-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CjWjsJsGu2OVjhagQqLxWyVSQ0GY0rpV141r66dWC3gNJ0FUp2aegX+2RwKZcH5P l8kPP+YlVEA6MGjHW/104A== 0000010081-96-000005.txt : 19961001 0000010081-96-000005.hdr.sgml : 19961001 ACCESSION NUMBER: 0000010081-96-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960930 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARR LABORATORIES INC CENTRAL INDEX KEY: 0000010081 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221927534 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09860 FILM NUMBER: 96636702 BUSINESS ADDRESS: STREET 1: 2 QUAKER RD BOX 2900 CITY: POMONA STATE: NY ZIP: 10970 BUSINESS PHONE: 9143621100 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-9860 BARR LABORATORIES, INC. (Exact name of Registrant as specified in its charter) New York 22-1927534 (State or Other Jurisdiction of (I.R.S. - Employer Incorporation or Organization) Identification No.) Two Quaker Road, P. O. Box 2900, Pomona, New York 10970-0519 (Address of principal executive offices) 914-362-1100 (Registrant's telephone number) Securities registered Name of each pursuant to Section exchange on 12(b) of the Act: which registered: Title of each class Common Stock, Par Value American Stock $0.01 Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) 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. [X] The aggregate market value of the voting stock of the Registrant held by nonaffiliates was approximately $112,628,337 as of June 30, 1996 (assuming solely for purposes of this calculation that all Directors and Officers of the Registrant are "affiliates"). Number of shares of Common Stock, Par Value $.01, outstanding as of June 30, 1996: 14,037,027. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's 1996 Annual Report to Shareholders are incorporated by reference in Part II and Part IV hereof. Portions of the Registrant's 1996 Proxy Statement are incorporated by reference in Part III hereof. PART I Item 1. Business Barr Laboratories, Inc. ("Barr" or the "Company") is a leading independent developer, manufacturer and marketer of high quality generic pharmaceuticals. The Company ranks among the top ten independent companies in the U.S. generic pharmaceutical business as measured by net sales and market capitalization. Barr, which is listed on the American Stock Exchange (AMEX-BRL), also ranks among the top 50 pharmaceutical companies in the U.S. in terms of overall sales. Barr manufactures, markets and distributes a wide range of prescription drug products equivalent to branded pharmaceuticals. The Company's product line is primarily focused in the following therapeutic categories: - treatments for cancer (oncologicals); - hormone replacement therapies (hormonal agents) used in estrogen replacement and the treatment of menopause; - pain management products (narcotic analgesics); - medicines for hypertension and heart disease (cardiovascular agents); and - antibiotics and medicine to combat infections (anti- infectives). Barr also markets several products that represent other therapeutic categories including a line of products to treat anxiety, depression and other similar disorders (psychotherapeutics). These products are manufactured in tablet, capsule and powder form. Generic pharmaceuticals, such as those made and sold by Barr, represent an increasing proportion of medicines dispensed in the U.S. In calendar 1995, the generic pharmaceutical industry had total U.S. sales of approximately $7.5 billion (according to IMS International), more than twice the amount of sales reported just five years ago. Although generic pharmaceuticals must meet the same standards as branded pharmaceuticals, these equivalent medicines are sold at prices that are typically lower than the branded product. The Company believes that the industry will benefit from the increasing efforts by government (both state and federal), employers, third- party payers, and consumers to control health care costs, as well as from the more than 100 major branded pharmaceutical products that will come off-patent within the next ten years. Company Background The Company was founded in 1970 by Mr. Edwin A. Cohen and a partner, and commenced active business in 1972 as a manufacturer of generic drug products. Current Products Currently, the Company is marketing approximately 42 drug products, representing various dosage strengths of 22 chemical entities. Key among the Company's current products is Tamoxifen. Tamoxifen is a non-steroidal anti-estrogen used to treat advanced breast cancer, as well as to delay the recurrence of the cancer following surgery. Barr distributes Tamoxifen (which is sold under the Barr label) under an agreement with the Innovator holding the product's patent. In 1993, as a result of a settlement of a patent challenge against the Innovator of Tamoxifen, Barr entered into a non-exclusive Supply and Distribution Agreement ("Agreement"). Under the terms of the Agreement, Barr purchases its Tamoxifen directly from the Innovator at a discount from the Innovator's average wholesale customer price. Patent protected until 2002, the total current annual market for Tamoxifen is approximately $300 million. As a percentage of Barr's total sales, Tamoxifen accounted for approximately 74%, 72% and 49% of total fiscal year 1996, 1995, and 1994 sales, respectively. The Company currently has an approved Abbreviated New Drug Application (ANDA) to manufacture Tamoxifen. Therefore, at the time of patent expiration (or should another company's patent challenge succeed), Barr would begin to manufacture Tamoxifen. Manufacturing Tamoxifen would significantly lower Barr's costs and would dramatically improve the current profit margins earned by the Company on Tamoxifen sales. One generic competitor was unsuccessful in challenging the patent during the past fiscal year. While other companies may pursue similar challenges, the Company does not believe that the Tamoxifen patent will be successfully challenged prior to patent expiration. Product Development Barr's long-term growth is expected to be driven by its ability to be the first or second to market with new generic versions of select, branded pharmaceuticals. Barr's strategy to maximize opportunities for generic pharmaceuticals has three components: offering a therapeutically focused product line; aggressively investing in research and development (R&D) in categories representing strong potential where Barr has a competitive advantage; adding significant products through selective patent challenges; and strengthening market position through licensing, partnering and other innovative business relationships. Barr has made a significant investment in processes and equipment that enable it to develop and manufacture difficult or toxic compounds into profitable therapies. This investment, a significant barrier to entry for potential competitors, offers a distinctive advantage for Barr. For the fiscal years ended June 30, 1996, 1995, and 1994, total research and development expenditures were approximately $11 million, $10 million and $7 million, respectively. Management anticipates that research and development expenditures in fiscal 1997 will exceed comparable expenditures in fiscal 1996. See Item 7. "Management's Discussion and Analysis of Financial Conditions and Results of Operations." Marketing and Customers The Company sells its products to customers in the United States and Puerto Rico through an integrated sales and marketing force. This sales force is supplemented by customer service representatives who inform the Company's customers of new Company products, order status and current pricing. The Company markets its drug products to drug store chains, wholesalers, distributors and repackagers. The Company's products are sold under the Barr label as well as the customers' own private labels. The Company has approximately 300 direct customers. In fiscal 1996 and 1994, McKesson Drug Company accounted for approximately 10% and 11% of net sales, respectively. In fiscal 1995, approximately 10% of net sales were generated by sales to Cardinal Health, Inc. No other customer accounted for greater than 10% of sales in any of the last three fiscal years. Competition The Company competes in varying degrees with numerous other manufacturers of pharmaceutical products (both branded and generic). These competitors include the generic divisions of proprietary pharmaceutical companies (either marketing units or other generic manufacturers), large independent generic manufacturers/distributors that seek to provide "one stop shopping" by offering a full line of products, and generic manufacturers that have targeted select therapeutic categories and market niches. The principal competitive factors in the generic pharmaceutical industry are: - the ability to introduce generic versions of branded products promptly after the expiration of market exclusivity; - maintenance of sufficient inventories to ensure timely deliveries; - price; - quality; and - customer service. Many of the Company's competitors have greater financial and other resources, and are therefore able to devote more resources than the Company in such areas as marketing and product development. In order to ensure its ability to compete effectively, the Company has: - focused its product development in areas of historical strength or competitive advantage; - targeted products for development that offer significant barriers to entry for competitors, including: difficulty in sourcing raw materials; difficulty in formulation or establishing bioequivalence; manufacturing that requires unique facilities, processes or expertise; and - invested in plant and equipment to give it a competitive edge in manufacturing. These factors, when combined with the Company's investment in new product development and its focus on select therapeutic categories, provide the basis for its belief that it will continue to remain a leading independent generic pharmaceutical company. Raw Materials The active chemical raw materials essential to the Company's business are bulk pharmaceutical chemicals which are purchased from numerous manufacturers in the U.S. and throughout the world. All purchases are made in United States dollars, and therefore, while currency fluctuations do not have an immediate impact on prices the Company pays, such fluctuations may, over time, have an effect on prices to the Company. In addition, because prior U.S. Food and Drug Administration (FDA) approval of raw material suppliers is required, if raw materials from an approved supplier were to become unavailable, the required FDA approval of a new supplier could cause a significant delay in the manufacture of the drug product affected. However, in some cases, the Company has an FDA approved alternate supplier which would mitigate substantially the effect of any such delay. To date, the Company has not experienced any significant delays from lack of raw material availability. However, there can be no assurance that significant delays will not occur in the future. Employees As of June 30, 1996, the Company had approximately 386 full- time employees. Of these, approximately one-third are represented by a union which has a collective bargaining agreement with the Company. The Company's current collective bargaining agreement with its employees, who are represented by Local 8-149 of the Oil, Chemical and Atomic Workers International Union ("OCAW"), expires on April 1, 2001. Government Regulation All pharmaceutical manufacturers, including the Company, are subject to extensive regulation by the federal government, principally by the FDA, and, to a lesser extent, by the U.S. Drug Enforcement Administration ("DEA") and state governments. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act and other federal statutes and regulations govern or influence the testing, manufacturing, safety, labeling, storage, record keeping, approval, pricing, advertising and promotion of the Company's products. Non-compliance with applicable requirements can result in fines, recalls and seizure of products. Under certain circumstances, the FDA also has the authority to revoke drug approvals previously granted. FDA FDA approval is required before any new drug or a generic equivalent to a previously approved drug can be marketed. The Company generally receives approval for products by submitting an ANDA to the FDA. When processing an ANDA, the FDA waives the requirement of conducting complete clinical studies, although it may require bioavailability and/or bioequivalence studies. "Bioavailability" indicates the rate and extent of absorption and levels of concentration of a drug product in the blood stream needed to produce a therapeutic effect. "Bioequivalence" compares the bioavailability of one drug product with another, and when established, indicates that the rate of absorption and levels of concentration of a generic drug in the body are substantially equivalent to the previously approved drug. An ANDA may be submitted for a drug on the basis that it is the equivalent to a previously approved drug. Although antibiotic drugs are classified separately for purposes of FDA approval, the approval procedure for such drugs substantially conforms to the foregoing outline. Among the requirements for drug approval by the FDA is that the Company's manufacturing procedures and operations conform to current Good Manufacturing Practices ("cGMP"), as defined in the U.S. Code of Federal Regulations. The cGMP regulations must be followed at all times during the manufacture of pharmaceutical products. In complying with the standards set forth in the cGMP regulations, the Company must continue to expend time, money and effort in the areas of production and quality control to ensure full technical compliance. If the FDA believes a company is not in compliance with cGMP, certain sanctions are imposed upon that company including (i) withholding from the company new drug approvals as well as approvals for supplemental changes to existing applications; (ii) preventing the company from receiving the necessary export licenses to export its products; and (iii) classifying the company as an "unacceptable supplier" and thereby disqualifying the company from selling products to federal agencies. The Company believes it is currently in compliance with cGMP. In May of 1992, the Generic Drug Enforcement Act of 1992 (the "Act") was enacted. This Act, a result of the legislative hearings and investigations into the generic drug approval process, allows the FDA to impose debarment and other penalties on individuals and companies that commit certain illegal acts relating to the generic drug approval process. In some situations, the Act requires the FDA to debar (i.e., not accept or review ANDAs for a period of time) a company or an individual that has committed certain violations. It also provides for temporary denial of approval of applications during the investigation of certain violations that could lead to debarment and also, in more limited circumstances, provides for the suspension of the marketing of approved drugs by the affected company. Lastly, this Act allows for civil penalties and withdrawal of previously approved applications. Neither the Company nor any of its employees was or is currently affected by the provisions of this Act. DEA Because the Company markets some and intends to reintroduce a wide range of controlled substances in its analgesic and psychotherapeutic product lines, it must meet the requirements of the Controlled Substances Act and the regulations issued thereunder and administered by the DEA. These regulations include stringent requirements for manufacturing controls and security to prevent diversion of or unauthorized access to the drugs in each stage of the production and distribution process. The DEA monitors allocation to the Company of raw materials used in the production of controlled substances based on historical sales data. The Company believes it is currently in compliance with all applicable DEA requirements. Patents The Process Patent Amendments Act of 1988 provides that the use or sale within the United States, or importation into the United States, of a product that was made either domestically or abroad by a process covered by a United States patent, constitutes infringement of the process patent. After proper notice, this legislation could subject the Company to potential patent infringement claims if a supplier of an active ingredient to the Company were to infringe a United States process patent in the manufacture of such ingredient. The Company has received no such notice. Medicaid In November 1990, a law regarding reimbursement for prescribed Medicaid drugs was passed as part of the Congressional Omnibus Budget Reconciliation Act of 1990. This law basically required drug manufacturers to enter into a rebate contract with the Federal Government. All generic pharmaceutical manufacturers, whose products are covered by the Medicaid program, are required to rebate to each state a percentage (currently 11% in the case of products manufactured by the Company and 15% for Tamoxifen sold by the Company) of their average net sales price for the products in question. The Company provides an accrual for future estimated rebates in its consolidated financial statements. Effect of the General Agreement on Tariffs and Trade ("GATT") With the signing of the GATT accord in December 1994, one of the provisions called for harmonization of patent life throughout GATT countries. U.S. enabling legislation had provisions which in effect offered a limited extension of the period of monopoly protection for intellectual property including patents. While a number of patented drugs will receive extended patent protection (the maximum extension being 36 months) as a result of this enabling legislation, the patent extensions resulting from the implementation of GATT are not expected to materially impact any of the product candidates in Barr's current pipeline. Other The Company is also governed by federal, state and local laws of general applicability, such as laws regulating working conditions, equal employment opportunity, and environmental protection. Item 2. Properties Barr's operations are located in Pomona and Blauvelt, New York; Northvale, New Jersey; and Forest, Virginia. The Company's analytical and product development laboratories and certain production facilities are located in Pomona, New York. Barr operates two facilities totaling approximately 81,000 square feet on 40 acres. The Company owns these facilities and the land. The first building consists of a 33,000 square foot facility devoted to the analytical and product development laboratories as well as the equipment used in the research and development of new dosage forms. This facility houses one of Barr's two enclosed- manufacturing suites. With these suites, which include sophisticated air-handling systems that eliminate the dangers of handling toxic chemicals, Barr can effectively pursue oncology as well as other product candidates whose manufacture demands that such facilities be in place. The second building on the Pomona site provides approximately 48,000 square feet of office and manufacturing space. This building houses the R&D administrative staff and pharmacy operations team, as well as additional manufacturing and warehousing capabilities. During fiscal 1996, the Company initiated the construction of a 17,000 square foot manufacturing suite within this facility, that will be used to manufacture products requiring special material handling (such as cancer treatments and hormonal agents). This additional capacity will be brought on-line during the first half of fiscal 1997. In Northvale, New Jersey, about 15 miles from the Pomona site, three buildings are used for manufacturing, packaging and shipping operations. Manufacturing is located in a 28,000 square foot building which the Company purchased in 1984 with the aid of funding through the New Jersey Economic Development Authority. This facility includes pharmaceutical manufacturing equipment, as well as the Company's second enclosed-manufacturing suite. The building also has the necessary vaults, permits, etc. to support the Company's narcotic analgesic development plans. In 1991, the Company purchased an additional parcel of land in Northvale for future use. Across from the manufacturing facility, Barr leases a 40,000 square foot building that houses manufacturing support staff offices as well as the Company's automated packaging operations. The lease on this building expires on June 30, 1998. The Company has determined that it will not renew the lease on this building, and has begun the process of re-incorporating its packaging operations within its other manufacturing facilities. The Company's third building in Northvale, a 50,000 square foot leased facility, serves as the Company's warehousing and distribution facility. This lease expires in July 1999. The Company can extend this lease for an additional five years. The Company's executive, administrative and sales and marketing operations are located in two sub-leased facilities of approximately 38,000 square feet in Blauvelt, New York. This location is approximately 7 miles from both Pomona and Northvale. The leases on these facilities expire in May 1999. In January 1996, the Company purchased a facility in Forest, Virginia, that it plans to use for pharmaceutical manufacturing. Construction to retrofit this 65,000 square foot facility for pharmaceutical manufacturing was initiated at fiscal year-end, and it is expected to be operational in late fiscal 1997. The facility is located on a 50 acre site that will accommodate additional expansion. At fiscal year-end, the Company was formalizing plans for the construction of a 100,000 square foot warehouse and packaging facility to support Virginia-based manufacturing as well as product distribution. Item 3. Legal Proceedings Ciprofloxacin Patent Challenge On January 6, 1995, the Company received FDA approval to manufacture and market ciprofloxacin tablets, the generic equivalent of Miles, Inc.'s CIPRO. A broad spectrum antibacterial agent, Ciprofloxacin is used to treat lower respiratory, skin, bone and joint, and urinary tract infections. U.S. sales for Ciprofloxacin totaled in excess of $500 million for the year ended December 31, 1995. The Company is currently challenging the validity of certain patents held by Bayer AG and Miles Inc. for Ciprofloxacin. In January 1992, Bayer AG and Miles Inc. filed a patent infringement action in the United States District Court for the Southern District of New York, seeking to block Barr from marketing Ciprofloxacin until certain U.S. patents expire. The Company expects to expend significant resources during fiscal 1997, to prepare for a trial on the merits of the patent challenge. The FDA approval will become effective with the Company's success in its patent challenge, or upon expiration of the patents in 2003, whichever occurs first. Fluoxetine Hydrochloride Patent Challenge In February 1996, Barr filed an ANDA seeking approval from the FDA to market fluoxetine hydrochloride, the generic equivalent of Eli Lilly Company's ("Lilly") Prozac. The Company notified Lilly pursuant to the provisions of the Waxman-Hatch Act and on April 19, 1996, Lilly filed a patent infringement action in the United States District Court for the Southern District of Indiana - Indianapolis Division seeking to prevent Barr from marketing fluoxetine until certain U.S. patents expire in 2002. The case is in the discovery stage and no trial date has been set. Miscellaneous As of June 30, 1996, the Company was involved, as plaintiff and defendant, in other lawsuits incidental to its business. Management of the Company, based on the advice of legal counsel, believes that the disposition of such litigation will not have any significant adverse effect on the Company's consolidated financial statements. