contributions used in the Actual
Contribution Percentage test.
The Actual Deferral Percentage for any Employee who is a Highly
Compensated Employee for the Plan Year and who has Salary Reduction
Contributions allocated to his account under two or more plans of the Employer
shall be determined as if all such contributions were made under a single plan.
If the above plans have different plan years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated as a single
arrangement.
In the event that this Plan satisfies the requirements of Sections
401(k), 401(a)(4) or 410(b) of the Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of Sections
401(k), 401(a)(4) or 410(b) of the Code only if aggregated with this Plan, then
this Section 3.05 shall be applied by determining the Actual
- 21 -
<PAGE>
Deferral Percentages of Participants as if all such plans were a single plan.
Plans may be aggregated to satisfy Section 401(k) of the Code only if they have
the same plan year.
The Employer shall maintain records sufficient to demonstrate
satisfaction of the Actual Deferral Percentage test. The determination and
treatment of the Actual Deferral Percentage amounts of any Participant shall
satisfy such other requirements as may be prescribed by the Secretary of the
Treasury.
3.06 EXCESS CONTRIBUTIONS. Notwithstanding the foregoing paragraph,
with respect to any Plan Year in which Salary Reduction Contributions on behalf
of Highly Compensated Employees exceed the applicable limit, the Committee shall
reduce the amount of the Excess Contributions made on behalf of the Highly
Compensated Employees (by reducing such contributions in order of actual
Deferral Percentages beginning with the highest), and shall distribute any
Excess Contributions which exist after such reduction, as adjusted by the income
or loss allocable to such Excess Contributions, to the affected Highly
Compensated Employees no later than March 15 of the year following the Plan Year
in which any such Excess Contributions are made, but in no event shall such
amounts be distributed later than the end of the Plan Year following the Plan
Year in which such Excess Contributions were contributed.
For purposes of Section 3.06, "Excess Contributions" shall mean,
with respect to any Plan Year, the aggregate amount of Employer contributions
actually taken into account in computing the Actual Deferral Percentage of the
Highly Compensated Employees over the maximum amount of such contributions
permitted by the Actual Deferral Percentage test. The income or loss allocable
to the Excess Contributions shall be the sum of (1) the amount
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<PAGE>
determined by multiplying the income or loss allocable to the Participant's
accounts containing the Excess Contributions for the Plan Year by a fraction,
the numerator of which is the Excess Contributions on behalf of the Participant
for the Plan Year and the denominator of which is the Participant's account
balance in his accounts containing the Excess Contributions as of the
Accounting Date of the Plan Year in which the Excess Contribution is made
without regard to any gain or loss allocable to such total amount for the Plan
Year; and (2) ten (10) percent of the amount determined under (1) multiplied by
the number of whole calendar months between the end of the Plan Year in which
the Excess Contributions were made and the date of distribution, counting the
month of distribution if distribution occurs after the 15th day of such month.
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<PAGE>
ARTICLE IV
EMPLOYER CONTRIBUTIONS
4.01 MATCHING CONTRIBUTION. The Employer shall make a fixed matching
contribution to each Participant's Matching Contribution Account equal to 50% of
the first 6% of such Participant's Salary Reduction Contribution. The Employer
may also elect to make a discretionary matching contribution. Although the
amount to be contributed for each Plan Year by the Employer as a discretionary
matching contribution under this Section 4.01 is purely discretionary any such
contributed amounts will be allocated to the Matching Contribution Accounts of
each Participant on the basis of a fraction, the numerator of which is equal to
the amount of the Participant's Salary Reduction Contribution, and the
denominator of which is the sum total of all Participants' Salary Reduction
Contributions.
4.02 LIMITATIONS ON MATCHING CONTRIBUTIONS. The Employer shall not
make matching contributions to the Plan which would cause the Plan not to
satisfy at least one of the following tests in any Plan Year:
(a) The Actual Contribution Percentage for the group of Highly
Compensated Employees shall not exceed the Actual Contribution
Percentage for all other eligible Employees multiplied by 1.25; or
(b) The Actual Contribution Percentage for the group of Highly
Compensated Employees shall not exceed the Actual Contribution
Percentage for all other eligible Employees multiplied by 2.0,
provided that the Actual Contribution Percentage for the group of
Highly Compensated Employees does not exceed the Actual Contribution
Percentage for all other eligible Employees by more than two (2)
percentage points or such lesser amount as the Secretary of the
Treasury shall prescribe to prevent the multiply use of this
alternative limitation with respect to any Highly Compensated
Employee.
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<PAGE>
For purposes of this Section 4.02, the Actual Contribution Percentage for a
specified group of Employees shall be the average of the ratios (calculated
separately as a Contribution Percentage for each Employee in the group) of (i)
Employee voluntary contributions and the matching contributions under the Plan
on behalf of the Employee for the Plan Year, to (ii) the Employee's Compensation
for that portion of the Plan Year during which the Employee was eligible to
participate. The Contribution Percentage for a Participant who is not allocated
a matching contribution shall be 0%. For purposes of determining Contribution
Percentages, Salary Reduction Contributions are considered to have been made in
the Plan Year in which contributed to the Trust. Employer contributions will be
considered made for a Plan Year if made no later than the end of the
twelve-month period beginning on the day after the close of the Plan Year. In
computing Contribution Percentages, the Committee may include in subparagraph
(i) above, Salary Reduction Contributions, except for Salary Reduction
Contributions which are properly distributed as excess Annual Additions under
Section 4.07, and base contributions which are 100% vested when made and are not
available for withdrawal under any circumstances.
In computing Contribution Percentages, the Committee shall not
include matching contributions that are forfeited either to corr[ILLEGIBLE]
Excess Aggregate Contributions under Section 4.03 or because the contributions
to which the matching contributions relate are excess deferrals under Section
3.04, Excess Contributions under Section 3.06 or Excess Aggregate Contributions
under Section 4.03.
The Contribution Percentage for any Employee who is a Highly
Compensated Employee for the Plan Year and who has matching contributions
allocated to his account under two or more plans of the Employer shall be
determined as if all such contributions were made
- 25 -
<PAGE>
under a single plan. If the above plans have different plan years, the plans
ending with or within the same calendar year shall be treated as a single plan.
In the event that this Plan satisfies the requirements of Sections
401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of Sections
401(m). 401(a)(4) or 410(b) of the Code only if aggregated with this Plan then
this Section 4.02 shall be applied by determining the Contribution Percentages
of Employees as if all such plans were a single plan. Plans may be aggregated in
order to satisfy Section 401(m) of the Code only if they have the same plan
year.
The determination and treatment of the Contribution Percentage of
any Employee shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury. The Employer shall maintain records sufficient to
demonstrate satisfaction of the Actual Contribution Percentage test.
4.03 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS. Excess
Aggregate Contributions and income allocable thereto shall be distributed no
later than March 15 of the Plan Year following the Plan Year in which any such
Excess Aggregate Contributions were made, but in no event shall the Excess
Aggeregate Contributions be distributed later than the last day of the Plan Year
following the Plan Year in which the contributions giving rise to the Excess
Aggregate Contributions were allocated. If Excess Aggregate Contributions are
distributed more than 2 1/2 months after the last day of the Plan Year in which
such excess amounts arose, a ten (10) percent excise tax will be imposed on the
Employer maintaining the
- 26 -
<PAGE>
Plan with respect to those amounts. Excess Aggregate Contributions shall be
treated as Annual Additions under the Plan.
For purposes of Section 4.03, "Excess Aggregate Contributions" shall
mean, with respect to any Plan Year, the excess of the aggregate Contribution
Percentage amounts taken into account in computing the numerator of the
Contribution Percentage actually made on behalf of Highly Compensated Employees
for such Plan Year, over the maximum Contribution Percentage amounts permitted
by the Actual Contribution Percentage test (determined by reducing contributions
made on behalf of Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages). Such determination
shall be made after first determining Excess Contributions pursuant to Section
3.06 and then determining Excess Aggregate Contributions pursuant to this
Section 4.03. The Excess Aggregate Contributions to be distributed to a
Participant shall be adjusted by the income or loss allocable to such Excess
Aggregate Contribution. The income or loss allocable to the Excess Aggregate
Contributions shall be the sum of (1) the amount determined by multiplying the
income or loss allocable to the Participant's accounts containing the excess
amounts for the Plan Year by a fraction, the numerator of which is the Excess
Aggregate Contributions on behalf of the Participant for the Plan Year and the
denominator of which is the Participants account balance in the accounts
containing the excess amounts as of the Accounting Date of the Plan Year in
which the Excess Aggregate Contribution is made without regard to any gain or
loss allocable to such total amount for the Plan Year; and (2) ten (10) percent
of the amount determined under (1) multiplied by the number of whole calendar
months between the end of the Plan Year in which
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<PAGE>
the Excess Aggregate Contributions were made and the date of the distribution,
counting the date of distribution if distribution occurs after the 15th day of
such month.
4.04 FORFEITURE OF MATCHING CONTRIBUTIONS. In the event a matching
contribution relates to an excess deferral under Section 3.04, or an Excess
Contribution under Section 3.06, the matching contribution and income allocable
thereto shall be forfeited. The income allocable to a matching contribution
shall be determined in accordance with the procedure for determining income
allocable to Excess Aggregate Contributions set forth in Section 4.03. Forfeited
matching contributions and the income allocable thereto shall be used first for
the payment of Plan expenses, and any remaining forfeitures shall be allocated
in the manner described in Section 6.05. The forfeited amounts are treated as
Annual Additions under the Plan for those Participants from whose Accounts the
amounts are forfeited.
4.05 DISCRETIONARY BASE CONTRIBUTIONS. For each Plan Year, the
Employer may contribute to the Trust a discretionary base contribution amount if
the Employer deems it advisable. The Employer's base contribution amount will be
allocated only to Participants who are employed by the Employer on the last day
of the Plan Year and who have been credited with one thousand (1.000) Hours of
Hours of Service for that Plan Year, except that a Participant whose service
with the employer terminates in a Plan Year due to:
(a) retirement on or after reaching his Normal Retirement Date,
(b)death or disability, or
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<PAGE>
(c) upon termination of employment with the Employer pursuant to an
employment reduction plan during the period November 1, 1996 through
and including December 31. 1997,
will also share in the allocation of the Employer's base contribution for the
Plan Year. Notwithstanding the foregoing, if a Participant completes 501 or more
Hours of Service, regardless of whether he is employed on the last day of the
Plan Year, he will receive a base contribution if such contribution is necessary
to enable the Plan to satisfy the minimum coverage test of Section 410(b) of the
Code or the minimum participation test of Section 401(a)(26) of the Code. The
allocation of the Employer's base contribution shall be based on a ratio, the
numerator of which is the Participant's Compensation for the Plan Year, and the
denominator of which is the total Compensation for all Participants for that
Plan Year.
4.06 EMPLOYER CONTRIBUTIONS. This Plan is intended to be a profit
sharing plan to which Employer contributions shall be made without regard to
current or accumulated profits. All contributions by the Employer shall be paid
to the Trustee not later than the time prescribed by law for filing the federal
income tax return of the Employer, including any extensions which have been
granted for the filing of such return.
4.07 LIMITATION ON ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. If an
Employee does not and has not ever received an allocation of Annual Additions,
the amount of Annual Additions which the Committee may allocate under this Plan
on a Participant's behalf for a Limitation Year shall not exceed the Maximum
Permissible Amount. Prior to the determination of the Participant's actual
Compensation for a Limitation
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<PAGE>
Year, the Committee may determine the Maximum Permissible Amount on the basis of
the Participant's estimated annual Compensation for such Limitation Year. The
Committee shall make this determination on a uniform and reasonable basis for
all Participants similarly situated. As soon as is administratively feasible
after the end of the Limitation Year, the Committee shall determine the Maximum
Permissible Amount for the Limitation Year on the basis of the Participant's
Compensation for the Limitation Year.
If, as a result of the Committee's estimation of the Participant's
Compensation, as a result of a forfeiture allocation, or as a result of a
reasonable error in determining the amount of Salary Reduction Contributions
that may be made with respect to any Participant under the limits of Section 415
of the Code, an Excess Amount exists, any Salary Reduction Contributions or
nondeductible voluntary contributions will be returned to the Participant. To
the extent an Excess Amount still exists, the Committee shall reduce any
Employer contributions and forfeitures to the Participant's Accounts at the end
of the limitation Year by the Excess Amount, and any remaining Excess Amount
shall be carried over to the next Limitation Year. If the Participant is not
covered by the Plan as of the end of the Limitation Year, then the Excess Amount
will be allocated to the Accounts of all other Participants in the Plan for the
Limitation Year before any other amounts are allocated for such Limitation Year.
If an Employee is a Participant at any time in both a defined
benefit plan and a defined contribution plan maintained by the Employer, the sum
of the defined benefit plan fraction and the defined contribution plan fraction
for any Plan Year may not exceed 1.0.
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<PAGE>
The defined benefit plan fraction for any Plan Year is a fraction,
the numerator of which is the Participant's projected annual benefit under the
plan (determined at the close of the Plan Year) and the denominator of which is
the lesser of (1) 1.25 multiplied by the dollar limitation in effect for such
Plan Year under Section 415(b)(l)(A) of the Code as adjusted by Section 415(d)
of the Code; or (2) 1.4 multiplied by one-hundred percent (100%) of the
Participant's average monthly Compensation during the three consecutive years
when the total Compensation paid to him was highest, including any adjustment
under Section 415(b) of the Code. Notwithstanding the above, if the Participant
was a participant as of the first day of the first Limitation Year beginning
after December 31, 1986, in one or more defined benefit plans maintained by the
Employer which were in existence on May 6, 1986, the denominator of this
fraction will not be less than 125 percent of the sum of the annual benefits
under such plans which the Participant had accrued as of the close of the last
Limitation Year beginning before January 1, 1987, disregarding any changes in
the terms and conditions of the plan after May 5, 1986. The preceding sentence
applies only if the defined benefit plans individually and in the aggregate
satisfied the requirements of Section 415 for all Limitation Years beginning
before January 1, 1987.
The defined contribution plan fraction for any Plan Year is a
fraction, the numerator of which is the sum of the Annual Additions to the
Participant's Account Balance as of the close of the Plan Year, (including the
Annual Additions attributable to the Participant's nondeductible employee
contributions to all defined benefit plans, whether or not terminated,
maintained by the Employer, and the Annual Additions attributable to all welfare
benefit funds, as defined in Section 419(e) of the Code, and individual medical
accounts, as defined in Section
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<PAGE>
415(1)(2) of the Code, maintained by the Employer) and the denominator of which
is the sum of the applicable maximum amounts of Annual Additions which could
have been made under Section 4l5(c) of the Code for such Plan Year and for all
prior years of such Participant's employment. If the employee was a Participant
as of the end of the first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined contribution plans maintained by the
Employer which were in existence on May 6, 1986, the numerator of this fraction
will be adjusted if the [ILLEGIBLE] of this fraction and the defined benefit
fraction would otherwise exceed 1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of (1) of the excess of the sum of
the fractions over 1.0 times (2) the denominator of this fraction, will be
permanently subtracted from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as of the end of the
last Limitation Year beginning before January 1, 1987, and disregarding any
changes in the terms and conditions of the Plan made after May 5, 1986, but
using the Section 415 limitation applicable to the first Limitation Year
beginning on or after January 1, 1987.
The applicable maximum amount for any Plan Year shall be equal to
the lesser of (1) 1.25 multiplied by the dollar limitation in effect for such
Plan Year under Section 415(c)(1)(A) of the Code; or (2) 1.4 multiplied by
twenty-five percent (25%) of the Participant's Compensation for such Plan Year.
For purposes of this limitation, all defined benefit plans of the Employer,
whether or not terminated, are to be treated as one defined benefit plan and all
defined contribution plans of the Employer, whether or not terminated, are to be
treated as one defined contribution plan.
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<PAGE>
The following definitions apply to this Section only:
(a) "Maximum Permissible Amount" - For Limitation Year, the Maximum
Permissible Amount with respect to any Participant shall be the lesser of
(i) $30,000 (or, if greater, 25% of the dollar limitation in effect under
Section 415(b)(1)(A) of the Code), or (ii) twenty-five percent (25%) of
the Participant's Compensation for the Limitation Year.
(b) "Compensation" - Compensation as defined in Section 1.415-2(d)(10) of
the Treasury Regulations.
(c) "Employer" - The Employer which adopts this Plan as well as any entity
which must be aggregated with the Employer pursuant to Sections 414(b),
(c), (m), (n) or (o) of the Code.
(d) "Excess Amount" - The excess of the Participant's Annual Additions
credited to the Participant's Account for the Limitation Year over the
Maximum Permissible Amount. Any Excess Amount shall be held in a suspense
account which does not participate in the allocation of the Trust's
investment gains and losses. Excess Amounts may not be distributed to
Participants or former Participants, except as otherwise provided in
Section 4.07. Any Excess Amount which is allocated shall be deemed to be
an Annual Addition for the Limitation Year in which it is allocated.
(e) "Limitation Year" - The Plan Year.
(f) "Projected Annual Benefit" - The annual retirement bench (adjusted if
such benefit is expressed in a form other than a straight life annuity or
qualified joint and survivor annuity) to which the Participant would be
entitled under the terms of the plan assuming:
(1) the Participant will continue employment until normal retirement
age under the plan (or current age, if later), and
(2) the Participant's Compensation for the current Limitation Year
and all other relevant factors used to determine benefits under the
Plan will remain constant for all future Limitation Years.
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<PAGE>
ARTICLE V
PARTICIPANT CONTRIBUTIONS
5.01 VOLUNTARY CONTRIBUTIONS. Effective as of the Effective Date no
voluntary contributions may be rendered. All voluntary contributions made after
December 31, 1986 and the income allocable thereto shall be treated as a
separate contract for purposes of the distribution rules under Section 72 of the
Code. The Committee shall maintain records of withdrawals, contributions,
earnings and losses attributable to each contract.
Each Participant shall have the right to make withdrawals of his
voluntary contributions from the Voluntary Contribution Account, upon prior
written notice to the Plan Committee. No withdrawal shall be for less than Two
Hundred Fifty Dollars ($250) and only one withdrawal may be made under this
Section 5.01 in any Plan Year. For purposes of this Section 5.01, the Voluntary
Contribution Account shall be deemed to include the corresponding sub-accounts,
if any of the Historic Account.
Withdrawals shall be made from pre-1987 voluntary contributions
first. After the contract attributable to pre-1987 voluntary contributions is
depleted, withdrawals can be made from the other contract.
5.02 ROLLOVER CONTRIBUTIONS. Any Employee. with the Committee's
consent, may contribute cash to the Trust Fund, if the contribution is a
Rollover Contribution. For this purpose a Rollover Contribution means (a) an
Eligible Rollover Distribution within the meaning of Section 402(c)(4) of the
Code; (b) a contribution by an Employee of a distribution received from the
qualified plan of another employer provided the
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<PAGE>
Employee makes the contribution within 60 days of his receipt of a distribution
which satisfied the requirements of Section 402(a)(5) of the Code before January
1, 1993 and which satisfied the requirements of Section 402(c)(l) after December
31, 1992; (c) a contribution by an Employee under Section 408(d)(3) of the Code
of the balance in an individual retirement account or annuity which amount is
attributable to a prior rollover distribution which satisfied the requirements
of Section 402(a)(5) of the Code before January 1, 1992 and which satisfied the
requirements of Section 402(c)(1) after December 31, 1992; or (d) a direct
transfer of the Employee's interest from the trustee of a qualified plan
maintained by another employer. Before accepting the Rollover Contribution, the
Committee may require the Employee to furnish satisfactory evidence that the
proposed transfer is in fact a Rollover Contribution that the Code permits a
Employee to make to a qualified plan. The Committee shall not accept any amount
from or attributable to any defined benefit plan or other plan which would
require the Plan to offer or to provide automatic survivor benefits under
Section 401(a)(11) of the Code. A Rollover Contribution is not an Annual
Addition under Section 1.03 or Section 4.07.
Rollover Contributions are 100% vested at all times and, effective
April 1, 1994, follow the distribution restrictions applicable to base
contributions.
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<PAGE>
ARTICLE VI
TERMINATION OF SERVICE
6.01 NORMAL RETIREMENT DATE. Upon reaching his Normal Retirement
Date, a Participant shall be fully vested in his Account Balance. A Participant
who remains employed after reaching his Normal Retirement Date shall continue to
fully participate in this Plan. Upon termination of a Participant's employment
for any reason after Normal Retirement Date, the Committee shall direct the
Trustee to commence payment the Participant's Account Balance to him (or to his
Beneficiary if the Participant is deceased); in accordance with the provisions
of Article VII no later than sixty (60) days after the close of the Plan Year in
which the Participant's employment terminates.
6.02 PARTICIPANT DISABILITY. A Participant shall be fully vested
in his Account Balance if he is deemed disabled by the Committee. The Committee
shall direct the Trustee to commence payment of the Participant's Account
Balance to him in accordance with the provisions of Article VII no later than
sixty (60) days after the close of the Plan Year in which the Participant is
deemed disabled. The Plan shall consider a Participant disabled on the date the
Committee determines the Participant, because of a physical or mental
disability, will be unable to perform the duties of his customary position of
employment (or is unable to engage in any substantial gainful activity) for an
indefinite period which the Committee considers will be of long and continued
duration. The Committee may require a Participant to submit to a physical
examination in order to confirm disability. If the disabled Participant is a
member of the Committee, a disinterested third party shall be appointed by the
Committee to evaluate the Committee
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<PAGE>
member's condition. The Committee shall apply the provisions of this Section
6.02 in a non-discriminatory, consistent and uniform manner.
6.03 TERMINATION OF SERVICE PRIOR TO NORMAL RETIREMENT DATE. Upon
termination of a Participant's employment prior to Normal Retirement Date (for
any reason other than death or disability), the Committee shall direct the
Trustee to commence payment of the Participant's vested Account Balance to him
(or to his Beneficiary if the Participant is deceased), in accordance with the
provisions of Article VII, no later than sixty (60) days after the close of the
Plan Year in which the Participant's employment terminates.
6.04 VESTING-EMPLOYER CONTRIBUTIONS. Amounts credited to a
Participant's Matching Contribution Account shall be one hundred percent (100%)
vested at all times. A Participant's Base Contribution Account and Historic
Account attributable to similar Employer base contribution amounts, shall be one
hundred percent (100%) vested upon:
(a) reaching his Normal Retirement Date (if employed by the Employer
on or after that date),
(b) termination of his employment with the employer as a result of
death or disability, or
(c) termination of employment with the Employer pursuant to an
employment reduction plan during the period November 1, 1996 through
and including December 31, 1997.
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<PAGE>
If a Participant's employment with the Employer terminates prior to
his Normal Retirement Date for any reason other than those mentioned above, then
for each Year of Service he shall earn a Nonforfeitable percentage of his Base
Contribution Account as determined by the following vesting schedule:
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<PAGE>
Percent of
Nonforfeitable
Years of Service Date Contribution Account
0 0%
1 10%
2 20%
3 30%
4 40%
5 60%
6 80%
7 or more 100%
Notwithstanding the above, the Account Balance of a Participant who
as of December 31, 1991 was a participant in the Danbury Pharmacal, Inc. Profit
Sharing Plan and who had at least three (3) Years of Service as of such date
shall be 50% vested upon completion of four (4) Years of Service.
For purposes of determining Years of Service under Section 6.04, the
Plan shall take into account all Years of Service an Employee completes with the
Employer or any entity which is required to be aggregated with the Employer
pursuant to Sections 414(b), (c), (m), (n) or (o) of the Code.
Solely for purposes of determining a Participant's Nonforfeitable
percentage of his Base Contribution Account and Historic Account which accrued
prior to a Forfeiture Break in Service, the Plan shall disregard any Years of
Service after the Participant first incurs a Forfeiture Break in Service. A
Participant incurs a Forfeiture Break in Service when he incurs five (5)
consecutive one-year Breaks in Service.
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<PAGE>
If a Participant who has no vested interest incurs a Break in
Service, the Committee shall disregard the Participant's pre-break Years of
Service for purposes of determining his vested interest in his post-break
Account Balance if the number of the Participant's aggregate one-year Breaks in
Service equals or exceeds the greater of five (5) or the number of the
Participant's aggregate Years of Service.
6.05 FORFEITURE AND REPAYMENT. If a Participant terminates
employment before his interest in his Base Contribution Account or Historic
Account are fully vested, that portion which has not vested shall be forfeited
as of the date of his termination of employment. If the value of the
Participant's vested Base Contribution Account or Historic Account is zero, the
Participant shall be deemed to have received a distribution of such vested
Account Balance. If a Participant who has received a distribution of the
Nonforfeitable portion of his Account Balance is rehired before he incurs a
Forfeiture Break in Service, he may repay to the Trustees an amount equal to the
distribution amount. The Participant must make repayment prior to the earlier of
the date he would incur a Forfeiture Break in Service after such distribution,
or five (5) years after the date on which he is reemployed. Such repayment shall
be credited to his Account Balance and an additional amount equal to the
forfeited portion of his Base Contribution Account and Historic Account will
either be allocated to the Participant's Account Balance out of current
forfeitures or contributed by the Employer as of the last day of that Plan Year.
It shall be the duty of the Employer to give timely notification to any rehired
Employee if such Employee is eligible to make a repayment, of his right to make
such a repayment, and of the consequences of not making such repayment. In the
case of a terminated Participant who is deemed to have received a distribution,
or who did not receive a distribution
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of his vested account balance upon termination of employment, and who is rehired
before he incurs a Forfeiture Break in Service, his forfeited Base Contribution
Account and Historic Account shall be restored upon reemployment. In the case of
a terminated Participant who does not receive a distribution of the
Nonforfeitable portion of his Account Balance and whose service resumes after
five (5) consecutive one-year Breaks in Service, the Nonforfeitable Account
Balance shall be maintained as a fully vested subaccount within his Base
Contribution Account and Historic Account.
Subject to any restoration allocation of forfeited amounts on behalf
of a Participant who repays a distribution as described above and the payment of
Plan expenses remaining forfeiture amounts will be allocated to all Participants
employed on the last day of the Plan Year who have completed one thousand
(1,000) Hours of Service on a per capita basis.
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ARTICLE VII
TIME AND METHOD OF PAYMENT OF BENEFITS
7.01 TIME OF PAYMENT OF ACCOUNT BALANCE. Unless the Participant
elects in writing, if distribution has not yet commenced pursuant to Sections
6.02 or 6.03, the Committee shall direct the Trustee to commence distribution of
a Participant's Account Balance determined as of the Accounting Date coincident
with or preceding the event causing distribution no later than sixty (60) days
after the close of the Plan Year in which the later of the following events
occurs:
(a) The date the Participant reaches his Normal Retirement Date, or
(b) The date the Participant terminates service with the Employer.
The Committee shall, however, direct the Trustee to commence distribution no
later than the Participant's Required Beginning Date. The Required Beginning
Date is April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2, notwithstanding the Participant's continued
employment; except that any Participant who attained age 70 1/2 before January
1, 1988, and who is not a five percent owner in the Plan Year in which he
attained age 66 1/2 or any later Plan Year, need not commence receiving payments
hereunder until April 1 of the year following the year in which he actually
retires.
7.02 DEFERRED DISTRIBUTION. A Participant who separates from service
prior to attaining age 70 1/2 may request that the Committee direct the Trustee
to defer commencement of his distribution until his Required Beginning Date.
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7.03 FORMS OF PAYMENT. The Participant may elect one of the optional
forms of payment described herein. The election of such option must be in
writing, in such form as the Committee shall prescribe, signed by the
Participant and filed with the Committee during the 90 day period preceding the
Payment Starting Date. Any election may be revoked by written notice filed with
the Committee at least 30 days prior to the Participant's Payment Starting Date.
Such distribution may commence less than 30 days after the Participant is
advised that he may elect an immediate distribution, provided that:
(a) the Committee clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option), and
(b) the Participant, after receiving the notice, affirmatively
elects a distribution.
The following optional forms of distribution will be available:
(a) a lump sum payment:
(b) installment payments over a period of five years; or
(c) installment payments over a period often years.
7.04 PAYMENT UPON DEATH. If distribution of the Participant's
Account Balance has commenced in accordance with a method selected pursuant to
Section 7.03 and the Participant dies before his entire interest is distributed
to him, the remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution selected by the Participant as of
his date of death.
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If a Participant dies prior to the commencement of distribution of
his Account Balance, distribution of his Account Balance to his designated
Beneficiary shall be completed by December 31 of the calendar year containing
the fifth anniversary of his death, unless one of the following exceptions
apply:
(a) If the Participant's Account Balance is payable to or for the
benefit of a designated Beneficiary, it may be distributed over a
period not extending beyond the life expectancy of such Beneficiary
provided such distribution commences no later than the December 31
following the close of the calendar year in which the Participant's
death occurred.
(b) In the event that the Participant's spouse is his designated
Beneficiary, distribution to the spouse must commence no later than
the later of the December 31 of the calendar year in which the
deceased Participant would have attained age 70 1/2 had he survived
or the December 31 following the close of the calendar year in which
the Participant's death occurred. If the surviving spouse dies
before distribution to such spouse has commenced, then the five year
distribution requirement of this Section shall apply as if the
spouse were the Participant.
If the Participant has not designated a method of distribution in
accordance with (a) or (b) above, the Participant's designated Beneficiary must
select the method of distribution no later than the earlier of (1) December 31
of the calendar year in which distributions would be required to begin under
this action, or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the Participant. If the Participant has no
designated Beneficiary, or if the designated Beneficiary does not elect a method
of distribution, distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
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For purposes of this Section, any amount paid to a child of the
Participant will be treated as if it had been paid to the surviving spouse if
the amount becomes payable to the surviving spouse when the child reaches the
age of majority. For purposes of this Section only, distribution of a
Participant's interest is considered to begin on the Participant's Required
Beginning Date (or, if (b) above is applicable, the date distribution is
required to begin to the surviving spouse).
If the Trustee makes distribution in accordance with the exceptions
in either clause (a) or (b), the minimum distribution for a calendar year equals
the Participant's Nonforfeitable Account Balance as of the latest Accounting
Date preceding the beginning of the calendar year (adjusted by distributions
made after the Accounting Date but prior to the end of the calendar year),
divided by the designated Beneficiary's life expectancy without recalculation.
The Committee shall use the unisex life expectancy multiples under Treasury
regulation Section 1.72-9 for purposes of applying this paragraph. In construing
this Section 7.04, the method of distribution to the Participant's Beneficiary
must satisfy Section 401(a)(9) of the Code and the applicable Treasury
regulations.
7.05 MINIMUM DISTRIBUTION REQUIREMENTS. Notwithstanding anything
else to the contrary herein, the Committee may not direct the Trustee to
distribute the Participant's Nonforfeitable Account Balance, nor may the
Participant elect to have the Trustee distribute his Account Balance over a
period extending beyond the Participant's life expectancy or over a period
extending beyond the joint life and last survivor life expectancy of the
Participant and his designated Beneficiary. The minimum distribution for a
calendar year equals Participant's Nonforfeitable Account Balance as of the most
recent Accounting Date
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preceding the calendar year (adjusted for allocations of contributions,
forfeitures and distributions made after the Accounting Date but prior to the
end of the calendar year, if applicable), divided by the applicable life
expectancy or, if the Participant's spouse is not his designated Beneficiary,
the applicable divisor determined from the table set forth in Q&A-4 of Section
1.401(a)(9)-2 of the proposed regulations. The applicable life expectancy shall
be the life expectancy (or joint and last survivor expectancy) calculated using
the attained age of the Participant (or designated Beneficiary) as of the
Participant's (or designated Beneficiary's) birthday in the first distribution
calendar year reduced by one for each calendar year which elapsed since the
date life expectancy was first calculated. Applicable life expectancies will be
determined under the unisex life expectancy multiples under Treasury regulation
Section 1.72-9, and will not be recomputed. The minimum distribution required
for the Participant's first distribution calendar year must be made on or before
the Participant's Required Beginning Date. The minimum distribution for other
calendar years, including the minimum distribution for the distribution calendar
year in which the Participant's Required Beginning Date occurs, must be made on
or before December 31 of that distribution calendar year. The first distribution
calendar year is the calendar year immediately preceding the calendar year which
contains the Participant's Required Beginning Date. All distributions under the
Plan must be made in accordance with Section 401(a)(9) of the Code and the
Treasury regulations thereunder. To the extent provisions of this Plan are
inconsistent with Section 40l(a)(9) of the Code, Section 401(a)(9) of the Code
will override such provisions.
7.06 IMMEDIATE DISTRIBUTION If the Participant's Nonforfeitable
Account Balance is $3,500 or less, including voluntary contributions, if
applicable, the
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Committee will immediately distribute such amount to the Participant without his
consent upon his termination of employment. Effective as of January 1, 1998, the
preceding reference to $3,500 will be changed to $5,000.
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ARTICLE VIII
WITHDRAWALS
8.01 HARDSHIP WITHDRAWAL. If an Employee elects to withdraw all or
any part of his Rollover, Salary Reduction Contribution Account, Qualified
Non-Elective Contribution Account, Nonforfeitable Base Contribution Account and
his Matching Contribution Account prior to the date he attains age 59 1/2, such
withdrawal will require the consent of the Committee and such consent shall
be given only if, under uniform rules of application, the Committee determines
that the purpose of the withdrawal is to meet heavy and immediate financial
needs of the Participant, the amount of the withdrawal does not exceed such
financial needs, and the amount of the withdrawal is not reasonably available
from the other resources of the Participant. Permitted withdrawals include
distributions for (1) payment of college or graduate school tuition and related
educational fees for college or graduate school for the next 12 months for the
Participant, the Participant's spouse, children or dependents: (2) costs
directly related to the purchase of a principal residence for the Participant,
excluding mortgage payments; (3) payments necessary to prevent the Participant's
eviction from, or foreclosure on the mortgage of, the Participant's principal
residence: and (4) expenses for medical care, to the extent not covered by
instance, which have either been previously incurred by the Participant, the
Participant's spouse or dependents or are necessary for the Participant, the
Participant's spouse or dependents to obtain medical care. Other withdrawals
will be approved by the Committee on the basis of uniform, nondiscriminatory
standards.
The foregoing definition of hardship may be altered by the
Committee, as may be time, amount and manner of distributions under this
Section, to the extent required by the Code
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or applicable regulations. No distributions may be made under this Section with
respect to income allocable to Rollover, Salary Reduction Contribution Account,
Qualified Non-Elective Contribution Account, Nonforfeitable Base Contribution
Account or the Matching Contribution Account amounts. A hardship withdrawal must
be at least $250 and limited to only one in any Plan Year.
8.02 AGE 59 1/2 WITHDRAWALS. A Participant may withdraw any portion
of his Salary Reduction Contribution Account and Matching Contribution Account
and his Qualified Non-Elective Contribution Account for any reason after
attainment of age 59 1/2. Effective June 1, 1996. a Participant may also
withdraw any portion of his Rollover Contribution Account for any reason after
attainment of age 59 1/2. Effective June 1, 1996, a Participant may also
withdraw any portion of his Rollover Contribution Account for any reason after
attainment of age 59 1/2. Only one such withdrawal will be permitted in any Plan
Year.
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ARTICLE IX
INVESTMENT OF CONTRIBUTIONS
9.01 FUNDING VEHICLE. The Employer has entered into a Trust
Agreement with the Trustee providing for the establishment of a Trust to which
all Salary Reduction Contributions, matching contributions, base contributions,
Qualified Non-Elective Contributions, rollover contributions, historic
contributions and voluntary contributions, if any, shall be contributed and from
which all benefits under the Plan shall be paid.
9.02 INVESTMENT FUNDS. The Trustee may, pursuant to the direction of
the Investment Committee, establish and maintain separate subfunds into which
the Participants may direct the investment of their Accounts.
9.03 INVESTMENT ELECTIONS. If the Trustee maintains separate
subfunds pursuant to Section 9.02, each Participant's Account Balance
attributable to Salary Reduction Contributions, matching Contributions, rollover
contributions and voluntary contributions shall be allocated to any or all of
the subfunds, in multiples of five percent (5%), as the Participant shall elect.
Effective as of October 1, 1997, the above reference to five percent (5%) is
changed to one percent (1%). Such election shall be made by the Participant in
writing and shall be filed with the Committee. A Participant's initial election
shall be made during the Enrollment Period preceding his entry into the Plan.
Separate accounts will be maintained reflecting the interest of each Participant
attributable to each subfund.
9.04 CHANGE IN INVESTMENT ELECTION. Any investment election made by
the Participant shall be deemed to be a continuing election until changed. A
Participant
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may change his investment elections on a daily basis. Such change shall be
effective only with respect to future amounts deferred from the Participant's
Compensation, future matching contributions, and future rollover contributions.
9.05 TRANSFERS BETWEEN FUNDS. A Participant may direct the Trustee
to transfer designated amounts from one subfund to another. A Participant may
not direct any money in the Historic Account. A Participant may transfer all
amounts on a daily basis. Notwithstanding any provision in this Plan to the
contrary, investment elections, changes or transfers, loans, withdrawals
decisions, and any other decision or election by a Participant (or Beneficiary)
under this Plan may be accomplished by electronic or telephonic means which are
not otherwise prohibited by law and which are in accordance with procedures
and/or systems permitted by the Committee.
9.06 INVESTMENT OF EARNINGS. All earnings (whether denominated
income, capital gain or otherwise) from investments in each subfund shall be
reinvested in the same subfund.
9.07 LOAN FUNDS. Notwithstanding anything in this Article IX to the
contrary, any Employee who borrows from the Trust Fund pursuant to Article X
will be treated as having directed the Trustee to allocate such portion of his
Account Balance as is equal to the borrowed amount to the Employee's Loan Fund.
The Loan Fund, and the promissory note executed by the Employee held therein,
remains a part of the Trust Fund, but to the extent of the loan outstanding at
any time, the borrowing Employee's Loan Fund alone shares in any interest paid
on the loan, and it alone bears any expense or loss it incurs in connection with
the loan. The
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Trustee may retain in an interest-bearing account any interest and principal
paid on the borrowing Employee's loan in the Loan Fund on behalf of the
borrowing Employee until the Trustee deems it appropriate to add the amount paid
to the Employee's Loan Fund under the Plan (plus interest, if any) back to the
Employee's Account Balance, at the same time reducing the amount treated as
having been allocated to the Employee's Loan Fund by the amount of principal
payments made with respect to the loan.
9.08 UNIT ACCOUNTING. The Trustee or Administrative Delegate may,
for administrative purposes, establish unit values for one or more investment
fund (or any portion thereof) and maintain the accounts setting forth each
Participant's interest in such investment fund (or any portion there) in terms
of such units, all in accordance with such rules and procedures as such Trustee
or Administrative Delegate shall deem to be fair, equitable and administratively
practicable. In the event that unit accounting is thus established for any
investment fund (or any portion thereof) the value of a Participant's interest
in that investment fund (or any portion thereof) at any time shall be an amount
equal to the then value of a unit in such investment fund (or any portion
thereof) multiplied by the number of units then credited in the Participant.
9.09 PASS-THROUGH OF VOTING RIGHTS.
(a) To the extent that a Participant directs the investment of
some portion of his Account Balance under this Article in Employer Stock, all
voting, tender, and similar rights shall be passed through to the Participant,
and the Participant shall direct the Trustee as to how said rights shall be
exercised. With respect to the portion of the Participant's
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account which has been invested in the other investment options offered under
the Plan, the Trustee shall vote all interests held by the Trust in investment
options other than Employer Stock and shall do so in the sole interest of
Participants and Beneficiaries. For purposes of this Section, "Employer Stock"
shall mean qualifying employer securities of the Company (as defined in Section
408(e) of ERISA).
(b) Procedures shall be established and maintained to ensure
the confidentiality of all information regarding Participants' purchase,
holding, and sale of such securities of the Company under this Article as well
as Participants' exercise of appurtenant rights under this Section, except to
the extent necessary to comply with federal or state law not preempted by ERISA.
The Trustee is hereby designated as the fiduciary responsible for ensuring that
these confidentiality procedures are adequate and are followed, and shall be
further responsible for appointment of an independent fiduciary, who shall not
be an affiliate of the Employer, to carry out all activities relating to
securities of the Company under this article which the Trustee determines
involve the potential for undue employer influence with respect to the direct or
indirect exercise of shareholder rights.
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ARTICLE X
LOANS
10.01 LOAN APPLICATIONS. An Employee or a Qualified Beneficiary may
make application to the Trustees to borrow from the Trust Fund, and the Trustees
may, in their sole discretion, permit such loan, provided that such loans shall
be made available to all such Employees and Qualified Beneficiaries on a
reasonably equivalent basis. For purposes of determining the maximum loan amount
available to an Employee, amounts credited to the Employee's Base Contribution
Account will be considered to be a part of his or her Account Balance for
purposes of Section 10.02(a)(ii) only if the Employee demonstrates that the
reason for the requested loan satisfies the conditions for hardship withdrawal
under Section 8.01. A Qualified Beneficiary for this purpose, is a designated
Beneficiary who is a party-in-interest as defined in Section 3(14) of the
Employee Retirement Income Security Act of 1974, as amended. The authority
herein granted to the Trustees to approve loans from the Trust Fund shall not be
used as a means of distributing benefits before they otherwise become due. A
loan must be in the amount of at least two hundred fifty dollars ($250), and
will be made only in multiples of fifty dollars ($50). Only one loan will be
granted in any twelve consecutive month period, and no more than two loans may
be outstanding at any time.
10.02 LOAN TERMS AND CONDITIONS.
(a) The aggregate amount of all such loans to an Employee from this
Plan shall not, at the time any such loan is made, exceed the lesser of (i)
$50,000 reduced by the excess (if any) of the highest outstanding balance of
loans from the Plan during the one period ending on the day before the date on
which such loan was made, over the outstanding balance of loans from the Plan on
the date on which such loan was made, or (ii) fifty percent (50%) of the vested
portion of the Employee's Account Balance at the time of the making of such
loan. For purposes of this limitation all loans from all qualified plans
maintained by the
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Employer or by any entity which is required to be aggregated with the Employer
pursuant to Sections 414(b). (c), (m) or (o) of the Code must be aggregated.
(b) Loans shall be made pursuant to notes approved by the Trustees
which shall bear a reasonable interest rate equal to the prevailing rate charged
by lenders for similar loans and shall specify the time and manner of
repayment, as determined by the Trustees.
(c) Loans shall not be made available to Employees who are Highly
Compensated Employees in an amount greater than the amount made available to
other Employees.
(d) For all loans, the Employee must consent in writing within the
90 day period before the making of the loan, to the possible reduction in the
Employee's Account Balance if the terms of the loan are not properly fulfilled
and fully executed. The consent must be in writing, must acknowledge the effect
of the loan, and must be witnessed by a Plan representative or notary public. A
new consent shall be required if the Account Balance is used for renegotiation,
extension, renewal, or other revision of the loan.
Notwithstanding any other provisions of this Plan, the portion of
the Employee's vested Account Balance used as a security interest held by the
Plan by' reason of a loan outstanding to the Employee shall be taken into
account for purposes of determining the amount of the Account Balance payable at
the time of death or distribution, but only if the reduction is used as
repayment of the loan. If less than 100% of the Employee's vested Account
Balance (determined without regard to the preceding sentence) is payable to the
Beneficiary, then the Account Balance shall be adjusted by first reducing the
vested Account Balance by the amount of the security used as repayment of the
loan, and then determining the benefit payable to the Beneficiary.
(e) All loans shall be adequately secured. A loan shall be deemed
to be adequately secured if the aggregate amount of all such loans to an
Employee does not exceed fifty percent (50%) of the vested amount of the
Employee's Account Balance at the time of the making of such loan. If, at any
time, the aggregate amount outstanding loans to an Employee does exceed that
limitation, then the Trustees shall require the Employee to repay the amount of
principal balance due on such loans to an amount not in excess of such
limitation, or to adequately secure with collateral other than the vested amount
of the Employee's Account Balance the amount by which such loans exceed the
limitation. The Trustees shall have sole discretion to determine the nature and
amount of security required.
(f) The period for repayment of a loan issued pursuant to this
Section must, by the terms of the note, not exceed five (5) years.
Notwithstanding the above, if the purpose or use of the loan, as determined at
the time of issuance, is to acquire any dwelling unit which within a reasonable
time is to be used as the principal residence of the Employee, the period for
repayment of the loan may be extended to ten (10) years. Repayment of a loan
shall be made through payroll deduction, or if an Employee's employment
terminates, the Employee may elect, in the manner prescribed by the Trustees, to
make loan repayments directly to the Plan on a
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substantially level basis (not less frequently than quarterly) within the time
period set forth in the promissory note representing the loan. Any loan may be
prepaid in full or part at any time. Any loan shall, by its terms, require that
repayment to principal and interest be amortized at least quarterly over the
period of the loan on a substantially level basis.
(g) In the event the Employee's employment terminates, the loan
shall be accelerated and any amount due shall be paid from the Loan Fund, unless
the Employee elects, in the manner prescribed by the Trustees to make, and does
make in accordance with such election, loan repayments on a substantially level
basis to the Plan (not less frequently than quarterly). Any loan shall be
subject to such additional acceleration provisions as shall be determined by the
Trustees to be commercially reasonable.
(h) In the event of default of an active Employee, foreclosure on
the note and attachment of security will not occur until a distributable event
occurs in the Plan. In the event of default of a terminated Employee, the
Trustee shall deduct the total amount of the loan outstanding and any interest
and other charges then due and owing from the terminated Employee's Loan Fund
securing the Loan.
(i) No loans will be made to any shareholder-employee or
Owner-Employee. For purposes of this requirement, a shareholder-employee means
an employee or officer of an electing small business (Subchapter S) corporation
who owns (or is considered as owning within the meaning of Section 318(a)(1) of
the Code), on any day during the taxable year of such corporation, more than 5%
of the outstanding stock of the corporation.
(j) Except to the extent otherwise prohibited by law the deduction
of the loan shall be made from the Employee's Account Balance in the following
order of priority Rollover Contribution Account, Salary Reduction Contribution
Account, Matching Contribution Account, and Base Contribution Account. For
purposes of this Section 10.02(j), the Rollover Contribution Account, Salary
Reduction Contribution Account, Matching Contribution Account and Base
Contribution Account shall be deemed to include the corresponding subaccounts,
if any, of the Historic Account.
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ARTICLE XI
EMPLOYER ADMINISTRATIVE PROVISIONS
11.01 INFORMATION TO COMMITTEE. The Employer shall supply current
information to the Committee as to the name, date of birth, date of employment,
annual Compensation, leaves of absence and date of termination of employment of
each Employee who is, or who will be eligible to become, a Participant under the
Plan, together with any other information which the Committee considers
necessary. The Employer's records as to the current information the Employer
furnishes to the Committee shall be conclusive as to all persons.
11.02 NO LIABILITY. The Employer assumes no obligation or
responsibility to any of its Employees, Participants or Beneficiaries for any
act of, or failure to act, on the part of its Committee or the Trustees.
11.03 INDEMNITY OF COMMITTEE. The Employer indemnifies and holds
harmless the members of the Committee, and each of them, from and against any
and all loss resulting from liability to which the Committee or members of the
Committee may be subjected by reason of any act or conduct (except willful
misconduct or gross negligence) in their official capacities in the
administration of this Plan or Trust or both, including all expenses reasonably
incurred in their defense in case the Employer fails to provide such defense.
The indemnification provisions of this Section 11.03 shall not relieve any
Committee member from any liability he may have under the Code or ERISA for
breach of a fiduciary duty.
11.04 FACILITY OF PAYMENT. If satisfactory evidence is received that
a person entitled to receive any benefits is physically incapable or mentally
incompetent to receive
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such payment and give a valid release therefor, and another person or
institution has been maintaining or has custody of such person, payment of such
benefit may be made to such person or institution and the release of such person
or institution shall be a valid and complete discharge of any liability under
this Plan.
11.05 MISSING RECIPIENTS. If the Committee is unable, within three
years after any benefit becomes due under the Plan to a Participant or
Beneficiary, to make payment because the identity and/or whereabouts of such
person cannot be ascertained notwithstanding the mailing of due notice to any
last known address or addresses, the Committee shall direct that any such
benefits shall be forfeited and used to reduce future contributions; provided,
however, that such benefit shall be restored (in an amount equal to the amount
forfeited) upon proper claim made by such Participant or Beneficiary prior to
the termination of the Plan. In the event a proper claim is made, benefits under
this Section shall be restored first from forfeitures, and then from additional
Employer contributions made in order to restore such benefits.
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ARTICLE XII
PARTICIPANT ADMINISTRATIVE PROVISIONS
12.01 BENEFICIARY DESIGNATION. The Beneficiary of a married
Participant shall be the surviving spouse. A married Participant may designate
a Beneficiary other than the spouse only if the Participant obtains the written
consent of the spouse to the alternate beneficiary, the spouse acknowledges the
effect of the consent and the spouse's signature is witnessed by a notary public
or Plan representative. Subject to the foregoing limitation, any Participant may
from time to time designate, in writing, any person or persons, contingently or
successively, to whom the Trustees shall pay his Account Balance in the event of
his death. The Committee shall prescribe the form for the written designation of
Beneficiary and, upon the Participant's filing the form with the Committee, it
effectively shall revoke all designations filed prior to that date by the same
Participant.
12.02 NO BENEFICIARY DESIGNATION. If a Participant fails to name a
Beneficiary, or if the Beneficiary named by a Participant predeceases him, then
the Trustees shall pay the Participant's Account Balance (subject to the
provisions of Articles VI and VII) in the following order of priority to:
(a) The Participant's surviving spouse:
(b) The Participant's surviving children, including adopted
children, in equal shares;
(c) The Participant's surviving parents, in equal shares; or
(d) The legal representative of the estate of the last to die of the
Participant and his Beneficiary.
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The Committee shall direct the Trustees as to whom the Trustees
shall make payment under this Section 12.02.
12.03 PERSONAL DATA TO COMMITTEE. Each Participant and each
Beneficiary of a deceased Participant must furnish to the Committee such
evidence, data or information as the Committee considers necessary or desirable
for the purpose of administering the Plan. The provisions of this Plan are
effective for the benefit of each Participant upon the condition precedent that
each Participant will furnish promptly full, true and complete evidence, data
and information when requested by the Commitee, provided that the Committee
shall advise each Participant of the effect of his failure to comply with its
request.
12.04 ADDRESS FOR NOTIFICATION. Each Participant and each
Beneficiary of a deceased Participant shall file with the Committee from time to
time, in writing, his post office address and any change of post office address.
Any communication, statement or notice addressed to a Participant or Beneficiary
at last post office address filed with the Committee, or as shown on the records
of the Employer, shall bind the Participant, or Beneficiary, for all purposes of
this Plan.
12.05 ASSIGNMENT OR ALIENATION. Neither a Participant nor a
Beneficiary shall anticipate, assign or alienate (either at law or in equity)
any benefit provided under the Plan, and the Trustees shall not recognize any
such anticipation, assignment or alienation. Furthermore, a benefit under the
Plan is not subject to attachment, garnishment, levy, execution or other legal
or equitable process. The Committee shall, however, abide by any Qualified
Domestic Relations Order as defined in Section 414(p) of the Code and Section
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206(d)(3) of ERISA which is served upon the Plan. Procedures relating to any
Qualified Domestic Relations Order received by the Committee shall be
administered pursuant to Appendix A, attached to this Plan document.
12.06 NOTICE OF CHANGE IN TERMS. The Committee, within the time
prescribed by ERISA and the applicable regulations thereunder, shall furnish all
Participants and Beneficiaries with a summary description of any material
amendment to the Plan or notice of discontinuance of the Plan and all other
information required by ERISA to be furnished without charge.
12.07 INFORMATION AVAILABLE. Any Participant in the Plan or any
Beneficiary may examining copies of the Plan description, latest annual report,
any bargaining agreement, this Plan and Trust, as well as any contract or other
instrument under which the Plan was established or is operated. The Committee
will maintain all of the items listed in this Section 12.07 in its office, or in
such other place or places as it may designate from time to time in order to
comply with the regulations issued under ERISA, for examination during
reasonable business hours. Upon the written request of a Participant or
Beneficiary the Committee shall furnish him with a copy of any item listed in
this Section 12.07. The Committee may make a reasonable charge to the requesting
person for the copy so furnished.
12.08 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Committee shall
provide adequate notice in writing to any Participant or to any Beneficiary
("Claimant") whose claim for benefits under the Plan the Committee has denied.
The Committee's notice to the Claimant shall set forth:
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(a) The specific reason for the denial:
(b) Specific references to pertinent Plan provisions on which the
Committee based its denial;
(c) A description of any additional material and information that
is needed; and
(d) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Committee within
seventy-five (75) days after receipt of the Committee's notice of
denial of benefits. The Committee's notice must further advise the
Claimant that his failure to appeal the action to the Committee in
writing within the seventy-five (75) day period will render the
Committee's determination final, binding and conclusive.
If the Claimant should appeal to the Committee, he, or his duly
authorized representative, may submit, in writing, whatever issues and comments
he or his duly authorized representative feels are pertinent. The Claimant, or
his duly authorized representative, may review pertinent Plan documents. The
Committee shall re-examine all facts to the appeal and make a final
determination as to whether the denial of benefits is justified under the
circumstances. The Committee shall advise the Claimant of its decision within
sixty (60) days of the Claimant's written request for review, unless special
circumstances (such as a hearing) would make the rendering of a decision within
the sixty (60) day limit unfeasible, but in no event shall the Committee render
a decision respecting a denial for a claim for benefits later than one hundred
twenty (120) days after its receipt of a request for review.
The Committee's notice of denial of benefits shall identify the name
and address of each member of the Committee to whom the Claimant may forward his
appeal.
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ARTICLE XIII
COMMITTEE DUTIES WITH RESPECT TO PARTICIPANT'S ACCOUNT
13.01 MEMBERS' COMPENSATION AND EXPENSES. The Company shall appoint
a Committee to administer the Plan, and an Investment Committee to manage the
assets of the Plan, the members of which may or may not be Participants in the
Plan. The members of the Committee and the Investment Committee shall serve
without compensation for services as such, but the Employer shall pay all
expenses of the Committee and the Investment Committee, including the expense
for any bond required under ERISA.
13.02 TERM. Each member of the Committee and the Investment
Committee shall serve until his successor is appointed.
13.03 POWERS. In case of a vacancy in the membership of the
Committee and Investment Committee, the remaining members of the Committee may
exercise any and all of the powers, authority, duties and discretion conferred
upon the Committee and Investment Committee pending the filling of the vacancy.
13.04 GENERAL. The Committee shall have the following powers and
duties:
(a) To select a Secretary, who need not be a member of the
Committee;
(b) To determine the rights of eligibility of an Employee to
participate in the Plan;
(c) To adopt rules of procedure and regulations necessary for the
proper and efficient administration of the Plan;
(d) To enforce the terms of the Plan and the rules and regulations
it adopts;
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(e) To direct the Trustee as respects the crediting and distribution
of the Trust;
(f) To review and render decisions respecting a claim for (or denial
of a claim for) a benefit under the Plan;
(g) To furnish the Employer with information which the Employer may
require for tax or other purposes;
(h) To engage the services of agents whom it may deem advisable to
assist it with the performance of its duties; and
(i) To exercise broad discretionary authority to determine
Employees' and Participants' eligibility for benefits as well as to
construe the terms of the Plan.
The Committee shall exercise all of its powers, duties and
discretion under the Plan in a uniform and nondiscriminatory manner.
13.05 MANNER OF ACTION. The decision of a majority of the members
appointed and qualified shall control.
13.06 DELEGATION OF FIDUCIARY DUTIES. In accordance with Section
405(c) of ERISA, the Committee is authorized to delegate to specific persons or
officers any of its fiduciary responsibilities. Without limiting the foregoing
grant of authority, the Committee is specifically authorized to delegate the
duties assigned to it under Section 13.04(b)-(i) hereof. Any delegation of
fiduciary duty pursuant to this Section must be made in writing and agreed to by
a majority of the Committee's members. Such delegation shall not be effective
unless and until it is consented to in writing by the persons appointed to
perform the fiduciary duty being delegated. Any person or entity to whom the
Committee has delegated any administrative functions pursuant to a written
agreement shall be referred to as an Administrative Delegate.
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13.07 INDIVIDUAL STATEMENT. As soon as practicable after each
calendar quarter of the Plan Year but within the time prescribed by ERISA and
the regulations under ERISA, the Committee will deliver to each Participant a
statement reflecting the condition of his Account Balance in the Trust as of
that date and such other information ERISA requires be furnished to the
Participant or Beneficiary. No Participant, except a member of the Committee,
shall have the right to inspect the records reflecting the Account Balance of
any other Participant.
13.08 LOAN POLICY. This Section 13.08 specifically authorizes the
Trustee of the Plan to establish an Employee loan program and to make loans on a
nondiscriminatory basis in accordance with this Plan and the loan policy
established by the Committee. The loan policy must be a written document and
must include the identity of the person authorized to administer the Employee
loan program, a procedure for applying for a loan, the criteria for approving or
denying a loan, the limitations, if any, on the types and amounts of loans
available, the procedure for determining a reasonable rate of interest, the
types of collateral which may secure a loan, and the events constituting default
and the steps the Plan will take to preserve Plan assets in the event of
default.
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ARTICLE XIV
FIDUCIARY DUTIES AND RESPONSIBILITIES
14.01 GENERAL FIDUCIARY STANDARD OF CONDUCT. Each Fiduciary of the
Plan shall discharge his duties hereunder solely in the interest of the
Participants and their Beneficiaries and for the exclusive purpose of providing
benefits to Participants and their Beneficiaries and defraying reasonable
expenses of administering the Plan. Each Fiduciary shall act with the care,
skill, prudence and diligence under the circumstances that a prudent man acting
in a like capacity and familiar with such matters would use in conducting an
enterprise of like character and with like aims, in accordance with the
documents and instruments governing this Plan, insofar as such documents and
instruments are consistent with this standard.
14.02 SERVICE IN MULTIPLE CAPACITIES. Any person or group of persons
may serve in more than one Fiduciary capacity with respect to this Plan.
14.03 LIMITATIONS ON FIDUCIARY LIABILITY. Nothing in this Plan shall
be construed to prevent any Fiduciary from receiving any benefit to which he may
be entitled as a Participant or Beneficiary under this Plan, so long as the
benefit is computed and paid on a basis which is consistent with the terms of
this Plan as applied all other Participants and Beneficiaries. This Plan shall
not be interpreted to prevent any Fiduciary from receiving any reasonable
compensation for services rendered, or for the reimbursement of expenses
properly and actually incurred in the performance of his duties with the Plan;
except that no person so serving who already receives full-time pay from the
Employer shall receive compensation from this Plan, except for reimbursement of
expenses properly and actually incurred.
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ARTICLE XV
TOP HEAVY RULES
15.01 MINIMUM EMPLOYER CONTRIBUTION. If this Plan becomes top heavy,
the Plan guarantees a minimum contribution of three percent (30%) of
Compensation for each Non-Key Employee who is a Participant employed by the
Employer on the Accounting Date of the Plan Year. For purposes of determining
whether the minimum contribution is satisfied, Salary Reduction Contributions
and matching contributions shall be disregarded. The minimum contribution shall
not be forfeited under Sections 411(a)(3)(B) or (D) of the Code. The Plan
satisfies the guaranteed minimum contribution for the Non-Key Employee if the
Non-Key Employee's contribution rate is at least equal to the minimum
contribution.
Notwithstanding the above, if the contribution rate for the Key
Employee with the highest contribution rate is less than three percent (3%), the
guaranteed minimum contribution for Non-Key Employees shall equal the highest
contribution rate received by a Key Employee (provided that the Employer does
not also sponsor a defined benefit plan which has designated this Plan to
provide the top heavy minimum). The contribution rate is the sum of Employer
contributions (not including Employer contributions to Social Security) and
forfeitures allocated to the Participant's account for the Plan Year dividend by
his Compensation for the Plan Year. To determine the contribution rate, the
Committee shall consider all qualified defined contribution plans maintained by
the Employer as a single plan.
15.02 ADDITIONAL CONTRIBUTION. If the contribution rate for the Plan
Year with respect to a Non-Key Employee described in Section 15.01 is less than
the minimum contribution, the Employer will increase its contribution for such
Employee to the extent
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necessary so that his contribution rate for the Plan Year will equal the
guaranteed minimum contribution. The Committee shall allocate the additional
contribution to the Base Contribution Account of the Non-Key Employee for whom
the Employer makes the contribution.
15.03 DETERMINATION OF TOP HEAVY STATUS. The Plan is top heavy for a
Plan Year if the top heavy ratio as of the Determination Date exceeds sixty
percent (60%). The top heavy ratio is a fraction, the numerator is the sum of
the present value of the Account Balances of all Key Employees as of the
Determination Date and distributions made within the five (5) Plan Year period
ending on the Determination Date, and the denominator of which is a similar sum
determined for all Employees. The Committee shall calculate the top heavy ratio
without regard to the Account Balance attributable to any Non-Key Employee who
was formerly a Key Employee. The Committee shall calculate the top heavy ratio,
including the extent to which it must take into account contributions not made
as of the Determination Date, distributions, rollovers and transfers, in
accordance with Section 416 of the Code and the regulations thereunder.
If the Employer maintains other qualified plans (including a
simplified employee pension plan) this Plan is top heavy only if it is part of
the Required Aggregation Group, and the top heavy ratio for both the Required
Aggregation Group and the Permissive Aggregation Group exceeds sixty percent
(60%). The Committee will calculate the top heavy ratio in the same manner as
required by the first paragraph of this Section 15.03, taking into account all
plans within the aggregation group. The Committee shall calculate the present
value of accrued benefits and the other amounts the Committee must take into
account under defined benefit plans or simplified employee pension included
within the group in accordance with the terms of
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those plans. Section 416 of the Code and the regulations thereunder. The
Committee shall calculate the top heavy ratio with reference to the
Determination Dates that fall within the same calendar year.
15.04 LIMITATION ON ALLOCATIONS. If, during any Limitation Year, the
Participant is a participant in both a defined contribution plan and a defined
benefit plan which are a part of a top heavy group, the Committee shall apply
the limitations of Article IV to such Participant by substituting "1.0" for
"1.25" each place it appears in Section 4.07. This Section 15.04 shall not apply
if:
(a) The Plan would satisfy Section 15.01 if the guaranteed minimum
contribution was one percent (1%) greater than the guaranteed
minimum contribution the Committee otherwise would calculate; and
(b) The top heavy ratio does not exceed ninety percent (90%).
15.05 TOP HEAVY VESTING SCHEDULE. Notwithstanding the vesting
schedule set forth in Section 6.04, if the Plan becomes top heavy as defined in
Section 15.03, for any top heavy Plan Year, a Participant shall earn a
Nonforfeitable percentage of his Base Contribution Account as determined by the
following vesting schedule:
Percent of
Nonforfeitable
Years of Service Base Contribution Account
0 0%
1 10%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
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This Section 15.05 does not apply to any Participant who does not have an Hour
of Service after the Plan has initially become top heavy. Therefore, such
Participant's Nonforfeitable percentage of his Base Contribution Account shall
be determined without regard to this Section 15.05.
If the Plan subsequently ceases to be top heavy, the vesting
schedule set forth in Section 6.04 shall again become applicable to all benefits
accruing thereafter. Notwithstanding the foregoing, any Participant who has
three (3) or more Years of Service when the Plan ceases to be top heavy may
elect to have the vesting schedule set forth in this Section 15.05 continue to
apply to benefits accruing in the future. The Participant's election shall be
made in accordance with Section 16.02. In no event will the change from the
vesting schedule set forth in this Section 15.05 to the vesting schedule set
forth in Section 6.04 operate to reduce the Nonforfeitable benefits the
Participant accrued while the Plan was in top heavy status.
15.06 DEFINITIONS. For purposes of applying the provisions of this
Article XV:
(a) "Key Employee" shall mean, as of any Determination Date, any
Employee or former Employee, or any Beneficiary thereof, who, at
any time during the Plan Year (which includes the Determination
Date) or during the preceding four Plan Years,
(i) is an officer of the Employer who has annual Compensation
in excess of 50% of the amount in effect under Section
415(b)(1)(A) of the Code;
(ii) one of the ten Employees owning the largest interests in
the Employer with annual Compensation in excess of the dollar
limit on Annual Additions to a defined contribution plan under
Section 415 of the Code;
(iii) a more than five percent (5%) owner of the Employer; or
(iv) a more than one percent (1%) owner of the Employer who
has annual Compensation of more than $150,000.
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The constructive ownership rules of Section 318 of the Code will
apply to determine ownership in the Employer. The Committee will
make the determination of who is a Key Employee in accordance with
Section 416(i)(1) of the Code and the regulations thereunder.
(b) "Non-Key Employee" is an Employee who does not meet the
definition of Key Employee.
(c) "Required Aggregation Group" means: (1) Each qualified plan of
the Employer in which at least one Key Employee participates; and
(2) Any other qualified plan of the Employer which enables a plan
described in (1) to meet the requirements of Sections 401(a)(4) or
410 of the Code. Any terminated plan that covered a Key Employee and
was maintained within the five year period ending on the
Determination Date shall also be included in the Required
Aggregation Group.
(d) "Permissive Aggregation Group" is the Required Aggregation Group
plus any other qualified plans maintained by the Employer, but
only if such group would satisfy in the aggregate the requirements
of Sections 401(a)(4) and 410 of the Code. The Committee shall
determine which plan to take into account in determining the
Permissive Aggregation Group.
(e) "Determination Date" for any Plan Year is the Accounting Date of
the preceding Plan Year or, in the case of the first Plan Year of
the Plan, the Accounting Date of that Plan Year.
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ARTICLE XVI
EXCLUSIVE BENEFIT, AMENDMENT AND TERMINATION
16.01 EXCLUSIVE BENEFIT. The Employer shall have no beneficial
interest in any asset of the Trust and no part of any asset in the Trust shall
ever revert to or be repaid to an Employer, either directly or indirectly nor
prior to the satisfaction of all liabilities with respect to the Participants
and their Beneficiaries under the Plan, shall any part of the corpus or income
of the Trust Fund, or any asset of the Trust. be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries. Notwithstanding anything else herein to the contrary, expenses of
administering the Plan, to the extent not paid by the Employer or otherwise,
may be satisfied by payment from the Trust Fund.
Notwithstanding the foregoing, if the Commissioner of Internal
Revenue, upon the Employer's timely request for initial approval of this Plan,
determines that the Trust created under the Plan is not a qualified trust exempt
from Federal income tax, then the Trustees, upon written notice from the
Employer, shall return the Employer's contributions and increments attributable
to the contributions to the Employer. The Trustees must make the return of the
Employer contribution under this Section 16.01 within one (1) year of a final
disposition of the Employer's request for initial approval of the Plan. The Plan
and Trust shall terminate upon the Trustees' return of the Employer's
contributions.
The Employer contributes to this Plan on the condition that its
contribution is deductible under Section 404 of the Code. If the Employer's
contribution is disallowed as a deduction, or if the Employer's contribution is
attributable to a mistake of fact, the Trustee shall
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return to the Employer the amount contributed over, as relevant, the amount that
would have been contributed had no mistake of fact occurred, or the amount of
the deductible contribution. Earnings attributable to the excess contribution
may not be returned to the Employer, but losses attributable thereto must reduce
the amount returned. The excess contributions must be returned within one year
of the disallowance or mistake. Further, if the amount returned to the Employer
would cause any Participant's Account Balance to be reduced to less than the
balance which would have been in his Account had the mistaken or nondeductible
amount not been contributed, then the amount to be returned to the Employer must
be limited so as to avoid the reduction. The Trustee may require the Employer
to furnish it with whatever evidence the Trustee deems necessary to enable the
Trustee to confirm that the amount the Employer has demanded be returned as
properly returnable under the Code and ERISA.
16.02 AMENDMENT BY COMPANY. The Company, through duly authorized
action of its Board of Directors, shall have the right at any time and from time
to time to amend this Agreement in any manner it deems necessary or advisable
including any amendment in order to qualify (or maintain qualification of) this
Plan and the Trust created under it under the appropriate provisions of the
Code. An amendment to the Plan's vesting shall not decrease any Participant's
Nonforfeitable Account Balance as of the later of the date the amendment is
adopted or becomes effective. If the Plan's vesting schedule is amended, each
Participant with three (3) or more Years of Service may elect to have the
vesting schedule applicable immediately prior to the amendment continue to
apply. The period during which such election may be made shall commence with the
date the amendment is adopted or deemed to be made shall end on the latest of:
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(1) 60 days after the amendment adopted;
(2) 60 days after the amendment becomes effective; or
(3) 60 days after the Participant issued written notice of the
amendment by the Employer or Committee.
No amendment shall authorize or permit any of the Trust Fund (other
than the part required to pay taxes and administrative expenses) to be used for
or diverted to purposes other than for the exclusive benefit of the Participants
or their Beneficiaries or estates. No amendment shall cause or permit any
portion of the Trust Fund to revert to or become the property of the Employer;
and the Company shall not make any amendment which affects the rights, duties
or responsibilities of the Trustees or the Committee without the written consent
of the affected Trustee or the affected member of the Committee. No amendment
shall decrease a Participant's Account Balance or eliminate an optional form of
benefit to which the Participant is entitled as a result of service prior to the
amendment. The Company shall make all amendments in writing. Each amendment
shall state the date to which it is either retroactively or prospectively
effective.
16.03 DISCONTINUANCE. The Company, through duly authorized action of
its Board of Directors, shall have the right, at any time, to suspend or
discontinue its contributions under the Plan, and to terminate, at any time,
this Plan. Upon complete discontinuance of contributions, the Account Balance of
each affected Participant shall be one hundred (100%) percent Nonforfeitable.
16.04 FULL VESTING ON TERMINATION. Notwithstanding any other
provision of this Plan to the contrary, upon either full or partial termination
of the Plan, an
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affected Participant's right to his Account Balance shall be one hundred percent
(100%) Nonforfeitable. The Plan shall terminate upon the first to occur of the
following:
(a) The date terminated by action of the Employer provided the
Employer gives the Trustee thirty (30) days' prior notice of
termination;
(b) The date the Employer shall be judicially declared bankrupt or
insolvent; or
(c) The dissolution, merger, consolidation or reorganization of the
Employer or the sale by the Employer of all or substantially all of
its assets, unless the successor or purchaser makes provision to
continue the Plan, in which event the successor or purchaser shall
substitute itself as the Employer under this Plan.
16.65 MERGER. The Trustee shall not consent to, or be a party to,
any merger or consolidation with another plan, or to a transfer of assets or
liabilities to another plan, unless immediately after the merger, consolidation
or transfer, the surviving plan provides each Participant a benefit equal to or
greater than the benefit each Participant would have received had the Plan
terminated immediately before the merger or consolidation or transfer. The
Trustee possesses the specific authority to enter into merger agreements or
direct transfer of assets agreements with the trustees of other retirement plans
described in Section 401(a) of the Code and to accept the direct transfer of
plan assets, or to transfer plan assets, as a party to any such agreement.
16.06 DIRECT ROLLOVERS. This Section applies to distributions made
on or after January 1, 1993. Notwithstanding any provision of the plan to the
contrary that would otherwise limit a distributee's election under this Section,
a distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
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Definitions:
(a) Eligible rollover distributions: An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the distributee or the
joint lives (or joint life expectancies) of the distributee
and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the
extent such distribution is required under Section 401(a)(9)
of the Code, and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities).
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of
the Code, an individual retirement annuity the Code, an
annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that
accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to
the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
(c) Distributee: A distributee includes an Employee or former
Employee. In addition, the Employee's or former employee's
surviving spouse and the Employee's or former Employee's
spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Section
414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
(d) Direct rollover: A direct rollover is a payment by the plan to
the eligible retirement plan specified by the distributee.
16.07 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan or
any modification or amendment to the Plan, or in the creation of any Salary
Reduction Contribution Account, or the payment of any benefit, shall give any
Participant the right to continued employment, or any legal or equitable right
against the Employer, an Employee of the
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Employer, the Trustee, or their agents or employees, except as expressly
provided by the Plan, the Trust, ERISA or the Code or by a separate agreement.
16.08 STATE LAW. New Jersey law shall determine all questions
arising with respect to the provisions of this Plan, except to the extent
Federal statute supersedes New Jersey law.
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SCHEIN PHARMACEUTICAL, INC.
and
AFFILIATED COMPANIES
RETIREMENT PLANS
MASTER TRUST AGREEMENT
THIS AGREEMENT is made and entered into as of September 30, 1997 by and between
Schein Pharmaceutical, Inc. ("Company") and American Express Trust Company.
RECITALS
FIRST: The Company and/or certain of its subsidiaries have established the
employee pension plans set forth on Schedule A attached to this Agreement and a
trust or trusts to fund benefits under the Plans; and
SECOND: The Company desires to create a master trust in order to commingle,
solely for investment purposes, the assets of the separate trusts under each of
the Plans and to have the American Express Trust serve as trustee of the master
trust;
NOW, THEREFORE, in consideration of the mutual covenants herein contained the
parties agree as follows:
ARTICLE I
Definitions
1.1 Definitions of Terms.
(a) "Administrator" means the Committee appointed by the Company to
administer the Plans.
(b) "Business Day" means any day the New York Stock Exchange is open for
business.
(c) "Code" means the Internal Revenue Code of 1986, as amended, or its
successor.
(d) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or its successor.
(e) "Investment Funds" mean the investment funds designated by the
Administrator pursuant to Section 4.2 of this Agreement.
1
<PAGE>
(f) "Investment Manager" means the person appointed pursuant to Section
4.3 of this Agreement to manage all or a portion of the assets of the
Trust Fund.
(g) "Plan(s)" mean the plans set forth on Schedule A, as amended.
(h) "Trust Fund" means the fund maintained pursuant to this Agreement for
the exclusive purpose of funding the Plan as provided herein.