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The information required by Item 5 is included on page 34 of the 1996 Annual Report to Shareholders ("Annual Report") and is incorporated herein by reference. Item 6. Selected Financial Data The information required by Item 6 is included on page 36 of the Annual Report and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by Item 7 is included on pages 17 through 20 of the Annual Report and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The information required by Item 8 is included on pages 21 through 35 of the Annual Report and is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None. PART III Item 10. Directors and Executive Officers of the Registrant The Company's executive officers are as follows: NAME AGE POSITION Bruce L. Downey 48 Chairman of the Board, Chief Executive Officer and President Paul M. Bisaro 35 Chief Financial Officer, General Counsel and Secretary Timothy P. Catlett 41 Vice President, Sales and Marketing Ezzeldin A. Hamza 45 Senior Vice President-Research and Development Catherine F. Higgins 44 Vice President-Human Resources Bruce W. Hooey 34 Vice President, Chief Information Officer William T. McKee 35 Director of Finance and Treasurer Mary E. Petit 47 Vice President, Quality Gerald F. Price 49 Executive Vice President Bruce L. Downey became the Company's President, Chief Operating Officer and a member of the Board of Directors in January 1993 and was elected Chairman of the Board and Chief Executive Officer in February of 1994. Prior to assuming these positions, from 1981 to 1993, Mr. Downey was a partner in the law firm of Winston & Strawn and a predecessor firm of Bishop, Cook, Purcell and Reynolds. Mr. Downey served as the Company's lead attorney throughout its legal proceedings with the FDA. Paul M. Bisaro was employed by the Company as General Counsel in July 1992. He was acting General Counsel to the Company since January 1992. Mr. Bisaro was elected Secretary of the Company in September 1992 and elected a Vice President in 1993. In August 1994, Mr. Bisaro was elected to the position of Chief Financial Officer. Prior to assuming these positions with the Company, he was associated from 1989 to 1992 with the law firm of Winston & Strawn and a predecessor firm, Bishop, Cook, Purcell and Reynolds. Prior to that, Mr. Bisaro was a Consultant with Arthur Andersen & Co. Timothy P. Catlett was employed by the Company in February 1995 as Vice President, Sales and Marketing. Since 1978, Mr. Catlett held a number of positions with the Lederle Laboratories division of American Cyanamid Company. Since 1993 he served as Vice President, Cardiovascular Marketing. Ezzeldin A. Hamza was employed by the Company in July 1984 as Director of Quality Control and thereafter, from August 1987, served as Director of Scientific Affairs. In December 1988, Mr. Hamza was elected to the position of Vice President-Technical Affairs. In 1993, he was elected Senior Vice President-Research and Development. Catherine F. Higgins was employed by the Company in December 1991 as Vice President-Human Resources and was elected an officer in September 1992. From June 1985 to December 1991, Ms. Higgins served as Vice President-Human Resources for Inspiration Resources Corporation. From August 1979 to May 1985, Ms. Higgins was employed by Continental Grain Company as Director-Human Resources. Bruce W. Hooey was employed by the Company in December 1993 as Chief Information Officer. He was elected an officer of the Company in December of 1994 and elected a Vice President of the Company in December 1995. Mr. Hooey served as a Principal with Deloitte & Touche Management Consultants from August 1985 until joining Barr. William T. McKee was employed by the Company in January 1995 as Director of Finance and was appointed Treasurer in March 1995. Prior to joining the Company, Mr. McKee served as Vice President- Finance for Absolute Entertainment. From January 1990 through June 1993, Mr. McKee was a Senior Manager for Gramkow & Carnevale, CPAs, and from September 1983 through January 1990 was employed by Deloitte & Touche. Mary E. Petit, Pharm. D., was employed by the Company in January 1995 as Vice President, Quality. From June 1992 to January 1995, Dr. Petit was Vice President, Quality Management with the Lederle Laboratories division of American Cyanamid. Dr. Petit held positions of increasing responsibility during her 12 year tenure with Lederle. Prior to Lederle, she held a variety of academic appointments at the University of Utah Colleges of Pharmacy and Medicine. She has authored over 20 scientific publications and presented nationally. Gerald F. Price was employed by the Company in January 1990 as Executive Vice President. He was elected an officer of the Company in January 1990. Prior to assuming these positions, he served as Group Vice President-Operations of Del Laboratories. He also served as Vice President-Manufacturing for L'Oreal Corporation, Director of Manufacturing for Amway Corporation and was associated with The Procter & Gamble Company in a variety of manufacturing positions. The Company's directors and executive officers are elected annually to serve until the next annual meeting or until their successors have been elected and qualified. The directors of the Company and their business experience are set forth on pages 2 and 3 of the Company's Notice of Annual Meeting of Shareholders, dated October 25, 1996 (the "Proxy Statement") and are incorporated herein by reference. Item 11. Executive Compensation A description of the compensation of the Company's executive officers is set forth on pages 8 through 11 of the Proxy Statement and, with the exception of the section headed "Compensation Committee Report on Executive Compensation" on page 11, is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management A description of the security ownership of certain beneficial owners and management is set forth on pages 6 and 7 of the Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions A description of certain relationships and related transactions is set forth on page 14 of the Proxy Statement and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) Financial Statement Schedules: The consolidated balance sheets as of June 30, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1996 and the related notes to the consolidated financial statements, together with the Independent Auditors' Report, are incorporated herein by reference. With the exception of the aforementioned information and the information incorporated by reference in Items 5 through 8, the Annual Report is not be deemed filed as part of this report. The following additional financial data should be read in conjunction with the financial statements in the Annual Report. All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes. Page Independent Auditors' Report 16 Financial Statement Schedule: II Valuation and Qualifying Accounts 17 Exhibits: 3.1 Certificate of Incorporation of Registrant (1) 3.2 By-Laws of the Registrant (2) 4.1 Loan and Security Agreement dated April 12, 1996 (9) 10.1 Stock Option Plan (3) 10.2 Savings and Retirement Plan (8) 10.3 Economic Development Bond Financing Agreement, dated December 19, 1984, relating to 265 Livingston Street (2) 10.4 Note Purchase Agreement dated June 28, 1991 - $20,000,000 - 10.15% Senior Secured Notes dated June 28, 2001 (4) 10.5 Amendments 1, 2 and 3 dated April 1996 to Note Purchase Agreement dated June 28, 1991 -- $20,000,000 Senior Secured Notes 10.6 Collective Bargaining Agreement, effective April 1, 1996 10.7 Agreement with Bruce L. Downey (4) 10.8 Agreement with Ezzeldin A. Hamza (4) 10.9 Distribution and Supply Agreement for Tamoxifen Citrate dated March 8, 1993 (4) 10.10 1993 Stock Incentive Plan (5) 10.11 1993 Employee Stock Purchase Plan (6) 10.12 1993 Stock Option Plan for Non-Employee Directors (7) 10.13 Agreement with Edwin A. Cohen and Amendment thereto (8) 11.0 Statement Re: Computation of Per Share Earnings 13.0 1996 Annual Report to Shareholders 21.0 Subsidiaries of the Company (1) 23.0 Consent of Deloitte & Touche LLP 27.0 Financial Data Schedule (1) Previously filed with the Securities and Exchange Commission as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1988 and incorporated herein by reference. (2) Previously filed with the Securities and Exchange Commission as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1986 and incorporated herein by reference. (3) Previously filed with the Securities and Exchange Commission as an Exhibit to the Registrant's Registration Statement on Form S-1 No. 33-13472 and incorporated herein by reference. (4) Previously filed with the Securities and Exchange Commission as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1993 and incorporated herein by reference. (5) Previously filed with the Securities and Exchange Commission as an Exhibit to the Registrant's Registration Statement on Form S-8 No. 33-73696 and incorporated herein by reference. (6) Previously filed with the Securities and Exchange Commission as an Exhibit to the Registrant's Registration Statement on Form S-8 No. 33-73700 and incorporated herein by reference. (7) Previously filed with the Securities and Exchange Commission as an Exhibit to the Registrant's Registration Statement on Form S-8 No. 33-73698 and incorporated herein by reference. (8) Previously filed with the Securities and Exchange Commission as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1995 and incorporated herein by reference. (9) The Registrant agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any instrument defining the rights of the holders of its long-term debt wherein the total amount of securities authorized thereunder does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. (b) Reports on Form 8-K None. 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. BARR LABORATORIES, INC. Signature Title Date BY BRUCE L. DOWNEY Chairman of the Board, Chief September 12, 1996 (Bruce L.Downey) Executive Officer & President BY PAUL M. BISARO Chief Financial Officer, September 12, 1996 (Paul M. Bisaro) General Counsel & Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date BRUCE L. DOWNEY Chairman of the Board, Chief September 12, 1996 (Bruce L. Downey) Executive Officer & President EDWIN A. COHEN Vice Chairman of the Board September 12, 1996 (Edwin A. Cohen) ROBERT J. BOLGER Director September 12, 1996 (Robert J. Bolger) MICHAEL F. FLORENCE Director September 12, 1996 (Michael F. Florence) WILSON L. HARRELL Director September 12, 1996 (Wilson L. Harrell) BERNARD C. SHERMAN Director September 12, 1996 (Bernard C. Sherman) GEORGE P. STEPHAN Director September 12, 1996 (George P. Stephan) JACOB M. KAY Director September 12, 1996 (Jacob M. Kay) INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Barr Laboratories, Inc.: We have audited the financial statements of Barr Laboratories, Inc. and subsidiaries (the "Company") as of June 30, 1996 and 1995, and for each of the three years in the period ended June 30, 1996, and have issued our report thereon dated August 28, 1996; such financial statements and report are included in your June 30, 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Barr Laboratories, Inc., listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Parsippany, New Jersey August 28, 1996 Schedule II Barr Laboratories, Inc. Valuation and Qualifying Accounts Years ended June 30, 1996, 1995, and 1994 Balance at Additions, Recovery Deduct- Beginning costs and against tions Balance of Year expense write- write- at end of offs offs Year Allowance for doubtful accounts: Year ended June 30, 1994 $400 400 20 20 800 Year ended June 30, 1995 800 - - 400 400 Year ended June 30, 1996 400 95 2 305 192 Reserve for returns and allowances: Year ended June 30, 1994 1,000 2,021 - 1,821 1,200 Year ended June 30, 1995 1,200 4,813 - 4,313 1,700 Year ended June 30, 1996 1,700 5,114 - 5,207 1,607 Inventory reserves: Year ended June 30, 1994 6,647 3,447 - 4,351 5,743 Year ended June 30, 1995 5,743 2,345 - 4,538 3,550 Year ended June 30, 1996 3,550 2,359 - 4,630 1,279 Exhibit 13 BARR LABORATORIES INC. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Fiscal 1996 to Fiscal 1995 (thousands of dollars) Net sales increased approximately 16% to $232,224 from $199,720. The increase is primarily attributable to a continued increase in demand for Tamoxifen, the breast cancer treatment distributed by the Company, as well as increased sales for the balance of the Company's product lines. Net sales of Tamoxifen increased approximately $28,000 to $171,000 or 74% of net sales, compared to $143,000 or 72% of net sales in the prior year. This 20% growth resulted from increases in the Company's market share and price. While the Company's Tamoxifen revenues increased in fiscal 1996, the rate of growth between fiscal 1995 and 1996 declined compared to prior years. This decline in the rate of growth was expected given the dramatic growth achieved immediately after the Company began distributing Tamoxifen and given the Company's share of the current market. Prior to December 1995, the Company competed against the Innovator's 10 mg dosage strength only. In January 1996, the Innovator introduced a 20 mg strength of this product. While the Company may experience some decline in its market share during the last six months of calendar year 1996 as some consumers switch to the new dosage strength, the new dosage strength has not had a material adverse effect on the Company's sales through June 30, 1996. As permitted under the terms of its existing agreement with the Innovator, the Company will begin distributing the 20 mg strength in December 1996. Based on the relatively low current sales of the branded product, it does not appear that such an introduction will have a material impact on Barr's financial statements. Tamoxifen is a patented product manufactured for the Company by the Innovator and distributed by the Company under a non-exclusive license agreement with the Innovator. Currently Tamoxifen only competes against the Innovator's products, which are sold under a brand name. Net sales of Barr-manufactured products increased by approximately 8% primarily as a result of increases in volume. Methotrexate accounted for approximately 10% of the Company's net sales in 1996 as compared to 14% in 1995. No other Barr- manufactured product accounted for 10% or more of net sales in either year. Gross profit increased to $42,830 from $40,222 due to increased sales volume. However, gross margin decreased as a percentage of net sales from 20% to 18%. The decline in gross margin is primarily attributed to the lower gross margins associated with the increased distribution of Tamoxifen and price competition on certain of the Company's manufactured products. The Company believes that its new product, Megestrol Acetate, which was introduced in November 1995, will contribute to offsetting lower margins on certain Barr-manufactured products, including Methotrexate. The Company continues to experience competition on sales of Methotrexate, and it is impossible to predict whether future price erosion will occur. If it were to occur, this could have an adverse effect on the Company's gross margins and gross profits. Due to the nature of the generic pharmaceutical industry, as the product line matures and competition from other manufacturers intensifies, selling prices and the related margins on those products typically decline. The Company's future operating results are dependent on several factors including its ability to introduce new products to its product line, customer purchasing practices and changes in the amount of competition affecting the Company's products. In addition, the ability to receive sufficient quantities of raw materials to maintain its production is critical. While the Company has not experienced any interruption in sales due to the lack of raw materials, the Company is in the process of developing alternate raw material suppliers for its key products in the event raw material shortages were to occur. Selling, general and administrative expenses increased to $21,695 from $19,014, yet remained consistent as a percentage of net sales, as was expected, due to the increase in net sales. The increase reflects increases in personnel costs; additional advertising and promotion costs associated with the introduction of Megestrol Acetate in late November 1995; and a full-year of depreciation from the December 1994 implementation of a new core computer system. Fiscal 1996 also included approximately $700 in non-recurring charges in connection with a voluntary early retirement program and a legal settlement. During fiscal 1996, Barr entered into multi-year agreements with another company and a related party to share in development and litigation costs associated with certain of its patent challenges. These agreements resulted in the reimbursement of $1,977 in legal fees. Research and development expenses increased to $11,274 from $10,443. This resulted from higher outside testing and raw material costs associated with an increase in the number of products under development when compared to the prior year as well as increases in salaries and related costs associated with the addition of scientists. These increases were partially offset by a decrease in fees paid to outside laboratories to conduct biostudies. Such a decrease was expected since the prior year's amounts included biostudy costs for conjugated estrogens. The number, complexity and associated costs of biostudies for conjugated estrogens are greater than those for other products currently under development. Interest income increased 48% to $2,778 from $1,874, due to $485 in interest income received in February 1996 in connection with an income tax refund from the Internal Revenue Service as well as an increase in the rate of return earned on cash and cash equivalents during the year. Interest expense declined 30% primarily due to a reduction in long-term debt during the year and an increase in capitalized interest associated with an increase in capital improvements in comparison to the prior year. These decreases were partially offset by an increase in interest expense in connection with the Company's December 1995 agreement with the Innovator of Tamoxifen to pay monthly interest on the unsecured Tamoxifen payable balance in return for the elimination of the cash collateral requirement. In fiscal 1996 and 1995, the Company incurred extraordinary losses on the early extinguishment of debt. In 1996, the Company negotiated the prepayment of $2 million in principal of its $20 million 10.15% Senior Secured Notes. The Company recorded an extraordinary loss for the related prepayment penalty and write- off of deferred financing costs. In 1995, the Company incurred an extraordinary loss primarily from the write-off of deferred financing costs associated with its $10 million 10.05% Convertible Subordinated Notes which were converted to common stock. Results of Operations Fiscal 1995 to Fiscal 1994 (thousands of dollars) Net sales increased approximately 83% to $199,720 from $109,133. This increase was primarily attributable to continued increase in demand for Tamoxifen, the breast cancer treatment manufactured by the Innovator and distributed by the Company. During the fiscal year ended June 30, 1995, sales of Tamoxifen accounted for approximately $143,000 or 72% of net sales compared to approximately $53,000 or 49% of net sales in fiscal 1994. The growth in Tamoxifen sales was primarily attributable to increases in the Company's market share. Additionally, fiscal 1995 sales reflected the inclusion of a full year of Tamoxifen revenues as compared to 8 months of sales in 1994 as the Company began distributing Tamoxifen in November 1993. Net sales of Barr-manufactured products increased by approximately 1%. An overall increase of 16% in shipments of Barr-manufactured products helped to offset significant sales discounts and allowances, particularly reduced prices on certain products. Methotrexate accounted for approximately 14% of the Company's net sales in 1995 as compared to 25% in 1994. No other product accounted for more than 10% of net sales in either year. Gross profit increased to $40,222 from $31,112 due to increased sales volume. However, gross margin as a percentage of net sales decreased to 20% from 29%. This decrease was primarily attributable to the lower gross margins earned from the distribution of Tamoxifen compared to margins earned on manufactured products, price competition on certain of the Company's manufactured products and, to a lesser extent, higher manufacturing overhead costs. Selling, general and administrative expenses decreased slightly to $19,014 from $19,170 and declined as a percentage of net sales to 9.5% from 17.6%. This percentage decrease was largely attributed to the overall growth in the Company's sales exceeding the rate of growth in operating expenses. The net decrease in fiscal 1995 occurred despite increases in personnel costs and costs resulting from the implementation of a new core computer system. These increases were offset primarily by decreases in legal expenses, reductions in sales commissions as a result of the re-negotiation of an outside sales representative's contract in the third quarter of fiscal 1994, and reductions in the Company's provision for bad debts. Research and development expenses increased 54% to $10,443 from $6,778. This increase reflected the Company's renewed commitment to its research and development efforts. Increased spending with outside laboratories to conduct biostudies of products such as conjugated estrogens as well as increased personnel costs were the main areas of increased spending. Interest income increased to $1,874 from $689 due to an increase in the average short-term investment balance as well as an increase in the rate of return earned on those investments. Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The cumulative effect of this accounting change, a one- time gain of $374 or $0.03 per share, was recorded during fiscal 1994. Liquidity and Capital Resources The Company had cash and cash equivalents of $44,893 at June 30, 1996, a decrease from $52,987 at June 30, 1995. However, the Company's non-escrow cash increased $12,125 to $23,969 from June 30, 1995, as the cash held in a cash collateral account to secure credit extended to the Company by the Innovator of Tamoxifen decreased to $20,924 from $41,143 at June 30, 1995. The decrease in the cash collateral account is a result of an Alternative Collateral Agreement ("Collateral Agreement") entered into in December 1995 between the Company and the Innovator of Tamoxifen (see Note 1). The amount in the cash collateral account at June 30, 1996 represents the portion of its payable which the Company has decided to secure in connection with its cash management policy. Cash provided from operating activities was $5,368 for the year ended June 30, 1996, which included net earnings of $7,016. Accounts receivable increased primarily as a result of higher sales volume. Increases in inventory were primarily due to increased purchases of Tamoxifen and raw materials for Barr- manufactured products in anticipation of new product launches. Accounts payable increased primarily as a result of new construction and equipment purchases. During fiscal 1996, the Company invested $16,048 in capital assets including the purchase of a new manufacturing facility in Forest, Virginia, the expansion of the Company's existing manufacturing facilities, and the purchase of new machinery and equipment. In fiscal 1997, the Company estimates that it will invest an additional $24 million in construction and new equipment for its New York and Virginia facilities. Management believes that purchasing the Virginia facility will be significantly more cost-effective than constructing a new facility. In February 1996, the Company's Board of Directors declared a 3- for-2 stock split effected in the form of a 50% stock dividend. Approximately 4.7 million additional shares of common stock were distributed. In April 1996, the Company signed a Loan and Security Agreement ("Equipment Agreement") with BankAmerica Leasing and Capital Group which will provide the Company up to $18,750 in financing for equipment purchased over the 12 months ending April 1996. As of June 30, 1996, the Company has utilized $3,153 of this facility for the acquisition of certain of its machinery and equipment. In July 1996, the Company obtained for future use a 3-year, $10 million revolving credit facility ("Revolver") with BankAmerica Illinois which provides Barr with additional borrowing power and flexibility to capitalize on strategic opportunities as they develop. Any borrowings under the Revolver will be secured by certain accounts receivable and inventory. The Company has not yet drawn upon the Revolver. The Company will be required to meet certain financial covenants under both arrangements. Management believes that existing capital resources will be adequate to meet its needs for the foreseeable future. Environmental Matters The Company has obligations for environmental safety and clean-up under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. Based on information currently available, environmental expenditures have not had, and are not anticipated to have, any material effect on the Company's consolidated financial statements. Effects of Inflation Inflation has had only a minimal impact on the operations of the Company in recent years. BARR LABORATORIES, INC. CONSOLIDATED BALANCE SHEETS June 30, 1996 and 1995 (in thousands of dollars, except share amounts)
1996 1995 ASSETS Current assets: Cash and cash equivalents $44,893 $ 52,987 Accounts receivable (including receivables from related parties of $886 in 1996 and $925 in 1995) less 32,065 27,307 allowances of $1,799 and $2,100 in 1996 and 1995, respectively Inventories 42,396 35,890 Deferred income taxes 2,771 3,601 Prepaid expenses 648 678 Total current assets 122,773 120,463 Property, plant and equipment, net 45,739 34,799 Other assets 708 691 Total assets $169,220 $155,953 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable (including payables to a related $ 58,537 $ 55,355 party of $250 in 1995) Accrued liabilities 6,332 5,452 Current portion of long-term debt 3,815 43 Income taxes payable 1,104 1,249 Total current liabilities 69,788 62,099 Long-term debt 17,709 20,371 Other liabilities 238 253 Deferred income taxes 1,324 1,377 Commitments & contingencies Contingencies (note 6) Shareholders' equity: Shareholders' Equity: Cumulative convertible preferred stock, Series A, $1 par value per share; authorized 2,000,000 shares: none issued Common stock, $.01 par value per share; authorized 30,000,000 shares; issued 14,115,664 and 9,334,852 in 1996 and 1995, respectively 141 93 Additional paid-in capital 43,526 42,230 Retained earnings 36,507 29,543 80,174 71,866 Treasury stock at cost; 78,637 and 52,425 shares in 1996 and 1995, respectively (13) (13) Total shareholders' equity 80,161 71,853 Total liabilities and shareholders' $169,220 $155,953 equity See accompanying notes to the consolidated financial statements.
BARR LABORATORIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994 (thousands of dollars, except share amounts) (unaudited)
1996 1995 1994 Net sales (including sales to related parties of $4,296, $2,585, and $1,850 in 1996, 1995 and 1994, respectively) $ 232,224 $ 199,720 $ 109,133 Cost of sales 189,394 159,498 78,021 Gross profit 42,830 40,222 31,112 Costs and expenses: Selling, general and administrative 21,695 19,014 19,170 Research and development 11,274 10,443 6,778 Earnings from operations 9,861 10,765 5,164 Interest income 2,778 1,874 689 Interest expense (1,767) (2,535) (2,683) Other income 637 118 575 Earnings before income taxes, extrordinary loss and cumulative effect of accounting 11,509 10,222 3,745 change Income tax expense 4,368 3,852 1,461 Earnings before extraordinary loss and cumulative effect of accounting change 7,141 6,370 2,284 Extraordinary loss on early extinguishment of debt,net of taxes (125) (145) - Earnings before cumulative effect of 7,016 6,225 2,284 accounting change Cumulative effect of accounting change - - 374 Net earnings $ 7,016 $ 6,225 $ 2,658 PER COMMON SHARE: Earnings before extraordinary loss and cumulative effect of accounting change $ 0.49 $ 0.47 $ 0.17 Extraordinary loss on early extinguishment of debt, net of taxes (0.01) (0.01) - Earnings before cumulative effect of accounting change 0.48 0.46 0.17 Cumulative effect of accounting change - - 0.03 Net earnings per common and common equivalent shares $ 0.48 $ 0.46 $ 0.20 Net earnings per common share assuming full dilution 0.48 0.46 0.20 Weighted average number of common shares 14,504,948 13,417,038 13,331,879 Weighted average number of shares assuming full dilution 14,760,064 13,417,038 13,363,401 See accompanying notes to the consolidated financial statements.
BARR LABORATORIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994 (in thousands of dollars, except share amounts)
Common Additional Common Stock Total Stock Paid-in Retained in Treasury Shareholders' Shares Amount capital Earnings Shares Amount Equity Balance, June 30, 1993 8,690,237 $ 87 $30,764 $20,660 52,425 $(13) $51,498 Net earnings 2,658 2,658 Issuance of common stock for exercised stock options and employees'stock purchase plans 93,500 1 827 828 Balance, June 30, 1994 8,783,737 88 31,591 23,318 52,425 (13) 54,984 Net earnings 6,225 6,225 Issuance of common stock for exercised stock options and employees'stock purchase plans 40,757 661 661 Issuance of common stock upon conversion of convertible subordinated notes 510,358 5 9,978 9,983 Balance, June 30, 1995 9,334,852 93 42,230 29,543 52,425 (13) 71,853 Net earnings 7,016 7,016 Issuance of common stock for exercised stock options and employees'stock purchase plans 80,757 1 1,310 1,311 Stock split (3 for 2) 4,700,055 47 (14) (52) 26,212 (19) Balance, June 30, 1996 14,115,664 $141 $43,526 $36,507 78,637 $(13) $80,161 See accompanying notes to the consolidated financial statements.
BARR LABORATORIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended June 30, 1996, 1995 and 1994 (thousands of dollars, except share information)
1996 1995 1994 CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Net earnings $ 7,016 $ 6,225 $ 2,658 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 4,920 4,429 3,613 Deferred income tax (benefit) expense 777 (407) 523 Cumulative effect of accounting change - - (374) Write-off of deferred financing fees associated with early extinguishment of debt 31 188 - (Gain) loss on disposal of equipment 63 (113) 24 Gain on disposal of investment property - - (548) Write-off of discontinued capital projects - - 53 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (4,758) (5,674) (13,049) Inventories (6,506) (6,540) (7,050) Prepaid expenses 30 (35) (329) Other assets (107) 198 (55) Increase (decrease) in: Accounts payable and accrued liabilities 4,047 23,303 28,584 Income taxes payable (145) 320 534 Net cash provided by operating activities 5,368 21,894 14,584 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Purchases of property, plant and equipment (16,048) (6,328) (4,752) Proceeds from sale of investment property - - 900 Proceeds from sale of property, plant and equipment 184 340 36 Net cash used in investing activities (15,864) (5,988) (3,816) CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Principal payments on long-term debt (2,043) (62) (145) Proceeds from loans 3,153 - - Fees associated with stock split (19) - - Fees associated with conversion of debt to equity - (17) - Proceeds from exercise of stock options and employee stock purchases 1,311 661 828 Net cash provided by financing activities 2,402 582 683 (Decrease)/Increase in cash and cash equivalents (8,094) 16,488 11,451 Cash and cash equivalents, beginning of year 52,987 36,499 25,048 Cash and cash equivalents, end of year $ 44,893 $ 52,987 $ 36,499 Supplemental cash flow data-Cash paid during the year: Interest, net of portion capitalized $ 1,727 $ 2,541 $ 3,072 Income taxes 3,930 3,766 705 Supplemental disclosure of non-cash financing activity: Issuance of 765,537 shares of common stock upon conversion of $10,000 Convertible Subordinated Notes $ 10,000 See accompanying notes to the consolidated financial statements.
BARR LABORATORIES, INC. Notes to the Consolidated Financial Statements (in thousands of dollars, except share amounts) (1) Summary of Significant Accounting Policies (a) Principles of Consolidation and Other Matters The consolidated financial statements include the accounts of Barr Laboratories, Inc. (the "Company") and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Sherman Delaware, Inc., and affiliated companies controlled 64.9% of the common stock of the Company at June 30, 1996. Dr. Bernard C. Sherman is a principal stockholder of Sherman Delaware, Inc. and a Director of Barr Laboratories, Inc. (b) Credit and Market Risk The Company operates in one industry segment; it manufactures, markets and distributes a wide range of generic pharmaceutical products. The Company also distributes a patented breast cancer agent, Tamoxifen Citrate, under an agreement with the Innovator. The Company's current manufacturing plants are located in New Jersey and New York and its products are sold throughout the United States primarily to wholesale and retail distributors. In addition, the Company manufactures and sells many products to other companies that resell these pharmaceuticals under their own (private) label. In fiscal 1996 and 1994 McKesson Drug Company accounted for approximately 10% and 11% of net sales, respectively. In fiscal 1995, approximately 10% of net sales were generated by sales to Cardinal Health, Inc. No other customer accounted for greater than 10% of sales in any of the last three fiscal years. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers. (c) Inventories Inventories are stated at the lower of cost, determined on a first-in, first-out (FIFO) basis, or market. (d) Property, Plant and Equipment Property, Plant and Equipment is recorded at cost. Depreciation is provided for on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line basis over the shorter of their useful lives or the terms of the respective leases. The estimated useful lives of the major classification of depreciable assets are: Years Buildings 45 Building Improvements 10 Machinery and Equipment 3-10 Leasehold Improvements 3-10 Automobiles and Trucks 3-5 Maintenance and repairs are charged to operations as incurred; renewals and betterments are capitalized. (e) Income Taxes Income taxes are accounted for under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"). Under SFAS No. 109, deferred tax assets and liabilities are recognized for the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. (f) Research and Development Research and development costs, which consist principally of product development costs, are charged to operations as incurred. (g) Earnings Per Share Earnings per common share in 1996 and 1994 was computed using the weighted average number of common and dilutive common equivalent shares outstanding during the year. In 1994, the inclusion of other potentially dilutive securities was anti-dilutive. Earnings per common share in 1995 was computed by dividing earnings by the weighted average number of shares outstanding during the period. In 1995, the effects of stock options outstanding resulted in less than 3% dilution. On February 21, 1996, the Company's Board of Directors declared a 3-for-2 stock split effected in the form of a 50% stock dividend. Approximately 4.7 million additional shares of common stock were distributed on March 25, 1996 to shareholders of record as of March 4, 1996. All prior year share and per share amounts have been adjusted for the stock split. (h) Cash and Cash Equivalents Cash equivalents consist of short-term, highly liquid investments (primarily market auction securities with interest rates that are re-set in intervals of 7 to 71 days) which are readily convertible into cash at par value (cost). As of June 30, 1996 and 1995, $20,924 and $41,143, respectively, of the Company's cash was held in a cash collateral account to secure extension of credit to it by the Innovator of Tamoxifen Citrate in accordance with the Distribution and Supply Agreement between the Company and the Innovator. In December 1995, the Company and the Innovator of Tamoxifen entered into an Alternative Collateral Agreement ("Collateral Agreement") which suspends certain sections of the Supply and Distribution Agreement ("Distribution Agreement") entered by both parties in March, 1993. Under the Collateral Agreement, extensions of credit to the Company will no longer need to be secured by a letter of credit or cash collateral. However, the Company may at its discretion maintain a balance in the escrow account based on its short-term cash requirements. All remaining terms of the Distribution Agreement remain in place. In return for the elimination of the cash collateral requirement and in lieu of issuing letters of credit, the Company has agreed to pay the Innovator monthly interest based on the average monthly Tamoxifen payable balance, as defined in the agreement, and maintain compliance with certain financial covenants. The Company was in compliance with such covenants at June 30, 1996. (i) Deferred Financing Fees All costs associated with the issuance of debt are being amortized on a straight-line basis over the life of the related debt. The unamortized amounts of $533 and $369 at June 30, 1996 and 1995, respectively, are included in Other assets in the Consolidated Balance Sheets. In connection with the early extinguishment of $2,000 of the 10.15% Senior Secured Notes and the 10.05% convertible subordinated notes, the Company wrote off $31 and $188 in deferred financing fees in 1996 and 1995, respectively. See Note (4) Long-Term Debt. (j) Fair Value of Financial Instruments Cash, Accounts Receivable and Accounts Payable - The carrying amounts of these items are a reasonable estimate of their fair value. Long-Term Debt - The fair value of debt at June 30, 1996 and 1995 is estimated at $23 million and $22 million, respectively. Estimates were determined by discounting the future cash flows using rates currently available to the Company. The fair value estimates presented herein are based on pertinent information available to management as of June 30, 1996. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. (k) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and use assumptions that affect certain reported amounts and disclosures; actual results may differ. (l) Revenue Recognition The Company recognizes revenue when goods are shipped. (m) Reclassifications Certain amounts in prior year financial statements have been reclassified to conform with the current year presentation. 2) Inventories A summary of inventories is as follows: June 30, --------------------- 1996 1995 Raw Materials and Supplies $19,648 $17,470 Work-in-Process 4,920 4,520 Finished Goods 17,828 13,900 ------- ------- $42,396 $35,890 ======= ======= Tamoxifen Citrate, purchased as a finished product, accounted for $12,590 and $9,966 of finished goods inventory as of June 30, 1996 and 1995, respectively. (3) Property, Plant and Equipment A summary of property, plant and equipment is as follows: June 30, ------------------------ 1996 1995 Land $ 2,338 $ 1,814 Buildings and Improvements 21,639 19,109 Machinery and Equipment 36,528 35,243 Leasehold Improvements 1,659 1,659 Automobiles and Trucks 68 81 Construction in Progress 13,396 2,460 ------ ------ 75,628 60,366 Less: Accumulated Depreciation & Amortization 29,889 25,567 ------- ------- $45,739 $34,799 ======= ======= For the years ended June 30, 1996, 1995 and 1994, $526, $176, and $388 of interest was capitalized, respectively. (4) Long-Term Debt A summary of long-term debt is as follows: June 30, ----------------- 1996 1995 New Jersey Economic Development Authority Bond (a) $ 371 $ 414 10.15% Senior Secured Notes Due June 28, 2001 (b) 18,000 20,000 Equipment Financing (c) 3,153 - ------ ------ 21,524 20,414 Less: Current Installments of Long-Term Debt 3,815 43 ------- ------- Total Long-Term Debt $17,709 $20,371 ======= ======= (a) The New Jersey Economic Development Authority Bond is payable to a bank. Such loan is secured by a first mortgage on land, building and improvements on the facility located at 265 Livingston Street. Interest is charged at 75% of the bank's prime rate. The prime rate was 8.25% and 9% at June 30, 1996 and 1995, respectively. Monthly installments are $3.6 plus interest, through December 1999. Upon maturity in January 2000, there will be a final installment equal to the then remaining principal balance of $220. (b) In June 1991, the Company entered into a note purchase agreement and issued $20,000 of senior secured notes bearing interest at a rate of 10.15%, payable semiannually. In March 1996, the Company negotiated the prepayment of $2,000 of these Notes. The cash payment of $2,213 included a prepayment penalty of $169 and accrued interest through March 15, 1996 of $44. The prepayment penalty of $169 and the related write-off of approximately $31 in previously deferred financing costs resulted in an extraordinary loss, which net of taxes of $76, was $125 or $0.01 per share. Principal payments of $3,600 per year are due beginning in June 1997 through the maturity date of June 28, 2001. These notes are collateralized by a first mortgage on the Pomona, New York facility and all machinery and equipment other than machinery and equipment in the Forest, Virginia facility. The senior notes contain certain financial covenants including restrictions on dividend payments not to exceed $5 million plus 50% of net earnings subsequent to July 1, 1991. The Company was in compliance with all such covenants as of June 30, 1996. The note purchase agreement permits the Company to repay these notes prior to their scheduled maturity. However, this would require a substantial prepayment fee which is calculated based on current market rates and the note rate. Based on current market rates available to the Company, refinancing such notes currently is considered prohibitive. (c) In April 1996, the Company signed a Loan and Security Agreement with BankAmerica Leasing and Capital Group which will provide the Company up to $18,750 in financing for equipment to be purchased over the 12 months ending April 1997. Notes entered into under this agreement require no principal payment for the first two quarters; bear interest quarterly at a rate equal to the London Interbank Offer Rate (LIBOR) plus 125 basis points; and have a term of 72 months. LIBOR was 5.625 at June 30, 1996. The Agreement contains certain financial covenants with which the Company was in compliance as of June 30, 1996. In June 1991, the Company entered into a note purchase agreement and issued $10,000 of convertible subordinated notes bearing interest at the rate of 10.05%, payable semiannually. In February 1995, these notes were converted into 765,537 shares of common stock, as adjusted for the 3-for-2 stock split in March 1996, and the Company incurred an extraordinary loss resulting primarily from the write-off of deferred financing costs. This extraordinary loss from early extinguishment of debt, net of taxes of $92, was $145 or $0.01 per share for the year ended June 30, 1995. Principal maturities of existing long-term debt for the next five years and thereafter are as follows: Year Ending June 30, 1997 $3,815 1998 3,987 1999 3,987 2000 4,185 2001 3,944 Thereafter 1,606 (5) Related-Party Transactions The Company's related party transactions were with affiliated companies of Dr. Bernard C. Sherman. During the years ended June 30, 1996, 1995, and 1994, the Company purchased $1,800, $435, and $124, respectively, of bulk pharmaceutical material from such companies. During fiscal 1996, the Company also entered a multi-year agreement with a Company controlled by Dr. Sherman to share litigation costs in connection with one of its patent challenges. For the year ended June 30, 1996, the Company received $570 in connection with such agreement which was recorded as a reduction to selling, general and administrative expenses. In June 1992, a shareholder action was filed against the Company and Edwin A. Cohen, then President of the Company, and Louis J. Guerci, who was a Vice President of the Company. In November 1994, the Company agreed to settle this matter. Management strongly believed that the case was without merit, but determined that it was in the Company's best interest to settle rather than participate in continued litigation. In December 1994, the court approved the settlement. As of June 30, 1996, the final payment amount (on the "claims made basis") has not been determined or paid. In connection with this action, the Company has separately agreed to indemnify Mr. Guerci in connection therewith. As of June 30, 1996, the Company has made advances of approximately $288 and $35 in legal fees and expenses to legal counsel on behalf of Mr. Guerci and Mr. Cohen, respectively. During the years ended June 30, 1996, 1995 and 1994, Mr. Cohen earned $213, $250 and $83, respectively, under a consulting agreement. (6) Income Taxes Effective July 1, 1993, the Company adopted SFAS 109. The cumulative effect of this accounting change was a one-time gain of $374 or $0.03 per share which is reported separately in the Consolidated Statement of Operations for fiscal 1994. A summary of the components of income tax expense is as follows: Year Ended June 30, 1996 1995 1994 Federal: Current $3,110 $3,680 $ 821 Deferred 617 (242) 412 _____ _____ _____ 3,727 3,438 1,233 State: Current 405 487 117 Deferred 160 (165) 111 565 322 228 ------ ------ ------ $4,292 $3,760 $1,461 ====== ====== ====== Income tax expense for the years ended June 30, 1996 and 1995 is included in the financial statements as follows: 1996 1995 Continuing operations $ 4,368 $ 3,852 Extraordinary loss on early extinguishment of debt (76) (92) ------- ------- $ 4,292 $ 3,760 ======= ======= The provision for income taxes differs from amounts computed by applying the statutory federal income tax rate to income before taxes due to the following: Year Ended June 30 1996 1995 1994 Federal Income Taxes at Statutory Rate $ 3,958 $ 3,475 $ 1,274 State Income Taxes, Net of Federal Income Tax Effect 360 212 151 Other, Net (26) 73 36 ------- ------- ------- $ 4,292 $ 3,760 $ 1,461 ======= ======== ======= The temporary differences that give rise to deferred tax assets and liabilities as of June 30, 1996 and 1995 are as follows: Deferred Tax Assets 1996 1995 Receivable Reserves $ 776 $ 1,036 Inventory Reserves 187 848 Inventory Capitalization 552 593 Other Operating Reserves 1,256 1,124 ----- ----- 2,771 3,601 Deferred Tax Liability: Plant and Equipment (1,324) (1,377) ------- -------- Net Deferred Tax Asset $ 1,447 $ 2,224 ======= ======= (7) Shareholders' Equity Preferred Stock The cumulative convertible preferred stock, Series A has voting rights equal to the number of shares of common stock of the Company into which each share may be converted (with a conversion basis of one share of common stock for each share of preferred stock). As of June 30, 1996, none have been issued. Employee Stock Option Plans The Company has stock option plans, which were approved by the shareholders and which authorize the granting of options to officers and certain key employees to purchase the Company's common stock at a price equal to the market price on the date of grant. During fiscal 1994, the shareholders ratified the adoption by the Board of Directors of the 1993 Stock Incentive Plan ("the 1993 Option Plan") in order to ensure, among other things, that the Company would continue to have an adequate number of shares of common stock available for grants of incentive and unqualified stock options. The Company's other option plan was approved by the shareholders in 1986 ("the 1986 Option Plan"). As of June 30, 1996, options will no longer be granted under this Plan. All options granted to date under the 1993 Option Plan and 1986 Option Plan are exercisable between one and two years from the date of grant and expire ten years after the date of grant except in cases of death or termination of employment as defined in each Plan. Also, to date, no option has been granted under either the 1993 Option Plan or the 1986 Option Plan at a price below the current market price of the Company's common stock on the date of grant. A summary of the activity resulting from all plans, adjusted for the 3-for-2 stock split, is as follows: No. of Option Shares Price Outstanding at 6/30/93 779,700 $2.91-11.66 Granted 112,875 11.33-13.50 Canceled (49,944) 6.00-11.50 Exercised (140,250) 2.91-11.50 -------- Outstanding at 6/30/94 702,381 2.91-13.50 Granted 288,750 14.46-16.87 Canceled (14,260) 6.00-14.46 Exercised (27,000) 2.91-11.50 ------- Outstanding at 6/30/95 949,871 2.91-16.87 Granted 382,494 15.79-15.96 Canceled (33,375) 4.25-15.79 Exercised (73,625) 3.66-16.25 --------- Outstanding at 6/30/96 1,225,365 2.91-16.87 ========= Exercised to date through 455,000 6/30/96 Expired under 1986 Plan 42,748 Available for Grant 301,887 (2,025,000 authorized) Exercisable at 6/30/96 616,373 2.91-16.87 Non-Employee Directors' Stock Option Plan During fiscal year 1994, the shareholders ratified the adoption by the Board of Directors of the 1993 Stock Option Plan for Non-Employee Directors (the "Directors' Plan"). An aggregate of 225,000 shares of common stock were available under the Directors' Plan. This formula plan, among other things, enhances the Company's ability to attract and retain experienced directors. Each eligible non-employee director on any grant date is optioned 4,500 shares except in the case of the first grant date (which was the date of the 1993 Annual Meeting) where each eligible director was optioned 18,000 shares. Effective December 1995, the number of shares which each non-employee director will be optioned was increased from 4,500 to 7,500 on grant date. All options granted under the Directors' Plan have ten-year terms and are exercisable at an option exercise price equal to the market price of common stock on the date of grant. Each option is exercisable on the date of the first annual shareholders' meeting immediately following the date of grant of the option, provided there has been no interruption of the optionee's service on the Board before that date. The following is a summary of activity, adjusted for the stock split, for the three fiscal years ended June 30, 1996: No. of Option Price Shares Outstanding at 6/30/93 0 Granted 72,000 $13.75 Outstanding at 6/30/94 72,000 13.75 Granted 27,000 17.08 ------ Outstanding at 6/30/95 99,000 13.75-17.08 Granted 45,000 15.50 ------- Outstanding at 6/30/96 144,000 13.75-17.08 ======= Available for Grant (225,000 authorized) 81,000 ====== Exercisable at 6/30/96 99,000 13.75-17.08 ====== Employee Stock Purchase Plan During fiscal 1994, the shareholders ratified the adoption by the Board of Directors of the 1993 Employee Stock Purchase Plan (the "Purchase Plan") to offer employees an inducement to acquire an ownership interest in the Company. The Purchase Plan permits eligible employees to purchase, through regular payroll deductions, an aggregate of 300,000 shares of common stock at approximately 85% of the fair market value of such shares. During fiscal 1995, the initial year of the plan, 34,135 shares were purchased under the plan. In fiscal 1996, an additional 39,985 shares were purchased under the plan. (8) Savings and Retirement Plan The Company has a savings and retirement plan (the "401(k) Plan") which is intended to qualify under Section 401(k) of the Internal Revenue Code. Employees are eligible to participate in the 401(k) Plan in the first month following the month of hire. Prior to June 30, 1995, under the terms of the 401(k) Plan, participating employees could contribute up to a maximum of 15% of their earnings (9% of their earnings before taxes and up to 6% of after-tax earnings). Beginning July 1, 1995, participating employees may contribute up to a maximum of 12% of their earnings before or after taxes. The Company is required, pursuant to the terms of its union contract, to contribute to each union employee's account an amount equal to the 2% minimum contribution made by such employee. The Company may, at its discretion, contribute a percentage of the amount contributed by an employee to the 401(k) Plan up to a maximum of 10% of such employee's compensation. Participants are always fully vested with respect to their own salary and cash contributions and any profits arising therefrom. Participants become vested with respect to 20% of the Company's contributions to their accounts and any profits arising therefrom for each full year of employment with the Company and thus become fully vested after five full years of employment. The Company's contributions to the 401(k) Plan were $1,488, $1,173, and $945, for the years ended June 30, 1996, 1995, and 1994 respectively. In January 1994, after an extensive review of certain administrative aspects of the 401(k) Plan, the Company submitted an application to the Internal Revenue Service (IRS) under the Voluntary Compliance Review (VCR) program. On September 14, 1995, the Company received a Compliance Statement from the IRS indicating that the IRS would not pursue the sanction of plan disqualification provided that the Company's proposed corrective actions, which were included in the VCR application, were completed by December 13, 1995. The Company completed the corrective actions within the required time-frame. (9) Other Income A summary of other income is as follows: Year Ended June 30, 1996 1995 1994 Net Gain (Loss) on Sale of Property(a) $(63) $113 $524 Joint Venture Litigation(b) 694 - - Other 6 5 51 ---- ---- ---- Other Income $637 $118 $575 (a) The Company sold unused manufacturing equipment in 1995 and undeveloped investment property in 1994 and recognized gains of $113 and $548, respectively, from such sales. (b) In May 1996, the Company and an affiliated company reached an agreement with a former partner in a proposed joint venture and received on June 10, 1996, $694 of a $1,000 deposit which was paid in escrow in furtherance of the possible joint venture. The Company had previously written off the $1,000 investment in the fourth quarter of fiscal 1992. (10) Commitments and Contingencies The Company is party to various operating leases which relate to the rental of office and plant facilities and of equipment. The Company is satisfied with its ability to extend such leases, if necessary. Rent expense charged to operations was $1,126, $1,217 and $1,007 in 1996, 1995 and 1994, respectively. Future minimum rental payments, exclusive of taxes, insurance and other costs under noncancellable long-term operating lease commitments, are as follows: Minimum Year Rental Ending Payments June 30, 1997 $ 1,049 1998 1,087 1999 745 2000 147 2001 49 Thereafter - Product Liability The Company maintains product liability insurance coverage in the amount of $10,000. No significant product liability suit has ever been filed against the Company, however, if one were filed and such a case were successful against the Company, it could have a material adverse effect upon the business and financial condition of the Company to the extent such judgment was not covered by insurance or exceeded the policy limits. Shareholder Action On November 16, 1994, the Company agreed to settle a 1992 shareholder action, filed against the Company and two former officers, which alleged the violation of certain SEC regulations. In December 1994, the Court approved the settlement. Management strongly believed that the case was without merit, but determined that it was in the Company's best interest to settle rather than participate in continued litigation. The total settlement, valued at approximately $1.8 million, will be shared equally by the Company and its insurers. A provision for the Company's estimated share of the cost of the action had been previously included in the Company's 1994 consolidated financial statements, and therefore the final payment is not expected to have any significant adverse effect on the Company's future operations. As of June 30, 1996, the final payment amount (on the "claims made basis") has not been determined or paid. Internal Revenue Service ("IRS") In December 1995, the Company received a letter from the IRS disallowing approximately $750 in research and development tax credits, originating from the fiscal years ended June 30, 1989 through June 30, 1992, on the grounds that research and development tax credits taken in developing generic drugs for approval under the ANDA procedure are excluded from the definition of the term "qualified research" by the duplication exclusion contained in section 41(d)(4)(C) of the IRS Code. The Company intends to vigorously defend its position and has filed a written protest requesting a conference with the Office of the Regional Director of Appeals to review the case. If the Company does not reach an agreement with the appeals office, the Company will petition the tax court. The ultimate disposition of this matter is not expected to have a significant adverse effect on the Company's consolidated financial statements. Other Litigation As of June 1996, the Company was involved with other lawsuits incidental to its business, including patent infringement actions. Management of the Company, based on the advice of legal counsel, believes that the ultimate disposition of such other lawsuits will not have any significant adverse effect on the Company's consolidated financial statements. (11) Subsequent Event On July 31, 1996, the Company obtained for future use a 3- year, $10 million revolving credit facility with BankAmerica Illinois which the Company has yet to draw down. Any borrowings under the revolving credit facility will be secured by accounts receivable and inventory. The Company will be required to meet certain financial covenants under this facility. (12) Quarterly Data (Unaudited) A summary of the quarterly results of operations is as follows:
(in thousands of dollars, except per share amounts) Three-Month Period Ended Sept. 30 Dec. 31 Mar. 31 June 30 Fiscal Year 1996: Net sales $54,176 $57,465 $60,088 $60,495 Gross profit 10,717 10,924 10,683 10,507 Earnings before extraordinary loss on early extinguishment of debt 2,201 1,989 1,269 1,682 Net earnings 2,201 1,989 1,144 1,682 Earnings before extraordinary loss on early extinguishment of debt per common share and common share equivalent(1)$0.15 $0.14 $0.09 $0.11 Net earnings per common share and common equivalent share (1) 0.15 0.14 0.08 0.11 Net earnings assuming full dilution(1) 0.15 0.14 0.08 0.11 Price Range of Common Stock:(2) High $16.41 $20.50 $27.50 $31.25 Low 13.66 14.00 17.08 24.63 Fiscal Year 1995: Net sales $44,047 $50,878 $49,286 $55,509 Gross profit 9,944 11,021 9,727 9,530 Earnings before extraordinary loss on early extinguishment of debt 1,845 2,248 1,041 1,236 Net earnings 1,845 2,248 896 1,236 Earnings before extraordinary loss on early extinguishment of debt per common share and common share equivalent(1) $ 0.14 $ 0.16 $ 0.08 $ 0.08 Net earnings per common share and common equivalent share (1) 0.14 0.16 0.06 0.08 Net earnings assuming full dilution (1) 0.14 0.16 0.06 0.08 Price Range of Common Stock:(2) High $16.00 $17.83 $17.08 $14.91 Low 12.25 15.00 12.91 11.33
(1) The sum of the individual quarters may not equal the full year amounts due to the effects of the market prices in the application of the treasury stock method. Amounts reflect adjustment for March 1996 3-for-2 stock split. During its two most recent fiscal years, the Company paid no cash dividends (2) The Company's common stock is listed and traded on the American Stock Exchange. At June 30, 1996, there were approximately 704 record holders of common stock. The Company believes that a significant number of beneficial owners hold their shares in street names. INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Barr Laboratories, Inc.: We have audited the accompanying consolidated balance sheets of Barr Laboratories, Inc. and subsidiaries (the "Company") as of June 30, 1996 and June 30, 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Barr Laboratories, Inc. and subsidiaries at June 30, 1996 and June 30, 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996 in conformity with generally accepted accounting principles. As discussed in Note 6 to the consolidated financial statements, effective July 1, 1993, the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109. /s/ Deloitte & Touche LLP Parsippany, New Jersey August 28, 1996 RESPONSIBILITY FOR FINANCIAL REPORTING Management is responsible for the preparation and accuracy of the consolidated financial statements and other information included in this report. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles using, where appropriate, management's best estimates and judgments. In meeting its responsibility for the reliability of the financial statements, management has developed and relies on the Company's system of internal accounting control. The system is designed to provide reasonable assurance that assets are safeguarded and that transactions are executed as authorized and are properly recorded. The Board of Directors reviews the financial statements and reporting practices of the Company through its Audit Committee, which is composed entirely of directors who are not officers or employees of the Company. The committee meets with the independent auditors and management to discuss audit scope and results and also to consider internal control and financial reporting matters. The independent auditors have direct unrestricted access to the Audit Committee. The entire Board of Directors reviews the Company's financial performance and financial plan. /s/ Bruce L. Downey Chairman of the Board, Chief Executive Officer and President Selected Financial Data (in thousands of dollars, except per share amounts) Statements of Year Ended June 30, Operations 1996 1995 1994 1993 1992 Net Sales $232,224 $199,720 $109,133 $ 58,047 $100,790 Earnings (loss) before income taxes, extraordinary loss and cumulative effect of accounting change 11,509 10,222 3,745 12,827(1) (3,464) Income tax expense (benefit) 4,368(7) 3,852(5) 1,461 5,040 (1,555) Earnings (loss) before extraordinary loss and cumulative effect of accounting change 7,141 6,370 2,284 7,787 (1,909) Net earnings (loss) 7,016(7) 6,225(5) 2,658(6) 7,787 (1,909) Earnings (loss) before extraordinary loss and cumulative effect of accounting change per common and common equivalent share(8): 0.49 0.47 0.17 0.60 (0.15) Earnings (loss) per common and common equivalent share(8) 0.48(7) 0.46(5) 0.20(6) 0.60 (0.15) Earnings (loss) per common share assuming full dilution(8) 0.48(7) 0.46(5) 0.20(6) 0.60 (0.15) Balance Sheet Data 1996 1995 1994 1993 1992 Working capital (2) 52,985 58,364 53,227 51,371 12,168 Total Assets 169,220 155,953 125,907 94,283 88,467 Long-term Debt (2)(3) 17,709 20,371 30,433 30,498 543 Shareholders' Equity (4) 80,161 71,853 54,984 51,498 42,844 (1) Fiscal 1993 includes $21,690 of pre-tax income from lawsuit settlements. (2) Includes effects of reclassification of $30,000 of debt to long-term debt in 1993 and $30,000 of debt to current liabilities in 1992. (3) Excludes current installments (See Note 4 to Consolidated Financial Statements). (4) The Company has not paid a cash dividend in any of the above years. (5) Fiscal 1995 includes the effect of a $145 ($0.01 per share) extraordinary loss (net of tax of $92) on early extinguishment of debt. (See Note 4 to the Consolidated Financial Statements). (6) Includes the effect of a $374 ($0.03 per share) gain from the cumulative effect of an accounting change. (See Note 6 to the Consolidated Financial Statements). (7) Fiscal 1996 includes the effect of a $125 ($0.01 per share) extraordinary loss (net of tax of $76) on early extinguishment of debt. (See Note 4 to the Consolidated Financial Statements). (8) Amounts have been adjusted for the March 1996 3-for-2 stock split effected in the form of a 50% stock dividend. Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Post- Effective Amendment to Registration Statement No. 33-13901, and in Registration Statement Nos. 33-73696, 33-73698 and 33-73700 of Barr Laboratories, Inc. on Form S-8 of our reports dated August 28, 1996, appearing and incorporated by reference in the Annual Report on Form 10-K of Barr Laboratories, Inc. for the year ended June 30, 1996. DELOITTE & TOUCHE LLP Parsippany, New Jersey September 24, 1996
EX-11 2 EXHIBIT 11 BARR LABORATORIES, INC. COMPUTATION OF PER SHARE EARNINGS (1) (Amounts in thousands, except per share amounts)
1996 1995 1994 PRIMARY Average shares outstanding 13,979 13,418 13,035 Net effect of dilutive stock options - based on the treasury stock method using average market price 526 - (2) 297 Total 14,505 13,418 13,332 Net earnings $7,016 $6,225 $2,658 Net earnings per share $0.48 $0.46 $0.20 FULLY DILUTED Average shares outstanding 13,979 13,418 13,035 Net effect of dilutive stock options - based on the treasury stock method using average market price 781 336 327 Convertible debenture - - 755 Total 14,760 13,754 14,117 Net earnings $7,016 $6,225 $2,658 Add convertible debt interest, deferred finance charges, net of income tax effect - 668 Total $7,016 $6,225 $3,326 Net earnings per share $0.48 $0.45 (3) $0.24(4) (1) 1995 and 1994 have been adjusted for the March 1996 3-for-2 stock split. (2) Stock options of 312 in 1995 are not included because their inclusion results in less than 3% dilution. (3) Results in less than 3% dilution. (4) Anti-dilutive.