(i) "Trustee" means American Express Trust Company, the nondiscretionary
trustee of the Trust.
(j) "Valuation Date" means each Business Day.
ARTICLE 2
Trust Fund
2.1 Title. The title of the trust created by this Agreement is the Employee
Benefit Plans Master Trust Agreement for Schein Pharmaceutical, Inc. and Related
Companies (the "Trust").
2.2 Trust Fund. The Trust Fund shall consist of such sums of money or other
property as shall from time to time be paid or delivered to the Trustee pursuant
to the Plan, plus all income and gains, less losses, distributions, withdrawals
and expenses chargeable thereto. The Trust Fund shall be held in trust and dealt
with in accordance with the provisions of this Agreement.
2.3 Tax Status of Trust. The Company intends by this Agreement to create a trust
forming a part of the Plan which shall meet the requirements for qualification
under Section 401(a) of the Code and which shall be exempt from tax pursuant to
Section 501(a) of the Code.
2.4 Appointment of and Acceptance by Trustee. The Company hereby appoints
American Express Trust Company as nondiscretionary trustee of the Trust.
American Express Trust Company hereby accepts the Trust imposed upon it by this
Agreement and covenants and agrees to perform the same as herein expressed.
2.5 Right of the Company to Trust Assets. The Company shall have no rights or
claims of any nature in or to the Trust Fund, except as provided by ERISA aznd
the Plan.
2
<PAGE>
2.6 Exclusive Benefit of Participants and Beneficiaries. Notwithstanding
anything to the contrary contained in this Agreement, or in any amendment
thereto, it shall be impossible, except as otherwise provided under ERISA, at
any time prior to the satisfaction of all liabilities with respect to the
Participants and Beneficiaries of the Plan, for any part of the Trust Fund,
other than such part as is required to pay taxes and expenses of administration
of the Plan and the Trust (including the payment of Trustee's fees), to be used
for, or diverted to, purposes other than for the exclusive benefit of the
Participants and Beneficiaries.
2.7 Administrator shall direct Trustee. Company authorizes the Administrator to
direct and instruct Trustee in a manner consistent with this Agreement.
ARTICLE 3
Contributions to and Distributions from the Trust
3.1 Receipt of Contributions. The Trustee shall receive and hold as part of the
Trust Fund such assets of the Plan as may be transferred to it from time to time
and any contributions to the Plan made to the Trust Fund from time to time. The
Trustee shall not be required to determine that any contributions are in
compliance with the Plan, ERISA or the Code and shall be accountable only for
the funds actually received by it. In the case of assets transferred from
another trustee, the Trustee shall not be responsible for any actions or
inaction of such trustee either prior to or after the transfer of Trust Fund
assets. Company represents that any such assets, from time to time so
transferred, were part of a qualified trust at the time of the transfer.
3.2 Distributions to Participants. The Trustee, upon the written direction of
the Administrator or by any other method authorized by the Administrator and
agreed to by the Trustee, shall make distributions from the Trust Fund to such
persons, in such manner, in such amounts (but not exceeding the then value of
the Trust Fund), and for such purposes as may be specified in the direction of
the Administrator. The Trustee may reserve from a distribution such reasonable
amounts as the Trustee shall deem necessary to pay its expenses and any tax,
charge or assessment attributable to a distribution or may require such release
from a taxing authority or such indemnification from the distributee as the
Trustee shall deem necessary for the protection of the Trustee.
The Trustee shall not be liable for making any distribution, failing to
make any distribution, or discontinuing any distribution on the direction of the
Administrator, or for failing to make any distribution by reason of the
Administrators failure to direct that such distribution be made. The Trustee has
no duty to inquire whether any direction or absence of direction is in
conformity with the provisions of the Plan or whether it is made in good faith
without actual notice or knowledge of the changed condition or status of any
recipient. The
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Company warrants that all such directions are and shall be in accordance with
the provisions of the Plan with respect to which such distribution is made. The
Trustee shall not be required to determine or make any investigation to
determine the identity or mailing address of any person entitled to benefits
under the Plan, and shall be discharged of any obligation in that respect when
the Trustee shall have sent checks and other papers by regular mail, postage
prepaid, to such persons and at such addresses as may be furnished by the
Company.
ARTICLE 4
Investment of the Trust Fund
4.1 Title to Assets. The Trustee is vested with title to all the assets of the
Trust Fund and shall have full power and authority to do all acts necessary to
carry out its duties hereunder. Participants and Beneficiaries shall not have
any right or interest in the Trust Fund except as provided in the Plan. Prior to
the time of distribution, neither a Participant nor a Beneficiary (nor a legal
representative of a Participant or a Beneficiary) shall have any right, by way
of anticipation or otherwise, to assign, encumber, or in any manner dispose of
any interest in the Trust except as permitted under the Plan or as required by
law or directed by a court of competent jurisdiction.
4.2 Direction. (a) The Administrator will direct the Trustee as to the
Investment Funds to be established for investment of Trust Fund assets in
accordance with the provisions of the Plan. Except for those Investment Funds
that are mutual funds or that are under the investment control of an Investment
Manager, the Administrator shall exercise exclusive investment direction and
control of the underlying investments of the Investment Funds. To such extent:
(1) the Administrator shall have the power and authority to invest, acquire,
manage or dispose of the assets of the Trust Fund and to direct the Trustee with
respect to the investment, reinvestment and sale of such assets; and (2) the
Trustee does not have any duty to question any direction, to review any
securities or other property, or to make any suggestions in connection
therewith. The Trustee will promptly comply with any direction given by the
Administrator. The Trustee will neither be liable in any manner or for any
reason for any loss or other unfavorable investment results arising from its
compliance with such direction, nor be liable for failing to invest any assets
of the Trust Fund under the management and control of the Administrator in the
absence of investment directions regarding such assets.
(b) The Trustee shall invest in the Investment Funds in accordance with
investment directions given by the Participants and Beneficiaries for whose
accounts such assets are held, to the extent so provided for in the Plan. All
such directions by the Participants or Beneficiaries to the Trustee will be made
in
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writing or by telephone or in such other manner as is acceptable to the Trustee.
Participants and Beneficiaries will be deemed fiduciaries for purposes of such
investment selection.
(c) Where the Administrator, a Participant, a Beneficiary or an Investment
Manager (except the Trustee as Investment Manager of any assets as provided
herein), has the power and authority to direct the investment of any assets of
the Trust Fund, the Trustee does not have any duty to question any direction, to
review any securities or other property, or to make any suggestions in
connection therewith. The Trustee will promptly comply with any direction given
by the Administrator, a Participant, a Beneficiary or Investment Manager. The
Trustee will neither be liable in any manner or for any reason for any loss or
other unfavorable investment results arising from its compliance with such
direction, nor be liable for failing to invest any assets of the Trust Fund
under the management and control of the Administrator, a Participant, a
Beneficiary or an Investment Manager in the absence of investment directions
regarding such assets.
4.3 Investment Managers. (a) The Company has the power and authority to appoint
one or more Investment Managers as defined in and subject to the requirements of
ERISA. Each Investment Manager so appointed will have the power and authority to
invest, acquire, manage or dispose of the assets of the Trust Fund under its
management and to direct the Trustee with respect to the investment,
reinvestment and sale of such assets.
(b) If the Company elects to delegate investment authority for the assets
of all or any portion of the Trust Fund to an Investment Manager pursuant to
subsection (a), the Company will inform the Trustee in writing of such
designation and such written notice shall describe the portion of the Trust Fund
affected. Upon receipt of such notice, the Trustee will be obligated to follow
the investment directions of the Investment Manager with respect to the assets
of the specified portion of the Trust Fund until the Trustee receives written
notice that such Investment Manager has resigned or has been removed or replaced
by the Company. The Trustee will not be a party to any agreement between the
Company and an Investment Manager, and will have no responsibility with respect
to the terms and conditions of such agreement.
(c) In exercising its authority to delegate investment authority to an
Investment Manager, the Company shall have the duty, responsibility and power to
(i) examine and analyze the performance of prospective Investment Managers; (ii)
select an Investment Manager or Managers; (iii) determine the portion of the
Trust Fund that will be under the management of each Investment Manager; (iv)
issue appropriate instructions to the Trustee and to each Investment Manager
regarding the allocation of investment authority, (v) review the performance of
each Investment Manager at periodic intervals; and (vi)
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remove any Investment Manager when the Company deems such removal to be
necessary or appropriate.
(d) All directions by an Investment Manger to the Trustee concerning the
investment, reinvestment, sale or management of assets of the Trust Fund will be
made, in writing or in such other manner as is acceptable to the Trustee, by
such person or persons as the Investment Manager designates in writing to the
Trustee from time to time.
(e) An Investment Manager who engages any investment advisor or investment
counselor that it deems necessary or appropriate, may provide that directions
concerning the investment and reinvestment of the assets of the Trust Fund under
its management and control be made directly to the Trustee by such advisor or
counselor as the Investment Manager's agent, provided, however, that prior to
any such direction by the investment advisor or investment counselor, the
Trustee receives written notice from the Investment Manager that the directions
of such agent will be considered the directions of the Investment Manager and
that the Investment Manager will be responsible for the directions of such
agent.
(f) If an Investment Manger resigns or is removed by the Company, the
Company will notify the Trustee in writing of such resignation or removal. Upon
actual receipt of such notice, the power and authority to invest and reinvest
the assets of the Trust Fund formerly under the control and management of the
Investment Manager will return to the Company unless the Company indicates that
a successor Investment Manager has been appointed with respect to such assets.
(g) The fees and expenses of each Investment Manager, except to the extent
paid by the Company, shall be paid from the Trust Fund. The Trustee may request
a representation from the Company that such payments are allowed under ERISA.
4.4 Investment in a Collective Fund. When so directed by the Administrator or
pursuant to investment directions given by Participants or Beneficiaries
pursuant to Section 4.2, the Trustee shall invest and reinvest all or a portion
of the Trust Fund through any common or collective trust fund or pooled
investment fund, including collective investment funds maintained by American
Express Trust Company or its successor, for the collective investment of funds
held by it in a fiduciary capacity. The 1995 Amended and Restated Declaration of
Trust creating the American Express Trust Collective Investment Funds for
Employee Benefit Trusts ("Declaration of Trust") is hereby incorporated by
reference and made a part of this Agreement. Notwithstanding any other provision
of this Agreement, the Trustee may commingle the designated assets from the
Trust Fund with the money of trusts created by others, by causing such assets to
be invested as a part of any one or more of the collective funds created by the
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Declaration of Trust and assets of this Trust Fund so added to any of the
collective funds at any time shall be subject to all of the provisions of the
Declaration of Trust as it is amended from time to time.
4.5 Trustee as Investment Manager. The Company hereby appoints Trustee to serve
as Investment Manager with respect to the Investment Funds set forth in Exhibit
B, which Exhibit may be amended from time to time (said Investment Funds
hereinafter referred to as the "Account"):
Trustee shall have full discretionary authority to formulate and execute an
investment program for the management and investment of the Account, including
the authority to:
(a) buy, sell, exchange, convert or otherwise trade in any stocks, bonds
and other investments including money market instruments and investment
contracts; and
(b) place orders for the execution of such investment transactions with or
through such brokers, dealers or issuers as Trustee may select; and
(c) request the issuance of average price confirmations by participating
brokers.
Such authority shall be subject to the terms and conditions of this Agreement,
the provisions of the Declaration of Trust with respect to any assets in the
collective funds as provided in Section 4.4 of this Agreement and any written
investment objectives and guidelines as set forth in Exhibit C and incorporated
herein by reference. Exhibit C may be changed from time to time as agreed upon
by Company and Trustee.
To the extent the Trustee is an Investment Manager, it shall invest and reinvest
the principal and income of the Account with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims.
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ARTICLE 5
Trustee's Powers
5.1 Powers Exercisable by the Trustee in its Sole Discretion.
In addition to all other powers and authorities elsewhere in this Agreement
specifically granted to the Trustee, the Trustee shall have the following powers
and authority, to be exercised in its sole discretion:
(a) To keep any or all securities or other property in the name of a nominee
with or without power of attorney for a transfer or in its own name
without disclosing its capacity, or in bearer or book-entry form.
(b) To make, execute, acknowledge and deliver any and all instruments deemed
necessary or appropriate to carry out the powers herein granted.
(c) To employ suitable agents, including, but not limited to, auditors,
actuaries, accountants, and legal and other counsel, and to pay their
expenses and reasonable compensation for services to the Trust from the
Trust Fund. The Trustee may from time to time consult with legal counsel
who may, but need not be, legal counsel for the Company and shall be fully
protected in acting or refraining from acting upon the advice of any
counsel with respect to legal questions.
(d) To settle securities trades through a securities depository that utilizes
an institutional delivery system, in which event the Trustee may deliver
or receive securities in accordance with appropriate trade reports or
statements given to the Trustee by such depository.
5.2 Powers Exercisable by the Trustee, Subject to the Direction of the
Administrator, or an Investment Manager. The Trustee will exercise the following
powers upon the direction of the Administrator, or the designated investment
Manager.
(a) To invest and reinvest Trust Fund assets in common stocks, preferred
stocks, bonds, notes, debentures, mortgages, insurance policies,
individual or group annuity contracts, investment contracts, commercial
paper, fixed time deposits, money market instruments, mutual funds,
collective investment funds or other investments, including investments
offered by the Trustee or its affiliates.
(b) To invest and reinvest in stocks and other securities issued by the
Company or any subsidiary or affiliate thereof.
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(c) To borrow money for the purposes of this Trust upon such terms and
conditions as deemed appropriate, and to obligate the Trust Fund for
repayment.
(d) To hold cash uninvested and unproductive of income or deposit same with
any banking or savings institution, including its own banking department
or the banking department of an affiliate.
(e) To exercise any or all conversion and subscription rights with respect to
properties held in the Trust Fund.
(f) To hold, acquire, or invest in qualifying Employer securities as defined
in ss. 407(d)(5) of ERISA or qualifying Employer real property as
defined in ss. 407(d)(4) of ERISA (or both) to the extent that the
aggregate fair market value of such securities and property does not
exceed the limitations set forth in ss. 407 of ERISA.
5.3 Powers Exercisable by the Trustee Only Upon the Direction of the
Administrator. Upon the direction of the Administrator, the Trustee will
accept, compromise or otherwise settle any claims by or against the Trust
Fund or disputed liabilities due to or from the Trustee with respect to
the Trust Fund, including any claim that may be asserted for taxes under
present or future laws, or to enforce or contest the same by appropriate
legal proceedings.
5.4 Proxies and other Incidents of Ownership.
Trustee shall deliver or cause to be delivered, to the Administrator
or the designated Investment Manager, all notice, prospectuses, finance
statements, proxies and proxy soliciting materials relating to investments
held hereunder. Except for those Trust Fund assets for which American
Express Trust is the Investment Manager, the Trustee shall not vote any
proxy or tender offer election, participate in any voting trust, exercise
any option or subscription right or join in, dissent from or oppose any
merger, reorganization, consolidation, liquidation or sale with respect to
any asset held hereunder except in accordance with the timely written
instructions of the Administrator. If no such written instructions are
received, such proxies, elections and voting trust votes shall not be
voted; such options or subscription rights shall not be exercised; and
such mergers, reorganizations, consolidation, liquidations or sales shall
not be joined, dissented from or opposed.
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ARTICLE 6
Accounting
6.1 Valuation. (a) The Trustee will determine the current fair market value of
the assets and liabilities of the Trust Fund as of the end of each Valuation
Date.
(b) The fair market value of assets of the Trust Fund will be determined
by the Trustee on the basis of such sources of information as it may deem
reliable, including (but not limited to) information reported in (i) newspapers
of general circulation, (ii) standard financial periodicals or publications,
(iii) statistical and valuation services, (iv) records of security exchanges,
(v) reports of any Investment Manager, insurance company or financial
institution that has issued an investment contract to the Trustee or brokerage
firm deemed reliable by the Trustee, or (vi) any combination of the foregoing.
If the Trustee is unable to value assets from such sources, it may rely on
information from the Company, the Administrator, appraisers or other sources,
and will not be liable for inaccurate valuation based in good faith on such
information.
(c) The Administrator may, for administrative purposes, establish unit
values for one or more Investment Funds (or any portion thereof) and maintain
the accounts selling forth each Participant's interest in such Investment Fund
(or any portion thereof) in terms of such units, all in accordance with such
rules and procedures as the Administrator shall deem to be fair, equitable and
administratively practicable. In the event that unit accounting is thus
established for any Investment Fund, the value of a Participant's interest in
that Investment Fund (or any portion thereof) at any time shall be an amount
equal to the then value of a unit in such Investment Fund (or any portion
thereof) multiplied by the number of units then credited to the Participant.
6.2 Records. The Trustee will keep complete accounts of all investments,
receipts and disbursements, other transactions hereunder, and gains and losses
resulting from same. Such accounts will be sufficiently detailed to meet the
Trustee's duties of reporting and disclosure required under applicable federal
and state law. All accounts, books, contracts and records relating to the
Trust Fund will be open to inspection and audit at all reasonable times by any
person designated by the Administrator.
6.3 Reports. (a) Within 90 days following the close of each Plan Year, and as
otherwise directed by the Administrator, and within 30 days following the
Trustee's resignation or removal under Article 8 of this Agreement, the Trustee
will furnish the Administrator with a written report setting forth the
transactions effected by the Trustee during the period since it last furnished
such a report and any gains or losses resulting from same, any payments or
disbursements made by the Trustee during such period, the assets of the Trust
Fund as of the last day of such period (at cost and at fair market value), and
any other information about
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the Trust Fund that the Administrator may reasonably request. The Trustee will
certify the accuracy of the report if such certification is required by any
applicable federal or state law or regulation.
(b) Each report submitted pursuant to subsection (a) will be promptly
examined by the Administrator. If the Administrator approves of such report, the
Trustee will be forever released from any liability or accountability with
respect to the propriety of any of its accounts or transactions so reported, as
if such account had been settled by judgment or decree of a court of competent
jurisdiction in which the Trustee, the Administrator, the Company, and all
persons having or claiming any interest in the Trust Fund were made parties. The
foregoing, however, is not to be construed to deprive the Trustee of the right
to have its account judicially settled if it so desires.
(c) The Administrator may approve of any report furnished by the Trustee
under subsection (a) either by written statement of approval furnished to the
Trustee or by failure to file a written objection to the report with the Trustee
within 90 days of the date on which the Administrator receives such report.
ARTICLE 7
Compensation, Rights and Indemnities of the Trustee
7.1 Compensation and Reimbursement. (a) The Trustee will receive reasonable
compensation for its services, including investment management services as
provided in Section 4.5 herein, as agreed upon in writing from time to time
between the Administrator and the Trustee.
(b) The Trustee will be reimbursed for all reasonable expenses it incurs
in the performance of its duties under this Agreement. In this regard,
reasonable expenses include (but are not limited to) accounting, consulting,
actuarial, valuation of assets and, subject to Section 5.1, legal fees for
professional services related to the administration of the Plan and this
Agreement.
(c) Compensation and expenses payable under this Section 7.1 will be paid
from the Trust Fund (and may be charged, if applicable, to an appropriate
sub-account or subtrust), unless the Company pays such compensation and expenses
directly to the Trustee. In addition, the Trustee is directed to pay
compensation and expenses for other services provided to the Plan(s) (including
but not limited to recordkeeping services) by American Express Trust Company
under separate agreement from the Trust Fund, unless the Company pays such
compensation and expenses. The Company in its discretion may reimburse the Trust
Fund for any compensation and expenses paid from the Trust Fund.
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(d) The Trustee will, as part of its compensation for services provided to
the Plan, receive the earnings from any uninvested cash awaiting investment into
or distributions from the Trust Fund. The Company agrees that the Trustee may
hold such uninvested cash without incurring any liability for the payment of
earnings on such uninvested cash.
(e) In the event the Company files or declares bankruptcy, the Company
authorizes the Trustee to make payment from the Trust Fund for any and all fees,
expenses or other forms of compensation due under this Section whether or not
the fees, expenses or other forms of compensation were earned but not yet paid
prior to or after the bankruptcy filing.
7.2 Rights of the Trustee. (a) Whenever in the administration of the Plan a
certification or direction is required to be given to the Trustee, or the
Trustee deems it necessary that a mailer be approved prior to taking, permitting
or omitting any action hereunder, such certification or direction will be fully
made, or such matter may be deemed to be conclusively approved, by delivery to
the Trustee of an instrument signed either (i) in the name of the Company by its
Secretary or Assistant Secretary; or (ii) unless the matter concerns the
authority of the Administrator, in the name of the Administrator by the
Administrator; and the Trustee may rely upon such instrument to the extent
permitted by law. Notwithstanding the foregoing, the Trustee may in its sole
discretion accept such other evidence of a matter or require such further
evidence as may seem reasonable to it, in lieu of such instrument. The Trustee
will be protected in acting upon any notice, resolution, order, certificate,
opinion, telegram, letter or other document believed by the Trustee to be
genuine and to have been signed by the proper party or parties, and may act
thereon without notice to a Participant or Beneficiary.
(b) The Company will provide the Trustee with specimen signatures of the
Administrator and its delegates and the current authorized signers of each
Investment Manager. The Trustee will be entitled to rely in good faith upon any
directions signed by the Administrator or its appointed delegate, or by any
authorized signer of an Investment Manager, and will incur no liability for
following such directions.
(c) The Trustee may accept communications by photostatic teletransmissions
with duplicate or facsimile signatures as a delivery of such communications in
writing until notified in writing by the Administrator or the Investment Manager
that the use of such devices is no longer authorized.
7.3 Indemnification for Following Direction. Upon demand, the Company will
immediately indemnify and hold harmless the Trustee from all losses or
liabilities, costs and expenses (including reasonable attorneys' fees) to which
the Trustee may be subject by reason of any acts taken in good faith in
accordance with directions or instructions from the Company, Administrator, an
Investment
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Manager (other than the Trustee acting in such capacity) or their delegates,
Participants or Beneficiaries, or acts omitted in good faith due to absence of
directions from the Company, the Administrator, an Investment Manager (other
than the Trustee acting in such capacity), Participants or Beneficiaries unless
such loss or liability is due to the Trustee's negligence or willful misconduct.
This Section 7.3 shall survive the termination of this Agreement.
7.4 Limitation of Liability of Trustee. (a) If the Trustee makes a written
request for directions from the Company, the Administrator or an Investment
Manager, the Trustee may await such directions without incurring liability. The
Trustee has no duty to act in the absence of such requested directions, but may
in its discretion take such action as it deems appropriate to carry out the
purposes of this Agreement.
(b) The Trustee is not responsible for determining the adequacy of the
Trust Fund to meet liabilities under the Plan, and is not liable for any
obligations of the Plan or the Trust Fund in excess of the assets of the Trust
Fund.
(c) The Company indemnifies and holds the Trustee harmless from and
against all taxes, expenses (including reasonable attorney fees), liabilities,
claims, damages, actions, suits or other charges incurred by or assessed against
the Trustee resulting directly or indirectly from any act or omission of a
predecessor trustee.
7.5 Undertaking for Costs. The Trustee shall not be required to expend or risk
its own funds or otherwise incur financial liability in the performance of its
duties hereunder, or in the exercise of any of its rights or powers as trustee.
In the event that the Trustee must commence or defend any action,
administrative, judicial or otherwise, upon notice to the Company the Trustee
may retain professionals including legal or financial advisors to represent the
Trustee in its capacity as Trustee hereunder. The Company shall promptly pay for
the entire cost to retain such professionals. In the event Company does not pay
for the cost to retain such professionals, such costs will be paid from the
Trust Fund.
7.6 Necessary Parties to Legal Actions. Except as required by Section 502(h) of
ERISA, only the Company, the Administrator and the Trustee will be considered
necessary parties in any legal action or proceeding with respect to the Trust
Fund, and no Participant, Beneficiary or other person having an interest in the
Trust Fund will be entitled to notice. Any judgment entered on any such action
or proceeding will be binding on all persons claiming under the Trustee. Nothing
in this Section 7.6 is intended to preclude a Participant or Beneficiary from
enforcing his or her legal rights.
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ARTICLE 8
Resignation or Removal of the Trustee
8.1 Resignation. The Trustee may resign at any time by delivering to the Company
a written notice of resignation, to take effect not less than 60 days after
delivery, unless such time period is waived by the Company.
8.2 Removal. The Company may remove the Trustee at any time by delivering to the
Trustee a written notice of removal. Such removal will take effect no less than
60 days after delivery of such notice to the Trustee unless such time period is
waived by the Trustee.
8.3 Successor Trustee. Upon the resignation or removal of the Trustee, the
Company will appoint a successor trustee, which may accept such appointment by
execution of this Agreement. In the event that no successor trustee is
appointed, or accepts appointment, by the time that the resignation or removal
of the Trustee is effective, the Trustee may either. (i) apply to a court of
competent jurisdiction for the appointment of a successor trustee or for
instructions; or (ii) treat the individual signing this Agreement on behalf of
the Company, or his or her successor, as having appointed himself or herself as
Trustee and as having filed his or her acceptance of appointment with the
Trustee. Any expenses incurred by the Trustee in connection with said
application will be paid from the Trust Fund as an expense of administration.
8.4 Settlement. After delivery of notice of the Trustee's resignation or
removal, the Trustee is entitled to a settlement of its account from the Trust
Fund unless otherwise paid by the Company. The settlement of the Trustee's
account may be made at the option of the Trustee either: (a) by judicial
settlement in an action instituted by the Trustee in a court of competent
jurisdiction, or (b) by agreement of settlement between the trustee and the
Company.
8.5 Transfer to Successor Trustee. Upon settlement of the Trustee's account, the
Trustee will transfer to the successor trustee the Trust Fund as it is then
constituted and true copies of its records relevant to the Trust Fund. Upon the
transfer of Trust Fund assets, the Trustee's responsibilities under this
Agreement will cease and the Trustee will be discharged from further
accountability for all matters embraced in its settlement with respect to those
assets, provided, however, that the Trustee executes and delivers the documents
and written instruments which are necessary to transfer and convey the right,
title and interest in such Trust Fund assets, to the successor trustee.
Notwithstanding the foregoing, the Trustee is authorized to reserve such amount
as it may deem advisable for payment of its fees and expenses in connection with
the settlement of its account. Any balance of such reserve remaining after the
payment of such fees and expenses will be paid over to the successor Trustee.
Notwithstanding any provision of the Agreement to the contrary, the Trustee may
invest and
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reinvest such reserves in any investment or investment vehicle appropriate for
the temporary investment of cash reserves of trusts.
8.6 Duties of the Trustee Prior to Transfer to Successor Trustee. The Trustee's
powers, duties, rights and responsibilities under this Agreement will continue,
with respect to those Trust Fund assets held by the Trustee, until the date on
which the transfer of the Trust Fund assets and delivery of the related
documents to the successor trustee under Section 8.5 is completed. The successor
trustee will neither be liable or responsible for any act or omission to act
with respect to the operation or administration of the Trust Fund under this
Agreement prior to the date it receives any Trust Fund assets and related
documents, nor be under any duty or obligation to audit or otherwise inquire
into or take any action concerning the acts or omissions of the Trustee or any
predecessor trustee.
8.7 Powers. Duties and Rights of the Successor Trustee. Upon its receipt of
assets of the Trust Fund and the documents related thereto, the successor
trustee will become vested with all the estate, power, duties and rights of the
Trustee under this Agreement with respect to such assets with the same effect as
though the successor trustee were originally named as Trustee hereunder.
ARTICLE 9
Amendment and Termination
9.1 Amendment. The Company through its Board of Directors, reserves the right at
any time and from time to time to amend, retroactively, if necessary, in whole
or in part, any or all of the provisions of this Agreement by notice thereof in
writing delivered to the Trustee, provided that no such amendment which affects
the rights, duties, liabilities or responsibilities of the Trustee may be made
without its consent and provided further that no such amendment shall authorize
or permit any part of the corpus or income of the Trust Fund to be used or
diverted to purposes other than for the exclusive benefit of Participants and
Beneficiaries, or permit any portion of the Trust Fund to revert to or become
the property of the Company, except as otherwise provided under ERISA.
9.2 Termination. This Agreement and the Trust may be terminated at any time by
the Board of Directors of the Company, and this Agreement and the Trust shall
terminate in the event that a corporate successor to the Company notifies the
Trustee in writing within ninety (90) days following the date it becomes the
corporate successor that it does not intend to become a party to this Agreement.
In the event of the termination of the Trust as provided herein, the Trustee
shall dispose of the Trust Fund in accordance with the written directions of the
Company and upon its certification that such direction is in
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accordance with the terms of the Plan, except that the Trustee may reserve such
reasonable amounts as the Trustee may deem necessary for outstanding and accrued
charges against the Plan including Trustee's expenses. If the Company fails to
provide the Trustee with written directions regarding disposition of the Trust
Fund, the Trustee may apply to a court of competent jurisdiction for directions
as to the disposal of the Trust Fund. Upon termination of this Trust, the
Trustee shall continue to have all of the powers provided in this Agreement as
are necessary or desirable for the orderly liquidation and distribution of the
Trust Fund.
ARTICLE 10
Miscellaneous
10.1 Successors and Assigns. This Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their successors and assigns. No
assignment (as defined in the Investment Advisors Act of 1940) of this Agreement
shall be made by the Trustee without the written consent of the Company;
provided, however, that the Trustee may assign this Agreement to the parent
company of the Trustee or to a wholly-owned subsidiary of such parent company if
such company is organized and chartered as a trust company. Company agrees to
promptly notify Trustee in the event there is a corporate successor to the
Company.
10.2 Governing Law. This Agreement will be construed and governed in all
respects in accordance with applicable federal law, and, to the extent not
preempted by such federal law, in accordance with the laws of the State of
Minnesota.
10.3 Notices. All notices required to be given pursuant to this Agreement shall
be in writing and delivered first class U.S. mail, postage prepaid or by
telecopy, telex or facsimile addressed to the appropriate party(ies) at their
respective address set forth below, or at any other address of which a party
shall have notified the other parties in writing.
(a) If to Trustee:
American Express Trust
Team for the Schein Pharmaceutical, Inc. Plans
1200 Northstar West
P.O. Box 534
Minneapolis, MN 55440-0534
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(b) If to Company:
Human Resources Manager
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
10.4 Allocation of Responsibility. The responsibilities and obligations of the
Trustee shall be strictly limited to those set forth in this Agreement. Except
to the extent imposed by ERISA, no fiduciary of the Plan shall have the duty to
question whether any other fiduciary is fulfilling all of the responsibility
imposed upon such other fiduciary by ERISA or by any regulations or rulings
issued thereunder. The Trustee shall not be responsible in any way or any manner
in which the Company or the Administrator carry out their respective
responsibilities under this Agreement or, more generally, under the Plan.
10.5 Execution of Agreement. This Agreement may be executed in any number of
counterparts and each fully executed counterpart shall be deemed an original.
10.6 ERISA Bond. Company hereby represents and warrants that it has obtained a
fidelity bond that complies with the bonding provisions of Section 412 of ERISA
and that the bond covers every fiduciary of the Plan and every person who
handles funds or other property of the Plan including the Trustee and its
agents, if any.
10.7 Loans to Participants. Loans to Participants as provided for in the Plan
shall be granted and administered by the Administrator. The Trustee shall
distribute cash to such Participants who are granted loans in such amount and at
such times as the Administrator shall from time to time direct in writing or by
any other method authorized by the Administrator. Loan payments collected by the
Administrator shall be forwarded to the Trustee. The amount of such loans shall
be carried by the Trustee as an asset of the trust equal to the combined unpaid
principal balance of all Participants. The Trustee shall rely conclusively upon
the determination of the Administrator with respect to the amount of the
combined unpaid principal balance of all Participants. The Trustee shall have no
responsibility (1) to ascertain whether a loan complies with the provisions of
the Plan, (2) for the decision to grant a loan, or (3) for the collection and
repayment of a loan.
10.8 Severability. If any provisions of this Agreement shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof and this Agreement shall be construed and enforced as if such
provision, to the extent invalid or unenforceable had not been included.
17
<PAGE>
10.9 Effective Date. The effective date of this Agreement shall be the date
assets of the Trust Fund are received and accepted by the Trustee.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
SCHEIN PHARMACEUTICAL, INC
By: /s/ Oliver N. Esman
--------------------------------------
Title: V.P. Human Resources
-----------------------------------
AMERICAN EXPRESS TRUST COMPANY
By: /s/ [ILLEGIBLE]
--------------------------------------
Title: Vice President/Senior Trust Officer
-----------------------------------
18
<PAGE>
SCHEDULE A
Participating Plans as of October 1, 1997:
The Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates
The Retirement Plan of Schein Bayer Pharmaceutical Services, Inc.
<PAGE>
EXHIBIT C
[LOGO]
Trust
================================================================================
AMERICAN EXPRESS TRUST INCOME FUND II
Investment Guidelines
================================================================================
American Express Trust Income Fund II invests exclusively in units of
participation issued by the American Express Trust Income Fund I, and pays
American Express Trust a fee for managing the Fund. The fee is equal, on an
annualized basis, to 0.45% of the Fund's daily net assets, and is accrued daily
as an expense of the Fund.
The investment guidelines for the American Express Trust Income Fund I are as
follows:
I. INVESTMENT OBJECTIVE
The objective of this Fund is to preserve principal and income while
maximizing current income.
The Declaration of Trust - American Express Trust Collective Investment
Funds for Employee Benefit Trusts, as amended from time to time, is hereby
made a part of these guidelines by reference. The Fund will be managed in
compliance with the provisions of ERISA at all times.
II. INVESTMENTS
A. The Fund may invest in Guaranteed Investment Contracts, Bank
Investment Contracts, Separate Account GICs, synthetic GICs and
other stable value investments that are GIC alternatives
(hereinafter collectively referred to as "Contracts"). The Fund may
also invest in collective investment funds which invest primarily in
the kinds of investments permitted by this Section II.
B. The Fund may invest in short-term securities issued or guaranteed as
to principal by the government of the United States or by
instrumentalities or agencies thereof ("U.S. Government
Securities"), repurchase agreements collateralized by U. S.
Government Securities, bank certificates of deposit, time deposits
(including certificates of deposit and time deposits denominated in
Eurodollars), bankers acceptances and letters of credit issued by
U.S. banks and U.S. subsidiaries or branches of foreign banks with
capital, surplus and undivided profits (as of the date of the most
recently published annual financial statements) in excess of $100
million.
<PAGE>
The Fund may also invest in readily marketable short-term commercial
paper, and floating rate notes rated (on the date of investment) A-1
or P-1 by Standard & Poor's Corporation (S&P) or by Moody's
Investors Service Inc. (Moody's), respectively. Investments may also
be made in the American Express Trust Money Market Fund I or in
other short-term pooled investment funds, provided the funds invest
primarily in the kinds of investments permitted by this Section
II.B. of the Guidelines.
C. No other categories of investment are contemplated for inclusion in
the Fund's portfolio at this time. All assets of the Fund must meet
American Express Trust's internal credit quality standards at the
time of purchase.
III. ASSET MIX
The Fund shall maintain short-term investments of at least 10% of Fund
assets. At IDS Trust's discretion, up to 100% of the Fund may be placed in
short-term investments.
The Fund shall also maintain Contracts which provide for benefit
responsive payments, such that the value of the benefit responsive
Contracts plus short-term investments equals at least 25% of Fund assets.
IV. MATURITY
Average maturity of all Fund assets will normally range between 2.0 and
3.5 years. The Fund may purchase assets with no stated maturity; such
assets will be treated as having a maturity date as of the date the asset
may be liquidated at book value or converted at book value to a fixed
maturity asset. Certain assets will be treated as having a maturity date
equal to the asset's duration or average maturity, when that is more
representative of the asset's true maturity than the final maturity date.
V. DIVERSIFICATION
The Fund may purchase Contracts from any one issuer such that the total
value of Contracts from that issuer is not more than fifteen percent of
Fund assets at the time of purchase. For synthetic GICs or GIC
alternatives the issuer will be treated, for diversification purposes, as
the combination of the book value payment guarantor and investment adviser
for the underlying assets. Contracts with any one book value payment
guarantor will be limited to no more than twenty-five percent of Fund
assets at the time of purchase.
VI. WITHDRAWALS
All withdrawals from the Fund will be handled as expeditiously as possible
without sacrificing the principal of the Fund. Plan sponsors making this
Fund available to their plan's participants should view this as a
long-term commitment between the American Express Trust Income Fund I and
the sponsor's plan.
<PAGE>
Only those qualified plans that provide for individual participant
accounts will be eligible to invest in this Fund. As Trustee of the Income
Fund I, American Express Trust will honor, on a timely basis, individual
participant's requests for withdrawal from the Fund. The Fund maintains
short-term investments and certain benefit responsive contracts for
liquidity purposes to help meet individual participant's withdrawal
requests.
It is intended that the Fund's investments will be held to maturity under
usual circumstances. A substantial portion of this Fund will be invested
in Contracts which may not be readily liquidated without substantial loss
of principal. As a result, up to one year may be taken to honor a request
for withdrawal originating from a participating plan's sponsor. In the
event of such a deferred withdrawal, the Fund's unit value would be
determined as of the close of business on the business day prior to the
date the withdrawal actually took place, not as of the date of the
original request for withdrawal by the participating plan's sponsor.