EX-27 3 ARTICLE 5 FIN. DATA SCHED. FOR 06/30/96 FISCAL YTD
5 1,000 12-MOS JUN-30-1996 JUN-30-1996 44,893 0 32,065 0 42,396 122,773 45,739 0 169,220 69,788 21,524 141 0 0 80,033 169,220 232,224 232,224 189,394 189,394 0 0 1,767 11,509 4,368 7,141 0 (125) 0 7,016 0.48 0.48 Accounts Receivable and PP&E are Net
EX-10.5 4 AMENDMENTS 1, 2, AND 3 DATED APRIL 1996 TO NOTE PURCHASE AGREEMENT DATED JUNE 28, 1991 -- $20,000,000 SENIOR SECURED NOTES Barr Laboratories, Inc. _____________________________________ AMENDMENT NUMBER ONE _____________________________________ Dated as of March 1, 1996 10.15% Senior Secured Notes due June 28, 2001 AMENDMENT NUMBER ONE AMENDMENT NUMBER ONE (this "Agreement"), dated as of March 1, 1996, among BARR LABORATORIES, INC. (together with its successors and assigns, the "Company"), a New York corporation, and the Persons identified as "Holders" on the signature pages hereof that have delivered an executed signature page (collectively, the "Holders"). RECITALS: A. The Company entered into those certain separate Note Purchase Agreements, each dated as of June 28, 1991 (collectively, as in effect immediately prior to the date hereof, the "Existing Note Purchase Agreement" and, as amended hereby, the "Amended Note Purchase Agreement"), with each of Connecticut General Life Insurance Company, Life Insurance Company of North America, CIGNA Property and Casualty Insurance Company and American Life & Casualty Insurance Company (individually, a "Purchaser" and collectively, the "Purchasers"), pursuant to which the Company issued and sold to the Purchasers and the Purchasers purchased from the Company, Twenty Million Dollars ($20,000,000) in aggregate principal amount of the Company's Senior Secured Notes due June 28, 2001 (collectively, as amended from time to time, the "Notes"). B. The Company has requested that the holders of the Notes agree to, among other things, amend certain provisions of the Existing Note Purchase Agreement as further set forth herein, which requested amendment requires the consent of the Majority Holders of the Notes. C. Subject to the terms and conditions set forth in this Agreement, the Company and the Holders are willing to agree to amend the Existing Note Purchase Agreement in the manner specified on Exhibit A hereto and as more particularly set forth herein. AGREEMENT: NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Holders agree as follows: 1. WARRANTIES AND REPRESENTATIONS. To induce the Holders to enter into this Agreement, the Company warrants and represents to the Holders that as of the Effective Date (as hereinafter defined): 1 Authorization, Execution and Enforceability. The execution and delivery by the Company of this Agreement and the performance of its obligations under the Amended Note Purchase Agreement and the Security Documents have been duly authorized by all necessary action on the part of the Company. Each of the Amended Note Purchase Agreement and the Security Documents constitutes a valid and binding obligation of the Company, enforceable in accordance with its respective terms, except that the enforceability thereof may be: (a) limited by bankruptcy, insolvency or other similar laws affecting the enforceability of creditors' rights generally; and (b) subject to the availability of equitable remedies. 2 No Conflicts, etc. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations under the Amended Note Purchase Agreement and the Security Documents do not conflict with, result in any breach in any of the provisions of, constitute a default under, violate or result in the creation of any Lien upon any Property of the Company or any Subsidiary under the provisions of: (a) any charter document, agreement with shareholders or bylaws of the Company or any Subsidiary; (b) any agreement, instrument or conveyance by which the Company or any Subsidiary or any of their respective Properties may be bound or affected; or (c) any statute, rule or regulation or any order, judgment or award of any court, tribunal or arbitrator by which the Company or any Subsidiary or any of their respective Properties may be bound or affected. 3 Security Interests. The Liens of the Holders in the Collateral (as defined in the Trust Indenture) previously granted to the Security Trustee remain valid, enforceable and perfected as of the date hereof and the Collateral is subject to no other Liens not otherwise permitted under the Amended Note Purchase Agreement and the Security Documents. 4 Existence of Defaults. After giving effect to the Amendment, no condition exists that would constitute a Default or an Event of Default under the Amended Note Purchase Agreement. 5 Disclosure. Neither this Agreement nor any written statement furnished by the Company to the Holders in connection herewith contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained therein or herein not misleading. 2. AMENDMENT WITH RESPECT TO EXISTING NOTE PURCHASE AGREEMENT; AFFIRMATION. 1 Amendment. The Company and, subject to the satisfaction of the conditions set forth in Section 3 hereof, the Holders, each hereby consent and agree that the Existing Note Purchase Agreement is hereby amended in the manner specified in Exhibit A to this Agreement (such amendment provided for in such Exhibit is herein referred to as the "Amendment"). 2 Affirmation of Obligations under Documents. The Company hereby acknowledges and affirms all of its obligations under the terms of the Amended Note Purchase Agreement and the Security Documents. 3 Scope of Amendment. Except as expressly set forth in this Agreement, no provision of the Existing Note Purchase Agreement, any Security Document or any other agreement, document or instrument shall be deemed to have been amended hereby. No Default or Event of Default, or right, remedy, or power consequent thereon, whether as provided in the Existing Note Purchase Agreement, the Amended Note Purchase Agreement, any Security Document or by law, shall be deemed to have been waived or affected hereby. 3. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. This Amendment shall not become effective until all of the following conditions precedent shall have been satisfied in full (the date of such satisfaction being herein referred to as the "Effective Date"): 1 Execution and Delivery of this Agreement. The Company and Holders constituting Majority Holders shall have executed and delivered to each other an original counterpart of this Agreement. 2 No Defaults; Warranties and Representations True. After giving effect to the Amendment, no Default or Event of Default shall exist and the warranties and representations set forth in Section 1 hereof shall be true and correct. 3 Proceedings Satisfactory. All proceedings taken in connection with this Agreement and all documents and papers relating thereto shall be reasonably satisfactory to the Holders. The Holders shall have received copies of such documents and papers as they may reasonably request in connection therewith, all in form and substance reasonably satisfactory to the Holders. 4 Expenses. The Company shall have paid all costs and expenses of the Holders relating to this Agreement in accordance with Section 4.6 hereof. 4. MISCELLANEOUS. 1 Terms Defined. Terms used herein and not otherwise defined herein shall have the respective meanings specified in the Amended Note Purchase Agreement. A violation of this Agreement (including without limitation, a material misrepresentation of any warranty or representation contained herein) shall constitute an "Event of Default" thereunder. 2 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, INTERNAL CONNECTICUT LAW. 3 Duplicate Originals. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts that, collectively, show execution by each party hereto shall constitute one duplicate original. 4 Waivers and Amendments. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 5 Section Headings. The titles of the Sections hereof appear as a matter of convenience only, do not constitute a part of this Agreement and shall not affect the construction hereof. 6 Costs and Expenses. On the Effective Date, the Company shall pay all costs and expenses of the Holders relating to this Agreement, including, but not limited to, the statement for reasonable fees and disbursements of their special counsel presented to the Company on the Effective Date. The Company will also pay, upon receipt thereof, each additional statement for reasonable fees and disbursements of the Holders' special counsel rendered after the Effective Date in connection with this Agreement, the Amended Note Purchase Agreement or the Security Documents. 7 Survival. All warranties, representations, certifications and covenants made by the Company in this Agreement and in each of the Security Documents or in any certificate or other instrument delivered pursuant to this Agreement or any of the Security Documents shall be considered to have been relied upon by the Holders and shall survive the execution and delivery of this Agreement, regardless of any investigation made by or on behalf of the Holders. All statements in any such certificate or other instrument shall constitute warranties and representations of the Company under this Agreement or such Security Document. 8 Time of Essence. Time is and shall be of the essence in the satisfaction of all the conditions set forth in Section 3 of this Agreement. [Remainder of page intentionally blank; next page is signature p age.] IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf by a duly authorized officer or agent thereof. Company: BARR LABORATORIES, INC. By /s/Paul M. Bisaro Name: Paul M Bisaro Title:Chief Financial Officer General Counsel and Secretary Holder: CONNECTICUT GENERAL LIFE INSURANCE COMPANY * By CIGNA Investments, Inc. By:/s/Stephen A. Osborne Name: Stephen A. Osborne Title: Managing Director Holder: LIFE INSURANCE COMPANY OF NORTH AMERICA * By CIGNA Investments, Inc. By:/s/Stephen A. Osborne Name: Stephen A. Osborne Title: Managing Director Holder: CIGNA PROPERTY AND CASUALTY INSURANCE COMPANY * By CIGNA Investments, Inc. By:/s/Stephen A. Osborne Name: Stephen A. Osborne Title: Managing Director Holder: AMERICAN LIFE & CASUALTY INSURANCE COMPANY By:/s/Gary F. Greaves Name: Gary F. Greaves Title: Vice President EXHIBIT A AMENDMENT TO EXISTING NOTE PURCHASE AGREEMENT 5. Section 10. The definition of the term "Restricted Investment" in Section 10 of the Existing Note Purchase Agreement is hereby amended by replacing clause (i) of such definition and the remainder of the text following such clause with the following: " (i) Investments listed on Annex 3 to this Agreement; (j) Investments of up to $6,000,000 in the equity of Fermic S.A. or one of its affiliates (Fermic S.A. or such affiliate being the owner of a fermentation facility in Mexico); and (k) Investments in so-called market auction securities rated Aa2 or higher by Moody's Investors Service, Inc. or AA or higher by Standard & Poor's Corporation and which have a reset date not more than three hundred sixty-five (365) days from the date of acquisition thereof. Investments shall be valued at cost less any return of capital through the sale or liquidation thereof or other return of capital thereon, net of the expenses of any such sale or liquidation or any such return of capital." Barr Laboratories, Inc. _____________________________________ AMENDMENT NUMBER TWO _____________________________________ Dated as of March 15, 1996 10.15% Senior Secured Notes due June 28, 2001 AMENDMENT NUMBER TWO AMENDMENT NUMBER TWO (this "Agreement"), dated as of March 15, 1996, among BARR LABORATORIES, INC. (together with its successors and assigns, the "Company"), a New York corporation, and the Persons identified as "Holders" on the signature page hereof (collectively, the "Holders"). RECITALS: A. The Company entered into those certain separate Note Purchase Agreements, each dated as of June 28, 1991 (collectively, as in effect immediately prior to the date hereof, the "Existing Note Purchase Agreement" and, as amended hereby, the "Amended Note Purchase Agreement"), with each of Connecticut General Life Insurance Company, Life Insurance Company of North America, CIGNA Property and Casualty Insurance Company and American Life & Casualty Insurance Company (individually, a "Purchaser" and collectively, the "Purchasers"), pursuant to which the Company issued and sold to the Purchasers and the Purchasers purchased from the Company, Twenty Million Dollars ($20,000,000) in aggregate principal amount of the Company's Senior Secured Notes due June 28, 2001 (collectively, as amended from time to time, the "Notes"). B. The Holders are the registered holders of one hundred percent (100%) of the Notes outstanding on the date hereof. C. The Company has requested that it be permitted to prepay in full all of the Notes held by American Life & Casualty Insurance Company (the "Selling Noteholder"), such prepayment to be made on terms and subject to the conditions set forth herein. D. The Company has requested that, in connection with the proposed prepayment of all of the Notes held by the Selling Noteholder, and in order to permit such prepayment, the Holders agree to the amendment of certain provisions of the Existing Note Purchase Agreement, and waive the application of certain other provisions of the Existing Note Purchase Agreement, all as further set forth herein, which requested amendment and waiver will require the consent all of the holders of the Notes. E. Subject to the terms and conditions set forth in this Agreement, the Company and the Holders are willing to permit the prepayment of all of the Notes held by the Selling Noteholder and the irrevocable cancellation thereof, and in connection therewith are willing to amend the Existing Note Purchase Agreement and to waive the application of certain provisions of the Existing Note Purchase Agreement, all as more particularly set forth herein. AGREEMENT: NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Holders agree as follows: 1. WARRANTIES AND REPRESENTATIONS. To induce the Holders to enter into this Agreement, the Company warrants and represents to the Holders that as of the Effective Date (as hereinafter defined): 1 The Notes. As of the Effective Date and immediately prior to giving effect to the payment of the Prepayment Amount (as determined in accordance with Exhibit A) to the Selling Noteholder, the aggregate principal amount of the Notes outstanding is equal to $20,000,000, and the aggregate principal amount of Notes held by the Selling Noteholder is equal to $2,000,000. 2 Material Adverse Effect; Disclosure. (a) Since June 30, 1995 there has been no change in the business, prospects, profits, Properties or condition (financial or otherwise) of the Company or any Subsidiary except changes in the ordinary course of business that, in the aggregate, have not had a material adverse effect on the business, prospects, profits, Properties or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform any of its obligations set forth in the Amended Note Purchase Agreement and the Security Documents. (b) Neither this Agreement nor any written statement furnished by the Company to the Holders in connection herewith contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained therein or herein not misleading. There is no fact that the Company has not disclosed to each Holder in writing that has had or, so far as the Company can now reasonably foresee, could reasonably be expected to have, a material adverse effect on the business, prospects, profits, Properties or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform any of its obligations set forth in the Amended Note Purchase Agreement and the Security Documents. 3 Authorization, Execution and Enforceability. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations under this Agreement (including, without limitation, the proposed prepayment of the Notes held by the Selling Noteholder), the Amended Note Purchase Agreement and each of the Security Documents have been duly authorized by all necessary action on the part of the Company. Each of this Agreement, the Amended Note Purchase Agreement and the Security Documents constitutes a valid and binding obligation of the Company, enforceable in accordance with its respective terms, except that the enforceability thereof may be: (a) limited by bankruptcy, insolvency or other similar laws affecting the enforceability of creditors' rights generally; and (b) subject to the availability of equitable remedies. 4 No Conflicts, etc. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations under this Agreement, the Amended Note Purchase Agreement and each of the Security Documents do not conflict with, result in any breach in any of the provisions of, constitute a default under, violate or result in the creation of any Lien upon any Property of the Company or any Subsidiary under the provisions of: (a) any charter document, agreement with shareholders or bylaws of the Company or any Subsidiary; (b) any agreement, instrument or conveyance by which the Company or any Subsidiary or any of their respective Properties may be bound or affected; or (c) any statute, rule or regulation or any order, judgment or award of any court, tribunal or arbitrator by which the Company or any Subsidiary or any of their respective Properties may be bound or affected. 5 Security Interests. The Liens of the Holders in the Collateral (as defined in the Trust Indenture) previously granted to the Security Trustee remain valid, enforceable and perfected as of the date hereof and the Collateral is subject to no other Liens not otherwise permitted under the Amended Note Purchase Agreement and the Security Documents. 6 Existence of Defaults. Immediately prior to, and immediately after giving effect to, the Amendments, no condition exists that would constitute a Default or an Event of Default under the Existing Note Purchase Agreement or the Amended Note Purchase Agreement. 2. AMENDMENTS WITH RESPECT TO EXISTING NOTE PURCHASE AGREEMENT; AFFIRMATION. 1 Amendments. The Company and, subject to the satisfaction of the conditions set forth in Section 3 hereof, the Holders, each hereby consent and agree that: (a) compliance by the Company with Section 5 of the Existing Note Purchase Agreement and the Amended Note Purchase Agreement is waived to the extent (and only to the extent) necessary to permit the payment of the Prepayment Amount to the Selling Noteholder in accordance with the terms and conditions set forth in this Agreement (including, without limitation, those set forth in Section 3); and (b) Section 5.1(a) of the Existing Note Purchase Agreement is hereby amended by replacing each reference to "Four Million Dollars ($4,000,000)" therein with a reference to "Three Million Six Hundred Thousand Dollars ($3,600,000)" (collectively, such amendments and waivers, together with those provided for in Exhibit A, are herein collectively referred to as the "Amendments"). 2 Affirmation of Obligations under Security Documents. The Company hereby acknowledges and affirms all of its obligations under the terms of the Amended Note Purchase Agreement and the Security Documents. 3 Scope of Amendment. Except as expressly set forth in this Agreement, no provision of the Existing Note Purchase Agreement, any Security Document or any other agreement, document or instrument shall be deemed to have been amended hereby. No Default or Event of Default, or right, remedy, or power consequent thereon, whether as provided in the Existing Note Purchase Agreement, the Amended Note Purchase Agreement, any Security Document, any other agreement, document or instrument, or by law to any holder of Notes, shall be deemed to have been waived or affected hereby. 3. CONDITIONS TO EFFECTIVENESS OF AMENDMENTS. The Amendments shall not become effective until all of the following conditions precedent shall have been satisfied in full (the date of such satisfaction being herein referred to as the "Effective Date"): 1 Execution and Delivery of this Agreement. The Company and the Holders shall have executed and delivered to each other an original counterpart of this Agreement. 2 No Defaults; Warranties and Representations True. After giving effect to the Amendments, no Default or Event of Default shall exist and the warranties and representations set forth in Section 1 hereof shall be true and correct. 3 Proceedings Satisfactory. All proceedings taken in connection with this Agreement and all documents and papers relating thereto shall be reasonably satisfactory to the Holders. The Holders shall have received copies of such documents and papers as they may reasonably request in connection therewith, all in form and substance reasonably satisfactory to the Holders. 4 Payment of Prepayment Amount; Cancellation of Notes. The Company shall have paid, on or before March 15, 1996, an amount equal to the Prepayment Amount in respect of the Notes held by the Selling Noteholder, and all of such Notes shall have been delivered to the Company and cancelled and no Notes shall be permitted to be issued in replacement or substitution therefor. 5 Expenses. The Company shall have paid all costs and expenses of the Holders relating to this Agreement in accordance with Section 4.6 hereof. 4. MISCELLANEOUS. 1 Terms Defined. Terms used herein and not otherwise defined herein shall have the respective meanings specified in the Amended Note Purchase Agreement. A violation of this Agreement (including without limitation, a material misrepresentation of any warranty or representation contained herein) shall constitute an "Event of Default" thereunder. 2 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, INTERNAL CONNECTICUT LAW. 3 Duplicate Originals. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts that, collectively, show execution by each party hereto shall constitute one duplicate original. 4 Waivers and Amendments. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 5 Section Headings. The titles of the Sections hereof appear as a matter of convenience only, do not constitute a part of this Agreement and shall not affect the construction hereof. 6 Costs and Expenses. On the Effective Date, the Company shall pay all costs and expenses of the Holders relating to this Agreement, including, but not limited to, the statement for reasonable fees and disbursements of their special counsel presented to the Company on the Effective Date. The Company will also pay, upon receipt thereof, each additional statement for reasonable fees and disbursements of the Holders' special counsel rendered after the Effective Date in connection with this Agreement, the Amended Note Purchase Agreement or the Security Documents. 7 Survival. All warranties, representations, certifications and covenants made by the Company in this Agreement, in the Amended Note Purchase Agreement and in each of the Security Documents or in any certificate or other instrument delivered pursuant to this Agreement, the Amended Note Purchase Agreement or any of the Security Documents shall be considered to have been relied upon by the Holders and shall survive the execution and delivery of this Agreement, regardless of any investigation made by or on behalf of the Holders. All statements in any such certificate or other instrument shall constitute warranties and representations of the Company under this Agreement, the Amended Note Purchase Agreement or such Security Document. 8 Time of Essence. Time is and shall be of the essence in the satisfaction of all the conditions set forth in Section 3 of this Agreement. [Remainder of page intentionally blank; next page is signature p age.] IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf by a duly authorized officer or agent thereof. Company: BARR LABORATORIES, INC. By /s/William T. McKee Name: William T. McKee Title: Treasurer Holder: CONNECTICUT GENERAL LIFE INSURANCE COMPANY * By CIGNA Investments, Inc. By: /s/Stephen A. Osborne Name: Stephen A. Osborne Title:Managing Director Holder: LIFE INSURANCE COMPANY OF NORTH AMERICA * By CIGNA Investments, Inc. By: /s/Stephen A. Osborne Name: Stephen A. Osborne Title:Managing Director Holder: CIGNA PROPERTY AND CASUALTY INSURANCE COMPANY * By CIGNA Investments, Inc. By: /s/Stephen A. Osborne Name: Stephen A. Osborne Title:Managing Director Holder: AMERICAN LIFE & CASUALTY INSURANCE COMPANY By:/s/Gary F Greaves Name: Gary F. Greaves Title: Vice President EXHIBIT A DETERMINATION OF PREPAYMENT AMOUNT 5. Prepayment Amount. The Prepayment Amount shall be equal to the aggregate principal amount of Notes held by American Life & Casualty Insurance Company immediately prior to the Effective Date (which principal amount of Notes the Company represents and warrants to be equal to $2,000,000), together with interest accrued thereon to the date of prepayment and together with the Modified Make-Whole Amount (as such term is defined below) calculated with respect to such principal amount of Notes as of the date of prepayment. As used herein: Modified Make-Whole Amount -- shall have the meaning ascribed to the term "Make-Whole Amount" in the Amended Note Purchase Agreement, provided that the Modified Make-Whole Amount shall be determined as though the reference to "fifty one-hundredths percent (0.50%) per annum" in clause (b) of the definition of "Make-Whole Discount Rate" were a reference to "one and twenty-five one-hundredths percent (1.25%) per annum". Barr Laboratories, Inc. _____________________________________ AMENDMENT NUMBER THREE _____________________________________ Dated as of April 1, 1996 10.15% Senior Secured Notes due June 28, 2001 AMENDMENT NUMBER THREE AMENDMENT NUMBER THREE (this "Agreement"), dated as of April 1, 1996, among BARR LABORATORIES, INC. (together with its successors and assigns, the "Company"), a New York corporation, and the Persons identified as "Holders" on the signature page hereof (collectively, the "Holders"). RECITALS: A. The Company entered into those certain separate Note Purchase Agreements, each dated as of June 28, 1991 (collectively, as in effect immediately prior to the date hereof, the "Existing Note Purchase Agreement" and, as amended hereby, the "Amended Note Purchase Agreement"), with each of Connecticut General Life Insurance Company, Life Insurance Company of North America, CIGNA Property and Casualty Insurance Company and American Life Casualty Insurance Company (individually, a "Purchaser" and collectively, the "Purchasers"), pursuant to which the Company issued and sold to the Purchasers and the Purchasers purchased from the Company, Twenty Million Dollars ($20,000,000) in aggregate principal amount of the Company's Senior Secured Notes due June 28, 2001 (collectively, as amended from time to time, the "Notes"). B. Simultaneously with the execution of the Existing Note Purchase Agreement, the Company entered into that certain Trust Indenture, dated as of June 28, 1991 (as in effect immediately prior to the date hereof, the "Existing Trust Indenture" and, as amended hereby, the "Amended Trust Indenture"), with State Street Bank and Trust Company of Connecticut, N.A. (the "Security Trustee"), pursuant to which the Company granted to the Security Trustee a security interest in certain Property of the Company to secure the payment by the Company of the Secured Obligations (as defined in the Existing Trust Indenture) and the performance of the Secured Undertakings (as defined in the Existing Trust Indenture). C. The Holders are the registered holders of one hundred percent (100%) of the Notes outstanding on the date hereof. D. The Company has requested that the Holders agree to, among other things, amend certain provisions of the Existing Note Purchase Agreement and the Existing Trust Indenture as further set forth herein, which requested amendments require the consent of the holders of the Notes and the Security Trustee. E. Subject to the terms and conditions set forth in this Agreement, the Company, the Holders and the Security Trustee are willing to agree to amend the Existing Note Purchase Agreement and the Existing Trust Indenture, all in the manner specified on certain Exhibits hereto and as more particularly set forth herein. F. The Amended Note Purchase Agreement and the Amended Trust Indenture are sometimes herein referred to as the "Amended Financing Documents." AGREEMENT: NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Holders agree as follows: 1. WARRANTIES AND REPRESENTATIONS. To induce the Holders to enter into this Agreement, the Company warrants and represents to the Holders that as of the Effective Date (as hereinafter defined): 1 Material Adverse Effect; Disclosure. (a) Since June 30, 1995 there has been no change in the business, prospects, profits, Properties or condition (financial or otherwise) of the Company or any Subsidiary except changes in the ordinary course of business that, in the aggregate, have not had a material adverse effect on the business, prospects, profits, Properties or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform any of its obligations set forth in the Amended Note Purchase Agreement and the Security Documents. (b) Neither this Agreement nor any written statement furnished by the Company to the Holders in connection herewith contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained therein or herein not misleading. There is no fact that the Company has not disclosed to each Holder in writing that has had or, so far as the Company can now reasonably foresee, could reasonably be expected to have, a material adverse effect on the business, prospects, profits, Properties or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform any of its obligations set forth in the Amended Note Purchase Agreement and the Security Documents. 2 Authorization, Execution and Enforceability. The execution and delivery by the Company of this Agreement and the performance of its obligations under each of the Amended Financing Documents have been duly authorized by all necessary action on the part of the Company. Each of the Amended Financing Documents constitutes a valid and binding obligation of the Company, enforceable in accordance with its respective terms, except that the enforceability thereof may be: (a) limited by bankruptcy, insolvency or other similar laws affecting the enforceability of creditors' rights generally; and (b) subject to the availability of equitable remedies. 3 No Conflicts, etc. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations under each of the Amended Financing Documents do not conflict with, result in any breach in any of the provisions of, constitute a default under, violate or result in the creation of any Lien upon any Property of the Company or any Subsidiary under the provisions of: (a) any charter document, agreement with shareholders or bylaws of the Company or any Subsidiary; (b) any agreement, instrument or conveyance by which the Company or any Subsidiary or any of their respective Properties may be bound or affected; or (c) any statute, rule or regulation or any order, judgment or award of any court, tribunal or arbitrator by which the Company or any Subsidiary or any of their respective Properties may be bound or affected. 4 Security Interests. The Liens of the Holders in the Collateral (as defined in the Amended Trust Indenture) previously granted to the Security Trustee remain valid, enforceable and perfected as of the date hereof and the Collateral is subject to no other Liens not otherwise permitted under the Amended Financing Documents and the Security Documents, as amended. 5 Existence of Defaults. After giving effect to the Amendments, no condition exists that would constitute a Default or an Event of Default under the Amended Note Purchase Agreement. 6 Disclosure. Neither this Agreement nor any written statement furnished by the Company to the Holders in connection herewith contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained therein or herein not misleading. 2. AMENDMENTS WITH RESPECT TO EXISTING NOTE PURCHASE AGREEMENT AND EXISTING TRUST INDENTURE; AFFIRMATION. 1 Amendments. The Company and, subject to the satisfaction of the conditions set forth in Section 3 hereof, the Holders, each hereby consent and agree that: (a) the Existing Note Purchase Agreement is hereby amended in the manner specified in Exhibit A1 to this Agreement; and (b) the Existing Trust Indenture is hereby amended in the manner specified in Exhibit A2 to this Agreement; and (collectively, such amendments provided for in such Exhibits are herein referred to as the "Amendments"). 2 Affirmation of Obligations under Financing Documents. The Company hereby acknowledges and affirms all of its obligations under the terms of the Amended Note Purchase Agreement, the Amended Trust Indenture and the other Security Documents. 3 Scope of Amendment. Except as expressly set forth in this Agreement, no provision of the Existing Note Purchase Agreement, the Notes, the Existing Trust Indenture or any other agreement, document or instrument shall be deemed to have been amended hereby. No Default or Event of Default, or right, remedy, or power consequent thereon, whether as provided in the Existing Note Purchase Agreement, the Notes, the Existing Trust Indenture, the Amended Note Purchase Agreement, the Amended Trust Indenture, or by law, to any holder of Notes, shall be deemed to have been waived or affected hereby. 3. CONDITIONS TO EFFECTIVENESS OF AMENDMENTS. The Amendments shall not become effective until all of the following conditions precedent shall have been satisfied in full (the date of such satisfaction being herein referred to as the "Effective Date"): 1 Execution and Delivery of this Agreement. The Company and the Holders shall have executed and delivered to each other and the Security Trustee an original counterpart of this Agreement, and the Security Trustee shall have executed and delivered to the Company and each of the Holders the "Security Trustee's Consent and Agreement" attached to this Agreement. 2 No Defaults; Warranties and Representations True. After giving effect to the Amendments, no Default or Event of Default shall exist and the warranties and representations set forth in Section 1 hereof shall be true and correct. 3 Proceedings Satisfactory. All proceedings taken in connection with this Agreement and all documents and papers relating thereto shall be reasonably satisfactory to the Holders. The Holders shall have received copies of such documents and papers as they may reasonably request in connection therewith, all in form and substance reasonably satisfactory to the Holders. 4 Expenses. The Company shall have paid all costs and expenses of the Holders relating to this Agreement in accordance with Section 5.6 hereof. 4. DIRECTION TO SECURITY TRUSTEE. Each of the Holders, by its execution and delivery hereof, hereby requests and directs the Security Trustee to (a) consent and agree to the amendments to the Existing Trust Indenture and such other agreements to which it is a party, as such amendments are described herein, by executing and delivering the "Security Trustee's Consent and Agreement" attached to this Agreement; (b) execute and deliver a "Release, Consent and Acknowledgement" substantially in the form of Exhibit B attached to this Agreement; and (c) execute and deliver four Uniform Commercial Code financing statement partial releases, one each for filing with respect to (i) financing statement number 133450 (New York Secretary of State), (ii) financing statement 91-1896 (Rockland County, New York), (iii) financing statement 1404418 (New Jersey Secretary of State) and (iv) financing statement 002494 (Bergen County, New Jersey), each substantially in the respective forms set forth on Exhibit C attached to this Agreement. 5. MISCELLANEOUS. 1 Terms Defined. Terms used herein and not otherwise defined herein shall have the respective meanings specified in the Amended Note Purchase Agreement. A violation of this Agreement (including without limitation, a material misrepresentation of any warranty or representation contained herein) shall constitute an "Event of Default" thereunder. 2 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, INTERNAL CONNECTICUT LAW. 3 Duplicate Originals. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts that, collectively, show execution by each party hereto shall constitute one duplicate original. 4 Waivers and Amendments. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 5 Section Headings. The titles of the Sections hereof appear as a matter of convenience only, do not constitute a part of this Agreement and shall not affect the construction hereof. 6 Costs and Expenses. On the Effective Date, the Company shall pay all costs and expenses of the Holders relating to this Agreement, including, but not limited to, the statement for reasonable fees and disbursements of their special counsel presented to the Company on the Effective Date. The Company will also pay, upon receipt thereof, each additional statement for reasonable fees and disbursements of the Holders' special counsel rendered after the Effective Date in connection with this Agreement or the Amended Financing Documents. 7 Survival. All warranties, representations, certifications and covenants made by the Company in this Agreement and in each of the Amended Financing Documents or in any certificate or other instrument delivered pursuant to this Agreement or any of the Amended Financing Documents shall be considered to have been relied upon by the Holders and shall survive the execution and delivery of this Agreement, regardless of any investigation made by or on behalf of the Holders. All statements in any such certificate or other instrument shall constitute warranties and representations of the Company under this Agreement or such Amended Financing Document. 8 Time of Essence. Time is and shall be of the essence in the satisfaction of all the conditions set forth in Section 3 of this Agreement. [Remainder of page intentionally blank; next page is signature p age.] IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf by a duly authorized officer or agent thereof. Company: BARR LABORATORIES, INC. By /s/William T. McKee Name: William T McKee Title:Treasurer Holder: CONNECTICUT GENERAL LIFE INSURANCE COMPANY* By CIGNA Investments, Inc. By: /s/Stephen A. Osborne Name: Stephen A. Osborne Title:Managing Director Holder: LIFE INSURANCE COMPANY OF NORTH AMERICA * By CIGNA Investments, Inc. By: /s/Stephen A. Osborne Name: Stephen A. Osborne Title:Managing Director Holder: CIGNA PROPERTY AND CASUALTY INSURANCE COMPANY * By CIGNA Investments, Inc. By: /s/Stephen A. Osborne Name: Stephen A. Osborne Title:Managing Director SECURITY TRUSTEE'S CONSENT AND AGREEMENT The Security Trustee hereby consents and agrees to the amendments and modifications to the Existing Trust Indenture and the other amendments and modifications provided for by this Agreement. STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, as Security Trustee By________________________________ Name: Title: EXHIBIT A1 AMENDMENTS TO EXISTING NOTE PURCHASE AGREEMENT 6. Section 7.10(a). Section 7.10(a) of the Existing Note Purchase Agreement is hereby amended by renumbering clause (vii) and clause (viii) thereof as clause (viii) and clause (ix), respectively, and inserting a new clause (vii) to read in its entirety as follows: " (vii) 1996 Grandfathered Purchase Money Liens;" 7. Section 8.1. Section 8.1 of the Existing Note Purchase Agreement is hereby amended by deleting the expression "and" following the semicolon at the end of clause (j) thereof, renumbering clause (k) thereof as clause (l), and inserting a new clause (k) to read in its entirety as follows: " (k) Notice of Certain Advances -- with reasonable promptness, a copy of each request for an advance or other funding of Permitted Purchase Money Indebtedness (as such term is defined in the Trust Indenture), with all attachments and accompanying information, and containing a description of the Property purchased or to be purchased therewith (including, without limitation, serial numbers or other similar identification of such Property) and providing the location thereof; and" 8. Section 10. Section 10 of the Existing Note Purchase Agreement is hereby amended by adding the following defined terms, each to be placed in its respective appropriate alphabetical position within such Section: " Amendment Number Three -- means Amendment Number Three dated as of April 1, 1996 to the Note Purchase Agreement and the Trust Indenture." " 1996 Grandfathered Purchase Money Liens -- means Liens on Property acquired by the Company during the period from June 1, 1995 to April 15, 1996, which Liens secure "Permitted Purchase Money Indebtedness" (as such term is defined in the Trust Indenture), and which Property is described on Exhibit C of Exhibit B to Amendment Number Three." EXHIBIT A2 AMENDMENTS TO EXISTING TRUST INDENTURE 9. Second "Whereas" Clause. Clause (b) of the second appearing "whereas" clause in the Recitals of the Existing Trust Indenture is hereby amended and restated in its entirety to read as follows: " (b) all of its machinery and equipment (including, without limitation, the books, records, warranties and computer disks, tapes and software in connection therewith), furniture, furnishings, appliances, apparatus, tools, parts and supplies wherever located, including, without limitation, all of its machinery, equipment, furniture, furnishings, appliances, apparatus and tools located in or on, or attached to, the Mortgaged Real Property and/or the Improvements, except as otherwise specified in Section 2 hereof." 10. Section 1. Section 1 of the Existing Trust Indenture is amended by adding each of the following definitions, in its appropriate alphabetical position, to read as follows: " Exempt Property -- means, at any time, all Property of the Company of the types described in clause (a) and clause (b) of Section 2, to the extent that such Property is (i) purchased or otherwise acquired for use in the New Facility or (ii) is moved from the Company's facility in Northvale, New Jersey for use in the New Facility (it being understood that no Property moved from the Company's facility in Pomona, New York shall constitute Exempt Property)." " New Facility -- means the pharmaceutical manufacturing facility of the Company located in Forrest, Virginia." " Permitted Purchase Money Indebtedness -- means indebtedness incurred by the Company through advances aggregating no more than $18,750,000 pursuant to one or more credit facilities (including, without limitation, that Loan and Security Agreement dated as of April 12, 1996, between the Company and BA Leasing & Capital Corporation), which indebtedness is secured by a Lien on Property of the Company (other than Property consisting of plumbing, electrical or HVAC fixtures or other similar Property) acquired with such indebtedness at a purchase price not in excess of the amount of such indebtedness, so long as such Lien extends to no other Property and secures no other indebtedness." 11. Section 2. Section 2 of the Existing Trust Indenture is hereby amended and restated in its entirety to read as follows: " 2. GRANT OF SECURITY. The Company hereby grants to the Security Trustee a continuing security interest in all of the Property of the Company specified below in this Section 2 (whether now in existence or hereafter acquired or wherever the same may be located) for the purpose of securing payment by the Company of the Secured Obligations and the performance by the Company of the Secured Undertakings: do we need to carve out the property subject to the BA facility, or is our release with them sufficient? (a) all machinery, equipment, appliances, and apparatus, other than such items constituting Exempt Property, (b) all furniture, fixtures, fittings, furnishings, tools, parts and supplies, other than such items constituting Exempt Property, (c) all bonds and amounts placed in escrow with the Security Trustee in accordance with the provisions of Section 3.4(b) or Section 3.5(b) hereof, and (d) all books, records, warranties and computer disks, tapes and software used in connection with the Property described in clause (a) and clause (b) above, together with all of the Company's right, title and interest in, to and under products and proceeds of the foregoing (including, without limitation, proceeds of insurance covering the foregoing, all proceeds from the disposition of any of the foregoing and all proceeds from any indemnity, warranty or guaranty payable by reason of loss of, damage to or otherwise with respect to any of the foregoing) and all of the Company's right, title and interest in, to and under any replacements or substitutions of, or accessions to, the foregoing." 12. Section 3.9(e). Section 3.9(e) of the Existing Trust Indenture is hereby amended by replacing each reference to "Section 7.11" of the Note Purchase Agreement (whether such reference is to the entirety of Section 7.11 or to a clause therein) with a reference to "Section 7.10". 13. Section 3.9(e). Section 3.9(e) of the Existing Trust Indenture is hereby amended by deleting clause (iv) thereof and replacing it with the following expression: "(iv) no Liens permitted by Section 7.10(a)(vi) or Section 7.10(a)(vii) shall be permitted to encumber the Collateral other than Liens securing Permitted Purchase Money Indebtedness outstanding at such time." EXHIBIT B [FORM OF CONSENT] RELEASE, CONSENT AND ACKNOWLEDGMENT Reference is made to that certain Loan and Security Agreement Number 950196 by and between BA LEASING & CAPITAL CORPORATION ("Lender") and BARR LABORATORIES, INC., ("Borrower"), dated as of April 12, 1996 ("Agreement"), and to the Collateral (defined below). (a) State Street Bank and Trust Company of Connecticut, N.A., as Security Trustee under the Trust Indenture dated as of June 28, 1991 (as amended, the "Trust Indenture"), between Barr Laboratories, Inc. and State Street Bank and Trust Company of Connecticut, N.A. (as Security Trustee thereunder, the "Creditors' Representative"), has an interest as, inter alia, mortgage holder in the real property described in Exhibit B (the "Real Property"). (b) The Agreement provides, inter alia, for the grant of a security interest by Borrower in the Collateral, which is or may be located upon the Real Property. (c) Lender, as a condition to entering into the Agreement, requires that the Creditors' Representative, on behalf of the holders of the Notes (defined below), enter into this agreement with the Lender. NOW, THEREFORE, for a good and sufficient consideration, receipt of which is hereby acknowledged, the Creditors' Representative and the Lender hereby agree as follows: 14. The Creditors' Representative hereby consents to the placement of Collateral on the Real Property. 15. The Collateral shall be considered to be personal property and shall not be considered part of the Real Property regardless of whether or by what means it is or may become attached or affixed to the Real Property. 16. Neither the Creditors' Representative nor the holders of the Notes will claim any interest in the Collateral. 17. The Creditors' Representative hereby releases and waives any right, title or interest, including without limitation any security interest arising under the Trust Indenture or that certain Mortgage, Assignment of Rents and Security Agreement dated as of June 28, 1991, by the Borrower to the Creditors' Representative, it may now have or hereafter acquire in the Collateral. 18. If the Creditors' Representative (for itself or on behalf of the holders of the Notes) is in possession, or is entitled to be in possession, of the Real Property, it will permit Lender to enter upon the Real Property for the purpose of exercising its rights with respect to the Collateral under the terms of the Agreement, or otherwise as permitted by law with respect to the Collateral, including, without limitation, the right to remove the Collateral from the Real Property, without charge by the Creditors' Representative (other than with respect to actual out-of-pocket expenses incurred in connection with providing to the Lender such access to, and allowing usage of, the Real Property); provided that the Lender agrees in writing to (1) conduct any such removal in a reasonable and prudent manner, (2) repair any damage to the Real Property or any other property in which the Creditors' Representative may have an interest that is caused by or incidental to the activities of the Lender (including the repair of damage to improvements located on the Real Property caused by the Lender's removal of Collateral) and (3) hold the Creditors' Representative (and the holders of the Notes) harmless and to indemnify each of them with respect to any and all losses, obligations, damages and other liabilities that they, the Real Property or any other property in which they have an interest may suffer or incur as a result of the Lender's activities on the Real Property. The Creditors' Representative (for itself or on behalf of the holders of the Notes) will not object to the entry by the Lender onto the Real Property for the purpose of exercising the Lender's rights with respect to the Collateral at any time during which it is not in possession, or otherwise entitled to be in possession, of the Real Property. 