VII. VALUATION
All investments held in the Fund's portfolio will be valued in accordance
with the provisions of the Declaration of Trust.
We have reviewed these Investment Guidelines and hereby affirm that they
are in accord with the Investment Policy of the qualified retirement plan
for which utilization of this Collective Fund is intended.
Please type or print.
NAME: Oliver N. Esman
---------------------------
TITLE: V.P. Human Resources
---------------------------
COMPANY: Schein Pharmaceutical, Inc.
---------------------------
DATE: 9/30/97
---------------------------
SIGNATURE: /s/ Oliver N. Esman
---------------------------------------
<PAGE>
Schein Pharmaceutical, Inc.
BALANCED LIFESTYLE FUND
Investment Guidelines
I. Investment Objective
The Balanced Lifestyle Fund ("Fund") seeks to create a diversified
portfolio with a balanced risk profile consistent with individuals who
wish to have the majority of their assets in Fixed Income and Growth and
Income securities. The Fund invests in the Schein Pharmaceutical, Inc.
Pooled Stable Value Fund, PIMCO Total Return Fund (Administrative Class),
Vanguard Growth and Income Portfolio, T. Rowe Price International Stock
Fund, and the PBHG Growth Fund. The Lifestyle Fund will be managed in
compliance with the provisions of ERISA at all times.
II. Investments
A. Stable Capital
Fifteen percent of new investments in the Fund shall be invested in
the Pooled Stable Value Fund, a pooled GIC fund. The investment
objective of the Pooled Stable Value Fund is to preserve principle
and income while maximizing current income.
B. Fixed Income
Thirty-five percent of new investments in the Fund shall be invested
in the PIMCO Total Return Fund (Administrative Class). The
investment objective of the PIMCO Total Return Fund (Administrative
Class) is to maximize total return, while preserving capital. The
PIMCO Total Return Fund (Administrative Class) invests in U.S.
Government and corporate debt securities, mortgage and other asset
backed securities. While the goal is to protect investments, this
fund does invest in below grade bonds and international bonds.
C. Growth and Income
Thirty percent of new investments in the Fund shall be invested in
the Vanguard Growth and Income Portfolio. The investment objective
of the Vanguard Growth and Income Portfolio is to achieve a total
rate of return that is greater than that of the S&P 500 Index. This
find invests in securities included in the S&P 500 Index.
D. Growth
Ten percent of new investments in the Fund shall be invested in the
T.Rowe Price International Stock Fund and ten percent in the PBHG
Growth Fund. The investment objective of the T.Rowe Price
International Stock Fund is long-term growth of capital by investing
primarily in established foreign companies. The investment objective
of the PBHG
<PAGE>
Growth Fund is capital appreciation. The PBHG Growth Fund invests
predominantly in common stocks of small and mid-sized U.S. growth
companies.
III. Rebalancing
American Express Trust Company shall be responsible for rebalancing the
Fund to the initial target allocation percentages on a quarterly basis, on
the business day prior to the last business day of each quarter. The
target allocation percentages are as follows:
15% Pooled Stable Value Fund
35% PIMCO Total Return Fund (Administrative Class)
30% Vanguard Growth and Income Portfolio
10% T.Rowe Price International Stock Fund
10% PBHG Growth Fund
IV. Investment Agent Accounting Fee
American Express Trust Company will act as investment agent in regards to
operational accounting functions. The investment agent accounting fee for
this service will be twenty-five basis points until March 31, 1998.
Beginning April 1, 1998, the fee will be twenty basis points. This expense
will not be factored into the daily NAV, but billed quarterly directly to
Schein Pharmaceutical, Inc. for payment by the Company or taken from the
forfeitures held within the Plan, as directed by the Company.
These Investment Guidelines have been reviewed and are in accord with the
investment policy of the qualified retirement plan for which investment is
intended.
Schein Pharmaceutical, Inc. delegates it's authority to appoint an investment
manager or to select the individual funds to be used in designing the blended
portfolios that will be used in The Retirement Plan of Schein Pharmaceutical,
Inc. & Affiliates ("Plan"), to the Committee for the Plan. The Committee accepts
the appointment as the selector and the investment manager of the above
Lifestyle Fund.
The Committee for the Plan agrees that by accepting this appointment, the
committee individually and jointly assumes the same powers, responsibilities and
liabilities that an investment manager would have and further will be held to
the same standard that all investment managers would be held.
<PAGE>
Schein Pharmaceutical, Inc.
SIGNED: /s/ Oliver N. Esman
-----------------------------
TITLE: Vice President
------------------------------
DATE: 10-23-97
-------------------------------
Schein Pharmaceutical, Inc. Committee
SIGNED: /s/ Oliver N. Esman
-----------------------------
TITLE: Vice President
------------------------------
DATE: 10-23-97
-------------------------------
<PAGE>
Schein Pharmaceutical, Inc.
CONSERVATIVE LIFESTYLE FUND
Investment Guidelines
I. Investment Objective
The Conservative Lifestyle Fund ("Fund") seeks to create a diversified
portfolio with a conservative risk profile consistent with individuals who
wish to have the majority of their assets in Stable Capital and Fixed
Income securities. The Fund invests in the Schein Pharmaceutical, Inc.
Pooled Stable Value Fund, PIMCO Total Return Fund (Administrative Class),
Vanguard Growth and Income Portfolio, T. Rowe Price International Stock
Fund, and the PBHG Growth Fund. The Lifestyle Fund will be managed in
compliance with the provisions of ERISA at all times.
II. Investments
A. Stable Capital
Forty percent of new investments in the Fund shall be invested in
the Pooled Stable Value Fund, a pooled GIC fund. The investment
objective of the Pooled Stable Value Fund is to preserve principle
and income while maximizing current income.
B. Fixed Income
Thirty percent of new investments in the Fund shall be invested in
the PIMCO Total Return Fund (Administrative Class). The investment
objective of the PIMCO Total Return Fund (Administrative Class) is
to maximize total return, while preserving capital. The PIMCO Total
Return Fund (Administrative Class) invests in U.S. Government and
corporate debt securities, mortgage and other asset backed
securities. While the goal is to protect investments, this fund does
invest in below grade bonds and international bonds.
C. Growth and Income
Twenty percent of new investments in the Fund shall be invested in
the Vanguard Growth and Income Portfolio. The investment objective
of the Vanguard Growth and Income Portfolio is to achieve a total
rate of return that is greater than that of the S&P 500 Index. This
fund invests in securities included in the S&P 500 Index.
D. Growth
Five percent of new investments in the Fund shall be invested in the
T. Rowe Price International Stock Fund and five percent in the PBHG
Growth Fund. The investment objective of The T. Rowe Price
International Stock Fund is long term growth of capital by investing
primarily in established foreign companies. The investment objective
of the PBHG
<PAGE>
Growth Fund is capital appreciation. The PBHG Growth Fund invests
predominantly in common stocks of small and mid-sized U.S. growth
companies.
III. Rebalancing
American Express Trust Company shall be responsible for rebalancing the
Fund to the initial target allocation percentages on a quarterly basis, on
the business day prior to the last business day of each quarter. The
target allocation percentages are as follows:
40% Pooled Stable Value Fund
30% PIMCO Total Return Fund (Administrative Class)
20% Vanguard Growth and Income Portfolio
5% T.Rowe Price International Stock Fund
5% PBHG Growth Fund
IV. Investment Agent Accounting Fee
American Express Trust Company will act as investment agent in regards to
operational accounting functions. The investment agent accounting fee for
this service will be twenty-five basis points until March 31, 1998.
Beginning April 1, 1998, the fee will be twenty basis points. This expense
will not be factored into the daily NAV, but billed quarterly directly to
Schein Pharmaceutical, Inc. for payment by the Company or taken from the
forfeitures held within the Plan, as directed by the Company.
These Investment Guidelines have been reviewed and are in accord with the
investment policy of the qualified retirement plan for which investment is
intended.
Schein Pharmaceutical, Inc. delegates it's authority to appoint an investment
manager or to select the individual funds to be used in designing the blended
portfolios that will be used in The Retirement Plan of Schein Pharmaceutical,
Inc. & Affiliates ("Plan"), to the Committee for the Plan. The Committee accepts
the appointment as the selector and the investment manager of the above
Lifestyle Fund.
The Committee for the Plan agrees that by accepting this appointment, the
committee individually and jointly assumes the same powers, responsibilities and
liabilities that an investment manager would have and further will be held to
the same standard that all investment managers would be held.
<PAGE>
Schein Pharmaceutical, Inc.
SIGNED: /s/ Oliver N. Esman
-----------------------------
TITLE: Vice President
------------------------------
DATE: 10-23-97
-------------------------------
Schein Pharmaceutical, Inc. Committee
SIGNED: /s/ Oliver N. Esman
-----------------------------
TITLE: Vice President
------------------------------
DATE: 10-23-97
-------------------------------
<PAGE>
Schein Pharmaceutical, Inc.
AGGRESSIVE LIFESTYLE FUND
Investment Guidelines
I. Investment Objective
The Aggressive Lifestyle Fund ("Fund") seeks to create a diversified
portfolio with an aggressive risk profile consistent with individuals who
wish to have the majority of their assets in Growth and Income and Growth
securities. The Fund invests in the PIMCO Total Return Fund
(Administrative Class), Vanguard Growth and Income Portfolio, T. Rowe
Price International Stock Fund, and the PBHG Growth Fund. The Lifestyle
Fund will be managed in compliance with the provisions of ERISA at all
times.
II. Investment
A. Fixed Income
Twenty-five percent of new investments in the Fund shall be invested
in the PIMCO Total Return Fund (Administrative Class). The
investment objective of the PIMCO Total Return Fund (Administrative
Class) is to maximize total return, while preserving capital. The
PIMCO Total Return Fund (Administrative Class) invests in U.S.
Government and corporate debt securities, mortgage and other asset
backed securities. While the goal is to protect investments, this
fund does invest in below grade bonds and international bonds.
B. Growth and Income
Forty-five percent of new investments in the Fund shall be invested
in the Vanguard Growth and Income Portfolio. The investment
objective of the Vanguard Growth and Income Portfolio is to achieve
a total rate of return that is greater than that of the S&P 500
Index. This find invests in securities included in the S&P 500
Index.
C. Growth
Fifteen percent of new investments in the Fund shall be invested in
the T.Rowe Price International Stock Fund and fifteen percent in the
PBHG Growth Fund. The investment objective of the T.Rowe Price
International Stock Fund is long-term growth of capital by investing
primarily in established foreign companies. The investment objective
of the PBHG Growth Fund is capital appreciation. The PBHG Growth
Fund invests predominantly in common stocks of small and mid-sized
U.S. growth companies.
III. Rebalancing
American Express trust company shall be responsible for rebalancing the
Fund to the initial target allocation percentages on a quarterly basis, on
the business day
<PAGE>
prior to the last business day of each quarter. The target allocation
percentages are as follows:
25% PIMCO Total Return Fund (Administrative Class)
45% Vanguard Growth and Income Portfolio
15% T.Rowe Price International Stock Fund
15% PBHG Growth Fund
IV. Investment Agent Accounting Fee
American Express Trust Company will act as investment agent in regards to
operational accounting functions. The investment agent accounting fee for
this service will be twenty-five basis points until March 31, 1998.
Beginning April 1,1998, the fee will be twenty basis points. This expense
will not be factored into the daily NAV. but billed quarterly directly to
Schein Pharmaceutical, Inc. for payment by the Company or taken from the
forfeitures held within the Plan, as directed by the Company.
These Investment Guidelines have been reviewed and are in accord with the
investment policy of the qualified retirement plan for which investment is
intended.
Schein Pharmaceutical, Inc. delegates it's authority to appoint an investment
manager or to select the individual funds to be used in designing the blended
portfolios that will be used in The Retirement Plan of Schein Pharmaceutical,
Inc. & Affiliates ("Plan"), to the Committee for The Plan. The Committee accepts
the appointment as the selector and the investment manager of the above
Lifestyle Fund.
The Committee for the Plan agrees that by accepting this appointment, the
committee individually and jointly assumes the same powers, responsibilities and
liabilities that an investment manager would have and further will be held to
the same standard that all investment managers would be held.
<PAGE>
Schein Pharmaceutical, Inc.
SIGNED: /s/ Oliver N. Esman
-----------------------------
TITLE: Vice President
------------------------------
DATE: 10-23-97
-------------------------------
Schein Pharmaceutical, Inc. Committee
SIGNED: /s/ Oliver N. Esman
-----------------------------
TITLE: Vice President
------------------------------
DATE: 10-23-97
-------------------------------
<PAGE>
Schein Pharmaceutical, Inc.
The Retirement Plan of Schein Pharmaceutical, Inc.
& Affiliates
Administrative Services Agreement
<PAGE>
Schein Pharmaceutical, Inc.
The Retirement Plan of Schein Pharmaceutical, Inc.
& Affiliates
Administrative Services Agreement
Table of Contents
PREAMBLE ......................................................................1
Article I. DEFINITIONS ....................................................1
I.A. Agreement
I.B. American Express Participant Services Line (Service Line)
I.C. Business Day
I.D. Deny
I.E. ExpressLink(SM)
I.F. Final Conversion Date
I.G. Grant
I.H. Hardship Loans
I.I. Investment Fund(s)
I.J. Participant
I.K. Performance Guarantee
I.L. PIN
I.M. Plan Text
I.N. Prior Recordkeeper
I.O. Prior Trustee
I.P. Process
I.Q. Reverse Feed
I.R. Transaction
I.S. Transaction Guidelines
I.T. Trustee
Article II. RECORDKEEPING CONVERSION SERVICES ..............................4
Article III. ONGOING SERVICES ...............................................5
III.A. Investment and Allocation of Plan Contributions
III.B. Information and Transaction Requests
Article IV. MISCELLANEOUS ..................................................8
IV.A. Services
IV.B. Reports to the Company
IV.C. Reports to Participants
IV.D. ExpressLink(SM)
IV.E. IRC ss.401(k) and IRC ss.401(m) Nondiscrimination
Testing
IV.F. IRC ss.415(c) Compliance Testing
IV.G. PIN Maintenance
IV.H. Domestic Relations Orders
<PAGE>
IV.I. Required Minimum Distributions
IV.J. Distributions Under $5,000
IV.K. Service of Subpoenas or Other Legal Process
IV.L. Employee, Participant, and Beneficiary Data
IV.M. Participant Disability
IV.N. Participant Reinstatements
IV.0. Forms
IV.P. Authorized Representatives
IV.Q. Service Fees and Express
IV.R. Plan Amendments and Other Changes
IV.S. Liability and Indemnification
IV.T. Termination of Agreement
IV.U. Amendment, Modification or Waiver of Agreement
IV.V. No Assignment
IV.W. Confidential Information
IV.X. Entirety of Agreement
IV.Y. Validity
IV.Z. Construction and Consent to Jurisdiction
IV.AA. Computer System Maintenance
IV.AB. Counterparts
IV.AC. Headings
IV.AD. Notice and Waiver of Notice
IV.AE. Pooled Fund Agreements
IV.AF. Verification of Account Information
Exhibit A
DELEGATION OF CERTAIN MINISTERIAL FUNCTIONS .................................A.l
Exhibit B
OPERATING PROCEDURES FOR THE PROCESSING OF DELEGATED MINISTERIAL
FUNCTIONS ...................................................................B.1
Article I. Procedures Applicable to All Transactions
Article II. Procedures Applicable to Beneficiary Services
Article III. Procedures Applicable to Changes of Contribution Rates,
Suspensions, or Resumption of Contributions
Article IV. Procedures Applicable to Rollovers to the Plan
Article V. Procedures Applicable to Participant Loans
Article VI. Procedures Applicable to Participant Hardship Loans
Article VII. Procedures Applicable to a Single-sum Loan Payoff
Article VIII. Procedures Applicable to In-service Withdrawals (Excluding Direct
Rollovers)
Article IX. Procedures Applicable to Distributions upon Termination of
Employment of Disability (Excluding Direct Rollovers)
Article X. Procedures Applicable to Distributions in the Event of Death of a
Participant
Article XI. Procedures Applicable to Direct Rollovers from the Plan
<PAGE>
Exhibit C
AUTHORIZED REPRESENTATIVES ..................................................C.1
Exhibit D
FEE SCHEDULE ................................................................D.1
Exhibit E
CONSERVATIVE LIFESTYLE FUND .................................................E.1
Exhibit F
BALANCED LIFESTYLE FUND .....................................................F.1
Exhibit G
AGGRESSIVE LIFESTYLE FUND ...................................................G.1
Exhibit H
POOLED GIC SERVICES AGREEMENT ...............................................H.1
Exhibit I
Performance Guarantee .......................................................I.1
<PAGE>
Schein Pharmaceutical, Inc.
The Retirement Plan of Schein Pharmaceutical, Inc. & Affiliates
Administrative Services Agreement
October 1, 1997
THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is entered into and made
effective as of October 1, 1997 by and among Schein Pharmaceutical, Inc., a
corporation organized under the laws of the State of Delaware (the "Company"),
the "Plan" Committee, and American Express Trust Company, a corporation
organized under the laws of the State of Minnesota ("American Express Trust").
Witnesseth
WHEREAS, the Company has established and continues to maintain The Retirement
Plan of Schein Pharmaceutical, Inc. & Affiliates, as amended, (the "Plan") for
certain eligible employees of the Company and its participating subsidiaries;
and
WHEREAS, the Committee has been assigned certain responsibilities with respect
to administration of certain aspects of the Plan; and
WHEREAS, the Committee desires to have American Express Trust furnish certain
ministerial services that are necessary in the administration of certain aspects
of the Plan; and
WHEREAS, American Express Trust is willing to provide such services in
accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
in this Agreement, the Committee, and American Express Trust hereby agree to the
following terms and conditions:
I. DEFINITIONS
For purposes of this Agreement, the following words and phrases will have
the meanings stated below unless a different meaning is specified:
A. "Agreement" means this Administrative Services Agreement and each of
the Exhibits, Exhibits A through H attached hereto.
Page 1
<PAGE>
B. "American Express Participant Services Line" or "Services Line"
means the 24-hour toll-free telephone service line made available to
Participants after the Final Conversion Date to request account
information and Transactions. The Participant will initially access
a front end voice mail system, and will be given the option to use
the 24-hour interactive voice response system or to speak with a
service representative on any Business Day between 6:00 a.m. Central
time and 9:00 p.m. Central time.
C. "Business Day" means any day the New York Stock Exchange is open for
business.
D. "Deny" (or "Denies" or "Denied" or "Denial" as used in context)
means the action taken by American Express Trust to refuse to
execute a Transaction. American Express Trust will have no
discretion to Deny a Transaction but will Process each Transaction
in accordance with the Transaction Guidelines and in accordance with
the procedures described in Exhibit B of the Agreement.
E. "ExpressLink(SM)" is a pc application that resides at Company's
location and integrates remote access technologies to allow the
Company to access Participant level information, send and receive
electronic mail, view, download and print monthly reports, and query
on plan level information.
F. "Final Conversion Date" means the Business Day on which all of the
following are completed: 1) account balances of Participants as
provided by the Prior Recordkeeper are reconciled to assets of the
Plan received by the Trustee from the Prior Trustee; 2) Participant
account balances are established on the American Express Trust
recordkeeping system and invested in the Investment Funds then
comprising the trust for the Plan; 3) investment gains or losses
from the Business Day on which assets are received from the Prior
Trustee through the current Business Day are allocated to
Participant accounts on the American Express Trust recordkeeping
system; and 4) total Participant account balances on the American
Express Trust recordkeeping system are reconciled to total assets of
the Plan. See also Article II.E of this Agreement.
G. "Grant" (or "Grants" or "Granted" as used in context) means the
action taken by American Express Trust to execute a Transaction
American Express Trust will have no discretion to Grant a
Transaction, but will Process each
Page 2
<PAGE>
Transaction in accordance with the Transaction Guidelines and in
accordance with the procedures described in Exhibit B of this
Agreement.
H. "Hardship Loan(s)" means one or more loans taken due to a hardship
on the part of the participant. Valid hardships are uninsured
medical expenses, purchase of a primary residence, post-secondary
education assistance, or prevention of foreclosure of primary
residence.
I. "Investment Fund(s)" means one or more of the investment funds under
the Plan established by the Trustee at the direction of the
Committee.
J. "Participant" means a participant in the Plan.
K. "Performance Guarantee" means specific time standards developed by
American Express Trust for the execution of Transactions and the
provision of reports. These standards will be communicated to the
Committee after two quarterly cycles of Plan operation following
Final Conversion Date and agreed upon by the Company and American
Express Trust.
L. "PIN" means the personal identification number assigned by American
Express Trust to a Participant.
M. "Plan Text" means the specific text approved by the Committee and
used by service representatives in communicating Plan provisions to
Participants via the Service Line.
N. "Prior Recordkeeper" means Mercer, participant recordkeeper for the
Plan prior to October 1, 1997.
0. "Prior Trustee" means State Street, trustee of the trust established
for assets of the Pan prior to October 1, 1997.
P. "Process" (or "Processed" or "Processing" as used in context) means
the tasks that comprise American Express Trust's review and
execution of or refusal to execute a Transaction, and the production
and mailing of forms, checks, and written confirmations relative to
a particular Transaction.
Q. "Reverse Feed" means the Bi-weekly transmission of data from
American Express Trust to the Company, by means of magnetic tape or
other electronic medium, as mutually agreed upon by American Express
Trust and the Company, in American Express Trust's format.
R. "Transaction" means an activity or process permitted under the terms
of the Plan and listed in Exhibit A of this Agreement.
Page 3
<PAGE>
F. Between October 1, 1997 and Final Conversion Date, no Plan activity
will be implemented by American Express Trust except the processing
of contributions to the Plan. Participants will not be allowed to
transfer any portion of their account balance among the Investment
Funds from October 1, 1997 until the Services Line is initially made
available to Participants.
III. ONGOING SERVICES
A. Investment and Allocation of Plan Contributions
1. On a bi-weekly basis, the Company will provide to American
Express Trust, by means of magnetic tape or other electronic
data transmission, accurate employee contribution data,
employer contribution data, and indicative data, and loan
payment data for each Participant, in American Express Trust's
format (the "Company's Data Transmission"). American Express
Trust will reasonably rely on the accuracy and completeness of
the data provided by the Committee in the discharge of
American Express Trust duties.
2. The information required in Article III.A.1 above will be
accompanied by control totals that identify the total number
of records and dollar amount of contributions and loan
payments. Upon confirming the data is complete, accurate and
balanced, American Express Trust will request a wire transfer
from the Company for the amount of aggregate contributions and
loan payments. The request will be made as soon as
administratively possible, and in no event will the request
for the wire transfer be later than five (5) Business Days
after receipt by American Express Trust of complete, accurate
and balanced data from the Company.
3. If contributions and loan payments are received by American
Express Trust before 3:00 p.m. Central time, American Express
Trust will deposit the contributions and loan payments in the
Investment Funds and allocate them to Participant accounts on
the same Business Day, based upon Participant investment
elections then in effect and recorded on the American Express
Trust recordkeeping system. If contributions and loan payments
are received by American Express Trust at or after 3:00 p.m.
Central time, the contributions and loan payments will be
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deposited and allocated the next Business Day in the manner
described above.
B. Information and Transaction Requests
1. After the Final Conversion Date, Participants may contact
American Express Trust to request information or Transactions
in accordance with the delegation to American Express Trust by
the Committee of the ministerial functions identified in
Exhibit A and described in Exhibit B.
2. The Services Line will be opened for use by all Participants
on the first Business Day following the Final Conversion Date;
provided, however, that such opening will be deferred to the
Business Day next following if such first Business Day should
coincide with any of the following:
a. the 15th and 16th Business Days following the end of
each calendar quarter;
b. the Mondays following the 15th and 16th Business Days
following the end of each calendar quarter; and
c. the first Business Day following January 1, Easter,
Memorial Day, July 4, Labor Day and Christmas Day.
In the event the Business Day next following the first
Business Day should also coincide with any of the above days,
the opening will be deferred to the next Business Day which
does not so coincide. After the Services Line is made
available to Participants, all Participant requests for
information or Transactions will be made by means of the
Services Line unless otherwise agreed to in writing by
American Express Trust and the Committee.
American Express Trust will provide each Participant
with a PIN for use when initiating a request for information
or a Transaction. The Company agrees that a Participant will
be unable to access his or her account until he or she has
received a PIN. The Company agrees that American Express Trust
will verify the identity of a Participant requesting such
information or Transaction solely by means of obtaining the
Participant's Social Security number and PIN. In the event a
Participant does not provide American Express Trust with the
correct Social Security number and PIN, the Company directs
American Express Trust to refuse to Process the Participant's
request.
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If the Participant cannot remember the PIN assigned to him or
her, American Express Trust will send the Participant a PIN
confirmation letter indicating the Participant's PIN. Upon
receipt of the PIN confirmation letter, the Participant must
again contact American Express Trust to access his or her
account. The Company agrees that American Express Trust's
records will be binding on all parties.
3. Participant requests made via the Services Line to transfer
funds among the Investments Funds or change investment
allocations of future Plan contributions or existing balances,
if received by American Express Trust before 3:00 p.m. Central
time any Business Day, will be executed on the same Business
Day. A Participant's transfer or investment allocation change
request made via the Services Line and received at or after
3:00 p.m. Central time will be executed the next Business Day.
Confirmations of investment transfers and investment
allocation changes will be mailed to Participants at the
address listed on the American Express Trust recordkeeping
system within three (3) Business Days of the completed
transfer or change. If a Participant makes an investment
transfer or change to a mutual fund or an American Express
SmartPartners(SM) fund that is an Investment Fund in which the
Participant has not previously been invested, American Express
Trust will include the most recent prospectus for that
Investment Fund with the confirmation.
4. At any time during any day of the year (except during periods
of system maintenance or repair and information updates), a
Participant may access the interactive voice response system
to inquire as to the following: 1) value or the Participant's
account, 2) the Participant's contribution rate, 3)
Participant loans outstanding and loan amount available, 4)
current value and performance of the Investment Funds, 5)
current elections among the Investment Funds, 6) current
contribution rates, 7) recent activity within the
Participant's account, 8) in-service withdrawal amount
available and 9) such additional areas of inquiry as may be
incorporated into the interactive voice system in the future.
Participants may also access the interactive voice response
system to request the following Transactions: 1) transfer of
funds among
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Investment Funds, by percentage, 2) change in investment
allocation of future Plan contributions, 3) change in
investment allocation of existing balances, 4) PIN
maintenance, 5) initiation of loans, 6) initiation of
in-service withdrawals (except hardship withdrawals), 7)
initiation of distributions (except distributions in the form
of installments) upon termination and disability. Transactions
initiated via the interactive voice response system before
3:00 p.m. Central time on a Business Day will be Processed on
the same Business Day. Transactions initiated via the
interactive voice response system at or after 3:00 p.m.
Central time on a Business Day will be Processed the next
Business Day.
IV. MISCELLANEOUS
A. Services
The services provided by American Express Trust under the terms of
this Agreement are ministerial. Any movement of Plan assets by
American Express Trust pursuant to this Agreement will be at the
direction of the Trustee. American Express Trust is not acting as a
fiduciary with respect to the Plan as a result of the services it
provides under this Agreement.
B. Reports to the Company
Within the standards identified in the Performance Guarantee, after
the end of each month, American Express Trust will provide to the
Company a report package, and, at the Company's election, microfiche
of the administrative report. The report package will reflect
activity in each Participant's account since the last reporting
date.
C. Reports to Participants
Within the standards identified in the Performance Guarantee, after
the end of each Plan quarter, American Express Trust will provide
statements of account for every Participant. These statements will
reflect activity within the Participant's account during the
reporting period and the value of account balances as of the quarter
end, and will be mailed directly to Participants (and to
beneficiaries and alternate payees as directed by the Company) at
the address listed on the American Express Trust recordkeeping
system.
D. "ExpressLink(SM)"
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1. General. American Express Trust will provide to the Company
installation diskettes and instructions regarding the installation
at its workstation of application software necessary for the Company
to access ExpressLink to (a) retrieve certain Plan information and
reports contained in the American Express data bases (b) create its
own reports, and (c) communicate by electronic mail with the
American Express account team servicing the Plan.
2. Database Access and Integrity of Information. American Express
Trust will provide access to its data bases in allowing the Company
to retrieve information and reports and create its own reports. In
making this data available, American Express Trust will reasonably
rely on the accuracy and completeness of the data provided by the
Company. American Express Trust will not be responsible for the
integrity of the reports generated by the Company based on data
manipulated into a format other than that in which the data is made
available through the subject application.
In order to maintain the integrity of the data made available to the
Company, via ExpressLink(SM), the Company agrees as follows:
(a) The Company will identify for American Express Trust all
representatives of the Company who will have access to
ExpressLink(SM).
(b) All ExpressLink(SM) access procedures, including passwords,
used by representatives of the Company will be determined and
administered by American Express Trust and may not be
encrypted.
(c) Access to ExpressLink(SM) by representatives of the Company
will be "inquiry only" access.
(d) The Company will instruct representatives of the Company with
access to ExpressLink(SM) regarding reasonable security
procedures and will locate all ExpressLink(SM) workstations in
physically secure premises.
3. Access Availability and updating Data. Except as may be otherwise
provided here in with regard to a particular subject application,
the Company may access American Express Trust's databases to
retrieve information and/or create reports during regular business
hours - central standard time - except during periods of system
maintenance or repair and information updates.
4. Support. American Express Trust will provide reasonable user any
technical systems support to the Company relating to access to the
subject applications on ExpressLink(SM).
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E. IRC ss.401(k) and IRC ss.401(m) Nondiscrimination Testing
If the Committee has chosen nondiscrimination testing services as
indicated in Article IV Exhibit D, effective with the Plan year
beginning January 1997, American Express Trust will perform the
tests for compliance with ss.401(k) and ss.401(m) of the
Internal Revenue Code of 1986, as amended ("IRC"), based on data
supplied by the Company. The Committee will be responsible for any
resolution of questions relating to Participant data, including
compensation and contributions. Such nondiscrimination tests will be
based solely on Participant data for the Plan and will not account
for other qualified retirement plans sponsored by the Company. Test
results, including a hard copy report, will be communicated to the
Company within a mutually agreed upon time period. These tests will
be performed by American Express Trust annually or, with sufficient
prior notice, more frequently, as requested by the Committee.
Actions required to bring the Plan into compliance with the
requirements of IRC ss.ss.401(k) and 401(m) will be executed
by American Express Trust only upon written direction of the
Committee.
F. IRC ss.415(c) Compliance Testing
If the Company has chosen compliance testing as indicated in Article
IV of Exhibit D, effective with the Plan year beginning January
1997, American Express Trust will perform the test for compliance
with ss.415(c) of the IRC, based on Plan and Participant data
supplied by the Company. The Committee will be responsible for any
resolution of questions relating to Plan and Participant data,
including compensation and contributions. Generally, such compliance
test will be based solely on Plan and Participant data and will not
account for other qualified retirement plans sponsored by the
Company, unless they are defined contribution plans for which
American Express Trust provides administrative services. In the
event the Company or a related employer maintains any other defined
contribution plan for which American Express Trust does not provide
administrative services, the Committee must identify any
Participants in the Plan who are also participants in the plan for
which American Express does not provide administrative services and
must provide appropriate data for those Participants for inclusion
in the ss.415(c) test for the Plan. The ss.415(c) test will
be performed by American Express Trust annually, or with sufficient
prior notice, more frequently. as requested by the
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Committee. Test results, including a hard copy report, will be
communicated to the Company within a mutually agreed upon time
period. Actions required to bring the Plan into compliance with the
requirements of IRC ss.415(c) will be executed by American
Express Trust only upon written direction of the Committee.
G. PIN Maintenance
At any time, a Participant may, via the interactive voice response
system, change the PIN assigned to him or her. Confirmation of any
change will be mailed to the Participant at the address listed on
the American Express Trust recordkeeping system.
H. Domestic Relations Orders
American Express Trust will not have any authority or responsibility
whatsoever with respect to determining whether a Domestic Relations
Order ("DRO") qualifies as a Qualified Domestic Relations Order
("QDRO") in accordance with the definitions and provisions of IRC
ss.4.l4(p) and ss.206(d)(3) of ERISA and regulations
thereunder. Such authority and responsibility is retained by the
Company. Upon written direction from the Committee, American Express
Trust will perform certain services with respect to the DRO or the
QDRO, including, but not limited to, the following:
1. American Express Trust will restrict the account of the
Participant affected by the DRO so as not to allow specified
account activity for a time period specified by the Committee.
The Committee must notify American Express Trust when the
restriction is to be removed.
2. American Express Trust will calculate investment gains or
losses within the Participant's account during a period of
time and using a calculation formula specified by the
Committee.
3. American Express Trust will establish an account on the
American Express Trust recordkeeping system for the alternate
payee and apportion the Participant's account balance between
the Participant and the alternate payee in the manner
specified by the Committee.
4. American Express Trust will distribute the account apportioned
to the alternate payee to the alternate payee in the manner
specified by the Committee.
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Services performed by American Express Trust under this
section will be considered special services as provided in
Exhibit D and will be billed accordingly.
I. Required Minimum Distributions
On an annual basis, based on Participant data as recorded on the
American Express Trust recordkeeping system, American Express Trust
will notify the Committee of the names of Participants who may be
required to receive a minimum distribution by reason of attaining
age 70 1/2, in accordance with IRC ss.401(a)(9). Upon
confirmation from the Committee of the Participants who must receive
required minimum distributions and upon written direction from the
Committee, American Express Trust will notify the Participants who
must receive a required minimum distribution. American Express Trust
will calculate the required minimum distribution for each affected
Participant. With respect to a Participant's initial required
minimum distribution, American Express Trust will issue the
distribution before April 1 of the year following the Participant's
attainment of age 70 1/2. Thereafter, American Express Trust will
continue to issue required minimum distributions on an annual basis
by December 31 in accordance with the terms of the Transaction
Guidelines.
J. Distributions Under $5,000
On a quarterly basis, based on Participant data as recorded on the
American Express Trust recordkeeping system, American Express Trust
will notify the Committee of the names of terminated Participants
with account balances that do not exceed $5,000. Upon confirmation
from the Committee of those Participants whose account balances do
not exceed $5,000, American Express Trust will notify the affected
Participants to contact the Services Line to request a distribution
kit.
K. Service of Subpoenas or Other Legal Process
American Express Trust will not have any discretion in determining
the appropriate response to a subpoena or any other service of legal
process received by the Company regarding the Plan American Express
Trust will provide to the Company Plan records in American Express
Trust's possession that the Company reasonably deems necessary to
respond to a service of legal process. The services performed by
American Express Trust under this
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paragraph are special services as provided in Exhibit D and will be
billed accordingly.
L. Employee, Participant, and Beneficiary Data
The Company will provide American Express Trust with data for all
current employees soon-to-be eligible to participate in the Plan,
all Participants, and all terminated Participants. The data will
include: employee's or Participant's name, mailing address, Social
Security number, date of birth, employment date, status code,
termination date, if applicable, and other employee data as will be
agreed upon from time to time by American Express Trust and the
Committee. In addition, the Company will promptly forward to
American Express Trust changes to the above data, including address
changes for beneficiaries.
M. Participant Disability
The Committee will be responsible for determining, in accordance
with the provisions of the Plan and applicable law, whether a
Participant has incurred a disability, and will direct American
Express Trust of the determination of disability by providing the
appropriate status code.
N. Participant Reinstatements
If the Plan does not provide for immediate, 100% vesting of employer
contributions, in the event a terminated Participant is rehired, the
Committee will direct American Express Trust in writing as to the
process and timing of account balance reinstatements, if applicable.
O. Forms
American Express Trust may provide the Company with certain generic
forms that may be used in the administration of the Plan. These
generic forms must be reviewed and, if necessary, modified by the
Company to make the forms uniquely applicable to the Plan.
P. Authorized Representatives
Exhibit C identifies representatives of the Committee who are
authorized to direct American Express Trust on a day-to-day basis
with respect to administration of the Plan. The Company authorize
American Express Trust to rely on the information provided in
Exhibit C until notified in writing of changes to the identified
representatives.
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Q. Service Fees and Expenses
1. The Company agrees to pay American Express Trust service fees
and expenses in such amounts and at such times as are set
forth in Exhibit D. If permitted under the terms of the Plan,
the Company authorizes American Express Trust to receive
payment from the trust fund for any and all unpaid fees and
expenses. This authorization will continue to apply in the
event the Company files or declares bankruptcy and will cover
fees and expenses earned both prior to and subsequent to the
date of the bankruptcy filing.
2. In addition to the fees set forth in Exhibit D, American
Express Trust will, as part of its compensation for services
provided to the Plan, receive the interest earned on any
uninvested cash awaiting investment into or distribution from
the Plan. The Company agrees that American Express Trust may
hold uninvested cash awaiting investment or distribution
without incurring any liability for the payment of interest
earned on such uninvested cash.