19. Creditors' Representative acknowledges that the Lender expects to fund the acquisition by Borrower from time to time of additional equipment constituting Collateral, and agrees that the Borrower's granting of liens in the Collateral to the Lender do not violate Section 7.10(a) of the Note Purchase Agreement (defined below) or Section 3.9(e)(iv) of the Trust Indenture. 20. The Creditors' Representative agrees for the benefit of the Lender to execute such Uniform Commercial Code financing statement releases with respect to the release of its interest, if any, in the Collateral as are necessary to give effect to the agreement evidenced hereby (it being understood that the filing of any such financing statement releases shall be conducted by the Lender at its own expense). 21. This agreement shall be binding upon the heirs, successors and assigns of the Creditors' Representative and the holders of the Notes, provided, that the consent granted pursuant to paragraph 5 above shall not be binding on future owners or holders of the Real Property taking their interest as a result of a foreclosure or other enforcement action with respect to the Real Property. 22. All of the understandings, agreements, representations and warranties contained herein are solely for the benefit of the Creditors' Representative, the holders of the Notes and the Lender, and their respective successors and assigns, and there are no other parties, including the Borrower, who are intended to be benefited, in any manner, by this consent. 23. Nothing contained in this consent is intended to affect or limit, in any manner, the security interest that each of the parties hereto has in any and all of the assets of the Borrower, whether tangible or intangible, insofar as the rights of the Borrower and third parties are involved. The parties hereto specifically reserve any and all of their respective rights, security interests and rights to assert security interests as against the Borrower and any third parties. 24. This consent relates only to security interests in the Collateral and the Real Property, and shall not affect any other security interest or right of repayment that the Lender, the Creditors' Representative or the holders of the Notes may have. 25. As used herein, the following capitalized terms are assigned the following meanings: Collateral -- means the property described on the attached Exhibit A (to the extent that such property is acquired by the Borrower on or after the date hereof) and the attached Exhibit C, to the extent that (a) such property does not consist of plumbing, electrical or HVAC fixtures, or other similar property, (b) such property was acquired with indebtedness incurred by the Borrower pursuant to the Agreement through advances aggregating no more than $18,750,000, (c) such property secures the payment of such indebtedness under the Agreement and secures no other indebtedness and (d) such property was acquired with such indebtedness under the Agreement at a purchase price for all such property not in excess of the aggregate amount of such indebtedness under the Agreement. Note Purchase Agreement -- means that certain Note Purchase Agreement dated as of June 28, 1991, between the Borrower and the persons listed on Annex 1 thereto, as amended from time to time. Notes -- means the Borrower's 10.15% Senior Secured Notes issued pursuant to the Note Purchase Agreement, as amended from time to time. IN WITNESS WHEREOF, the undersigned have executed this consent as of April __, 1996. STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, N.A., as Security Trustee By________________________________ Name: Title: BA LEASING & CAPITAL CORPORATION By________________________________ Name: Title: EXHIBIT A to Release, Consent and Acknowledgment 26. New personal property used in the production, processing and manufacture of pharmaceutical products identified as Collateral pursuant to the Agreement. 37. 27. All purchase orders and agreements, deposits, progress payments or the like related to item 1 above. 28. All log books, manuals, maintenance programs, documentation or other information related to items 1 and 2 above. 29. All warranties or other rights arising from any source related to items 1, 2 and 3 above. 30. All proceeds including insurance proceeds of any of items 1, 2, 3 or 4 above. EXHIBIT B to Release, Consent and Acknowledgment Real Property ALL THAT CERTAIN PLOT, PIECE OR PARCEL OF LAND, SITUATE, LYING AND BEING IN THE TOWN OF HAVERSTRAW, COUNTY OF ROCKLAND AND STATE OF NEW YORK, BOUNDED AND DESCRIBED AS FOLLOWS: BEGINNING AT A MONUMENT SET IN THE WESTERLY SIDE OF QUAKER ROAD, WHERE THE SAME IS INTERSECTED BY THE SOUTHERLY LINE OF LANDS NOW OR FORMERLY OF HIGH TOR PROPERTIES, INC.; THENCE ALONG SAID LANDS NORTH 81 DEGREES 04' 03" WEST 2198.71 FEET TO A STONE WALL AND LANDS NOW OR FORMERLY OF ZUBIAURRE; THENCE ALONG SAID LANDS AND ALONG LANDS NOW OR FORMERLY OF ZARATE, SOUTH 18 DEGREES 23' 19" WEST 195.71 FEET TO A POINT; MARKED BY A CROSS CUT IN SAID STONE WALL AND LANDS NOW OR FORMERLY OF SKY; THENCE PARTLY ALONG SAID LANDS NOW OR FORMERLY OF SKY, SOUTH 22 DEGREES 37" 28" WEST 95.00 FEET TO A POINT; THENCE STILL ALONG LANDS NOW OR FORMERLY OF SKY AND ALONG LANDS NOW OR FORMERLY OF HEAVNER, LANDS NOW OR FORMERLY OF PROSELLER AND LANDS NOW OR FORMERLY OF DEISROTH, SOUTH 18 DEGREES 05" 22" WEST 734.44 FEET TO LANDS NOW OR FORMERLY OF MARCZAM; THENCE ALONG SAID LANDS NOW OR FORMERLY OF MARCZAN, THE FOLLOWING COURSE AND DISTANCES; SOUTH 81 DEGREES 05' 12" EAST 1104.70 FEET TO A POINT AND LANDS NOW OR FORMERLY OF MOUNT IVY SAND AND GRAVEL COMPANY; THENCE ALONG SAID LANDS NOW OR FORMERLY OF MOUNT IVY SAND AND GRAVEL COMPANY, NORTH 8 DEGREES 57' 51" EAST 500.00 FEET, SOUTH 81 DEGREES 03' 39" EAST 1220.00 FEET AND SOUTH 8 DEGREES 51' 17" WEST 259.36 FEET AND SOUTH 81 DEGREES 29' 03" EAST 226.32 FEET TO A MONUMENT SET IN SAID LANDS; THENCE NORTH 8 DEGREES 18' 22" WEST 220.37 FEET AND NORTH 12 DEGREES 21' 57" EAST 131.79 TO A POINT AND THE WESTERLY SIDE OF QUAKER ROAD; THENCE ALONG THE WESTERLY SIDE OF QUAKER ROAD, NORTH 7 DEGREES 18' 02" WEST 443.58 FEET TO THE POINT OR PLACE OF BEGINNING. EXHIBIT C to Release, Consent and Acknowledgment [Omitted from form] EXHIBIT C FORM OF UCC-3 FINANCING STATEMENTS _______________________________ EX-10.6 5 COLLECTIVE BARGAINING AGREEMENT, EFFECTIVE APRIL 1, 1996 AGREEMENT BETWEEN BARR LABORATORIES and LOCAL 8-149 OIL, CHEMICAL, and ATOMIC WORKERS INTERNATIONAL UNION EFFECTIVE - APRIL 1, 1996 EXPIRES - MARCH 31, 2001 BARR LABORATORIES, INC. and OIL, CHEMICAL AND ATOMIC WORKERS INTERNATIONAL UNION, LOCAL 8-149 AFL-CIO COLLECTIVE BARGAINING AGREEMENT TABLE OF CONTENTS ARTICLE I. UNION RECOGNITION 1 ARTICLE II. MANAGEMENT RIGHTS 2 ARTICLE III. UNION ACTIVITIES 4 ARTICLE IV. HOURS 5 ARTICLE V. PROBATIONARY PERIOD 12 ARTICLE VI. SENIORITY 13 ARTICLE VII. DISCHARGE AND DISCIPLINE 18 ARTICLE VIII. UNION BULLETIN BOARDS 19 ARTICLE IX. LEAVES OF ABSENCE 20 ARTICLE X. BEREAVEMENT 23 ARTICLE XI. JURY DUTY 23 ARTICLE XII. GENERAL 24 ARTICLE XIII. GRIEVANCES 31 ARTICLE XIV. VACATIONS 37 ARTICLE XV. HOLIDAYS AND HOLIDAY PAY 40 ARTICLE XVI. WAGE INCREASES 42 ARTICLE XVII. HEALTH AND WELFARE 51 ARTICLE XVIII. CHECKOFF 52 ARTICLE XIX. RELOCATION 53 ARTICLE XX. UNION SECURITY 53 ARTICLE XXI. UNION REPRESENTATION AND STEWARDS 53 ARTICLE XXII. SICK LEAVE, PERSONAL DAYS, LONGEVITY DAY 56 ARTICLE XXIII. SHIFT DIFFERENTIAL 58 ARTICLE XXIV. REPORTING AND CALL-IN PAY 58 ARTICLE XXV. SAFETY AND HEALTH 59 ARTICLE XXVI. WASH UP TIME AND REST PERIODS 63 ARTICLE XXVII. TUITION REFUND PLAN 63 ARTICLE XXVIII. LOCKOUTS AND STRIKES 64 ARTICLE XXIX. BIDDING AND POSTING 65 ARTICLE XXX. CREDIT UNION CHECK-OFF 69 ARTICLE XXXI. 401(k) PLAN (EMPLOYEE SAVINGS AND RETIREMENT PLAN) 69 ARTICLE XXXII. SUCCESSORS AND ASSIGNS 71 ARTICLE XXXIII. SEVERANCE PAY 71 ARTICLE XXXIV. DURATION AND TERMINATION 72 AGREEMENT AGREEMENT made this ____ day of April, 1996, effective as of April 1, 1996, by and between BARR LABORATORIES, INC., for its facilities at 265 Livingston Street, Northvale, New Jersey, 2 Quaker Road, Pomona, New York and 246 Pegasus Avenue, Northvale, New Jersey; 232 Pegasus Avenue, Northvale, New Jersey and 267 Livingston Street, Northvale, New Jersey (hereinafter collectively referred to as the "Employer") and OIL, CHEMICAL AND ATOMIC WORKERS INTERNATIONAL UNION, LOCAL 8-149, AFL-CIO (hereinafter referred to as the "Union"). WHEREAS, both parties having accepted the principle of collective bargaining as a means of establishing wages, hours and working conditions of the covered employees and being desirous of continuing to do so for the purpose of fostering relations of mutual interest, and WHEREAS, it is the purpose and intent of the parties to promote sound and peaceful labor relations, WITNESSETH: NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties do hereby agree as follows: I. UNION RECOGNITION 1. The Company recognizes the Union as the sole collective bargaining agent for purposes of collective bargaining with respect to rates of pay, wages, hours and other terms and conditions of employment for all its full-time and regular part- time employees employed by the Company at its facilities presently located at 265 Livingston Street, Northvale, New Jersey, 2 Quaker 1 Road, Pomona, New York, 246 Pegasus Avenue, Northvale, New Jersey, 232 Pegasus Avenue, Northvale, New Jersey and 267 Livingston Street, Northvale, New Jersey; excluding office clerical employees, professional employees, maintenance trade and engineering employees, laboratory employees, Food Service employees, Groundskeeping employees, and guards and supervisors as defined in the National Labor Relations Act. However, it is agreed that all new hires for helper and any additional craftsman beyond the current three (3) slots in plant maintenance will be represented by the Union. II. MANAGEMENT RIGHTS 1. The Company has, retains and shall possess and exercise all rights and functions, powers, privileges and authority not specifically and expressly contracted away or limited by the terms of this Agreement. 2. As illustrative of the rights the Company possesses and retains, but in no way to be construed as a limitation, the Company shall have the exclusive right to: manage all of the Company's operations and its business affairs; direct the work force; determine production methods and procedures; assign work, evaluate jobs and the performance of jobs for pay purposes and to reevaluate them; decide the methods, means and processes of manufacture, type of machinery and equipment to be used, the number and classifications of employees to be used in the various aspects of the Company's operations or for particular assignments, types and quantity of business to be scheduled for production, quality of material, and the standards of efficiency and quality of workmanship required; decide selling prices and products, methods of selling and distributing products; determine the location of the business and to relocate any part or all of the Company's operations; discontinue operations in whole or in part; allocate and transfer production; introduce new 2 or improved methods or facilities, or to change existing manufacturing practices, decide methods and facilities, maintain order and efficiency; the right to hire, promote, demote, transfer, suspend, discharge, or otherwise discipline employees; determine the size and composition of the work force and relieve employees from duty because of lack of work or other reasons; determine the hours of work and schedule hours and determine overtime; establish, adjust and revise job classifications, hourly rates, establish rules pertaining to the operation of the plant and discipline employees for violation of such rules; determine an employee's qualifications to perform work in any particular position and to reassess and upgrade qualification standards for employees, including incumbents, in particular positions whenever and to whatever extent deemed by the Company to best serve the Company's overall interests in ensuring regulatory compliance and product quality and integrity and maximizing productivity, efficiency and safety; perform scientific and engineering studies; to contract out or subcontract work; establish or discontinue extra shifts, except as expressly amended or changed as hereinafter set out; to enforce procedures designed to ensure that employees do not report for work or perform work under the influence of drugs, alcohol or other substances that may or do impair or reduce mental acuity, motor coordination, and/or other performance capabilities that could affect regulatory compliance, product quality and integrity, or safety; to make and implement unilaterally any decisions that in the opinion of management are required to ensure regulatory compliance, product quality and integrity, and the safe operation of Company facilities; and to implement measures deemed necessary by Company management to maximize productivity and efficiency. The enumeration of specific rights in this Section shall not be construed as supporting a negative implication that other rights of the Company have been waived or compromised in any way. Nor shall the enumeration of such rights be construed as expanding or contracting in any way the Union's right, to the extent otherwise secured by applicable precedents under the National Labor Relations Act as amended, to demand that the Company engage in collective bargaining over the effects of the 3 exercise of such rights on the wages, terms and conditions of employment and employment security of employees covered by this Agreement. 3. Furthermore, the Company retains the right to take whatever steps it deems necessary to meet and comply with all Federal, state or local regulations including but not limited to those promulgated by DEA, FDA and any regulatory agency. 4. Within the limits prescribed in Article XII, Section 4 of this Agreement, Management has the right to use supervisors and other non-bargaining unit personnel to perform unit work. 5. With respect to any rights heretofore exercised by or inherent in the Company and not expressly limited by the terms of this Agreement, and with respect to any rights retained by or conferred upon the Company in the terms of this Agreement, any failure by the Company to exercise such rights, or the exercise of such rights by the Company in a particular manner, shall not be construed to be a waiver of or limitation on any such right, a waiver of or limitation on the right to exercise any such right, or a waiver of or limitation on the right to exercise any such right, or a waiver of or limitation on the right to exercise any such right in a different manner. Nor shall enumeration of rights reserved to the Company in this Agreement be construed as, or considered as evidence of, an implied limitation on or preclusion of any Company rights not so enumerated. III. UNION ACTIVITIES 1. There shall be no grievance investigated, presented, discussed, processed or handled during working hours without the Vice President Human Resources or the Manager Human Resources first being notified and her permission to do so obtained, nor shall the investigation, presentation, discussion, processing or handling of grievances interfere in any way with the normal 4 and efficient conduct of the Company's operations. In the case of Departmental Stewards, however, this Section shall be deemed to have been complied with in cases where such Stewards find it necessary to be excused from their regular work responsibilities for brief periods of time for such purposes if notice is provided and permission obtained in advance from the Steward's Plant Manager. 2. An authorized agent of the Union shall be permitted to visit the plant during working hours, after first notifying the Vice President Human Resources or her designee, for the purpose of investigating and settling grievances and insuring the proper administration of the contract; provided, however, that said representative shall conduct his business in such manner so as not to interfere with the normal and efficient conduct of the Company's operations. The Union shall keep the Company currently advised, in writing, of the officer or representative of the Union who is authorized to deal with the Company, and no one shall be deemed such a representative unless he is so designated by the Union to the Company. IV. HOURS 1. The standard work week shall be five (5) consecutive days, forty (40) hours per week; eight (8) hours per day, from 12:01 a.m. Monday to 12:00 p.m. the following Sunday, exclusive of lunch. The standard work day shall consist of eight and one- half (8-1/2) consecutive hours with a one-half (1/2) hour unpaid lunch break between the hours of 7:00 a.m. and 5:00 p.m. However, the Company retains sole and unrestricted discretion to change work schedules for employees in any part or all of its operations to best serve the Company's overall interests in ensuring regulatory compliance and product quality and integrity, and maximizing productivity, efficiency and safety. The Union and employees affected by such a change will be provided notice at least two (2) weeks in advance of implementation of the change. Shifts may be established or discontinued in the 5 sole and unrestricted discretion of the Employer on notice to the Union and the affected employees of thirty (30) calendar days whenever reasonably practicable, but in any event not less than fourteen (14) calendar days. Whenever a shift change is implemented for less than all of the employees in a department, the Company shall first seek to obtain enough employees to staff the new shift by asking for volunteers from among the employees in the department. In the event there are more volunteers than openings, employees shall be selected on the basis of their seniority. In the event an insufficient number of volunteers come forth, the Company may have the work done by nonbargaining unit employees for up to two (2) months, hire for such positions from outside the bargaining unit, and/or require additional employees, in reverse order of seniority, to either work the new shift or go onto layoff status. The Employer may implement a Tuesday through Saturday workweek or Wednesday through Sunday workweek provided the following criteria are met: (a) Employees assigned to work Tuesday through Saturday or Wednesday through Sunday workweeks must work a five (5) consecutive day week. (b) The Company shall first seek to obtain employees for such workweeks by asking for volunteers. If more volunteers come forward than there are openings, employees shall be selected on the basis of their seniority. If an insufficient number of volunteers come forth, the Company may have the work done by nonbargaining unit employees for up to two (2) months, hire for such positions from outside the bargaining unit, and/or require additional employees, in reverse order of seniority, to either work the new workweek or go onto layoff status. 6 (c) Those employees hired for the Tuesday through Saturday or Wednesday through Sunday workweek shall have a right to bid into openings occurring less than one hundred and eighty (180) days after their initial hire date the Monday through Friday workweek, except as otherwise provided in Article V, Section 7. (d) The Employer agrees to preserve a three day weekend during holiday weeks. Employees assigned to work Tuesday through Saturday or Wednesday through Sunday workweeks pursuant to the terms of this Section and who by virtue of such assignment work on Saturday or Sunday, shall receive premium pay in the amount of eighty-five cents ($0.85) per hour for each hour worked on such days. Except as provided in Article XXIV, nothing in this Agreement shall be construed as obligating the Company to provide any minimum hours of work per day, per week, per month or per year. 2. The Employer has sole and unrestricted discretion to establish a ten (10) hours per day shift, exclusive of the thirty (30) minute unpaid lunch period, at the straight-time wage rate. For employees assigned to work such a shift, except as otherwise provided below, forty (40) hours per week shall constitute a week's work. If a ten hour work day as hereinbefore described is implemented, the Employer shall schedule employees assigned to work such shifts in such a manner as to make all straight-time work days after the first one in each work week follow each other consecutively. The Employer shall have the right to schedule such four day work weeks to begin on Monday, Tuesday or Wednesday in the same manner and subject to the same conditions (except for the five (5) consecutive day week requirement) as would apply under Section 1 of this Article to the 7 assignment of employees to work five (5) day work weeks beginning on those days. The Employer shall also have the option to schedule two crews to work a ten (10) hour work days in such a manner as to provide employee coverage in the department on each of the seven (7) days of the workweek, provided however that in such event employees in each crew shall be scheduled to work eight (8) consecutive days, with the first and last of the eight (8) days being on Thursday and with both crews overlapping for the full ten (10) hour shift on Thursday. The Employer will provide notice to the Union and affected employees at least two (2) weeks before commencement of any of the special shifts provided for in this Section. Employees working ten-hour days shall be entitled to an additional rest period of fifteen (15) minutes after working eight (8) hours. Employees who are assigned to work special shifts pursuant to this Section shall be entitled to take the Holidays specified in Article XV, Section 2 of this Agreement off without loss of pay or, if required to work on a Holiday, shall be compensated at a rate equal to two and one-half times the rate they would have been paid had the work been performed on a normal workday. Employees assigned to work special shifts under this Section whose workweek does not encompass a Holiday shall receive an additional eight (8) hours straight-time pay for that workweek. Employees scheduled to work hours on Saturday or Sunday pursuant to this Section shall be paid a premium of eighty- five cents ($0.85) per hour for all such weekend hours worked. 3. OVERTIME: Employees shall be paid overtime premium pay for all hours worked over eight (8) hours in any one day (except as otherwise provided above in Section 2 of this Article), or forty (40) paid hours in any one work week and for any time worked on scheduled holidays enumerated in Article XV. Employees who fail to work any portion of the straight time work for which they are scheduled in a given work week will not be entitled to premium pay for overtime in that week, except to the extent that their total hours worked in that week exceed forty 8 (40) hours, unless the employee's failure to work such straight time is due to serious illness or serious injury, or the employee's being on jury duty, vacation, paid sick leave, or bereavement leave; and Saturday and Sunday overtime shall be paid on the same basis. Except as otherwise provided in this Article, overtime hours worked on Sundays shall be compensated at a rate equal to twice the employee's base wage rate. Only time actually paid shall be included in computing overtime. Any time worked when once included in computing overtime under any applicable provision of this Agreement shall not thereafter be included in computing overtime under any other applicable provisions hereof. In no event, shall there be any duplication or pyramiding of any overtime or premium pay, whether for Sundays, holidays or overtime purposes or otherwise. The Company shall have discretion to determine which job classification(s) will be needed to perform available overtime work. Overtime shall first be offered to qualified employees within the job classification within the department in which the overtime is available. Such opportunities shall be equally divided among the employees in the department in the same job classification and assigned to work in the same building. For purposes of equalization, an opportunity offered and refused shall be counted as overtime worked. If an insufficient number of employees within the department and currently assigned to the classification that the Company has designated to work overtime are available for such work, the Company may fill the overtime with qualified volunteers from outside the department on the basis of seniority (in which case the Company shall offer the overtime to employees then assigned to work in the classification that the Company has designated to work the overtime and working in the location (Northvale or Pomona) where the overtime is to be worked, then to employees assigned to work in such classification at any other Company facilities covered by this Agreement, and then to any other qualified employees assigned to work at any such facilities), and/or by drafting employees from within the building and department in reverse order of seniority. 