3. If it is necessary for American Express Trust to repeat any
portion of its services due to incorrect or incomplete
information or direction provided by the Committee. American
Express Trust reserves the right to charge additional fees.
The correction of errors resulting from the failure of the
Committee to discharge its specific responsibilities under
this Agreement will be considered special services under
Exhibit D and will be billed accordingly.
4. Charges for services not specifically described in the
Agreement will be determined by American Express Trust at the
time of the request by the Company. Examples of special
services include special programming, custom reports, creation
of mailing labels, generation of magnetic tapes, calculation
of excess contributions, and preparation and delivery of
information for governmental filings. American Express Trust
will notify the Company of the charges for special services
prior to performance of the service.
5. American Express Trust will have the right to change the fees
specified in Exhibit D October 1, 2000. Written notice of any
change will be
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given to the Company by American Express Trust at least sixty
(60) days prior to the effective date of the change.
R. Plan Amendments and Other Changes
The Company will provide ninety (90) days advance written notice of
Company-initiated changes to the Plan that would impact American
Express Trust's provision of services identified in this Agreement
or would require American Express Trust to undertake internal
systems programming to accommodate the changes. Changes in the
Investment Funds made available to Participants will specifically be
included among such Company-initiated changes to the Plan.
S. Liability and Indemnification
1. In the event that American Express Trust, its affiliates, or
any of their directors, officers, employees, agents, or other
persons directly engaged or retained by American Express Trust
to discharge its obligations under this Agreement are
subjected to claims or demands for compensation or damages, or
are made parties to any judicial or administrative proceeding
which arises, in whole or in part, out of any function or role
of American Express Trust under this Agreement, the Company
will, subject to the limitations contained in this paragraph,
immediately advance funds necessary to indemnify and hold
American Express Trust harmless from all claims, demands,
judgments, settlements, and related costs incurred or paid by
American Express Trust or any of its directors, officers,
employees, agents, or other persons in connection therewith;
provided, however, that the Company will not be liable for any
such reimbursement of American Express Trust if the liability
underlying the claims, demands, judgments, settlements, costs,
or awards results from the gross negligence, bad faith, or
intentional misconduct of American Express Trust or any of its
directors, officers, employees, agents, or other persons
directly engaged or retained solely at the discretion of
American Express Trust to discharge its obligations under this
Agreement. With respect to any claim or action for which
indemnification will be sought against the Company pursuant to
the provisions of this paragraph, American Express Trust will
promptly, after knowledge of such claim, notify the
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Company in writing in as much detail as possible of the
existence and nature of the claim.
2. American Express Trust will use ordinary care, skill, and
reasonable diligence in the exercise of its powers and the
performance of its duties under this Agreement, but will not
be liable for any mistake of judgment or other actions taken
in good faith. Notwithstanding anything in this Agreement to
the contrary, American Express Trust will not be liable for
having acted in reliance upon Participant information (or the
lack thereof) currently made available to American Express
Trust by the Company in Processing requests for Transactions,
for having acted in reliance on the adequacy of the standard
content of the forms approved or provided by the Company for
the ongoing administration of the Plan, for following the
direction of the Committee, or for the Company's failure to
perform its duties under this Agreement. In addition, American
Express Trust will not be liable for Processing a Transaction
requested by an individual representing himself or herself as
a Participant, provided such individual provides American
Express Trust with the Participant's Social Security number
and the PIN assigned to the Participant. American Express
Trust agrees to indemnify and hold harmless the Company and
its affiliates and their directors, officers, employees, and
agents from and against all loss, damage, cost, charge,
liability, and reasonable expense (including, but not limited
to, any investigation, legal, or other fees, costs, and
expenses incurred in connection with, and any amount paid in
settlement of, any claim, action, suit, or proceeding)
resulting from or arising out of the dishonest, fraudulent, or
criminal acts, or the gross negligence, bad faith, or
intentional misconduct of American Express Trust or any of its
directors, officers, employees, agents, or other persons
directly engaged or retained solely at the discretion of
American Express Trust with respect to the performance of
services under this Agreement. With respect to any claim or
action for which indemnification will he sought against
American Express Trust pursuant to the provisions of this
paragraph, the Company will promptly, after
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knowledge of such claim, notify American Express Trust in
writing in as much detail as possible of the existence and
nature of the claim.
T. Termination of Agreement
1. This Agreement will terminate on the earliest to occur of the
following:
a. the expiration of one hundred and eighty (180) days
prior written notice of termination from either the
Company or American Express Trust,
b. any other date determined by written mutual agreement
between the Company and American Express Trust, or
c. at American Express Trust's option, upon failure of the
Company to provide proper notice of changes to the Plan
as provided in Article IV.R above.
2. In the event of termination of this Agreement, American
Express Trust will, unless the Company and American Express
Trust otherwise agree:
a. complete the Processing of all requested Transactions
for the period prior to such termination, and
b. release to the Company all pertinent records and files
relating to services rendered pursuant to this
Agreement. Services relating to the provision to the
Company of pertinent records and files will be
considered special services under Exhibit D and will be
billed accordingly.
3. If American Express Trust performs any services pursuant to
this Agreement following its termination, American Express
Trust will be entitled to service fees or other payment on the
same basis as if this Agreement had continued in effect.
U. Amendment, Modification or Waiver of Agreement
No amendment, modification or waiver of any of the provisions of
this Agreement will be binding upon the parties to this Agreement
unless made in writing and signed by duly authorized representatives
of the parties. A failure of a party to this Agreement to enforce
any provision of, to exercise any option under, or to require
performance by another party of any of the provisions of this
Agreement will in no way be construed to be a waiver of the
provision, option, or performance requirements under this Agreement.
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Nothing in this Agreement will be deemed to limit the Company's
right at any time to terminate the Plan or to amend or modify the
terms of the Plan.
V. No Assignment
No assignment of this Agreement or of any of its rights or
obligations may be made by American Express Trust without the prior
written consent of an authorized officer of the Company, and any
purported assignment without such consent will be null and void and
without effect; provided, however, American Express Trust may assign
this Agreement to another wholly-owned subsidiary or affiliate of
American Express Company.
W. Confidential Information
1. All Participant information to which American Express Trust
has access or that is furnished or disclosed to American
Express Trust or that is otherwise obtained by American
Express Trust pursuant to this Agreement will be kept
confidential and will not be disclosed, except a) to the
extent needed to fulfill the obligations of American Express
Trust under this Agreement, b) as otherwise provided in this
Agreement, c) as required by applicable law, or d) as
otherwise authorized by the Company. Both American Express
Trust and the Company will furnish to each other all
information that each may reasonably require to comply with
the terms of this Agreement.
2. All Plan documents, records, reports, and data, including data
recorded in American Express Trust's data processing systems
(the "Documentation") related to the receipt, processing, and
payment of Plan claims, including all claims histories, will
at all times be the property of the Company, subject to
American Express Trust's right to possession and use during
the continuance of this Agreement and American Express Trust's
right to maintain the Documentation in such form as American
Express Trust deems appropriate and in accordance with
standard practices. American Express Trust will retain all
Documentation as may be required by any applicable law or
regulation.
3. Upon reasonable prior request, and as permitted by law or
regulation, the Documentation will be made available to the
Company for its audit or inspection during regular business
hours at the place or places of
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business where it is maintained by American Express Trust, as
may be mutually agreeable.
4. Upon termination of this Agreement, possession of the
Documentation will be delivered or otherwise made available to
the Company in such reasonable manner, time, and place
specified by the Company, subject to an appropriate and
reasonable administrative charge as determined by American
Express Trust.
X. Entirety of Agreement
This Agreement constitutes the entire agreement between Committee
and American Express Trust with respect to the performance of the
ministerial services described herein.
Y. Validity
The invalidity or unenforceability of any provision or provisions of
this Agreement will not affect the validity or enforceability of any
other provisions of this Agreement, which will remain in full force
and effect. The invalidity or unenforceability of any portion of a
provision of this Agreement will not affect the validity or
enforceability of the balance of such provision.
Z. Construction and Consent to Jurisdiction
To the extent that state law is not preempted by provisions of the
Employee Retirement Income Security Act of 1974 or any other laws of
the United States, this Agreement will be administered, construed,
and enforced in accordance with the laws of the State of Minnesota,
without regard to its conflict of law rules.
AA. Computer System Maintenance
In the event of a disaster, American Express Trust will use its best
efforts to provide the services described in this Agreement. This
will include maintaining data backups and documented computer
recovery plans. American Express Trust's maintenance of such backups
and recovery plans does not guarantee uninterrupted availability of
computer systems.
AB. Counterparts
This Agreement may be executed in any number of counterparts, each
of which when so executed will be deemed an original, but all of
said counterparts taken together will constitute one and the same
instrument.
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AC. Headings
Section headings have been included in this Agreement for
convenience of reference only and do not constitute a part of this
Agreement.
AD. Notice and Waiver of Notice
Any notice, instruction, request, or other communication required or
contemplated by this Agreement will be given in writing and
delivered by first class mail to American Express Trust or the
Company at its address below.
1. If to American Express Trust:
American Express Trust
Account Team for The Retirement Plan of Schein
Pharmaceutical, Inc.
& Affiliates
1200 Northstar West
P.0. Box 534
Minneapolis, Minnesota 55440-0534
2. If to Company:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
Any required notice may also be provided by telecopy, telex or
facsimile. Any notice required under this Agreement may be waived in
writing by the receiving person or entity. Notice of address changes
will be provided in writing.
AE. Pooled Fund Agreements
Services agreements for the administration of pooled funds offered
as Investment Funds under the Plan are attached as Exhibits E
through H.
AF. Verification of Account Information
The Committee authorizes American Express Trust to provide
Participant account balance information to unrelated third parties
provided the Participant provides written authorization for the
release of his or her account balance information.
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<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of the Committee and
American Express Trust have executed this Agreement as of the day and year
indicated above.
Schein Pharmaceutical, Inc. American Express Trust Company
SIGNED: /s/ Oliver N. Esman SIGNED: /s/ [ILLEGIBLE]
------------------- ----------------------------------
TITLE: Vice President TITLE: Vice President/Senior Trust Officer
-------------------- -----------------------------------
DATE: 10-6-97 DATE: 10-8-97
--------------------- ------------------------------------
the "Plan" Committee
SIGNED: /s/ Oliver N. Esman
-------------------
TITLE: Vice President
--------------------
DATE: 10-6-97
---------------------
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Exhibit A
Schein Pharmaceutical, Inc.
The Retirement Plan of Schein Pharmaceutical, Inc. & Affiliates
Administrative Services Agreement
Delegation of Certain Ministerial Functions
SmartSource(SM) is an administrative services package under which American
Express Trust, pursuant to this Agreement of which this Exhibit A forms a part,
agrees to provide certain ministerial services with respect to certain
Transactions identified below.
The Committee retains all duties and powers described in the Plan, except for
the ministerial duties and powers expressly delegated to American Express Trust
herein and only to the extent of the delegation. American Express Trust and the
Company acknowledge and agree that in the event of a Participant dispute under
this Agreement, the Participant will have the right to approach the Committee
directly. The Committee will be solely responsible for resolution of Participant
disputes and will direct American Express Trust in writing as to a course of
action following resolution.
The Committee, by way of this Agreement, hereby delegates to American Express
Trust authority to Process Transactions listed below, based upon information
provided to American Express Trust, and in accordance with the Transaction
Guidelines and the procedures described in Exhibit B of this Agreement. The
Committee will retain the power and authority to direct American Express Trust,
in writing, to a different conclusion. American Express Trust reserves the right
to refer to the Committee a Transaction that would otherwise be subject to
Processing by American Express Trust in any event in which Processing of the
Transaction requires information unavailable to American Express Trust or falls
outside the parameters provided in the Transaction Guidelines. The
responsibility to Process Transactions not specifically listed below is retained
by the Committee.
American Express Trust will Process Transactions as listed below. Parenthetical
references are to sections within this Agreement that provide explanation of
services provided.
1. Process requests for transfer of funds among Investment Funds. (Article
III.B.3 of Agreement)
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<PAGE>
Exhibit A
2. Process requests for changes in investment allocation of future Plan
contributions and existing balances.
(Article III.B.3 of Agreement)
3. Pursuant to specific written direction from the Committee, notify
Participants who must receive a required minimum distribution.
(Article IV.I of Agreement)
4. Pursuant to specific written direction from the Committee, Process
requests for distributions after the death of the Participant.
(Exhibit B, Article II)
5. Process requests to make rollover contributions to the Plan.
(Exhibit B, Article IV)
6. Process requests for Plan loans.
(Exhibit B, Article V)
7. Process requests for early, single-sum loan payoff prior to termination of
the Participant's employment.
(Exhibit B, Article VII)
8. Process requests for withdrawals prior to termination of the Participant's
employment.
(Exhibit B, Article VIII)
9. Process requests for distributions after termination of the Participant's
employment or due to the disability of a Participant.
(Exhibit B, Article IX)
10. Process requests for Direct Rollover of withdrawals (including hardship
withdrawals) and distributions to an individual retirement account
("IRA"), an individual retirement annuity ("IRA"), or a qualified plan.
(Exhibit B, Article XI)
Page A.2
<PAGE>
Exhibit B
Schein Pharmaceutical, Inc.
The Retirement Plan of Schein Pharmaceutical, Inc. & Affiliates
Administrative Services Agreement
Operating Procedures for the Processing of
Delegated Ministerial Functions
I. PROCEDURES APPLICABLE TO ALL TRANSACTIONS
A. Participants may contact American Express Trust via the Services
Line 24 hours a day. Participants and employees may initiate certain
Transactions, as mutually agreed upon by American Express Trust and
the Company, through the interactive voice response system. In
addition, all Transactions may be initiated by opting to speak with
a service representative any Business Day between 6:00 a.m. Central
time and 9:00 p.m. Central time. Each call to the Services Line will
be recorded for future reference.
B. As requested by Participants the service representatives will convey
information contained in the Plan Text. No Plan Text will be
available via the interactive voice response system.
C. If a Participant requests a Transaction, any required applications
and forms will be generated and mailed to the Participant.
Applications and forms for loans (except loans taken for hardship
reasons), in-service withdrawals, and distributions will be sent in
signature-ready format, whether the request is made via the
interactive voice response system or a service representative. All
required applications and forms necessary to Process a Transaction
will be sent via first class mail to the Participant at the address
listed on the American Express Trust recordkeeping system or to the
address specified by the Participant, if different. If the requested
delivery address is different than the address on American Express
Trust's recordkeeping system, it will be the Participant's
responsibility to notify the Company of the change of address. The
Company will then forward the address change to American Express
Trust by means of the Company's Data Transmission. American Express
Trust will not complete the Processing of a loan, an in-service
withdrawal, or a distribution without the Company's confirmation of
the address change.
D. To expedite the Processing of the Transaction, American Express
Trust will provide a pre-addressed envelope that Participants may
use when returning any
Page B.1
<PAGE>
Exhibit B
required documentation to American Express Trust. If the Participant
does not use the pre-addressed envelope, the Participant must return
the required documentation to American Express Trust using the
American Express Trust address printed on the applications and
forms. If the Participant does not use the pre-addressed envelope or
the American Express Trust address printed on the application and
forms, Processing of the Transaction may be considerably delayed.
E. In order for American Express Trust to Process a Participant's
request for loans, in-service withdrawals (except hardship
withdrawals), and distribution upon termination or disability,
American Express Trust must have received from the Participant a
signed pre-authorization form authorizing such Transactions.
Providing his or her Social Security number and PIN, initiating a
request for an in-service withdrawal (except a hardship withdrawal
or a Direct Rollover) or a distribution upon termination or
disability (except a distribution in the form of installments or a
Direct Rollover), and waiving, via the Services Line, the 30-day
waiting period that would otherwise be required to elapse prior to
the execution of the withdrawal or distribution will constitute the
Participant's consent to the withdrawal or distribution and the
waiver of his or her right to a 30-day waiting period.
F. If American Express Trust is unable to Process a Participant's
request for a loan, an in-service withdrawal (except a hardship
withdrawal), or a distribution upon termination or disability
because it has not received a signed pre-authorization form from the
Participant, the Participant may request, via the service
representatives, that a pre-authorization form be sent to him or
her. The Participant must then again contact American Express Trust,
after American Express Trust's receipt of the properly completed
pre-authorization form, to request the Transaction. American Express
Trust will assume that the information on the pre-authorization form
is accurate. The participant may also request the loan paperwork
directly if he/she is unwilling to complete a pre-authorization
form.
G. For purposes of the Performance Guarantee, if a request for a loan,
an in-service withdrawal (except a hardship withdrawal), or a
distribution upon termination or disability is received before 3:00
p.m. Central time on a
Page B.2
<PAGE>
Exhibit B
Business Day, or if the properly completed applications and forms
and the required documentation for other Transactions are received
by American Express Trust before 12:00 p.m. (noon) on a Business
Day, American Express Trust will begin Processing the Transaction on
the same Business Day. If a request for a loan, an in-service
withdrawal (except a hardship withdrawal), or a distribution upon
termination or disability is received at or after 3:00 p.m. Central
time on a Business Day, or the completed applications and forms and
the required documentation for other Transactions are received by
American Express Trust at or after 12:00 p.m. (noon) Central time on
a Business Day, Processing will begin on the next Business Day.
H. If a Participant requests a loan, an in-service withdrawal (except a
hardship withdrawal), or a termination or disability distribution,
the check will be sent by American Express Trust via first class
mail to the Participant at the address listed on the American
Express Trust recordkeeping system, within the standards contained
in the Performance Guarantee.
I. For those Transactions requiring documentation, upon its receipt of
the properly completed documentation, American Express Trust will
Grant or Deny the request, based on the Transaction Guidelines.
American Express Trust will assume that the information provided by
the Participant is accurate.
J. If the request for a Transaction is Denied, American Express Trust
will, within the standards contained in the Performance Guarantee,
provide the Committee and the Participant with a written explanation
for the Denial, including any additional steps the Participant may
take to have the request considered again.
K. If the request for a Transaction is Granted, any requested check
will be sent by American Express Trust via first class mail to the
Participant at the address listed on the American Express Trust
recordkeeping system, within the standards contained in the
Performance Guarantee.
L. A Participant may request more than one Transaction during the same
call to the Services Line, except to the extent that requests for
more than one Transaction would conflict with the Transaction
Guidelines. However, on any Business Day, only one Transaction
involving a loan, an in-service withdrawal, or a transfer involving
the same Investment Fund may be
Page B.3
<PAGE>
Exhibit B
Processed via the interactive voice response system. If the
Transaction Guidelines permit multiple such Transactions, additional
such Transactions must be Processed via a service representative.
In addition, on any Business Day, if the first Transaction involving
a loan, an in-service withdrawal, or any transfer is initiated via a
service representative, and if the Transaction Guidelines permit
multiple such Transactions, no additional such Transactions may be
processed via the interactive voice response system, but must be
Processed via a service representative.
II. PROCEDURES APPLICABLE TO BENEFICIARY SERVICES
A. A beneficiary who contacts American Express Trust on any Business
Day via the Services Line will be referred to the Company. In the
event a beneficiary requests a distribution from the Plan, the
Committee will certify the death of the Participant, certify the
identity of the beneficiary or beneficiaries, and direct American
Express Trust as to the processing of any distributions from the
Plan. Any discrepancies as to who is the correct beneficiary will be
resolved by the Committee. American Express Trust will not make any
payment to a beneficiary without written direction from the
Committee.
III. PROCEDURES APPLICABLE TO CHANGES OF CONTRIBUTION RATES, CONTRIBUTION
SUSPENSIONS, OR RESUMPTION OF CONTRIBUTIONS
A. On any Business Day, a Participant may inquire as to his
contribution rate for contributions to the Plan by calling the
Services Line and requesting such information. Any participant may
change, stop or resume the amount being deducted from each paycheck
for contributions to the plan by contacting the Company.
B. Verification that the correct contribution amount is deducted from
payroll will remain the responsibility of the Participant and the
Company. The Company will be responsible for resolving any
contribution errors and will be responsible for any coordination
with its payroll service.
IV. PROCEDURES APPLICABLE TO ROLLOVERS TO THE PLAN
A. An employee or Participant, as permitted under the Transaction
Guidelines, may request, via the service representatives, a rollover
application kit. American Express Trust and the Company will agree
upon the materials to be
Page B.4
<PAGE>
Exhibit B
included in the rollover application kit. The service
representatives will respond to employee or Participant inquiries
regarding rollover procedures.
B. Upon its receipt from the employee or Participant of properly
completed rollover forms and supporting documentation, American
Express Trust will Grant or Deny the rollover application, based on
the Transaction Guidelines. American Express Trust will assume that
the information provided by the Participant is accurate.
C. If the rollover application is Denied, American Express Trust will
notify the Committee and the employee or Participant in writing. The
Company acknowledges that American Express Trust has no
responsibility to independently verify whether the employee or
Participant has received notice of tax treatment, as required under
IRC ss. 402(f), for the sum being requested to be rolled into
the Plan.
D. If the rollover application is Granted, American Express Trust will
request the rollover contribution from the employee or Participant.
American Express Trust will accept the original check from the prior
qualified plan, a certified check, a cashier's check, a money order,
or, with prior arrangements, a wire transfer. American Express Trust
will not accept personal checks.
E. Upon receipt of the rollover contribution, American Express Trust
will, within five (5) Business Days, deposit the rollover
contribution in the Investment Funds according to the Investment
Fund election indicated on the rollover application submitted by the
employee or Participant.
V. PROCEDURES APPLICABLE TO PARTICIPANT LOANS (EXCEPT HARDSHIP LOANS)
A. A Participant may request, via the Services Line, information about
the availability of a loan from the Plan. If a Participant has a
loan amount available, the Participant may use the interactive voice
response system to perform loan modeling. The Participant must speak
with a service representative to obtain the general criteria
applicable under the Plan for approval of loans.
B. The information provided by American Express Trust may include the
following: eligibility to withdraw a loan, the maximum loan amount
available at the time of the telephone call, the currently
applicable loan interest rate as
Page B.5
<PAGE>
Exhibit B
determined and provided by the Company, the date the interest rate
is next scheduled for change, and the estimated weekly or bi-weekly
payment amount based on the currently applicable interest rate and
the estimated amount of the loan. The estimated amount of the loan
will be less than the maximum amount of the loan available at the
time of the telephone call in order to account for the possibility
of downturn in the market value of the Investment Funds on the date
the proceeds for the loan are withdrawn from the Participant's
account. The method of adjustment will be mutually agreed upon
between American Express Trust and the Company. Lean modeling will
be offered upon request to assist in determining the duration of
payments and total amount of all loan payments.
C. In order for American Express Trust to process a Participant's
request for a loan from the Plan, American Express Trust must have
received from the Participant a signed pre-authorization form
authorizing loan requests.
D. If American Express Trust is unable to Process a Participant's
request for a loan because it has not received a completed
pre-authorization form from the Participant, the Participant may
request, via the service representatives, that a pre-authorization
form be sent to him or her. The Participant must then again contact
American Express Trust, after American Express Trust's receipt of
the properly completed pre-authorization form, to request a loan.
American Express Trust will assume that the information on the
pre-authorization form is accurate.
E. If a Participant requests a loan, American Express Trust will send
the appropriate loan documents, including the check representing the
amount of the loan, less any processing fees, to the Participant at
the address listed on the American Express Trust recordkeeping
system. By signing or cashing the loan check, or both, the
Participant is agreeing to the terms of the loan.
F. On a bi-weekly basis, American Express Trust will send to the
Company, via Reverse Feed, loan payment information for new loans
set up since the last Reverse Feed.
G. Upon receipt of the loan payment information for new loans, the
Company will commence payroll deductions for loan payments and
provide to American
Page B.6
<PAGE>
Exhibit B
Express Trust loan payment data and loan payments, in accordance
with Articles III.A.1 and III.A.2 of the Agreement.
H. American Express Trust will require written direction from the
Committee in order for a Participant to modify, stop, or change in
any way the payroll deduction for loan payments, except to pay off a
loan in full as provided in Article VII of this Exhibit or as
provided in the Transaction Guidelines.
I. Upon receipt of the last loan payment, American Express Trust will
indicate on the promissory note that the loan is "PAID." The
promissory note will then be sent to the Participant.
J. Upon completion of payment of a loan, American Express Trust will
notify the Company, and it will be the responsibility of the Company
to coordinate with its payroll service to stop loan payment
deductions. American Express Trust will not be liable for incorrect
deductions made by the payroll service after proper communication to
the Company by American Express Trust.
K. On a monthly basis, American Express Trust will provide the Company
with a hard copy report of the status of loan payments for each
outstanding loan for which one or more payments are overdue. The
Committee will review the report and determine if any of the loans
will be deemed in default in accordance with the Plan's written loan
procedures. The Committee will direct American Express Trust as to
any necessary action with respect to loans that are deemed by the
Committee to be in default.
L. In order not to exceed a Participant's maximum loan amount for any
twelve-month period, loans from other qualified retirement plans
maintained by the Company must be taken into account. The Company
will be responsible for monitoring a Participant's outstanding loan
balances in any other qualified retirement plan maintained by the
Company. The Committee will direct American Express Trust in the
event a Participant's maximum loan amount is exceeded.
American Express Trust will be responsible only for the calculation
of maximum amounts available for loans based on Participant accounts
in the Plan, and if a Participant requests a loan, will Process a
loan that does not exceed that maximum loan amount.
VI. PROCEDURES APPLICABLE TO PARTICIPANT HARDSHIP LOANS
Page B.7
<PAGE>
Exhibit B
A. A Participant who wishes to request a Hardship Loan will be referred
to the Company. The Company will provide the Participant with the
necessary loan paperwork and will verify the hardship loan amount
available with the American Express Trust Account Team prior to
approving the loan.
B. The Participant will send the approved, signed, loan documents to
American Express Trust for Processing.
C. American Express Trust will mail the check representing the amount
of the loan, less any loan processing fees not paid from forfeitures
or the Company as referred in Exhibit D, to the Participant at the
address listed on the American Express Trust recordkeeping system.
D. Hardship Loans will follow the procedures outlined for loans in
Exhibit B, Article V.F through Exhibit B, Article V.L.
VII. PROCEDURES APPLICABLE TO A SINGLE-SUM LOAN PAYOFF
A. A Participant may, via the Services Line, request the current status
of his or her loan. If desired, a Participant may request, via the
service representative, to pay off a loan in a single sum in advance
of the scheduled due date. The service representative will
communicate the payoff amount and the date by which American Express
Trust must receive this amount. The loan payoff must be in the form
of a certified check, a cashier's check, or a money order.
B. Upon receipt by American Express Trust of the accurate amount of a
Participant's single-sum loan payoff, American Express Trust will
indicate on the promissory note that the loan is "PAID." The
promissory note will then be sent to the Participant.
C. In the event an amount in excess of the amount required to pay off
the loan is received by American Express Trust, American Express
Trust will follow the Committee's direction regarding the handling
of the excess.
D. Upon completion of payment of a loan by single-sum payoff, American
Express Trust will notify the Company, and it will be the
responsibility of the Company to coordinate with its payroll service
to stop loan payment deductions. American Express Trust will not be
liable for incorrect deductions made by the payroll service after
proper communications to the Company by American Express Trust.
Page B.8
<PAGE>
Exhibit B
VIII. PROCEDURES APPLICABLE TO IN-SERVICE WITHDRAWALS (EXCLUDING DIRECT
ROLLOVERS)
A. A Participant may request, via the Services Line, information about
the availability of in-service withdrawals from the Plan. The
Participant must speak with a service representative to obtain the
general criteria applicable under the Plan for approval of
in-service withdrawals.
B. The information provided by the service representatives may include
the following: events for which a withdrawal can be approved, amount
available for withdrawal, and the documentation required to request
a withdrawal.
C. In order for American Express Trust to Process a Participant's
request for an in-service withdrawal (except a hardship withdrawal)
from the Plan, American Express Trust must have received from the
Participant a signed pre-authorization form authorizing such
withdrawals. Providing his or her Social Security number and PIN and
initiating a request for an in-service withdrawal (except a hardship
withdrawal or a Direct Rollover) will constitute the Participant's
consent to the withdrawal.
D. If American Express Trust is unable to Process a Participant's
request for an in-service withdrawal (except a hardship withdrawal)
because it has not received a completed pre-authorization form from
the Participant, the Participant may request, via the service
representatives, that a pre-authorization form be sent to him or
her. The Participant must then again contact American Express Trust,
after American Express Trust's receipt of the properly completed
pre-authorization form, to request an in-service withdrawal (except
a hardship withdrawal). American Express Trust will assume that the
information on the pre-authorization form is accurate.
E. If a Participant requests an in-service withdrawal (except a
hardship withdrawal), if permitted under the terms of the Plan and
Transaction Guidelines, the Participant will be given the
opportunity to waive the 30-day waiting period that would otherwise
be required to elapse prior to the execution of the withdrawal.
F. If a Participant requests a hardship withdrawal, American Express
Trust will send a withdrawal kit to the Participant. American
Express Trust and the Committee will agree upon the material to be
included in the withdrawal kit.
Page B.9
<PAGE>
Exhibit B
If the Plan, as reflected in the Transaction Guidelines,
specifically allows such waiver, the withdrawal application will
contain a section allowing the Participant to waive the 30-day
waiting period that would otherwise be required to elapse prior to
the execution of the withdrawal. The 30-day waiting period will
begin on the fifth Business Day after the withdrawal kit is mailed
to the Participant.
G. Upon receipt of a properly completed hardship withdrawal application
and any additional required documentation, American Express Trust
will review and Grant or Deny the hardship withdrawal request, based
on the Transaction Guidelines. American Express Trust will assume
that the information provided by the Participant is accurate.
H. If the hardship withdrawal request is Denied, American Express Trust
will, in writing, notify the Committee and the Participant making
the request. American Express Trust will require written direction
from the Committee to Process a hardship withdrawal request if the
documentation does not clearly meet the requirements set forth in
the Transactions Guidelines.
I. If the hardship withdrawal request is Granted, and upon a
Participant's request for other in-service withdrawals, American
Express Trust will mail the check and distribution statement, which
reports the taxable amount of the withdrawal and the amount of
federal and state tax withheld, to the Participant at the address
listed on the American Express Trust recordkeeping system.
J. For all in-service withdrawal requests, if the Plan and Transaction
Guidelines allow for waiver of the 30-day period described in
Articles VIII.E and VIII.F of this Exhibit, and if the Participant
waives the 30-day period, the check will be mailed within the agreed
upon standards. If the Participant does not waive the 30-day period,
the check will be mailed no earlier than the next Business Day
following the expiration of the 30-day period. At the Company's
election, a report of the withdrawals Processed will be provided to
the Company.
K. In the event a Participant indicates that he or she intends to
execute the in-service withdrawal in the form of a Direct Rollover.
American Express Trust will follow the procedures for the Processing
of Direct Rollovers described in Article XI of this Exhibit.
American Express Trust will withhold from a
Page B.10
<PAGE>
Exhibit B
withdrawal that qualifies as an eligible rollover distribution,
which is paid directly to a Participant, twenty percent federal
income tax and, if the check is mailed to an address in a state that
requires income tax withholding, applicable state tax withholding.
L. American Express Trust will prepare and mail IRS Form 1099-R and, if
required by the state, state income tax reporting forms, to all
Participants who have taken a withdrawal from the Plan. These forms
will be mailed by the end of January immediately following the
calendar year during which the withdrawal was made. Additionally,
American Express Trust will send corresponding information by
electronic tape to the Internal Revenue Service and in hard copy
format to the appropriate state authorities by the end of February
immediately following the calendar year during which the withdrawal
was made.
IX. PROCEDURES APPLICABLE TO DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT OR
DISABILITY (EXCLUDING DIRECT ROLLOVERS)
A. The Company will provide data to American Express Trust with respect
to Participants who have terminated employment or have been
determined by the Committee to be disabled and who are entitled to
receive a distribution under the terms of the Plan. Such data will
include, but will not be limited to, the Participant's name, Social
Security number, employment date, termination or disability status,
and termination or disability date.
B. American Express Trust will rely on the data provided by the Company
regarding terminated or disabled Participants who are eligible for
distributions and will have no duty to inquire further into the
eligibility of Participants designated by the Company as eligible to
receive a distribution.
C. A Participant who has terminated employment with the Company or who
is determined by the Committee to be disabled may request, via the
Services Line, a distribution. If the Company has not yet provided
termination or disability data to American Express Trust for the
Participant who has contacted American Express Trust, the request
will be deferred until the Company has provided the appropriate
termination or disability data.
D. In order for American Express Trust to Process a Participant's
request for a distribution upon termination or disability, American
Express Trust must have
Page B.11
<PAGE>
Exhibit B
received from the Participant a signed pre-authorization form authorizing
such distributions. Providing his or her Social Security number and PIN
and initiating a request for a distribution upon termination or disability
(except a distribution in the form of installments or a Direct Rollover)
will constitute the Participant's consent to the distribution.
E. If American Express Trust is unable to Process a Participant's
request for a termination or disability distribution because it has
not received a completed pre-authorization form from the
Participant, the Participant may, via the service representatives,
request that a pre-authorization form be sent to him or her. The
Participant must then again contact American Express Trust, upon
American Express Trust's receipt of the properly completed
pre-authorization form, to request a termination or disability
distribution. American Express Trust will assume that the
information on the pre-authorization form is accurate.
F. If the Participant requests a termination or disability
distribution, if permitted under the terms of the Plan and
Transaction Guidelines, the Participant will be given the
opportunity to waive the 30-day waiting period that would otherwise
be required to elapse prior to the execution of the distribution.
G. If the Participant requests a termination or disability
distribution, American Express Trust will mail the check and a
distribution statement, which reports the taxable amount of the
distribution and the amount of the federal and state tax withheld,
to the Participant at the address listed on the American Express
Trust recordkeeping system.
H. If the Transaction Guidelines allow for waiver of the 30-day period
described in Article IX.F of this Exhibit, and if the Participant
waives the 30-day period, the check will be mailed within the agreed
upon standards. If the Participant does not elect the waiver, the
check will be mailed no earlier than the next Business Day following
the expiration of the 30-day period. At the Company's request, a
report of the distributions Processed will be provided to the
Company.
I. If permitted under the terms of the Transaction Guidelines, the
Participant may elect distribution in the form of installments. If
the Participant so elects, American Express Trust will send a
distribution kit to the Participant, as
Page B.12
<PAGE>
Exhibit B
described in Article I.C. of this Exhibit. If the Participant elects
installment payments, American Express Trust will establish the
payments to be made at the frequency elected by the Participant. If
the installment payments are to be made over the life of the
Participant, American Express Trust will calculate installment
payment amounts using the life expectancy tables of IRC ss.72 and
the Participant's account value.
J. In the event that a Participant indicates that he or she intends to
execute the distribution in the form of a Direct Rollover, American
Express Trust will follow the procedures for the Processing of
Direct Rollovers described in Article XI of this Exhibit. American
Express Trust will withhold from a distribution that qualifies as an
eligible rollover distribution, which is paid directly to a
Participant, twenty percent federal income tax and, if the check is
mailed to an address in a state that requires income tax
withholding, applicable state withholding.
K. American Express Trust will prepare and mail IRS Form 1099-R and, if
required by the state, state income tax reporting forms, to all
Participants who have taken a distribution from the Plan. These
forms will be mailed by the end of January immediately following the
calendar year during which the distribution was made. Additionally,
American Express Trust will send corresponding information by
electronic tape to the Internal Revenue Service and in hard copy
format to the appropriate state authorities by the end of February
immediately following the calendar year during which the
distribution was made.
X. PROCEDURES APPLICABLE TO DISTRIBUTIONS IN THE EVENT OF DEATH OF A
PARTICIPANT
American Express Trust will be directed by the Committee with respect to
distributions due to the death of a Participant, in accordance with the
terms of the Plan and Article II.A of this Exhibit.
XI. PROCEDURES APPLICABLE TO DIRECT ROLLOVERS FROM THE PLAN
A. A Participant may request, via the Services Line, that an in-service
withdrawal (including a hardship withdrawal) or a distribution due
to termination of employment or disability, which the Participant
believes qualifies as an eligible
Page B.13
<PAGE>
Exhibit B
rollover distribution, be paid directly to an eligible IRA or
qualified plan in the form of a direct rollover ("Direct Rollover").
B. Upon request by the Participant for a Direct Rollover, American
Express Trust will send a withdrawal or distribution kit to the
Participant, as provided in Articles VIII and IX of this Exhibit.
C. If the request for withdrawal or distribution is Granted as provided
in Article VIII or IX of this Exhibit, and if a Participant whose
balance does not exceed $3,500 (or such greater amounts as approved
by the IRS) affirmatively elects to make a Direct Rollover, American
Express Trust will immediately Process the request without regard to
the 30-day waiting period that would otherwise be required to elapse
prior to the execution of the distribution. If a Participant whose
balance exceeds $3,500 (or such greater amounts as approved by the
IRS) affirmatively elects to make a Direct Rollover, the withdrawal
or distribution will be Processed within the time frames described
in Article VIII or IX of this Exhibit. American Express Trust will
Process the request for a Direct Rollover as follows:
1. If the Participant elects a Direct Rollover into an American
Express Trust IRA, American Express Trust will send an
application for an American Express Trust IRA to the
Participant.
2. If the Participant elects a Direct Rollover to another
qualified plan or to a non-American Express Trust IRA,
American Express Trust will inform the Participant of the
information needed to make the Direct Rollover, which will be
provided on the withdrawal or distribution application.
3. Direct Rollovers to another qualified plan or to a
non-American Express Trust IRA will be sent directly to the
Participant, unless the Participant instructs otherwise. Upon
the request of the Participant, and based on information
provided by the Participant, the check may be sent directly to
the custodian of an IRA or to the trustee of a qualified plan,
and will be made payable to the custodian or trustee.
4. Alternatively, upon the request of the Participant, and based
on information provided by the Participant, a Direct Rollover
may be
Page B.14
<PAGE>
Exhibit B
wired to the custodian or trustee. The fee for the wire
transfer will be deducted from the Participant's account prior
to wire transfer.
5. Neither American Express Trust nor the Company will have any
liability for Direct Rollovers made on the basis of
information provided by the Participant.
D. American Express Trust will require written direction from the
Committee to Process any application for a withdrawal or
distribution under this section if the documentation does not
clearly meet the requirements set forth in the Transaction
Guidelines.
E. If the distribution request is Granted, American Express Trust will
mail the check and a distribution statement, which reports the
taxable amount of the distribution, to the Participant at the
address listed on the American Express Trust recordkeeping system.
At the Company's election, a report of the Direct Rollovers
Processed will be provided to the Company.
F. American Express Trust will prepare and mail IRS Form 1099-R to all
Participants who have taken a Direct Rollover from the Plan. These
forms will be mailed by the end of January immediately following the
calendar year during which the distribution was made. Additionally,
American Express Trust will send corresponding information by
electronic tape to the Internal Revenue Service by the end of
February immediately following the calendar year during which the
distribution was made.
Page B.15
<PAGE>
Exhibit C
Schein Pharmaceutical, Inc.
The Retirement Plan of Schein Pharmaceutical, Inc. & Affiliates
Administrative Services Agreement
Authorized Representatives
Listed below are names and specimen signatures of three representatives of the
Committee who are authorized to direct American Express Trust on a day-to-day
basis with respect to the administration of the Plan, and upon whose direction
American Express Trust may act with regard to The Retirement Plan of Schein
Pharmaceutical, Inc. & Affiliates:
1. Oliver Esman /s/ Oliver Esman
------------------------------- --------------------------------------
Name Signature
VP. Human Resources
-------------------------------
Title
2. Michelle Osterwise /s/ Michelle Osterwise
------------------------------- --------------------------------------
Name Signature
Manager, Human Resources
-------------------------------
Title
3.
------------------------------- --------------------------------------
Name Signature
-------------------------------
Title
In the event there is a change with regard to this authorization list, we will,
in writing, inform you of the change prior to direction given to American
Express Trust by any representative of the Committee not identified above.
Sincerely,
/s/ [ILLEGIBLE]
For Schein Pharmaceutical, Inc.
Authorized Representative of Schein Pharmaceutical, Inc.
Page C.1
<PAGE>
Exhibit D
Schein Pharmaceutical, Inc.
The Retirement Plan of Schein Pharmaceutical, Inc. & Affiliates
Administrative Services Agreement
Fee Schedule
- --------------------------------------------------------------------------------
One-Time Implementation Fee
- --------------------------------------------------------------------------------
Plan Conversion Estimated $0.00
o Assumes 50 hours. Additional hours will
be charged at the rate of $100.00 per
hour.
- --------------------------------------------------------------------------------
Annual Fees
- --------------------------------------------------------------------------------
I. Participant Recordkeeping
- --------------------------------------------------------------------------------
Per Participant fee - Paid by Employer $20.00
or taken from forfeitures.
- --------------------------------------------------------------------------------
II. Investment Wrap Fee on Lifestyle Funds
- --------------------------------------------------------------------------------
Wrap Fee:
Assessed based upon the value of the 25 basis points
three Lifestyle funds as of the last
business day of the calendar quarter. Note: Upon liquidation of the
Paid by Employer or taken from pooled stable value fund this
forfeitures. fee drops to 20 basis points.
- --------------------------------------------------------------------------------
III. Investment Accounting Services
- --------------------------------------------------------------------------------
"Pooled GIC" accounting valuation $0.00
- --------------------------------------------------------------------------------
IV. Special Services
- --------------------------------------------------------------------------------
Cash disbursements (includes federal per check $10.00
tax reporting) Paid by Employer or
taken from forfeitures.
- --------------------------------------------------------------------------------
Participant loan setup fee - Paid by per loan established $50.00
Employer or taken from forfeitures.
- --------------------------------------------------------------------------------
Nondiscrimination test 401(k) or 401(m) per occurrence $1,500.00
Paid by Employer or taken from Note: 401(k)(m) Test fees are
forfeitures. waived until 10/1/99.
- --------------------------------------------------------------------------------
415(c) Test paid by Employer or taken per test $500.00
from forfeitures.
- --------------------------------------------------------------------------------
Reruns on 401(k) or (m) 1/2 cost of initial test
nondiscrimination testing
- --------------------------------------------------------------------------------
Page D.1
<PAGE>
Exhibit D
Data clarification on 401(k) or 401(m) per hour $80.00
nondiscrimination tests - Paid by the
Employer or taken from forfeitures.
- --------------------------------------------------------------------------------
Manual data entry - Paid by the per hour $80.00
employer or taken from forfeitures.
- --------------------------------------------------------------------------------
Out-of-pocket expense (including at cost
participant statement mailing costs) -
Paid by the Employer or taken from
forfeitures.
- --------------------------------------------------------------------------------
Any other special services required to per hour $80.00
be performed by American Express Trust
or which the Company requests American
Express Trust to perform which are not
specified in this Agreement or this
Exhibit shall be billed on an hourly
basis.
- --------------------------------------------------------------------------------
All fees are stated at an annual rate. Trustee fees are calculated and billable
quarterly based on quarter-ending market value of the assets of the fund.
Participant recordkeeping fees are calculated and billable quarterly based on
the number of Participant or beneficiary accounts maintained on the
recordkeeping system for any portion of the calendar year.
Fees will be billed to the Company for payment by the Company. A late payment
fee of 1 % per month will be assessed for payments not received within 30 days
of the billing date indicated on the quarterly statement of fees. In accordance
with the Plan and the trust agreement establishing the trust for the Plan, the
above-identified fees may be withdrawn from the Investment Funds to the extent
not paid by the Company.
The fees listed above are guaranteed through September 30, 2000.
The Company may, in its discretion, advise American Express Trust in writing as
to change of procedure with respect to method of payment of fees.
Page D.2
<PAGE>
Exhibit E
Schein Pharmaceutical, Inc.
The Retirement Plan of
Schein Pharmaceutical, Inc. and Affiliates
Pooled Services Agreement for the
Conservative Lifestyle Fund
This Pooled Services Agreement ("Services Agreement") is made and entered into
as of October 1, 1997 by and between American Express Trust Company, a Minnesota
trust company, ("American Express Trust") and Schein Pharmaceutical, Inc.
("Company"), acting on behalf of The Retirement Plan of Schein Pharmaceutical,
Inc. and Affiliates ("Plan").
Witnesseth
WHEREAS, the Company has established and continues to maintain the above named
plan, as amended from time to time, for certain eligible employees of the
Company and its participating subsidiaries, if any; and
WHEREAS, the Company has, pursuant to their trust agreement for the Plan,
delegated its authority to appoint an Investment Manager or to select
individually the funds to be used under the Conservative Lifestyle Fund's
portfolio, that is to be used as a participant directed investment option in the
Plan, to the Retirement Plan of Schein Pharmaceutical, Inc. and affiliates
Committee ("Committee").
WHEREAS, The Committee for the Plan has accepted this delegation and has
determined the individual funds to be used in the Conservative Lifestyle Fund,
and
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties agree as follows:
I. DEFINITIONS
A. "Agreement" means the Administrative Services Agreement, of which
this Services Agreement is a part of, for the Plan, as amended from
time to time,
Page E.1
<PAGE>
Exhibit E
made effective October 1, 1997, by and between American Express
Trust and the Company.
B. "Fund" means the Conservative Lifestyle Fund, one of the investment
options for Participants in the Plan that is managed by the
Committee.
C. "Investment Manager" for purposes of this Services Agreement means
the Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates
Committee.
D. "Investments" means, in accordance with the Plan, Participant
contributions including Participant-directed rollovers, Company
contributions, loan repayments, transfers into the Fund from other
investment options of the Plan, and such other activity as the
Company or Participants may direct from time to time into the Fund.
E. "NAV" means the Net Asset Value per unit of the Fund.
F. "Processing Date" means the Business Day on which Participant
requested Withdrawals are posted to the American Express Trust
participant recordkeeping system.
G. "Withdrawals" (or "Withdrawal" as context dictates) means, in
accordance with the Plan, Participant requests for in-service
withdrawals, final distributions upon separation of service with the
Company for any reason, loans, transfers out of the Fund to other
investment options of the Plan, and such other activity as the
Company or Participants may direct out of the Fund from time to
time.
II. PROVISION OF SERVICES/COMPENSATION
American Express Trust shall provide the services as described herein for
the Fund in consideration of compensation it receives under Exhibit D of
the Agreement. This Services Agreement shall be signed separately, but
shall form a part of and be incorporated by reference in the Agreement as
Exhibit E.
III. ASSETS OF THE FUND
American Express Trust will have no investment discretion with respect to
the assets of the Fund. The Investment Manager has determined the
following investments and investment allocations for the Fund ("Underlying
Funds"):
40% Pooled Stable Value Fund
30% PIMCO Total Return Fund (Administrative Class)
20% Vanguard Growth and Income Portfolio
Page E.2
<PAGE>
Exhibit E
5% T. Rowe Price International Stock Fund
5% PBHG Growth Fund
Unless otherwise directed in writing by the Investment Manager, American
Express Trust is directed to process requests for Investments into and
Withdrawals from the Fund by investing in or withdrawing from, as the case
may be, each of the Underlying Funds in direct proportion to the
percentages set forth above. The Investment Manager further directs and
authorizes American Express Trust to rebalance the Fund to the above
percentages quarterly. The date of this rebalancing shall be the Business
Day prior to the last Business Day of each quarter.
IV. NAV AND NUMBER OF UNITS
A. NAV
1. Participant accounts in the Plan shall be allocated units of
the Fund. Each unit, including fractional units, shall
constitute an undivided, pro rata interest in all of the
assets, including all accrued income earned by the assets
comprising the Fund.
2. American Express Trust shall record the value of the Fund as
of the close of each Business Day. The value of each unit
shall be represented in terms of NAV.
3. On October 1, 1997, American Express Trust shall establish the
initial NAV at $10.00. Thereafter, the NAV shall vary with
changes in the value of the assets comprising the Fund. The
NAV is calculated by dividing the sum of 1) the value of all
units or shares held in the Fund, and 2) income accruals, by
the outstanding units of the Fund. The Company directs
American Express Trust to treat dividends earned in the same
manner that the sponsor of the Underlying Funds treats the
dividends. For purposes of recording the daily NAV per unit of
the Fund, the value of the Fund shall be determined by using
the daily closing price of the Underlying Funds as provided by
the Underlying Funds or their agents. If the Underlying Fund
or its agent fails to provide the daily closing price of the
Underlying Fund within two Business Days, American Express
Trust shall promptly advise the Company and the Investment
Manager. Until directed by the
Page E.3
<PAGE>
Exhibit E
Investment Manager as to a course action, Investments will not
be permitted into nor will Withdrawals be permitted out of the
Fund.
B. Number of Units
1. To determine the total number of units comprising the Fund on
October 1, 1997, the Company directs American Express Trust to
divide the total value of the assets by $10.00.
2. The number of units constituting the Fund shall vary as
amounts are invested in or withdrawn from the Fund. After
October 1, the number of units of the Fund purchased and sold
will be determined by dividing the amount of the Investments
or Withdrawals by the NAV as of the Business Day on which the
transaction is posted to Participant accounts in accordance
with Articles V and VI of this Services Agreement.
V. INVESTMENTS IN THE FUND
A. General
Investments may be made into the Fund on any Business Day. All Investments
in the Fund shall cause units, including fractional units, of the Fund to
be purchased.
B. Contributions and Loan Payments
The Company shall not remit to American Express Trust contributions or
loan payments to be invested in the Fund without receipt of notification
from American Express Trust that American Express Trust has completed the
final edit of the contribution data. Contributions and loan payments
received by American Express Trust before it has notified the Company that
it has completed its edit of the contribution data or without its
knowledge may be returned to the Company. Contributions and loan payments
shall not be invested in the Fund until American Express Trust's edit of
the contribution data is completed. Contributions and loan payments shall
be allocated to Participant accounts on the American Express Trust
participant recordkeeping system on the same Business Day as they are
invested in the Fund and the number of additional units of the Fund
allocated to Participant accounts in the Fund shall be based on the NAV as
of the close of business on that Business Day.
Page E.4
<PAGE>
Exhibit E
C. Transfers into the Fund
1. Participants may request a transfer into the Fund from other
investment options under the Plan by means of the Service
Line.
2. If Participant requests for transfers into the Fund from other
investment options of the Plan are received by American
Express Trust before 3:00 p.m. Central time, the transfer will
be posted to the Participant's accounts on that Business Day.
The number of additional units of the Fund allocated to the
Participant's account in the Fund shall be based on the NAV as
of the close of business on that Business Day.
3. if the transfer request is received at or after 3:00 p.m.
Central time, the transfer will be posted to the Participant's
accounts on the Business Day following the Business Day such
request was received by American Express Trust. The number of
additional units of the Fund allocated to the Participant's
account in the Fund shall be based on the NAV as of the close
of business on the Business Day following the Business Day
such request was received by American Express Trust.
4. A request for a transfer to the Fund must be complete and
accurate, as defined by the procedures of American Express
Trust, and cannot be canceled.
VI. WITHDRAWALS FROM THE FUND
A. General
1. Withdrawals may be made from the Fund on any Business Day. All
Withdrawals from the Fund will cause units, including
fractional units, of the Fund to be sold.
2. A Withdrawal request must be complete and accurate, as defined
by the procedures of American Express Trust, and cannot be
canceled.
B. Transfers out of the Fund
Participants may request a transfer from the Fund to other
investment options under the Plan by means of the Service Line.
1. Participant requests for transfers from the Fund to other
investment options of the Plan received by American Express
Trust before 3:00 p.m. Central time, will be posted to the
Participant's accounts on that
Page E.5
<PAGE>
Exhibit E
Business Day. The Participant's request for a transfer will be
based on the NAV as of the close of business on that Business
Day.
2. Participant requests for transfers from the Fund to other
investment options of the Plan received at or after 3:00 p.m.
Central time will be posted to the Participant's accounts on
the Business Day following the Business Day such request was
received by American Express Trust. The Participant's request
for a transfer will be based on the NAV as of the close of
business on the Business Day following the Business Day such
request was received by American Express Trust.
VII. MUTUAL UNDERSTANDINGS
It is understood and agreed to by all parties that American Express Trust
is not the Investment Manager over the Fund.
Page E.6
<PAGE>
Exhibit E
IN WITNESS, the parties have entered into this Pooled Agreement as of the date
first written above:
Schein Pharmaceutical, Inc. American Express Trust Company
SIGNED: /s/ Oliver N. Esman SIGNED: /s/ [ILLEGIBLE]
------------------- ----------------------------------
TITLE: Vice President TITLE: Vice President/Senior Trust Officer
-------------------- -----------------------------------
DATE: 10-23-97 DATE: October 24 1997
--------------------- ------------------------------------
The Retirement Plan of Schein
Pharmaceutical, Inc. and
Affiliates Committee
SIGNED: /s/ Oliver N. Esman
-------------------
TITLE: Vice President
--------------------
DATE: 10-23-97
---------------------
Page E.7
<PAGE>
Wire Instructions to American Express Trust Company
Norwest Bank Minneapolis, N.A.
ABA #091000019
Sixth Street & Marquette Avenue
Minneapolis, MN 55479
Account 20-570
American Express Trust Company Fiduciary Account
For further credit to the: The Retirement Plan of Schein Pharmaceutical, Inc.
& Affiliates; Plan # DM0190700
Only at the request of American Express Trust Company will money be wired by the
Schein Pharmaceutical, Inc. to American Express Trust Company for current
contributions, loan payments and total loan repayments.
<PAGE>
Exhibit F
Schein Pharmaceutical, Inc.
The Retirement Plan for
Schein Pharmaceutical, Inc. and Affiliates
Pooled Services Agreement for the
Balanced Lifestyle Fund
This Pooled Services Agreement ("Services Agreement") is made and entered into
as of October 1, 1997 by and between American Express Trust Company, a Minnesota
trust company, ("American Express Trust") and Schein Pharmaceutical, Inc.
("Company"), acting on behalf of The Retirement Plan of Schein Pharmaceutical,
Inc. and Affiliates ("Plan").
Witnesseth
WHEREAS, the Company has established and continues to maintain the above named
plan, as amended from time to time, for certain eligible employees of the
Company and its participating subsidiaries, if any; and
WHEREAS, the Company has, pursuant to their trust agreement for the Plan,
delegated its authority to appoint an Investment Manager or to select
individually the funds to be used under the Balanced Lifestyle Fund's portfolio,
that is to be used as a participant directed investment option in the Plan, to
The Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates Committee
("Committee").
WHEREAS, The Committee for the Plan has accepted this delegation and has
determined the individual funds to be used in the Balanced Lifestyle Fund; and
NOW, THEREFORE, in consideration of the mutual covenants contained herein the
parties agree as follows:
I. DEFINITIONS
A. "Agreement" means the Administrative Services Agreement for the
Plan, as amended from time to time,
Page F.1
<PAGE>
Exhibit F
made effective October 1, 1997, by and between American Express
Trust and the Company.
B. "Fund" means the Balanced Lifestyle Fund, one of the investment
options for Participants in the Plan that is managed by the
Committee.
C. "Investment Manager" for purposes of this Services Agreement means
The Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates
Committee.
D. "Investments" means, in accordance with the Plan, Participant
contributions including Participant-directed rollovers, Company
contributions, loan repayments, transfers into the Fund from other
investment options of the Plan, and such other activity as the
Company or Participants may direct from time to time into the Fund.
B. "NAV" means the Net Asset Value per unit of the Fund.
F. "Processing Date" means the Business Day on which Participant
requested withdrawals are posted to the American Express Trust
participant recordkeeping system.
G. "Withdrawals" (or "Withdrawal" as context dictates) means, in
accordance with the Plan. Participant requests for in-service
withdrawals, final distributions upon separation of service with the
Company for any reason, loans, transfers out of the Fund to other
investment options of the Plan, and such other activity as the
Company or Participants may direct out of the Fund from time to
time.
II. PROVISION OF SERVICES/COMPENSATION
American Express Trust shall provide the services as described herein for
the Fund in consideration of compensation it receives under Exhibit D of
the Agreement. This Services Agreement shall be signed separately, but
shall form a part of and be incorporated by reference in the Agreement as
Exhibit F.
III. ASSETS OF THE FUND
American Express Trust will have no investment discretion with respect to
the assets of the Fund. The Investment Manager has determined the
following investments and investment allocations for the Fund ("Underlying
Funds"):
15% Pooled Stable Value Fund
35% PIMCO Total Return Fund (Administrative Class)
30% Vanguard Growth and Income Portfolio
Page F.2
<PAGE>
Exhibit F
10% T. Rowe Price International Stock Fund
10% PBHG Growth Fund
Unless otherwise directed in writing by the Investment Manager, American
Express Trust is directed to process requests for Investments into and
Withdrawals from the Fund by investing in or withdrawing from, as the case
may be, each of the Underlying Funds in direct proportion to the
percentages set forth above. The Investment Manager further directs and
authorizes American Express Trust to rebalance the Fund to the above
percentages quarterly. The date of this rebalancing shall be the Business
Day prior to the last Business Day of each quarter.
IV. NAV AND NUMBER OF UNITS
A. NAV
1. Participant accounts in the Plan shall be allocated units of
the Fund. Each unit, including fractional units, shall
constitute an undivided, pro rata interest in all of the
assets, including all accrued income earned by the assets
comprising the Fund.
2. American Express Trust shall record the value of the Fund as
of the close of each Business Day. The value of each unit
shall be represented in terms of NAV.
3. On October 1, 1997, American Express Trust shall establish the
initial NAV at $10.00. Thereafter, the NAV shall vary with
changes in the value of the assets comprising the Fund. The
NAV is calculated by dividing the sum of 1) the value of all
units or shares held in the Fund, and 2) income accruals, by
the outstanding units of the Fund.
4. The Company directs American Express Trust to treat dividends
earned in the same manner that the sponsor of the Underlying
Funds treats the dividends. For purposes of recording the
daily NAV per unit of the Fund, the value of the Fund shall be
determined by using the daily closing price of the Underlying
Funds as provided by the Underlying Funds or their agents. If
the Underlying Fund or its agent fails to provide the daily
closing price of the Underlying Fund within two Business Days,
American Express Trust shall promptly advise the Company and
the Investment Manager. Until directed by the
Page F.3
<PAGE>
Exhibit F
Investment Manager as to a course action, Investments will not
be permitted into nor will Withdrawals be permitted out of the
Fund.
B. Number of Units
1. To determine the total number of units comprising the Fund on
October 1, 1997, the Company directs American Express Trust to
divide the total value of the assets by $10.00.
2. The number of units constituting the Fund shall vary as
amounts are invested in or withdrawn from the Fund. After
October 1, the number of units of the Fund purchased and sold
will be determined by dividing the amount of the Investments
or Withdrawals by the NAV as of the Business Day on which the
transaction is posted to Participant accounts in accordance
with Articles V and VI of this Services Agreement.
V. INVESTMENTS IN THE FUND
A. General
Investments may be made into the Fund on any Business Day. All
Investments in the Fund shall cause units, including fractional
units, of the Fund to be purchased.
B. Contributions and Loan Payments
The Company shall not remit to American Express Trust contributions
or loan payments to be invested in the Fund without receipt of
notification from American Express Trust that American Express Trust
has completed the final edit of the contribution data. Contributions
and loan payments received by American Express Trust before it has
notified the Company that it has completed its edit of the
contribution data or without its knowledge may be returned to the
Company. Contributions and loan payments shall not be invested in
the Fund until American Express Trust's edit of the contribution
data is completed. Contributions and loan payments shall be
allocated to Participant accounts on the American Express Trust
participant recordkeeping system on the same Business Day as they
are invested in the Fund and the number of additional units of the
Fund allocated to participant accounts in the Fund shall be based on
the NAV as of the close of business on that Business Day.
Page F.4
<PAGE>
Exhibit F
C. Transfers into the Fund
1. Participants may request a transfer into the Fund from other
investment options under the Plan by means of the Service
Line.
2. If Participant requests for transfers into the Fund from other
investment options of the Plan are received by American
Express Trust before 3:00 p.m. Central time, the transfer will
be posted to the Participant's accounts on that Business Day.
The number of additional units of the Fund allocated to the
Participant's account in the Fund shall be based on the NAV as
of the close of business on that Business Day.
3. If the transfer request is received at or after 3:00 p.m.
Central time, the transfer will be posted to the Participant's
accounts on the Business Day following the Business Day such
request was received by American Express Trust. The number of
additional units of the Fund allocated to the Participant's
account in the Fund shall be based on the NAV as of the close
of business on the Business Day following the Business Day
such request was received by American Express Trust.
4. A request for a transfer to the Fund must be complete and
accurate, as defined by the procedures of American Express
Trust, and cannot be canceled.
VI. WITHDRAWALS FROM THE FUND
A. General
1. Withdrawals may be made from the Fund on any Business Day. All
Withdrawals from the Fund will cause units, including
fractional units, of the Fund to be sold.
2. A Withdrawal request must be complete and accurate, as defined
by the procedures of American Express Trust, and cannot be
canceled.
B. Transfers out of the Fund
Participants may request a transfer from the Fund to other
investment options under the Plan by means of the Service Line.
1. Participant requests for transfers from the Fund to other
investment options of the Plan received by American Express
Trust before 3:00 p.m. Central time, will be posted to the
Participant's accounts on that
Page F.5
<PAGE>
Exhibit F
Business Day. The Participant's request for a transfer will be
based on the NAV as of the close of business on that Business
Day.
2. Participant requests for transfers from the Fund to other
investment options of the Plan received at or after 3:00 p.m.
Central time will be posted to the Participant's accounts on
the Business Day following the Business Day such request was
received by American Express Trust. The Participant's request
for a transfer will be based on the NAV as of the close of
business on the Business Day following the Business Day such
request was received by American Express Trust.
VII. MUTUAL UNDERSTANDINGS
It is understood and agreed to by all parties that American Express Trust
is not the Investment Manager over the Fund.
Page F.6
<PAGE>
EXHIBIT F
IN WITNESS, the parties have entered into this Pooled Agreement as of the date
first written above:
Schein Pharmaceutical, Inc. American Express Trust Company
SIGNED: /s/ Oliver N. Esman SIGNED: /s/ [ILLEGIBLE]
------------------- ----------------------------------
TITLE: Vice President TITLE: Vice President/Senior Trust Officer
-------------------- -----------------------------------
DATE: 10-23-97 DATE: October 27, 1997
--------------------- ------------------------------------
The Retirement Plan of Schein
Pharmaceutical, Inc. and
Affiliates Committee
SIGNED: /s/ Oliver N. Esman
-------------------
TITLE: Vice President
--------------------
DATE: 10-23-97
---------------------
Page F.7
<PAGE>
Exhibit G
Schein Pharmaceutical, Inc.
The Retirement Plan for
Schein Pharmaceutical, Inc. and Affiliates
Pooled Services Agreement for the
Aggressive Lifestyle Fund
This Pooled Services Agreement ("Services Agreement") is made and entered into
as of October 1, 1997 by and between American Express Trust Company, a Minnesota
trust company, ("American Express Trust") and Schein Pharmaceutical, Inc.
("Company"), acting on behalf of The Retirement Plan of Schein Pharmaceutical,
Inc. and Affiliates ("Plan").
Witnesseth
WHEREAS, the Company has established and continues to maintain the above named
plan, as amended from time to time, for certain eligible employees of the
Company and its participating subsidiaries, if any; and
WHEREAS, The Company has, pursuant to their trust agreement for the Plan,
delegated its authority to appoint an Investment Manager or to select
individually the funds to be used under the Aggressive Lifestyle Fund's
portfolio, that is to be used as a participant directed investment option in the
Plan, to the Retirement Plan of Schein Pharmaceutical. Inc. and Affiliates
Committee ("Committee").
WHEREAS, The Committee for the Plan has accepted this delegation and has
determined the individual funds to be used in the Aggressive Lifestyle Fund; and
NOW, THEREFORE, in consideration of the mutual covenants contained herein the
parties agree as follows:
I. DEFINITIONS
A. "Agreement" means the Administrative Services Agreement for the
Plan, as amended from time to time,
Page G.1
<PAGE>
Exhibit G
made effective October 1, 1997, by and between American Express
Trust and the Company.
B. "Fund" means the Aggressive Lifestyle Fund, one of the investment
options for Participants in the Plan that is managed by the
Committee.
C. "Investment Manager" for purposes of this Services Agreement means
The Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates
Committee.
D. "Investments" means, in accordance with the Plan, Participant
contributions including Participant-directed rollovers, Company
contributions, loan repayments, transfers into the Fund from other
investment options of the Plan, and such other activity as the
Company or Participants may direct from time to time into the Fund.
E. "NAV" means the Net Asset Value per unit of the Fund.
F. "Processing Date" means the Business Day on which Participant
requested withdrawals are posted to the American Express Trust
participant recordkeeping system.
G. "Withdrawals" (or "Withdrawal" as context dictates) means, in
accordance with the Plan, Participant requests for in-service
withdrawals, final distributions upon separation of service with the
Company for any reason, loans, transfers out of the Fund to other
investment options of the Plan, and such other activity as the
Company or Participants may direct out of the Fund from time to
time.
II. PROVISION OF SERVICES/COMPENSATION
American Express Trust shall provide the services as described herein for
the Fund in consideration of compensation it receives under Exhibit D of
the Agreement. This Services Agreement shall be signed separately, but
shall form a part of and be incorporated by reference in the Agreement as
Exhibit G.
III. ASSETS OF THE FUND
American Express Trust will have no investment discretion with respect to
the assets of the Fund. The Investment Manager has determined the
following investments and investment allocations for the Fund ("Underlying
Funds"):
0% Pooled Stable Value Fund
25% PIMCO Total Return Fund (Administrative Class)
45% Vanguard Growth and Income Portfolio
Page G.2
<PAGE>
Exhibit G
15% T. Rowe Price International Stock Fund
10% PBHG Growth Fund
Unless otherwise directed in writing by the Investment Manager, American
Express Trust is directed to process requests for Investments into and
Withdrawals from the Fund by investing in or withdrawing from, as the case
may be, each of the Underlying Funds in direct proportion to the
percentages set forth above. The Investment Manager further directs and
authorizes American Express Trust to rebalance the Fund to the above
percentages quarterly. The date of this rebalancing shall be the Business
Day prior to the last Business Day of each quarter.
IV. NAV AND NUMBER OF UNITS
A. NAV
1. Participant accounts in the Plan shall be allocated units of
the Fund. Each unit, including fractional units, shall
constitute an undivided, pro rata interest in all of the
assets, including all accrued income earned by the assets
comprising the Fund.
2. American Express Trust shall record the value of the Fund as
of the close of each Business Day. The value of each unit
shall be represented in terms of NAV.
3. On October 1, 1997, American Express Trust shall establish the
initial NAV at $10.00. Thereafter, the NAV shall vary with
changes in the value of the assets comprising the Fund. The
NAV is calculated by dividing the sum of 1) the value of all
units or shares held in the Fund, and 2) income accruals, by
the outstanding units of the Fund.
4. The Company directs American Express Trust to treat dividends
earned in the same manner that the sponsor of the Underlying
Funds treats the dividends. For purposes of recording the
daily NAV per unit of the Fund, the value of the Fund shall be
determined by using the daily closing price of the Underlying
Funds as provided by the Underlying Funds or their agents. If
the Underlying Fund or its agent fails to provide the daily
closing price of the Underlying Fund within two Business Days,
American Express Trust shall promptly advise the Company and
the Investment Manager. Until directed by the
Page G.3
<PAGE>
Exhibit G
Investment Manager as to a course action, Investments will not
be permitted into nor will Withdrawals be permitted out of the
Fund.
B. Number of Units
1. To determine the total number of units comprising the Fund on
October 1, 1997, the Company directs American Express Trust to
divide the total value of the assets by $10.00.
2. The number of units constituting the Fund shall vary as
amounts are invested in or withdrawn from the Fund. After
October 1, the number of units of the Fund purchased and sold
will be determined by dividing the amount of the Investments
or Withdrawals by the NAV as of the Business Day on which the
transaction is posted to Participant accounts in accordance
with Articles V and VI of this Services Agreement.
V. INVESTMENTS IN THE FUND
A. General
Investments may be made into the Fund on any Business Day. All
Investments in the Fund shall cause units, including fractional
units, of the Fund to be purchased.
B. Contributions and Loan Payments
The Company shall not remit to American Express Trust contributions
or loan payments to be invested in the Fund without receipt of
notification from American Express Trust that American Express Trust
has completed the final edit of the contribution data. Contributions
and loan payments received by American Express Trust before it has
notified the Company that it has completed its edit of the
contribution data or without its knowledge may be returned to the
Company. Contributions and loan payments shall not be invested in
the Fund until American Express Trust's edit of the contribution
data is completed. Contributions and loan payments shall be
allocated to Participant accounts on the American Express Trust
participant recordkeeping system on the same Business Day as they
are invested in the Fund and the number of additional units of the
Fund allocated to participant accounts in the Fund shall be based on
the NAV as of the close of business on that Business Day.
Page G.4
<PAGE>
Exhibit G
C. Transfers into the Fund
1. Participants may request a transfer into the Fund from other
investment options under the Plan by means of the Service
Line.
2. If Participant requests for transfers into the Fund from other
investment options of the Plan are received by American
Express Trust before 3:00 p.m. Central time, the transfer will
be posted to the Participant's accounts on that Business Day.
The number of additional units of the Fund allocated to the
Participant's account in the Fund shall be based on the NAV as
of the close of business on that Business Day.
3. If the transfer request is received at or after 3:00 p.m.
Central time, the transfer will be posted to the Participant's
accounts on the Business Day following the Business Day such
request was received by American Express Trust. The number of
additional units of the Fund allocated to the Participant's
account in the Fund shall be based on the NAV as of the close
of business on the Business Day following the Business Day
such request was received by American Express Trust.
4. A request for a transfer to the Fund must be complete and
accurate, as defined by the procedures of American Express
Trust, and cannot be canceled.
VI. WITHDRAWALS FROM THE FUND
A. General
1. Withdrawals may be made from the Fund on any Business Day. All
Withdrawals from the Fund will cause units, including
fractional units, of the Fund to be sold.
2. A Withdrawal request must be complete and accurate, as defined
by the procedures of American Express Trust, and cannot be
canceled.
B. Transfers out of the Fund
Participants may request a transfer from the Fund to other
investment options under the Plan by means of the Service Line.
1. Participant requests for transfers from the Fund to other
investment options of the Plan received by American Express
Trust before 3:00 p.m. Central time, will be posted to the
Participant's accounts on that
Page G.5
<PAGE>
Exhibit G
Business Day. The Participant's request for a transfer will be
based on the NAV as of the close of business on that Business
Day.
2. Participant requests for transfers from the Fund to other
investment options of the Plan received at or after 3:00 p.m.
Central time will be posted to the Participant's accounts on
the Business Day following the Business Day such request was
received by American Express Trust. The Participant's request
for a transfer will be based on the NAV as of the close of
business on the Business Day following the Business Day such
request was received by American Express Trust.
VII. MUTUAL UNDERSTANDINGS
It is understood and agreed to by all parties that American Express Trust
is not the Investment Manager over the Fund.
Page G.6
<PAGE>
EXHIBIT G
IN WITNESS, the parties have entered into this Pooled Agreement as of the date
first written above:
Schein Pharmaceutical, Inc. American Express Trust Company
SIGNED: /s/ Oliver N. Esman SIGNED: /s/ [ILLEGIBLE]
------------------- ----------------------------------
TITLE: Vice President TITLE: Vice President/Senior Trust Officer
-------------------- -----------------------------------
DATE: 10-23-97 DATE: October 27, 1997
--------------------- ------------------------------------
The Retirement Plan of Schein
Pharmaceutical, Inc. and
Affiliates Committee
SIGNED: /s/ Oliver N. Esman
-------------------
TITLE: Vice President
--------------------
DATE: 10-23-97
---------------------
Page G.7
<PAGE>
Exhibit H
Schein Pharmaceutical, Inc.
The Retirement Plan of Schein Pharmaceutical, Inc. & Affiliates
Pooled GIC Services Agreement for the
Pooled Stable Value Fund
This Pooled GIC Services Agreement is made and entered into as of October 1,
1997 (Effective Date) by and between American Express Trust Company, a Minnesota
trust company, ("American Express Trust") and Schein Pharmaceutical, Inc.
("Company"), acting on behalf of The Retirement Plan of Schein Pharmaceutical,
Inc. & Affiliates ("Plan").
In consideration of the mutual covenants contained herein, the parties agree as
follows:
I. DEFINITIONS
A. "Agreement" means the Administrative Services Agreement for the
Plan, as amended from time to time, made effective October 1, 1997,
by and between American Express Trust and the Company.
B. "Contracts" (or "Contract" as context dictates) collectively refer
to the following individual investment contracts held by the Fund:
- --------------------------------------------------------------------------------
Carrier GIC Contract # Rate Maturity
- --------------------------------------------------------------------------------
1. LaSalle National Bank Trust 46-7241-90-7 Variable 3/1/98
and Asset Management Pooled
Trust Fund
- --------------------------------------------------------------------------------
C. "Contract Carriers" refer to LaSalle National Bank and Trust.
D. "Fund" means the Pooled Stable Value Fund, one of the investment
options for Participants in the Plan.
E. "Income Fund H" means American Express Trust Income Fund II, a
collective investment fund.
F. "Investments" mean, in accordance with the Plan, Participant
contributions, Company contributions, loan repayments, transfers
into the Fund from other investment options of the Plan, and such
other activity into the Fund as the Company or Participants may
direct from time to time.
G. "NAV" means the Net Asset Value per unit of the Fund.
Page 1
<PAGE>
Exhibit H
H. "Processing Date" means the Business Day on which
Participant-requested Withdrawals are posted to the American Express
Trust participant recordkeeping system.
I. "Withdrawals" (or "Withdrawal" as context dictates) means, in
accordance with the Plan, Participant requests for in-service
withdrawals, final distributions upon separation of service from the
Company for any reason, loans, transfers out of the Fund to other
investment options of the Plan, and such other withdrawals,
distributions, or transfers out of the Fund as the Company or
Participants may direct from time to time.
II. PROVISION OF SERVICES/COMPENSATION
American Express Trust shall provide the services as described herein for
the Fund in consideration of compensation it receives under the Agreement.
This Pooled GIC Services Agreement shall form a part of the Agreement as
Exhibit H.
III. ASSETS OF THE FUND
The Fund shall consist of the Contracts, units of Income Fund II, and
earnings on all such assets. The source and amount of the initial
investment in Income Fund II shall be directed by the Company prior to
October 1, 1997. American Express Trust shall have no discretionary
investment responsibility with respect to the Contracts.
IV. NAV AND NUMBER OF UNITS
A. NAV
1. Participant accounts in the Plan shall be allocated units of
the Fund. Each unit, including fractional units, shall
constitute an undivided, pro rata interest in all or the
assets, including all accrued income earned by the assets,
comprising the Fund.
2. American Express Trust shall record the value of the Fund on
each Business Day. The value of each unit shall be represented
in terms of NAV.
3. On October 1, 1997 American Express Trust shall establish the
initial NAV at $10.00. Each Business Day thereafter, the NAV
shall adjust from $10.00 and shall thereafter vary with
changes in the value of the assets comprising the Fund. The
NAV will be calculated by dividing the sum of 1) the value of
the Contracts as provided in Article IV.A.4 herein, and 2) the
value of all units of Income Fund II held in the Fund,
Page 2
<PAGE>
Exhibit H
and 3) all income accruals on all assets in the Fund, by the
outstanding units of the Fund.
4. a. American Express Trust shall record the Contracts at
book value as provided by the Contract Carriers and
calculate interest accruals on the Contracts based on
the daily interest accrual rates of the Contracts. In
the event that American Express Trust cannot determine
the daily interest accrual rate of a Contract through
its GIC interest accrual system. American Express Trust
will request the Contract Carrier to determine the daily
interest accrual rate. It is understood and agreed by
the parties that American Express Trust will be unable
to calculate the NAV until the daily interest accrual
rates for all of the Contracts has been determined.
b. In addition, in order to properly perform the services
described in this Article IV.A in a timely manner,
American Express Trust needs to receive from the
Contract Carriers within ten (10) days after the end of
each month, the actual value of each Contract in
dollars, including all accruals on such Contracts, as of
the last calendar day of each month. In the event the
value of a Contract as provided by a Contract Carrier is
inconsistent with the aggregate amount recorded by
American Express Trust using the daily interest accrual
rate, then American Express Trust shall adjust its
records as soon as practicable following its receipt of
the value of the Contract as provided by the Contract
Carriers. American Express Trust shall have no
obligation to retroactively adjust its records nor the
NAV as of any prior date. Failure by the Contract
Carriers to provide the necessary data to American
Express Trust shall relieve American Express Trust from
any responsibility to adjust its records or the NAV
until a reasonable time after such data is received.
5. For purposes of recording the daily NAV per unit of the Fund,
units of Income Fund II held by the Fund shall be reported by
the American
Page 3
<PAGE>
Exhibit H
Express Trust as directed by the investment manager of the
Income Fund II.
B. Number of Units
1. To determine the total number of units comprising the Fund on
October 1, 1997 American Express Trust shall divide the total
value of the assets received from the Prior Trustee by $10.00.
2. The number of units constituting the Fund shall vary as
amounts are invested in or withdrawn from the Fund. The number
of units of the Fund purchased and sold will be determined by
dividing the amount of the Investments or Withdrawals by the
NAV as of the Business Day on which the transaction is posted
to Participant accounts in accordance with Articles V. and VI.
of this Pooled GIC Services Agreement.
V. INVESTMENTS IN THE FUND
A. General
1. Investments may be made into the Fund on any Business Day. All
Investments in the Fund shall cause units, including
fractional units, of the Fund to be purchased.
2. Investments shall be invested in Income Fund II.
B. Contributions and Loan Payments
The Company shall not remit to American Express Trust contributions
or loan payments to be invested in the Fund without receipt of
notification from American Express Trust that American Express Trust
has completed the final edit of the contribution data. Contributions
and loan payments received by American Express Trust before it has
notified the Company that it has completed its edit of the
contribution data or without its knowledge may be returned to the
Company. Contributions and loan payments shall not be invested in
the Fund until American Express Trust's edit of the contribution
data is completed. Contributions and loan payments shall be
allocated to Participant accounts on the American Express Trust
participant recordkeeping system on the same Business Day as they
are invested in the Fund and the number of additional units of the
Fund allocated to Participant accounts in the Fund shall be based on
the NAV as of the close of business on that Business Day.
Page 4
<PAGE>
Exhibit H
C. Transfers into the Fund
1. Participants may request a transfer into the Fund from other
investment options under the Plan by means of the Services
Line.
2. If Participant requests for transfers into the Fund from other
investment options of the Plan are received by American
Express Trust before 3:00 p.m. Central time, the transfer will
be posted to the Participant's accounts on that Business Day.
The number of additional units of the Fund allocated to the
Participant's account in the Fund shall be based on the NAV as
of the close of business on that Business Day.
3. If the transfer request is received at or after 3:00 p.m.
Central time, the transfer will be posted to the Participant's
accounts on the Business Day following the Business Day such
request was received by American Express Trust. The number of
additional units of the Fund allocated to the Participant's
account in the Fund shall be based on the NAV as of the close
of business on the Business Day following the Business Day
such request was received by American Express Trust.
4. A request for a transfer to the Fund must be complete and
accurate, in the judgement of American Express Trust, and
cannot be canceled.
VI. WITHDRAWALS FROM THE FUND
A. General
1. Withdrawals may be made from the Fund on any Business Day.
2. All Withdrawals from the Fund will cause units, including
fractional units, of the Fund to be sold.
3. A Withdrawal request must be complete and accurate, in the
judgement of American Express Trust, and cannot be canceled.
4. If at any time the Fund has insufficient liquidity to satisfy
all Participant requests for Withdrawals on a given Business
Day, then American Express Trust shall promptly advise the
Company as to the status of the Fund and will proceed as
provided in Article VI.B.2 below :o restore sufficient
liquidity unless otherwise instructed in writing by the
Company. All Withdrawals will be suspended until liquidity is
sufficiently restored to process all Participant requests for
Withdrawals. Participants who have made a request for a
Withdrawal will be notified
Page 5
<PAGE>
Exhibit H
that the Withdrawals they have requested will be processed on
the Business Day on which liquidity is restored. The reduction
in the number of units in the Participant's account in the
Fund shall be based on the NAV as of the close of the
Processing Date.
B. In-service Withdrawals, Loans, and Final Distributions
1. Subject to sufficient liquidity in the Fund, the Processing
Date for a Participant's request for a Withdrawal in the form
of in-service withdrawals, final distributions upon separation
of service from the Company for any reason, and loans will be
processed after receipt by American Express Trust of the
Participant's request and will be based on the NAV per unit as
of the close of business on the Processing Date.
2. Withdrawals in the form of withdrawals, final distributions
upon separation of service, and loans shall be first paid from
Income Fund II. If there are insufficient units of Income Fund
II, then American Express Trust shall liquidate all or a
portion of the Contracts on a last in first out basis (in the
order of the Contracts listed in Article I.B. of this Pooled
GIC Services Agreement) in the amounts as directed by the
Company.
C. Transfers out of the Fund
1. Participants may request a transfer from the Fund to other
investment options under the Plan by means of the Services
Line.
2. If there are sufficient units of Income Fund II to satisfy all
Participant requests for Withdrawals on a given Business Day,
a. Participant requests for transfer from the Fund to other
investment options of the Plan received by American
Express Trust before 3:00 p.m. Central time, will be
posted to the Participant's accounts on that Business
Day. The Participant's request for a transfer will be
based on the NAV as of the close of business on that
Business Day.
b. Participant requests for transfers from the Fund to
other investment options of the Plan received at or
after 3:00 p.m. Central time will be posted to the
Participant's accounts on the
Page 6
<PAGE>
Exhibit H
Business Day following the Business Day such request was
received by American Express Trust. The Participant's
request for a transfer will be based on the NAV as of
the close of business on the Business Day following the
Business Day such request was received by American
Express Trust.
VII. CONVERSION OF THE CONTRACTS TO CASH
Upon maturity or liquidation of any Contract, the proceeds resulting from
such event shall be invested in Income Fund II. Upon the occurrence of
maturity and/or liquidation of all of the Contracts, the Fund shall be
terminated and all Participants' interests in the Fund shall be converted
to interests in Income Fund II as soon as administratively practicable.
All such Participant interests in Income Fund II shall be expressed in
units, including fractional units, of Income Fund II.
IN WITNESS WHEREOF, the parties have entered into this Pooled GIC Services
Agreement as of the date first written above:
Schein Pharmaceutical, Inc. on American Express Trust Company
behalf of The Retirement Plan
of Schein Pharmaceutical, Inc.
& Affiliates
SIGNED: /s/ [ILLEGIBLE]
----------------------------------
SIGNED: /s/ Oliver N. Esman
------------------- TITLE: Vice President/Senior Trust Officer
-----------------------------------
TITLE: Vice President
-------------------- DATE: October 27, 1997
------------------------------------
DATE: 10-23-97
---------------------
Page 7
<PAGE>
Exhibit I
Performance Guarantee
Schein Pharmaceutical, Inc. & Affiliates
The Retirement Plan of Schein Pharmaceutical, Inc. & Affiliates
American Express Trust is committed to providing service of the highest quality.
As evidence of this commitment, the following Performance Guarantee is offered
on the services stated as follows:
1. Investment of contributions will occur within five (5) Business Days after
receipt of complete and balanced information.
2. Requests for total distributions, hardship withdrawals, and age 70 1/2
required minimum distributions will be satisfied and mailed within five
(5) Business Days after receipt of complete and accurate requests.
3. Requests for participant loans will be satisfied and mailed within seven
(7) Business Days after receipt of complete and accurate requests.
4. A monthly reporting package consisting of the trustee statement, totals
only of the administrative report, reconciliation worksheet, active loan
report. delinquent loan report (if any), and default loan report (if any)
will be mailed within twelve (12) Business Days after month-end.
All quarterly participant statements will be mailed within twelve (12) Business
Days after quarter-end.
All services performed will be completed with 100% accuracy.
If you are not completely satisfied with our service delivery, and response to
service issues, American Express Trust will refund the applicable fees for the
processing period involved.
To invoke this guarantee relative to any services performed, please contact your
Account Executive.
<PAGE>
EXHIBIT A
AMENDMENT NO. 1 TO THE
RETIREMENT PLAN OF SCHEIN PHARMACEUTICAL, INC. AND AFFILIATES
as AMENDED AND RESTATED AS OF JANUARY 1, 1998
Reference is made to the restated Retirement Plan of Schein Pharmaceutical, Inc.
and Affiliates (the "Plan"). Capitalized terms not otherwise defined herein
shall have the meaning ascribed thereto in the Plan.
I. Section 6.04 of the Plan is amended to include the following:
A. Delete the fourth paragraph which begins with the text "For purposes
of determining Years of Service.." and ends with the text
"..Sections 414(b), (c), (m), (n) or (o) of the Code."
B. Include the following text in place of the text deleted
1. "Effective as of January 1, 1996, for purposes of determining
Years of Service under Section 6.04, the Plan shall take into
account all Years of Service an Employee completes with i) the
employer or any entity which is required to be aggregated with
the Employer pursuant to Sections 414(b), (c), (m), (n), or
(o) of the Code or ii) Bayer AG or any subsidiary thereof
which is controlled by at least 50% of the voting rights
therein, provided such employment occurred immediately prior
to employment with the Company or its subsidiaries."
Except as amended hereby, the Plan shall continue in full force and effect.
<PAGE>
Exhibit B
AMENDMENT NO. 2 TO
THE RETIREMENT PLAN OF
SCHEIN PHARMACEUTICAL, INC. & AFFILIATES
(Amended and Restated as of January 1, 1998)
Effective as of the dates set forth herein, the Retirement Plan of Schein
Pharmaceutical, Inc. & Affiliates (Amended and Restated as of January 1, 1998)
(the "Plan"), is amended as follows:
Effective as of September 1, 1998, Section 6.04 of the Plan is
amended by deleting the word "or" from subsection (b), deleting the period at
the end of subsection (c) and adding", or" to the end of such subsection (c) and
adding the following new subsection (d):
"(d) termination of employment with the Employer pursuant to an
employment reduction plan during the period September 1, 1998 through and
including August 31, 1999."
<PAGE>
AMENDMENT NO. 3 TO
THE RETIREMENT PLAN OF
SCHEIN PHARMACEUTICAL, INC. & AFFILIATES
(Amended and Restated as of January 1, 1998)
Effective as of the dates set forth herein, the Retirement Plan of Schein
Pharmaceutical, Inc. & Affiliates (Amended and Restated as of January 1, 1998)
(the "Plan"), is amended as follows:
Effective as of September 1, 1999, Section 6.04 of the Plan is amended by
deleting the word "or" from subsection (b), deleting the period at the end of
subsection (c) and adding ", or" to the end of such subsection (c), and adding
the following new subsection (d):
"(d) termination of employment with the Employer pursuant to an employment
reduction plan or a voluntary employee reduction plan during the period
September 1, 1999 through and including August 31, 2000.
<PAGE>
The Retirement Plan of
Schein Pharmaceutical, Inc. and Affiliates
Amendment No. 4
Effective as of the dates set forth herein, The Retirement Plan of Schein
Pharmaceutical, Inc. and Affiliates (the "Plan") is amended as follows:
1. Effective as of January 1, 1998, Section 1.10 of the Plan is amended by
adding the following to the end of the first sentence thereof:
"and including amounts contributed by the Employer pursuant to a salary
reduction agreement that are excluded from a Participant's gross income
under Section 125 of the Code."
2. Effective as of January 1, 2000, Section 1.36 is deleted in its
entirety, and the following is substituted in its place:
"1.36 "Plan Entry Date" shall mean, for purposes of making salary
reduction deferrals under Article III, the first day of the first pay
period coincident with, or next following, the date on which an Employee
completes three Months of Service. For purposes of eligibility for
Employer Contributions under Article IV, Plan Entry Date shall mean the
first day of the first pay period coincident with, or next following, the
date on which the Employee completes six Months of Service. Salary
deferrals made prior to the Plan Entry Date for purposes of Article IV
will not be considered for matching contributions."
3. Effective as of January 1, 2000, Section 6.04 is amended by deleting
the vesting schedule in the second paragraph thereof and replacing it with the
following:
Percent of Nonforfeitible
"Years of Service Base Contribution Account
----------------- -------------------------
0 0%
1 20%
2 40%
3 60%
4 80%
5 100%"
SCHEIN PHARMACEUTICAL, INC.
By:
----------------------------------------
Title:
-------------------------------------
<PAGE>
Exhibit A
AMENDMENT NO. 5 TO
THE RETIREMENT PLAN OF
SCHEIN PHARMACEUTICAL, INC. & AFFILIATES
(Amended and Restated as of January 1, 1998)
Effective as of the dates set forth herein, the Retirement Plan of Schein
Pharmaceutical, Inc. & Affiliates (Amended and Restated as of January 1, 1998)
(the "Plan"), is amended as follows:
Effective as of January 27, 2000, Sections 6.04 of the Plan is
amended by deleting the word "or" from subsection (c), deleting the period at
the end of subsection (d), and adding ", or" to the end of such subsection (d),
and adding the following new subsection (e):
"(e) termination of employment with the Employer pursuant to
an employment reduction plan during the period January 27,
2000 through and including December 31, 2Q00."
<PAGE>
Exhibit 10.67
AS EXECUTED
- -----------
CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
AMENDMENT NUMBER 3 TO DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT
This Amendment to the Development, License, Supply Agreement (the
"Amendment") is effective as of the 19th day of May 1999 between Elan
Corporation plc, a corporation organized under the laws of Ireland ("Elan") and
Schein Pharmaceutical, Inc., a Delaware corporation ("Schein").
INTRODUCTION
A. Elan and Schein entered into a Development, License and Supply
Agreement, dated March 31, 1998, as amended by Amendment Number 1 and Amendment
Number 2 to the Development, License and Supply Agreement (the "Agreement").
B. The parties wish to amend the Agreement in accordance with the terms of
this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and for other good and valuable consideration, it is agreed as
follows:
1. DEFINITIONS AND INCORPORATION.
1.1. Unless otherwise defined, all terms used herein shall have the meaning
ascribed to them in the Agreement, and the terms and provisions of the Agreement
are incorporated herein by reference as though set forth in full.
1.2. In this Amendment unless the context otherwise requires:
* shall mean * of *.
* Settlement Agreement shall mean the Settlement Agreement and Release
dated * between Elan and *.
* Suit shall mean the civil complaint which was prosecuted by Elan against *
in the * captioned * Elan * Settlement Agreement) whereby, inter alia,
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
(i) Elan * Elan's *; and
(ii) * Elan's * verapamil * to * Elan.
Branded Verapamil shall mean a pharmaceutical product containing sustained
release formulations of verapamil hydrochloride in dosage strengths of 120
milligrams, 180 milligrams, 240 milligrams and 360 milligrams which is
manufactured by Elan under its NDA 19-614 and is marketed under (i) the
* or (ii) any other brand name. Branded Verapamil shall not include Generic
Verapamil (as defined below).
First Generic shall mean the first generic A Rated substitute product for
* in the Territory.
* shall mean * of *.
* Settlement Agreement shall mean the Settlement Agreement, dated *, between *
and Elan.
* Suit shall mean the civil action which was prosecuted by Elan and * against
* in the United States District Court for the * alleging that * infringed
Elan's U.S. Patent No. *.
* shall mean * of *.
* shall mean Branded Verapamil marketed under the * brand name.
2. AMENDMENTS. The parties agree as follows with respect to the
pharmaceutical product containing sustained release formulations of verapamil
hydrochloride in dosage strengths of 120 milligrams, 180 milligrams, 240
milligrams and 360 milligrams manufactured by Elan under its NDA 19-614
("Generic Verapamil"):
2.1. Generic Verapamil shall be included in the definition of "DSDF"
(and thereby also included in the definition of "Product") under the terms and
conditions of the Agreement provided however, that the exclusive license granted
to Schein for Generic Verapamil pursuant to Clause 2.1 of the Agreement shall be
limited to generic prescription use in the Territory. For the avoidance of
doubt, Schein shall have no rights (i) to sell Generic Verapamil as a Branded
Verapamil for prescription or over the counter non-prescription use in the
Territory, or (ii) to sell Generic Verapamil for over the counter
non-prescription use in the Territory.
2.2. With respect to Generic Verapamil, the Parties hereby expressly
agree that
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
2
<PAGE>
Clauses 3.2, 3.3.2, 3.3.3, 3.3.4, 3.3.5, 3.3.6 and 10.3 of the Agreement
shall not apply and have no force or effect.
2.3. Subject to the provisions of Clauses 2.4 and 2.5 of this
Amendment, Elan, at its option, shall be entitled to institute proceedings for
any alleged Defense Infringement or Enforcement Infringement in respect of any
infringements of the Elan Patent Rights with respect to Generic Verapamil at its
own expense and for its own benefit. In the event that Elan does not wish to
institute such enforcement or defense proceedings, Elan has granted * the
right, at its option and at its sole discretion, subject to the provisions of
Clauses 2.4 and 2.5 of this Amendment, to institute enforcement or defense
proceedings at its own expense and for its own benefit. In the event that Elan
or * does not wish to institute such enforcement or defense proceedings,
Elan shall promptly notify Schein of such decision and Schein shall, at its
option and at its sole discretion, subject to the provisions of Clauses 2.4 and
2.5 of this Amendment, have the right to institute enforcement or defense
proceedings at its own expense and for its own benefit. The non litigating Party
shall cooperate with the other Party.
2.4. * SETTLEMENT AGREEMENT
2.4.1. Pursuant to the * Settlement Agreement, Elan and
* settled the * Suit, and Elan * Elan's * verapamil * verapamil *.
2.4.2. *, Elan * Elan's * verapamil * Elan *, Elan *.
2.4.3. Schein acknowledges Elan's covenants as described in
Clauses 2.4.1. and 2.4.2. and agrees to be bound, and (where applicable) to
cause any of its subsequent assignees and exclusive licensees to be bound, by
the covenant * Schein * Schein * Elan's * verapamil *. For the avoidance of
doubt, Schein's rights to bring any such defense proceedings shall be subject
to the prior rights of Elan and * as set out in Clause 2.3.
2.4.4. At the request of Elan, Schein shall (and shall procure
that any other necessary parties shall) execute and deliver all such documents,
acts and things with Elan,
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
3
<PAGE>
* or any third party as may reasonably be required subsequent to the signing
of this Agreement to give effect to Schein' agreement under Clause 2.4.3.
2.4.5. Elan acknowledges that pursuant to the * Settlement
Agreement, * Elan * Elan * verapamil * Elan * verapamil *. Elan * Elan *
verapamil * Elan.
2.5. * SETTLEMENT AGREEMENT
2.5.1. Pursuant to the * Settlement Agreement, Elan and *
settled the * Suit, and Elan * Elan's * verapamil *.
2.5.2. *, Elan *.
2.5.3. Schein acknowledges Elan's covenants as described in
Clauses 2.5.1. and 2.5.2. and agrees to be bound, and (where applicable) to
cause any of its subsequent assignees and exclusive licensees to be bound, by
the covenant * Schein * Schein * Elan's * verapamil *. For the avoidance of
doubt, Schein's rights to bring any such defense proceedings shall be subject
to the prior rights of Elan and * as set out in Clause 2.3.
2.5.4. At the request of Elan, Schein shall (and shall procure
that any other necessary parties shall) execute and deliver all such documents,
acts and things with Elan, * or any third party as may reasonably be required
subsequent to the signing of this Agreement to give effect to Schein's
agreement under Clause 2.5.3.
2.5.5. Elan * Elan * Elan * Elan's *.
2.6. Elan has licensed * to sell * in the Territory. The said
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
4
<PAGE>
licence excludes the right of * to provide for, market or sell a generic
substitute of *. Schein hereby acknowledges and confirms that Clause 4.3 of
the Agreement shall in no way restrict Elan or * from selling * in the
Territory.
2.7. * shall be payable to Elan for Generic Verapamil under the
Agreement, including, without limitation, the cost for Pivotal Bio PK Study,
pharmacokinetic studies and related assays, stability data generation,
clinical studies and compilation and submission of dossiers required for
registration, and market pack stability studies. Furthermore, in no event,
shall Elan shall be obliged to incur any such development fees or perform any
development work on Generic Verapamil.
2.8. Elan has secured FDA Approval for Verelan and shall be
responsible for submitting the filing with the FDA to seek approval to appoint
Schein as the distributor of Generic Verapamil in the Territory under the
* FDA Approval. Schein shall co-operate and provide all reasonable assistance
to Elan in obtaining such appointment. In the event that Schein packages
Generic Verapamil, Schein shall be responsible for obtaining all FDA and
other approvals necessary for Schein to package Generic Verapamil into final
market packaging, and to provide Elan with the appropriate documentation
relating to the packaging section of the * FDA Approval.
2.9. Elan and Schein shall confer on the manufacture of Launch Stocks
and all related matters associated with the launch of Generic Verapamil in the
Territory provided however, that notwithstanding the foregoing, Schein shall be
obliged in any event to market Generic * within * of the first commercial sale
of the First Generic in the Territory, and provided further, that Schein
shall have received in advance of such launch, an agreed quantity of Launch
Stocks of Generic Verapamil in final market packaged form with the Schein
label. The provisions of Clauses 8.7 and 9 of the Agreement shall be amended
in accordance with this paragraph with respect to Generic Verapamil but only
to the extent that any such provisions conflict with this paragraph.
2.10. The Parties agree that delivery of consignments of Generic
Verapamil shall be effected by Elan FOB Gainesville, Georgia. The Parties shall
agree whether Generic Verapamil is to be supplied by Elan in bulk or final
market packaged form with the Schein label. If the Generic Verapamil is to be
supplied in bulk form, Schein shall be responsible for the packaging of Generic
Verapamil into final market packaging.
2.11. In consideration of the license of the Elan Patent Rights
granted to Schein under this Amendment, Schein shall pay to Elan a * license
fee with respect to Generic Verapamil in the aggregate amount of *, which
shall be due upon the Date of First Commercial Sale of Generic Verapamil in
the Territory. For the avoidance of doubt, Schein shall have no further
obligation * for Generic Verapamil. The provisions of Clause 10.2 of the
Agreement shall not apply and have no force or effect with respect to Generic
Verapamil.
2.12. In the event that Generic Verapamil is supplied by Elan to
Schein in final
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
5
<PAGE>
market packaged form, such Product shall be supplied to Schein at *. For the
avoidance of doubt, in such event, * shall include the fully allocated costs
of packaging Generic Verapamil into final market packaged form.
2.13. In the event that Generic Verapamil is supplied by Elan to
Schein in bulk form, such Product shall be supplied to Schein at * provided
however, that any costs incurred by Schein in packaging Generic Verapamil
into final market packaged form shall not be a deductible expense in
calculating the Profit for Generic Verapamil.
2.14. Subject to the following sentence, Elan shall be entitled to
receive a royalty of * of the Profit of Generic Verapamil in accordance with
Clause 10.5 of the Agreement. In the event that Schein fails to market Generic
Verapamil within * of commercial sale of the First Generic solely due to
the failure of Elan to supply launch stocks of Generic Verapamil to Schein in
accordance with Clause 2.9 hereof, the royalty payable to Elan on Generic
Verapamil shall be * of Profit.
2.15. In addition to the rights of termination provided for in Clauses
12.3, 12.4 (other than Clause 12.4.4 for which this Clause 2.15 is substituted
in lieu thereof as regards Generic Verapamil only) and elsewhere in the
Agreement, in the event that the net price payable to Elan for Generic Verapamil
(that is the price of Generic Verapamil and the percentage of Profit) is, or
in Elan's reasonable opinion is likely to be, less than * for Generic
Verapamil, then Elan shall be entitled to terminate the license granted to
Schein for Generic Verapamil under this Amendment, provided however, such
termination right may only be exercised after the cumulative Profit retained
by Schein on sales of Generic Verapamil (after payment of the royalty due to
Elan with respect to such sales pursuant to Clause 10.5 of the Agreement), is
equal to, or greater than, *.
3. REAFFIRMATION OF THE AGREEMENT AND OTHER DOCUMENTS. Except as modified
herein, all of the covenants, terms and conditions of the Agreement, and all
documents, instruments and agreements executed in conjunction therewith remain
in full force and effect and are hereby ratified and reaffirmed in all respects.
In the event of any conflict, inconsistency or incongruity between the terms and
conditions of this Amendment and the covenants, terms and conditions of the
Agreement or any documents, instruments or agreements executed in conjunction
therewith, the terms and conditions of this Amendment shall govern and control.
4. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which together shall constitute an original but which,
when taken together, shall constitute but one instrument.
IN WITNESS WHEREOF, this Amendment is executed as of the day and year first
above written.
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
6
<PAGE>
ELAN CORPORATION, PLC
By: /s/ Seamus Mulligan
------------------------------------
Name: Seamus Mulligan
-----------------------------------
Title: Illegible
----------------------------------
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Paul Kleutghen
------------------------------------
Name: Paul Kleutghen
-----------------------------------
Title: Senior Vice President
----------------------------------
<PAGE>
Exhibit 10.68
CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
PENICILLIN G POTASSIUM MANUFACTURING AND SUPPLY AGREEMENT
AGREEMENT, effective February 15, 2000, between Pfizer Inc ("Pfizer"), a
Delaware corporation with an office at 235 East 42nd Street, New York, NY 10017,
and Schein Pharmaceutical, Inc. ("Schein"), a Delaware corporation with an
office at 100 Campus Drive, Florham Park, NJ 07932.
In consideration of the mutual covenants and agreements provided herein,
the parties agree as follows:
SECTION 1.0 DEFINITIONS
1.1 "Raw Material" means bulk sterile penicillin G potassium furnished by
Schein from an inventory of material currently on hand that had been
manufactured by * in its * manufacturing facility and conforming to
the specifications including test procedures set forth in Exhibit 1
as amended from time to time by agreement of the parties.
1.2 "Product" means packed and labeled finished dosage forms in vials
containing penicillin G potassium for injection and conforming to the
specifications including test procedures set forth in Exhibit 2 as
amended from time to time by agreement of the parties.
1.3 "Pfizer Product" shall have the meaning as set forth in Section 2.2.
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
2
1.4 "Yield" means the amount of Product meeting the specifications set
forth in Exhibit 2 expressed as a percentage of the theoretical amount
of Product from the Raw Material processed.
1.5 "Minimum Yield" means the minimum percentage Yield for the total of
the lots processed during a calendar year. The Minimum Yield shall be
*.
SECTION 2.0 MANUFACTURE OF PRODUCT AND SUPPLY OF RAW MATERIAL
2.1 Pfizer will receive Raw Material and deliver manufactured Product to
Schein as requested by Schein in its orders and according to the terms set forth
hereunder and in Exhibit 2 and Exhibit 3. Schein will provide Pfizer, at * to
Pfizer, freight to be paid by Schein, and no later than 2 months prior to the
quarter in which delivery is due, the amount of Raw Material required by
Pfizer to fill orders placed by Schein.
2.2 Schein will also supply to Pfizer, at a price set forth in Section 3.2,
Raw Material for the manufacture by Pfizer of Product for sale by Pfizer as
requested in Pfizer's orders and according to the terms set forth hereunder.
Product for sale by Pfizer shall hereinafter be referred to as "Pfizer Product".
2.3 Primary packaging material (material coming into direct contact with
Product) supplied by Pfizer must comply with the specifications agreed to by
Schein and Pfizer. Pfizer will use commercially reasonable efforts in the
qualification and selection of suppliers and will notify Schein of any changes.
2.4 Schein will provide text and artwork for secondary packaging
material (printed material) and may request revisions from time to time,
provided that all text is consistent with
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
3
Pfizer's New Drug Application for Pfizerpen(R). Pfizer and Schein will
cooperate in implementing any required revisions within an appropriate
timeframe.
SECTION 3.0 PRICES
3.1 The prices Schein shall pay Pfizer to manufacture Product for Schein
pursuant to this Agreement are set forth in Exhibit 3.
3.2 Pfizer shall pay Schein * per billion units (BU), freight to be paid
by Pfizer from Schein's Marsam facility in Cherry Hill, NJ to Pfizer's Terre
Haute, Indiana manufacturing facility, for all Raw Material supplied by Schein
for the manufacture by Pfizer of Pfizer Product.
3.3 Pfizer will invoice Schein for all Product actually delivered pursuant
to this Agreement. Pfizer's invoice will be payable by Schein within 30 days.
3.4 Subject to the provisions of Section 6.0 hereof, Schein will invoice
Pfizer for all Raw Material actually delivered to Pfizer pursuant to this
Agreement for the manufacture by Pfizer of Pfizer Product as requested by Pfizer
in its orders and according to the terms set forth hereunder.
SECTION 4.0 QUANTITIES AND PURCHASE ORDERS FOR PRODUCT
4.1 Pfizer agrees to manufacture for Schein, on the basis set forth herein,
Schein's requirements for Product during the term of this Agreement, up to *
vials of Product each calendar quarter, subject to available capacity.
4.2 As of the date of the signing of this Agreement, Schein will provide
to Pfizer, subject to Pfizer's acceptance, a firm purchase order covering the
remainder of the first calendar quarter and the second calendar quarter of
calendar year 2000 (the "Initial Purchase Order").
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
4
Within 15 days of the date of Pfizer's receipt of Schein's Initial Purchase
Order, Pfizer will advise Schein in writing whether, based on Pfizer's
planned capacity utilization, Pfizer is able to supply the quantities within
the time periods set forth in the Initial Purchase Order. If Pfizer advises
that it can not supply the ordered quantities within the time frames set
forth in the Initial Purchase Order, the parties shall meet to discuss what
quantities Pfizer can supply; provided that, in such case, in accordance with
Section 4.5 hereof at least 50% of any Product planned by Pfizer to be
manufactured during such period shall be allocated to Schein. For each
calendar quarter thereafter, Schein will place firm purchase orders for
Product at least 90 days prior to the beginning of such calendar quarter.
Pfizer will review such purchase orders based on Pfizer's planned capacity
utilization and advise Schein in writing within 15 days of Pfizer's receipt
of the purchase order whether Pfizer can supply quantities with in the time
periods set forth in the purchase order. If Pfizer advises that it can not
supply the ordered quantities with in the time periods set forth in the
purchase order, the parties shall meet to discuss what quantities Pfizer can
supply; provided that, in such case, in accordance with Section 4.5 hereof at
least 50% of any Product planned by Pfizer to be manufactured during such
period shall be allocated to Schein.
Additionally, Schein will provide to Pfizer as of the date of the signing of
this Agreement and on or before the last day of each calendar quarter during
the term of this Agreement, a rolling forecast of the total quantity of
Product (including their distribution by dosage strength) to be manufactured
and delivered by Pfizer during each quarter for the two calendar quarters
beginning with the third calendar quarter of calendar year 2000. Except for
the Initial Purchase Order covering the first two calendar quarters of
calendar year 2000 (for which a forecast was
<PAGE>
5
not provided) and subject to Section 4.5 below, quantities of Product order
by Schein shall be 75%-125% of the quantity previously forecast for that
quarter by Schein, unless the parties otherwise agree. Forecasts provided by
Schein to Pfizer hereunder are for planning purposes only and shall be
non-binding.
4.3 Orders of Product will be in full lot size quantities as set forth
below:
5MMU - * vials
20MMU - * vials
Actual lot sizes upon delivery may vary from these numbers. Pfizer will promptly
notify Schein of the actual lot sizes at the time of delivery.
4.5 Production of Product by Pfizer will be split at least evenly between
Pfizer Product and Product to be sold by Schein so that at a minimum 50% of any
Product planned by Pfizer for manufacture shall be allocated to Schein.
SECTION 5.0 QUANTITIES AND PURCHASE ORDERS FOR RAW MATERIAL
5.1 Schein agrees to supply to Pfizer during the term of this Agreement on
the basis set forth herein, Pfizer's requirements for Raw Material for the
manufacture by Pfizer of Pfizer Product.
5.2 Schein agrees to supply to Pfizer an initial delivery of * kilograms
of Raw Material for the manufacture by Pfizer of Pfizer Product within thirty
(30) days of the date of this Agreement. Thereafter, within ten days of the
beginning of each calendar quarter Pfizer will place firm purchase orders for
Raw Material specifying quantities and delivery dates. Such further
deliveries will be made as determined according to Pfizer's actual quarterly
production
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
6
requirements. Pfizer agrees that it will not have on hand at any time during
the term (including any extension periods) of this Agreement inventory of Raw
Material greater than * kilograms in excess of its actual quarterly
production requirements.
5.3 During any extension period of this Agreement as contemplated by Section
14.2.2. if:
(a) Schein is manufacturing penicillin G potassium for injection or is having
penicillin G manufactured by a third party on its behalf, then, in addition
to the other provisions set forth herein relating to the supply of Raw
Material to Pfizer, Schein shall not be obligated to supply to Pfizer more
than * kilograms per six-month extension period; or
(b) Schein is NEITHER manufacturing penicillin G potassium for injection NOR
having penicillin G potassium manufactured by a third party on its
behalf, then Schein will provide Pfizer with an accounting of its Raw
Material inventory and Pfizer will be entitled to order an amount of Raw
Material per quarter up to * of Schein's total Raw Material inventory
(so that *) unless demand for Pfizer Product exceeds that amount, in
which case the parties shall meet to discuss a reasonable amount that
Pfizer would be entitled to order in light of demand for Pfizer Product.
5.4 For the avoidance of doubt it is understood and agreed that if the Raw
Material is depleted or becomes not suitable for use in commercial
production, Schein is under no obligation
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
7
to obtain additional raw material on behalf of Pfizer and no further
obligation to supply Raw Material to Pfizer.
SECTION 6.0 TERMS AND RISK OF LOSS
6.1 All freight charges for Product are to be paid by Schein from Pfizer's
Terre Haute, Indiana manufacturing facility to Schein's Eastern Distribution
Center in Brewster, NY. Prices are FOB Pfizer's plant, net 30 days from date of
invoice. Title to the Raw Material to be used for processing into Product to be
supplied to Schein will remain in Schein but risk of loss (due to casualty) will
be borne by Pfizer from the time of delivery of the Raw Material to Pfizer until
the time of delivery of the Product to Schein at Schein's Eastern Distribution
Center. In the event of such loss or damage Pfizer will compensate Schein at a
rate of * per BU of Raw Material, except in the event that such loss or damage
is due to the intentional misconduct of Pfizer in which case such compensation
will not be so limited.
6.2 At the end of any calendar year or upon termination or expiration of
this Agreement, if Pfizer has failed to meet the Minimum Yield for the lots
processed during that year, Pfizer shall compensate Schein at a rate of * per
BU of Raw Material for the Raw Material lost during that year with respect to
the difference between the actual Yield and the Minimum Yield.
6.3 Pfizer will provide Schein with a Certificate of Analysis for each lot
of Product delivered. This will include a statement of compliance with the
terms of Pfizer's New Drug Application for Pfizerpen(R), cGMP and all other
product related requirements as agreed to by the parties, and indicating that
the lot is therefore released for commercial distribution. The
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
8
Certificate of Analysis shall include: Finished Product Name, Lot No. and
Expiry Date, Date of Manufacturing of bulk lot and lot number, and total
number of units released. Schein will provide Pfizer with a Certificate of
Analysis and manufacturing and storage records, as agreed to by the parties,
for each lot of Raw Material delivered.
6.4 Pfizer will use all reasonable efforts to deliver the quantities of
Product ordered within two weeks of delivery dates agreed upon by the parties.
Schein will use all reasonable efforts to deliver the quantities of Raw Material
ordered by Pfizer for manufacture of Pfizer Product Pfizer within 2 weeks of
delivery dates specified in the order.
6.5 Pfizer will invoice Schein for the Product within 30 days of date of
shipment. Schein will invoice Pfizer for the Raw Material ordered by Pfizer for
the manufacture by Pfizer of Pfizer Product within 30 days of date of shipment.
Schein's invoice will be payable by Pfizer within 30 days of date of invoice.
SECTION 7.0 INSPECTION AND REJECTION
7.1 The respective receiving party shall inspect Product and Raw
Material, as the case may be, within 60 days of receipt thereof at the
destination specified in the shipping instructions. Except as provided in
Section 7.2, if the shipment or any portion thereof fails to conform to the
warranties set forth in Section 9.1 or 9.2, except with respect to any latent
defect not identifiable with diligent investigation, the receiving party
shall, within 60 days of receipt thereof, notify the supplying party of its
intent to reject the Product or Raw Material and the reason for the intended
rejection, and afford the supplying party a reasonable opportunity to inspect
the Product or Raw Material. The receiving party shall cooperate with the
supplying party to determine whether rejection is necessary or justified. At
the receiving party's option, the supplying party shall give
<PAGE>
9
credit to the receiving party for the receiving party's price of a rejected
shipment, plus compensation at a rate of * per BU of Raw Material for the Raw
Material contained in such shipment of Product, or replace at the supplying
party's expense any non-conforming Product or Raw Material. The supplying
party shall give credit to the receiving party for the cost of shipping such
rejected shipment from the receiving party to the supplying party. The
supplying party shall make all reasonable efforts to complete the replacement
or adjustment promptly after the notification by the receiving party. The
receiving party shall not delay payment for Product or Raw Material pending
inspection; provided, however, that payment pending inspection shall not be
considered acceptance of Product of Raw Material by the receiving party.
7.2 Pfizer shall have no obligation to credit or reimburse Schein for
shipments of Product incorporating Raw Material that fails to conform to the
warranties set forth in Section 9.2.
7.3 If the parties cannot agree, after a period of 60 days following the
receiving party's notice of its intent to reject pursuant to Section 7.1,
whether rejection is necessary or justified, then the Vice President of
Regulatory Compliance of Schein and the Senior Vice President - Global
Manufacturing of Pfizer shall mutually determine in good faith whether the
rejected Product or Raw Material was in conformance with the warranties set
forth in Section 9.1 or 9.2.
SECTION 8.0 QUALITY CONTROL
8.1 Each party will, as required, maintain a quality control program
(including, without limitation, exception investigation policies and
procedures), consistent with CGMPs as related to this Agreement, as found at
21 CFR Part 211, and all subsequent additions and revisions thereto.
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
10
8.2 Each party will, as required, obtain and maintain the equipment
required to fulfill its obligations under this Agreement consistently with
CGMPs.
8.3 All Product supplied hereunder will be manufactured in accordance with
the procedures described in Pfizer's New Drug Application ("NDA") for
Pfizerpen(R), including supplemental NDAs for Pfizerpen(R) and all CGMPs or
other applicable federal or state regulations in effect at the time of
manufacture. Pfizer will notify Schein in advance of submitting to the FDA a
change in the "Chemistry, Manufacturing and Controls" section of the Pfizerpen
NDA.
SECTION 9.0 WARRANTIES, REMEDIES AND LIMITATIONS
9.1 Except to the extent that the Raw Material delivered by Schein fails
to conform to the warranties set forth in Section 9.2 hereof, Pfizer warrants
that the Product delivered hereunder (i) will be free from liens or claims of
third parties; (ii) will conform to the specifications set forth in Exhibit
2; (iii) will conform to the Certificate of Analysis supplied to Schein by
Pfizer; and (iv) will not be adulterated or misbranded within the meaning of
the Federal Food, Drug and Cosmetic Act. Nothing herein imposes any
obligation on Pfizer with respect to claims for damages for use of Product
sold by Schein from causes other than those expressly set forth hereunder.
9.2 Schein warrants that the Raw Material delivered hereunder (i) will be
free from liens or claims of third parties with respect to Raw Material sold
to Pfizer for manufacture of Pfizer Product; (ii) will conform to the
specifications set forth in Exhibit 1; (iii) will conform to the Certificate
of Analysis supplied to Schein by Pfizer; (iv) will not be adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic Act; and
(v) was
<PAGE>
11
manufactured by * in its * manufacturing facility and will have been stored
at all times under the recommended storage conditions. Nothing herein imposes
any obligation on Schein with respect to claims for damages for use of Pfizer
Product from causes other than those expressly set forth hereunder.
9.3 THE WARRANTIES SET FORTH IN SECTION 9.1 AND 9.2 ARE EXCLUSIVE AND
ARE GIVEN AND ACCEPTED IN LIEU OF ANY AND ALL OTHER WARRANTIES, EXPRESSED OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR SUITABILITY FOR PARTICULAR PURPOSE. EXCEPT AS PROVIDED IN
SECTIN 13.2 AND 13.3, THE REMEDIES AFFORDED TO SCHEIN FOR ANY BREACH OF
WARRANTY WILL BE LIMITED TO THOSE SET FORTH IN SECTION 7.1 TO THE EXCLUSION
OF ANY AND ALL OTHER REMEDIES. NEITHER PARTY TO THIS AGREEMENT WILL BE
ENTITLED TO INCIDENTAL OR CONSEQUENTIAL DAMAGES AS A RESULT OF THE BREACH OF
THIS AGREEMENT BY THE OTHER. NO AGREEMENT VARYING OR EXTENDING THE FOREGOING
WARRANTIES, REMEDIES OR THIS LIMITATION WILL BE BINDING ON EITHER PARTY
UNLESS IN WRITING AND AS PRESCRIBED BY SECTION 15.5.
SECTION 10.0 SCHEIN'S ACCESS TO PFIZER'S FACILITY
Pfizer will permit Schein to have access to Pfizer's manufacturing facility
on a confidential basis and upon reasonable notice at any time during the
manufacture of the Product.
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
12
SECTION 11.0 EXCHANGE OF OTHER INFORMATION
The appropriate technical representatives of the parties will meet as
required to discuss supply issues. The parties will also meet as required to
discuss regulatory compliance and quality control matters in an effort to begin
the commercial supply of the Product expeditiously. Each party shall bear its
own expenses relating to such meetings. Pfizer will provide Schein, upon
Schein's request, with copies of Pfizer's Annual Product Review covering the
Products to be sold by Schein, which will include complaint and stability
analysis.
SECTION 12.0 CONFIDENTIAL INFORMATION
12.1 Each of Pfizer and Schein agrees to keep and will keep each item of
the other's confidential information disclosed hereunder secret for a period of
ten (10) years from the date hereof and shall not disclose the same either fully
or partially to any third party, without the prior written consent of the
disclosing party, except those items of the information:
(a) which at the time they come to the knowledge of
the receiving party are publicly known, or
(b) which after they come to the knowledge of the receiving party
become publicly known through no fault of the receiving party but
only after and to the extent that they become publicly known, or
(c) which the receiving party can show were received in a legal way
from a third party being under no obligation of confidence to the
disclosing party, or
<PAGE>
13
(d) which were independently developed by the receiving party without
access to the disclosing party's confidential information as can
be demonstrated by contemporaneous written records.
12.2 Each of Schein and Pfizer furthermore agrees not to use and will not
use the other's confidential information which each of them is obligated to
maintain in secret according to 12.1 above for any purpose other than the
exercise of their rights hereunder.
SECTION 13.0 COMPLAINTS AND INDEMNITY
13.1 Complaints
13.1.1 Subject to Sections 13.1.3 and 13.1.41 and 13.3, Schein will be
responsible for handling any customer and regulatory complaints with respect to
the Products sold by Schein. Pfizer will promptly notify Schein of any complaint
it receives with respect to Products sold by Schein and will provide efficient
cooperation to Schein in connection with the handling of any such complaints.
13.1.2 Subject to Section 13.2, Pfizer will be for responsible for
handling any customer and regulatory complaints with respect to Pfizer
Product. Schein will promptly notify Pfizer of any complaint it receives with
respect to Pfizer Product or Product sold by Schein and will provide
efficient cooperation to Pfizer in connection with the handling of any such
complaints.
13.1.3 With respect to any Product supplied to Schein by Pfizer
hereunder, Pfizer will be responsible for the investigation of any Product
complaints arising from the manufacturing, processing, packaging or labeling
upon notification by Schein.
<PAGE>
14
13.1.4 Pfizer acknowledges that, pursuant to its obligations as holder
of the NDA for Pfizerpen(R), Pfizer shall have the responsibility to report to
the U.S Food and Drug Administration ("FDA") any adverse drug events ("ADEs", as
defined by relevant FDA regulations) as required by law. Each of the parties
agrees to furnish the other party, as provided in 13.1.5, with information
pertaining to any ADE occurring in the United States of which it becomes aware.
13.1.5 In the case of any serious ADE, the party in question shall
notify the other party within three (3) working days of knowledge of the ADE.
All other ADEs shall be reported by the party in question form time to time, but
not less frequently than monthly in the same manner.
Notifications will be sent to:
Pfizer Inc.
Vice President, Worldwide Safety
235 East 42nd Street
New York, NY 11030
Schein Pharmaceutical, Inc.
Director of Regulatory Affairs/Professional Services
P.O.Box 1022
Cherry Hill, NJ 08034
13.1.6. Each party shall maintain, in accordance with its own
customary practice, appropriate detailed records of all ADE reports which
have been submitted to the other party. Further, in the event that either
party shall receive a request for a more detailed investigation by the FDA
regarding an ADE involving Product, the other party shall cooperate and
assist the party receiving the request with respect to such investigation.
<PAGE>
15
13.1.7 Each party shall promptly advise the other of any significant
safety or toxicity developments of which either of them becomes aware relating
specifically to the Product or intermediates or other ingredients or processes
used in the manufacture of Product.
13.2 Schein Indemnity
13.2.1 Schein will indemnify Pfizer and its officers, directors,
agents and employees against, and will assume the defense of (i) any and all
product liability claims for damages for human bodily injury and/or death
resulting from the ingestion or use of Product sold by Schein or relating to any
recall of Product sold by Schein, except to the extent that such damages are the
result of Pfizer's negligence in manufacturing Product or any breach of the
terms of Section 8.0 or 9.1 hereof by Pfizer; and (ii) any and all product
liability claims for damages for human bodily injury and/or death resulting from
the ingestion or use of Pfizer Product or relating to any recall of Pfizer
Product, to the extent that such damages or expenses are attributable to the
negligence of Schein in supplying Raw Material hereunder or the breach of the
terms of Section 8.0 or 9.2 hereof by Schein.
13.2.2 If any claims are made against Pfizer as to which the
indemnification set forth in Section 13.2 applies, Pfizer, as soon as
reasonably practicable, will inform Schein thereof. Subject to Pfizer's
obligation to indemnify Schein pursuant to Section 13.3, Schein and/or its
insurers will assume the defense of any such claims for damages for human
bodily injury and/or death resulting from the ingestion or use of Pfizer
Product or Product sold by Schein or relating to any recall of Pfizer Product
or Product sold by Schein including, without limitation, the right to settle
such claims at the sole option of Schein or its insurers. Pfizer will
cooperate with Schein and its insurers in the disposition of any such
matters. Pfizer shall have the right to participate at its own expense in the
defense of any such claim.
<PAGE>
16
13.3 Pfizer Indemnity
13.3.1 Pfizer will indemnify Schein and its officers, directors,
agents and employees against and will assume the defense of (i) any and all
product liability claims for damages for human bodily injury and/or death
resulting from the ingestion or use of Pfizer Product relating to any recall of
Pfizer Product, except to the extent that such damages are the result of
Schein's negligence in supplying Raw Material or any breach of the terms of
Section 8.0 or 9.2 hereof by Schein; and (ii) any and all product liability
claims for damages for human bodily injury and/or death resulting from the
ingestion or use of Product sold by Schein or relating to any recall of Product
sold by Schein, incurred by Schein to the extent that such damages or expenses
are attributable to the negligence of Pfizer in manufacturing Product hereunder
or any breach of the terms of Section 8.0 or 9.1 hereof by Pfizer.
13.3.2 If any claims are made against Schein as to which the
indemnification set forth in Section 13.3 applies, Schein, as soon as
reasonably practicable, will inform Pfizer thereof. Subject to Schein's
obligation to indemnify Pfizer pursuant to Section 13.2, Pfizer and/or its
insurers will assume the defense of any such claims for damages for human
bodily injury and/or death resulting from the ingestion or use of Product
sold by Schein or relating to any recall of Products sold by Schein
including, without limitation, the right to settle such claims at the sole
option of Pfizer or its insurers. Schein will cooperate with Pfizer and its
insurers in the disposition of any such matters. Schein shall have the right
to participate at its own expense in the defense of any such claim.
SECTION 14.0 TERM AND TERMINATION
<PAGE>
17
14.1 The initial term of this Agreement will be the one (1) year period
beginning with the date of this Agreement. The term may be extended by written
agreement of the parties at least 90 days prior to expiration of the initial
period or any extensions thereto.
14.2 It is understood that by the time of the expiration of this Agreement,
Schein intends to re-establish its own manufacturing site for Product and that
both parties intend to obtain a new FDA-approved source for Raw Material. Given
the uncertainty of these efforts, however, the following additional options to
extend the initial term of the Agreement are provided:
14.2.1 Schein shall have the option to extend this Agreement and all
its provisions for up to two additional six-month extension periods by giving
Pfizer written notice of such extension at least ninety (90) days prior to
expiration of the initial term or the first extension thereto.
14.2.2 Pfizer shall have the option to extend this Agreement and all
its provisions relating to the supply by Schein of Pfizer's requirements for Raw
Material for the manufacture by Pfizer of Pfizer Product for up to four
additional six-month extension periods by giving Schein written notice at least
sixty (60) days prior to the expiration of the initial term of any extensions
thereto.
14.3 Either party will have the right to terminate this Agreement if the
other party fails to remedy any material breach of this Agreement within sixty
days of written notice of such breach.
14.4 The terms and provisions of Section 6.1, 6.2, 7.1, 7.2, 7.3, 12.0 and
13.0 shall survive the term and termination of this Agreement.
<PAGE>
18
SECTION 15.0 MISCELLANEOUS
15.1 Force Majeure - Except as otherwise specifically provided herein,
neither party will be liable for failure of or delay in performing obligations
set forth in this Agreement, and neither party will be deemed in breach of its
obligations, to the extent such failure or delay is due to natural disasters or
any causes reasonably beyond the control of such party.
15.2 Assignment - This Agreement is not assignable by either party without
the prior consent of the other, except that either party may assign this
Agreement, in whole or in part, to any Affiliate of such party or to the
successor (including the surviving company in any consolidation or merger) or
assignee of all or substantially all of its pharmaceutical business including,
with respect to Schein, a sale of all or substantially all of its sterile
pharmaceutical business, excluding its branded pharmaceutical business.
15.3 Governing Law - This Agreement will be governed by the laws of the
State of New York.
15.4 Notices - Any notice required under this Agreement will be in writing
and delivered personally or sent by registered mail, postage prepaid, or by fax
(confirmed by such registered mail) addressed as follows:
Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, New Jersey 07932
Attn: President (with a copy to General Counsel)
Fax No.: 973-593-5820
<PAGE>
19
Pfizer Inc
235 East 42nd Street
New York, New York, USA 10017
Attn: General Counsel
Fax No.: (212) 573-1445
(with a copy to: Vice President, Pfizer Global
Manufacturing)
All notices will be deemed to be effective on the date of delivery if delivered
personally or on the date of transmittal, in the case of notice sent by fax, or
on the date of mailing, as applicable. In case any party changes its address at
which notice is to be received, notice of such change will be given without
delay to the other party in the manner provided therein.
15.5 Entire Agreement - This Agreement, including its Exhibits, sets
forth the entire agreement and understanding between the parties hereto as to
the subject matter hereof and has priority over all documents, verbal
consents or standings made by Pfizer and Schein before the conclusion of this
Agreement with respect to the subject matter hereof; none of the terms of
this Agreement may be amended or modified except in writing signed by the
parties hereto.
15.6 Waivers - A waiver by either Party of any term or condition of this
Agreement in any one instance will not be deemed or construed to be a waiver of
such term or condition for any similar instance in the future or of any
subsequent breach hereof. All rights, remedies, undertakings, obligations and
agreements contained in this Agreement will be cumulative and none of them will
be a limitation of any other remedy, right, undertaking, obligation or
agreement.
<PAGE>
20
15.7 Headings - Headings in this Agreement are included herein for ease of
reference only and will have no legal effect.
15.8 No Joint Venture - Nothing herein creates any association,
partnership, joint venture or the relations of principal and agent between the
parties, it being understood that the parties are acting as independent
contractors in relation to each other, and neither party has authority to bind
the other or the other's representatives in any way.
15.9 Severability - The invalidity of unenforceability of any provision of
this Agreement will in no way affect the validity or enforceability of any other
provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above their duly authorized
representatives.
PFIZER INC SCHEIN PHARMACEUTICAL, INC.
BY: /s/ JW Mitchell BY: /s/ Dariush Ashrafi
----------------------------- -----------------------------
NAME: JW Mitchell Name: Dariush Ashrafi
----------------------------- -----------------------------
TITLE: SR VP-Manufacturing TITLE: President and COO
--------------------------- ---------------------------
<PAGE>
21
EXHIBIT 1
RAW MATERIAL SPECIFICATIONS
* (3 pages omitted) *
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
22
EXHIBIT 2
PRODUCT SPECIFICATIONS
* (4 pages omitted) *
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
23
EXHIBIT 3
PRICES FOR MANUFACTURE OF PRODUCTS
DOSAGE STRENGTH PRICE ($U.S./VIAL)
- --------------- ------------------
5 million units (MMU) per vial *
20 million units (MMU) per vial *
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
Exhibit 10.69
CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
THIS AMENDMENT, dated February 28, 2000 (this "Amendment"), to the MULTI PRODUCT
TECHNOLOGY TRANSFER DEVELOPMENT AND LICENSE AGREEMENT, by and between SCHEIN
PHARMACEUTICAL, INC., a Delaware corporation, having its principal place of
business at 100 Campus Drive, Florham Park, New Jersey 07932 U.S.A. ("Schein")
and AMARIN CORPORATION PLC (formerly known as ETHICAL HOLDINGS PLC) having its
principal place of business at Gemini House, Bartholomew's Walk, Ely, Cambs CB7
4EA, United Kingdom ("Amarin").
R E C I T A L S:
A. Schein and Amarin are parties to that certain Multi Product Technology
Transfer Development and License Agreement, dated August 30, 1994, as amended
(the "Agreement"). Capitalized terms used herein which are not otherwise defined
shall have the meanings ascribed to them in the Agreement.
B. Pursuant to Section 4 and Schedule 3 of the Agreement, Schein is obligated to
select twelve (12) Designated Products from the Prospective Development Products
and the parties are obligated to immediately commence work on the Designated
Development Programme for such Designated Products.
C. Pursuant to the Agreement, Schein has designated Designated Products from the
Prospective Development Products and the parties have commenced work on the
Designated Development Programme for such Designated Products.
D. Schein and Amarin acknowledge that several of the Designated Development
Programmes for several of the Designated Products have been unsuccessful or that
Amarin will, following *.
E. The parties wish to amend the Agreement to provide, among other things (i)
for the deletion of those Designated Products which the parties have
previously determined are not suitable for development or that Amarin will no
longer possess the rights for such development (ii) to confirm their
intention to continue with the existing Designated Development Programmes for
* and *; and (iii) to provide for the future designation of additional
Designated Products, in accordance with the terms and conditions set forth
herein.
NOW, THEREFORE, the parties agree as follows:
1. DELETION OF DESIGNATED PRODUCTS AND PROSPECTIVE DEVELOPMENT PRODUCTS. The
following products are hereby deleted from the Schedule 5 listing and other
designations of Prospective Development Products and shall no longer be deemed
to be Designated Products:
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
*
*
*
*
*
*
2. CONFIRMATION OF DESIGNATED DEVELOPMENT PROGRAMMES FOR * AND *. The parties
confirm their intention to continue with the Designated Development
Programmes for * and * in accordance with the Agreement; Amarin confirms, in
connection with such Designated Development Programmes, to be responsible for
payment of the cost of the pilot bio-studies only for such * and * products
manufactured by or on behalf of Schein to be carried out in accordance with
the appropriate regulatory guidelines in the relevant Territory as are in
force at the time of this Amendment.
3. DESIGNATION OF ADDITIONAL DESIGNATED PRODUCTS. Notwithstanding anything
contained in the Agreement to the contrary, the parties acknowledge and agree
that Schein's obligation to designate additional Designated Products shall be
limited to * products and that Schein shall designate and Amarin shall
mutually agree to such products to be Designated Products within one hundred
and eighty (180) days of the date of this Amendment. Amarin will expend a
maximum of * on Pilot Biostudies per additional Designated Product; and that
until such time Schein retains all rights under Section 5.4 of the Agreement
to apply the balance of the Notional Sums to any alternative Designated
Development Programme with respect to any additional Designated Products
designated by Schein.
4. REAFFIRMATION OF SUPPLY AGREEMENT AND OTHER DOCUMENTS. Except as modified
herein, all of the covenants, terms and conditions of the Agreement and all
documents, instruments and agreements executed in conjunction therewith remain
in full force and effect and are hereby ratified and reaffirmed in all respects.
In the event of any conflict, inconsistency or incongruity between the terms and
conditions of this Amendment and the covenants, terms and conditions of the
Agreement or any documents, instruments or agreements executed in conjunction
therewith, the terms and conditions of this Amendment shall govern and control.
5. COUNTERPARTS. This Amendment may be executed in two or more counterparts,
each of which together shall constitute an original but which, when taken
together, shall
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
2
<PAGE>
constitute but one instrument and shall become effective when copies hereof,
when taken together, bear the signatures of all required parties and persons.
IN WITNESS WHEREOF, this Amendment is executed as of the day and year first
above written.
AMARIN CORPORATION PLC
By: /s/ Richard A.B. Stewart
-----------------------------------
Name: Richard A.B. Stewart
Title: President & CEO
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Paul Kleutghen
-----------------------------------
Name: Paul Kleutghen
Title: Senior Vice President, Strategic
Development
3
<PAGE>
Exhibit 10.70
CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
5
March 24, 2000
Amarin Corporation PLC
Gemini House
Bartholomew's Walk
Ely, Cambs
CB7 4EA, United Kingdom
Gentlemen:
Reference is made to the certain (i) License & Development Agreement, dated
January 15, 1993, between Schein Pharmaceutical, Inc. ("Schein") and Ethical
Holdings plc (formerly known as Ethical Holdings Limited; now known as Amarin
Corporation plc), as amended by that certain Amendment Agreement, dated
November 4, 1994 (the "* Agreement"), between Schein and Ethical Holdings,
plc; (ii) License & Development Agreement, dated March 31, 1994 (the "*
Agreement"), between Schein and Ethical Holdings plc; and (iii) License &
Development Agreement, dated November 30, 1993 (the "* Agreement"), between
Schein and Ethical Holdings plc. Ethical Holdings Limited, Ethical Holdings,
plc and Amarin Corporation plc are hereafter referred together as "Amarin."
The * Agreement, the * Agreement and * Agreement are hereafter referred to
collectively as the "Development Agreements". This letter of agreement (the
"Letter") will confirm our understanding and agreement regarding the
amendment and termination of the Development Agreements, in whole or part, as
follows:
1. * AGREEMENT.
(a) TERMINATION OF * AGREEMENT WITH RESPECT TO US DEVELOPMENT RIGHTS.
Subject to the terms and conditions contained herein, the term of the *
Agreement with respect to the license, development, manufacture, supply, sale
and distribution of * in the United States of America, its territories and
possessions (the "US Development Rights") shall terminate with immediate
effect from the date of this Letter, provided, however, that the rights and
obligations of the parties under Article XI.B of the * Agreement with respect
to the US Development rights shall survive for a period of seven (7) years
from the date hereof and under Articles XII and XIX of the * Development
Agreement shall survive termination of the term of the * Agreement with
respect to the US Development Rights.
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
(b) AMENDMENT OF * AGREEMENT WITH RESPECT TO INTERNATIONAL DEVELOPMENT
RIGHTS. Amarin and Schein hereby acknowledge that the Development Programme
(as that term is defined in the * Agreement) for * in all territories outside
of the United States of America, its territories and possessions (the
"International Development Programme") has been completed and that all
obligations of the parties regarding the International Development Programme
have been fulfilled. All other rights and obligations of the parties concerning
the license and commercialization of * in all territories outside of the United
States of America, its territories and possessions shall continue.
(c) In consideration of the agreements contained herein, Amarin agrees to
reimburse Schein (a) the sum of US * of past licensing fees paid by Schein to
Amarin with respect to the United States and (b), the sum of US * of past
licensing fees paid by Schein to Amarin and US * of development fees paid by
Schein with respect to countries in the Territory (as that term is defined in
the * Agreement) other than the United States, all in accordance with
Paragraph 4, below.
2. TERMINATION OF * AGREEMENT. Subject to the terms and conditions
contained herein, the * Agreement shall terminate with immediate effect from
the date of this Letter; provided, however, that the rights and obligations
of the parties under Article XV.B of the * Agreement shall survive for a
period of seven (7) years from the date hereof and under Articles XVI and
XXIII of the * Agreement shall survive termination of the * Agreement.
In consideration of the agreements contained herein, Amarin agrees to
reimburse Schein the sum of US * of past licensing fees paid by Schein to
Amarin, in accordance with paragraph 4, below, and Schein agrees to transfer
to Amarin all of Schein's right, title and interest in and to the Licensee
Know-How (as that term is used in the * Agreement) and the IND related to the
Product (as that term is defined in the * Agreement), without recourse,
warranty or representation whatsoever.
3. TERMINATION OF * AGREEMENT. Subject to the terms and conditions
contained herein, the * Agreement shall terminate with immediate effect from
the date of this Letter; provided, however, that the rights and obligations
of the parties under Article XII of the * Agreement shall survive for a
period of seven (7) years from the date hereof and under Articles XIII and XX
of the * Agreement shall survive termination of the * Agreement. In
consideration of the agreements contained herein, Amarin agrees to reimburse
Schein the sum of US * of past licensing fees paid by Schein to Amarin, in
accordance with paragraph 4, below, and Schein agrees to transfer to Amarin
all of Schein's right, title and interest in and to the Licensee Know-How (as
that term is used in the * Agreement) and the draft ANDA related to the
Product (as that term is defined in the * Agreement), without recourse,
warranty or representation whatsoever. Schein and Amarin shall negotiate in
good faith negotiate an agreement for Schein to package commercial quantities
of the Product in its facilities unless Amarin decides otherwise.
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
2
<PAGE>
4. SCHEDULE OF PAYMENTS. The consideration payable to Schein pursuant to
paragraphs one (1), two (2) and (3) hereof, shall be made as follows:
(a) CASH PAYMENTS. Cash totaling * United States dollars (US *) shall
be due and payable by Amarin to Schein on March 27, 2000;
Such payment shall be paid to Schein at its offices at 100 Campus Drive, Florham
Park, New Jersey 07932, U.S.A., or at such other location as Schein may direct
in writing. Late payments shall bear interest at a rate equal to the lower of
(i) LIBOR plus three (3%) per cent per annum or (ii) the maximum rate permitted
by law; and
(b) The issue on the date of the completion ("Private Placement Date")
by Amarin of its current private placement of securities of not less than US
* (the "Private Placement") of * ordinary shares of Amarin (the "Shares"),
with such rights as are set out on Article VI of the Stock Purchase Agreement
to be executed in connection with the Private Placement in the form is
annexed hereto) between Amarin and the prospective purchasers, which Article
VI is deemed incorporated herein and made a part hereof as if Schein were a
Purchaser and Holder thereunder; none of such rights may be amended with
respect to Schein without Schein's prior written consent. The Shares shall be
convertible at Schein's option, within the period set out in Article VI(d) of
the Stock Purchase Agreement, into * American Depository Shares ("ADSs") of
Amarin in accordance with the registration rights set out in Article VI of
the Stock Purchase Agreement. Amarin agrees to use its best efforts at its
expense to file a registration statement in respect of such Shares within
ninety (90) days of issue. Schein shall pay all other costs related to the
issue of ADSs on registration. The provisions of Section 3.1 of Article III
of the Stock Purchase Agreement shall be deemed incorporated and made a part
hereof and such representations and warranties are deemed to be made by
Amarin to Schein in connection with the issue of the shares to Schein. The
Company also agrees (i) to provide Schein with copies of all notices it sends
to or receives from Purchasers under the Stock Purchase Agreement and (ii) to
pay Schein's proportionate share of reasonable attorneys' fees and
out-of-pocket expenses of counsel to the extent provided in Section 7.4 of
the Stock Purchase Agreement. The Company agrees that no material provision
of the Stock Purchase Agreements being entered into with the Purchasers in
connection with the Private Placement having an effect on the rights of
Schein granted under this clause, including without limitation, any
representations and warranties, shall be varied from the form annexed hereto,
without the prior written consent of Schein, not to be unreasonably withheld.
5. Except for the obligations of Schein under paragraphs 1, 2, 3 and 4 of
this Letter, Amarin, for itself and each of its subsidiaries, parents,
affiliates, shareholders, officers, directors, partners, attorneys,
representatives, agents and employees of same, and the assigns and successors in
interest of any of the foregoing entities and individuals (hereinafter
individually and collectively referred to as the "Amarin Releasors"), does
hereby remise, release and forever discharge Schein and each of its
subsidiaries,
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
3
<PAGE>
affiliates, officers, directors, partners, attorneys, representative, agents and
employees of same, and the assigns and successors in interest of any of the
foregoing entities and individuals (hereinafter individually and collectively
referred to as the "Schein Releasees"), of and from any and all manner of
actions, causes of action, suits, debts, sums of money, contracts,
controversies, agreements, promises, damages, judgments, executions, claims,
liabilities, demands and obligations, in law or in equity, whether asserted now
or in the future, directly or indirectly by way of defense of set-off or
recoupment, or whether based on any theory of indemnification, contribution,
equitable apportionment or reimbursement of any kind, whether known or unknown,
foreseen or unforeseen, fixed or contingent, of any nature whatsoever, which
against the Schein Releasees, the Amarin Releasors ever had, now has or
hereafter can, shall, may or could have for, upon or by reason of any act,
omission, matter, cause or thing whatsoever from the beginning of time to the
date of this Release, arising out of or in connection with the * Agreement or
its termination or the US Development Rights under the * Agreement or the
termination of such rights.
6. Except for the obligations of Amarin under paragraphs 1, 2, 3 and 4 of
this Letter, Schein, for itself and each of its subsidiaries, parents,
affiliates, shareholders, officers, directors, partners, attorneys,
representatives, agents and employees of same, and the assigns and successors in
interest of any of the foregoing entities and individuals (hereinafter
individually and collectively referred to as the "Schein Releasors"), does
hereby remise, release and forever discharge Amarin and each of its
subsidiaries, affiliates, officers, directors, partners, attorneys,
representatives, agents and employees of same, and the assigns and successors in
interest of any of the foregoing entities and individuals (hereinafter
individually and collectively referred to as the "Amarin Releasees"), of and
from any and all manner of actions, causes of action, suits, debts, sums of
money, contracts, controversies, agreements, promises, damages, judgments,
executions, claims, liabilities, demands and obligations, in law or in equity,
whether asserted now or in the future, directly or indirectly by way of defense
of set-off or recoupment, or whether based on any theory of indemnification,
contribution, equitable apportionment or reimbursement of any kind, whether
known or unknown, foreseen or unforeseen, fixed or contingent, of any nature
whatsoever, which against the Amarin Releasees, the Schein Releasors ever had,
now has or hereafter can, shall, may or could have for, upon or by reason of any
act, omission, matter, cause or thing whatsoever from the beginning of time to
the date of this Release, arising out of or in connection with the * Agreement
or * Agreement, or the termination thereof or the US Development Rights under
the * Agreement or the termination of such rights.
7. Any disputes related to the terms of this Letter shall be in accordance
with the arbitration provisions of Development Agreements.
8. This Letter may not be modified or amended except in a writing executed
by the parties hereto.
9. Notwithstanding anything to the contrary contained herein, the
obligations and agreements of the parties hereunder are subject to and
conditioned upon the
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
4
<PAGE>
completion of the Private Placement in amount of not less than US *. In the
event such Private Placement is not completed by December31, 2000, this Letter
and the agreements contained herein shall become null and void AB INITIO and of
no further force or effect.
Please execute a copy of this Letter in the space provided below and return it
to the undersigned to indicate your agreement to the foregoing.
Very truly yours,
SCHEIN PHARMACEUTICAL, INC.
By: /s/ Paul Kleutghen
-----------------------------------
Name: Paul Kleutghen
Title: Senior Vice President, Strategic
Development
ACCEPTED AND AGREED TO:
AMARIN CORPORATION PLC
By: /s/ Richard A.B. Stewart
------------------------------
Name: Richard A.B. Stewart
Title: President & CEO
- ----------
* Material omitted pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
5
<PAGE>
EXHIBIT 21.1
SCHEIN PHARMACEUTICAL, INC.
LIST OF SUBSIDIARIES
The following is a list of subsidiaries of the Company as of December 25,
1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
% OF VOTING
NAME STATE OF SECURITIES
INCORPORATION OWNED
- --------------------------------------------------------------------------------
<S> <C> <C>
Schein Pharmaceutical, Inc. Delaware
Danbury Pharmacal, Inc. Delaware 100%
Danbury Pharmal Puerto Rico Inc Delaware 100%
Steris Laboratories, Inc. Delaware 100%
Marsam Pharmaceuticals, Inc. Delaware 100%
MSI, Inc. Delaware 100%
Schein Pharmaceutical PA, Inc. Delaware 100%
Schein Pharmaceutical Services Co. Delaware 100%
Schein Bayer Pharmaceutical Services, Inc. Delaware 50%
Ranbaxy Shein Pharma, LLC Delaware 50%
Schein Pharmaceutical International, Inc. Delaware 100%
Schein Pharmaceutical Canada, Inc. Canada 50%
Schein Pharmaceutical B.V. Netherlands 100%
Triomed Ltd. S.Africa 50%
Schein Pharmaceutical Ltd. Bermuda 100%
Schein Pharmaceutical UK Holding Ltd. United Kingdom 100%
Schein Pharmaceutical UK Ltd. United Kingdom 100%
Schein Pharma Italia Srl. Italy 100%
Schein Farmaceutica de Peru Peru 100%
International Generics Company Ltd. Taiwan 100%
- --------------------------------------------------------------------------------
</TABLE>
78
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Schein Pharmaceutical, Inc.
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statements on Form S-8 (Nos. 333-49827
and 333-79779) dated April 9, 1998 and June 2, 1999, respectively, of our
reports dated February 16, 2000 (except for Note 20 which is as of March 31,
2000) relating to the consolidated financial statements and schedule of Schein
Pharmaceutical, Inc. appearing in the Company's Annual Report on Form 10-K for
the year ended December 25, 1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
New York, New York
April 6, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 25, 1999 AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED
DECEMBER 25, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000948929
<NAME> SCHEIN PHARMACEUTICAL, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1998
<PERIOD-END> DEC-25-1999
<CASH> 3,821
<SECURITIES> 0
<RECEIVABLES> 64,028
<ALLOWANCES> (2,200)
<INVENTORY> 128,726
<CURRENT-ASSETS> 224,195
<PP&E> 177,052
<DEPRECIATION> (76,322)
<TOTAL-ASSETS> 403,501
<CURRENT-LIABILITIES> 241,014
<BONDS> 92,738
0
0
<COMMON> 329
<OTHER-SE> 56,789
<TOTAL-LIABILITY-AND-EQUITY> 403,501
<SALES> 477,161
<TOTAL-REVENUES> 477,161
<CGS> 306,019
<TOTAL-COSTS> 213,382
<OTHER-EXPENSES> 1,268
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,661
<INCOME-PRETAX> (62,169)
<INCOME-TAX> (27,781)
<INCOME-CONTINUING> (34,388)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,388)
<EPS-BASIC> (1.05)
<EPS-DILUTED> (1.05)
</TABLE>