9 In any situations in which overtime work is of such a nature as to require the employee performing it to have any special skills or experience, the Company has sole and unrestricted discretion to assign overtime work to the employee or employees who, in the Company's judgment, is or are best suited to carry out the assignment competently, efficiently and safely. To the extent overtime assignments do not, in the judgement of the Company, require employees of special skill and/or experience, however, the Company shall be required to distribute such assignments evenly among employees in the department; and any time worked by an employee in an overtime assignment made on the basis of special skills or experience shall be credited to that employee for overtime equalization purposes, as would any other overtime worked. The Union shall be informed of all special overtime assignments made on the basis of special skills or experience on at least a weekly basis. It is understood that the Company shall not be required to create unnecessary overtime for any purpose. 4. When an employee is requested by the Company to work outside of or beyond his regular hours, he shall be expected to do so, unless the Company determines that extraordinary hardship would result by requiring the employee to work such an overtime assignment. However, under no circumstances will notice for mandatory overtime be given less than four (4) hours before such overtime would begin. No employee shall be required to work more than fourteen (14) hours in any workday or more than fifty-six (56) hours in any workweek, except as otherwise provided in Section 2 of this Article. In the event an employee is required to work an overtime assignment and has difficulty with working the assignment due to a schedule conflict, he shall not be required to work the overtime if he is able to find a qualified volunteer to take his place who is acceptable to the supervisor scheduling the overtime. In such cases, the employee shall be charged with having worked the overtime for the purposes of overtime distribution; and the volunteer who works the overtime shall not be so charged. 10 5. HOLIDAY WORK: The Company shall, unless extraordinary hardship would result, give seven (7) days' notice of overtime work scheduled on a holiday or during a holiday weekend (i.e., a weekend preceded or followed by a day designated as a holiday in Article XV, Section 2 of this Agreement). The Company shall have the right to open the plant for business on holidays and to expect employees to work on such days. Except as otherwise provided above in Section 3 of this Article, work performed by employees on holidays shall be considered as premium work, and such work shall be paid for at time and one-half. 6. Hours and pay representing holiday pay, and vacation pay and all other hours of pay representing non-working time will be included in figuring overtime for the week and in figuring straight time average hourly rates. 7. REST PERIODS AND LUNCH PERIODS: The Company shall provide employees with a one-half (1/2) hour unpaid lunch period and two (2) rest periods of fifteen (15) minutes duration. It is understood and agreed that the scheduling of such periods remains exclusively vested in the Company, and the taking of such periods shall in no way interfere with the normal and efficient operations of the plant. 8. Notwithstanding any other provision of this Agreement, the Employer has sole and unrestricted discretion to determine when it is necessary to suspend or shut down some part or all of its operations because of an Act of God, any circumstances beyond the Employer's control, or any emergency situation that could compromise product quality or integrity or endanger the life and safety of an employee or because of regulatory compliance considerations. In such cases, employees will be compensated in accordance with the terms of Article XXIV of this Agreement. In the case of such a suspension or shut-down in which the Employer requests affected employees to wait in a designated 11 area available for work, the waiting time shall be considered time worked. If the plant is closed under the circumstances specified in this Section, and employees are scheduled to work the following Saturday, said Saturday work shall be paid for at time and one-half. 9. The provisions of this Article are intended solely to provide a basis for determining the number of hours of work for which an employee shall be entitled to be paid at overtime rates, and shall not be construed as a guarantee to such employee of any specified number of hours of work either per day or per week, or as limiting the right of the Company to fix the number of hours of work (including overtime) either per day or per week for such employee. 10. CHECK CASHING: The Employer will grant each employee an additional fifteen (15) minutes to their lunch period on check cashing day. V. PROBATIONARY PERIOD 1. The Company has the right to employ such new employees as it deems necessary and qualified to do the work available and may hire such persons from any source. The Company also retains the right to refuse to employ any such person in its discretion. 2. Generally, there shall be a six (6) month probationary period for new employees, which may be extended for up to an additional one (1) month by mutual agreement between the Company and the Union. New employees hired into the Porter or Supplier/Material Handler classifications, however, shall be required to complete a probationary period of ninety (90) days, which may be extended by up to an additional thirty (30) days by mutual agreement between the Company and the Union. 12 3. The computation of the probationary period shall not include any work time absent from the job for any reason, and said probationary period will automatically be extended for all such work time lost. 4. All probationary period employees may be laid off, disciplined, discharged or otherwise terminated during their probationary period for any reason whatsoever, with or without cause, and such layoff, discipline, discharge or termination shall not be subject to the grievance procedure of this Agreement. Nothing in this Agreement shall be construed as a limitation on this provision in any way. 5. After completion of their probationary period, employees shall be deemed to be regular employees, and their seniority shall revert to the date of employment. 6. Nothing in this provision shall be considered a restriction or limitation upon the training periods established by the Company for the various job operations or on providing training periods of greater duration than the probationary period established herein. Such employees shall be notified of the length of training period. VI. SENIORITY 1. Seniority is defined as the total length of continuous service with the Company. 2. Each Employee shall accumulate seniority rights after the probationary period provided in ARTICLE V has been successfully completed, and such seniority shall date from the time of the employee's most recent date of hire. 13 3. LAYOFF AND RECALL: The Company shall have the right to determine when a layoff is necessary, including the right to determine the number of employees to be laid off, the department in which the layoff will occur, and the duration of such layoffs. In the event a layoff becomes necessary, employees will be laid off in accordance with their seniority. However, employees to be laid off shall be permitted to bump employees with less seniority in an equivalent or lower rated, unprotected job, where the Company determines the bumping employee is qualified and able to perform the available work, and where the Company determines in its sole and unrestricted discretion that displacement of the incumbent by the bumping employee will not materially affect the Company's ability to ensure full and undiminished compliance with regulatory obligations and product quality and integrity. The Company shall have the right to exempt from bumping up to fifty percent (50%) of the positions in each classification in each department, except for Porter and Packer positions. Employees exercising bumping rights pursuant to this Section shall serve a probationary period of six (6) work weeks in the position into which they have bumped, during which period the Company shall have the right to determine that continuation of the employee in the position is not consistent with the Company's overall interests of ensuring regulatory compliance and product quality and integrity, and maximizing productivity, efficiency and safety. In the event of such a determination, the employee bumped out of the position shall be recalled and the employee who bumped into the position may, in the discretion of the Company, either be laid off or transferred to another position. In no event shall an employee be permitted to bump upward. An employee shall be permitted to exercise bumping rights under this Section only one (1) time in connection with any layoff affecting the employee (unless the employee is bumped by a more senior employee from a position into which he has bumped as a consequence of the same layoff, in which case the employee may exercise any additional bumping rights he has one (1) additional time); and the employee's decision as to whether and how to exercise any bumping rights available to him, once made and 14 communicated to the Company, shall be irrevocable. The Company shall give forty- eight (48) hours advance notice of layoff or equivalent pay in lieu of notice. If more than twenty (20) employees are laid off in any period of twenty-one (21) days or less, employees who are involuntarily put out of work by the layoff(s) shall be given five (5) working days notice of their layoff, provided that the Employer has determined at the time of the layoff that the employee is expected to remain on layoff status for a period of more than thirty (30) calendar days. If an employee is otherwise entitled to five (5) days notice pursuant to this Section and one or more paid holidays provided for in Article XV, Section 2 of this Agreement falls within the notice period, such paid holiday(s) shall be deemed a working day(s) for purposes of the notice requirement. The Employer has the option to provide to any portion of or all employees involuntarily put out of work as a result of a layoff pay in lieu of any notice required by this Section. The Employer shall continue to make contributions for medical coverage of employees put out of work by a layoff for ninety (90) days after the layoff. Recall will be in the reverse order of layoff, and employees recalled from a layoff to the classification that they occupied prior to the layoff shall be compensated for hours worked at the rate in effect for them in the classification immediately prior to the layoff. Employees occupying Porter positions on the effective date of this Agreement shall, during the term of this Agreement and so long as they continue to occupy such positions, be protected from layoff resulting from a decision of the Company to subcontract the Porter work that would otherwise be done by them. 4. TRANSFERS: The Company shall have the right to transfer employees on a temporary basis. The Company shall provide forty-eight (48) hours advance notice of all transfers between shifts. With respect to transfers involving a relocation of greater than five (5) miles from an employee's regular station, the Company must provide twenty-four (24) hours notice. A temporary transfer shall be defined as a transfer of an employee at the direction of the Company that is intended 15 by the Company at the time it is made to continue for no more than sixty (60), in the case of an employee's transfer to a different shift and/or to a different location (i.e., Pomona or Northvale), or in the case of an employee's temporary reassignment to a different job on the same shift and in the same location as his regular assignment, for no more than ninety (90) consecutive calendar days. Provided, however, the Company shall have the right to extend any temporary transfer for up to an additional sixty (60) days if the Company and the Union mutually agree. The Union shall, however, not refuse to agree to any extension of a temporary transfer in any case in which failure to extend the transfer would result in a substantial disruption of production or compromise in any way the Company's ability to ensure regulatory compliance. No employee shall suffer a reduction of pay as the result of temporary transfer, except that employees who are temporarily transferred between shifts to facilitate the exercise of bumping rights in the wake of a layoff shall not be entitled to continue receiving any shift differential applicable to the shift from which they transferred during the period of the temporary transfer. Employees transferred to a higher rate job shall receive that rate for all time spent in that job. All transfers shall be at the Company's sole and unrestricted discretion and may be without regard to seniority. Notwithstanding any other provision in this Agreement, the Company shall have the right, on the basis of its sole and unrestricted discretion, to move the physical location of any part of its operations to another situs. Packers selected for temporary transfers to the Cephalexin area at the Company's Pomona, New York facility shall be selected in reverse order of seniority. 5. Seniority rights and employment shall be terminated if an employee: (a) Is discharged for cause. 16 (b) Voluntarily quits. (c) Has less than two (2) years of seniority and is laid off on or after the effective date of this Agreement for a period of six (6) consecutive calendar months or more. (d) Has two (2) to five (5) years of seniority and is laid off on or after the effective date of this Agreement for a period of more than twelve (12) consecutive calendar months. (e) Has more than five (5) years seniority and is laid off on or after the effective date of this Agreement for a period of more than eighteen (18) consecutive calendar months. (f) Fails to return to work within five (5) calendar days after recall from layoff. (g) Fails to return to work immediately after the expiration of a leave of absence. (h) Accepts other employment while on a leave of absence, or misrepresents the purpose for which a leave of absence was granted. (i) Transfers out of the bargaining unit. 17 (j) Absent for three (3) days without notifying the Company unless the employee can demonstrate by clear and convincing evidence that he was unable to do so due to circumstances beyond his control. (k) Retires. (l) Accepts severance pay provided by the Company pursuant to Article XXXIII of this Agreement. 6. In order to insure the proper administration of this Article, the Company agrees to submit an up-to-date seniority list to the Union and the Chief Steward four (4) times a year on a quarterly basis. The Company also agrees to post the list in the plant. 7. For purposes of any layoff pursuant to Section 3 of this Article, the Chief Steward shall be deemed senior to all other employees in the bargaining unit. VII. DISCHARGE AND DISCIPLINE 1. The Company shall have the right at any time to discharge or discipline any employee for good cause. No disciplinary action may be taken, however, unless the employee is provided notice of the disciplinary action within ten (10) work days after the Company learns of the conduct on which the disciplinary action is based. 2. In the event of discharge or other disciplinary action taken against a non-probationary employee, the Company will promptly furnish the affected employee with a written 18 statement specifying the reason for the discharge or other disciplinary action. Such action on the part of the Company shall be subject to the Grievance Procedure specified in Article XIII of this Agreement (beginning with Step 3 of Section 3 thereof), provided that a grievance is filed in writing with the Company within ten (10) work days of receipt by the employee of the written statement specifying the reason for discharge or other disciplinary action. Failure to file such grievance within ten (10) work days shall bar its consideration under any provisions of this Agreement. 3. A disciplinary memorandum shall not be taken into account for purposes of determining eligibility for job bids or the appropriate level of discipline for multiple violations in the same category under the Company's progressive discipline policy more than twelve (12) months after the issuance of the memorandum. 4. The Department Steward, if available, shall be invited to attend any meeting in which an employee in the Steward's department is to be informed of any decision to discipline or discharge the employee. VIII. UNION BULLETIN BOARDS The Union shall have the exclusive use of one bulletin board to be provided by the Company, upon which the Union may post notices of the following types: (a) Notices of Union elections involving the Company's employees. (b) Notices of the results of such elections. (c) Notices of Union appointments affecting the Company's employees. (d) Notices of meetings and activities pertaining to the Company's employees; and (e) Job vacancies and bids. 19 The Union shall not post Union materials on Company premises other than on the designated Union bulletin boards. IX. LEAVES OF ABSENCE 1. For the purpose of this Agreement, a leave of absence is defined as a limited and specified period of time officially granted to an employee by the Company to absent himself from his job duties for sick leave, family leave, or personal leave as hereinafter defined, which time off shall be taken without pay and subject to all conditions herein. 2. MATERNITY LEAVE OF ABSENCE: A leave of absence for reasons of maternity shall be granted employees upon certification from a doctor that the employee is unable to perform her regular job functions, and said leave shall continue in effect until such time that a certification from a doctor is presented stating the employee is physically able to perform the regular functions of her job. An employee who has been employed by the Company for at least twelve (12) months and who has worked at least one thousand (1,000) hours during the immediately preceding twelve (12) month period shall be entitled to a personal leave of absence of up to six (6) months to care for his or her newborn baby or newly adopted infant, after completion of any prebirth medical disability leave (in the case of an employee who is the child's mother). 3. SICK LEAVE OF ABSENCE: An employee who has been employed by the Company for at least twelve (12) months and who has worked at least one thousand (1,000) hours during the immediately preceding twelve (12) months may be granted, upon timely application, a leave of absence without pay for a period not to exceed twelve (12) consecutive months if the employee suffers from a serious health condition. The Company may, in its sole and unrestricted discretion, require that any period of leave pursuant to this Section be supported by certification 20 issued by a duly licensed health care provider which shall state, at a minimum: (a) the date on which the serious health condition commenced; (b) the probable duration of the condition; and the medical facts within the provider's knowledge regarding the condition. The Company may, in its sole and unrestricted discretion and at its own expense, require that the employee obtain an opinion regarding the serious health condition from a licensed health care provider designated or approved by the Company. An employee who fails to report to work immediately on the date set for the expiration of his or her leave shall be considered to have abandoned his or her employment unless the Company receives a certificate from a licensed health care provider, prior to expiration of such leave, that the employee is still unable to perform his/her regular job functions. 4. PERSONAL LEAVE OF ABSENCE: Upon written application from an employee for a personal leave of absence, the Company, in its exclusive discretion, may grant a written leave of absence without pay where good cause is shown, for a maximum period of six (6) months. An employee who has been employed by the Company for at least twelve (12) months, who has worked at least one thousand (1,000) hours during the immediately preceding twelve (12) months, and whose parent, spouse or child is suffering from a serious health condition shall be entitled to unpaid leave, if timely requested, of up to twelve (12) weeks in any twelve (12) month period to care for such parent, spouse or child. Permission for leave requested pursuant to this Section shall not be unreasonably withheld. No employee has the absolute right to return to work prior to the expiration of his leave unless he notifies the Company, in writing, at least five (5) working days prior to the intended date for return to work; and the Company, in its sole discretion, determines that the employee's early return as proposed will best serve the Company's overall interest in ensuring regulatory compliance and product quality and integrity, and maximizing productivity, efficiency and safety. The leave of absence for personal reasons may be extended by mutual agreement of the 21 parties. An employee who fails to report to work immediately on the date set for the expiration of his leave shall be considered as having voluntarily quit, unless a reasonable excuse is given as determined by the Company. 5. The employee who returns from an authorized leave of absence and is capable of properly and adequately performing his job without significant additional training, will be reinstated in the job he held at the time his leave commenced if that position is vacant and the Company's production needs are such as to make filling the position at that time desirable. If a returning employee's prior position is not vacant or filling the position at that time is deemed by the Company to be not desirable, he will be allowed to exercise "bumping" rights unless the Company determines that the employee's exercise of such rights would significantly impair the interests of ensuring regulatory compliance and product quality and integrity, and maximizing safety. In such case, the employee shall be placed on layoff status until such time as his prior position becomes vacant and production needs make filling the position desirable, or the Company determines that the employee's exercise of "bumping rights" will not significantly impair the aforementioned interests. 6. An employee who accepts employment elsewhere during any leave of absence taken pursuant to the terms of this Article will be considered as having voluntarily quit, unless previously authorized. 7. Employees will accumulate seniority while on an approved leave of absence pursuant to this Article. Employees on leave granted pursuant to this Article will not, however, receive credit as time worked for purposes of accrual of or entitlement to any benefits except as otherwise provided in Article XV, Section 1(a) and Article XVII, Section 3. 22 SECTION 8. Any leave requested and taken by an employee pursuant to the terms of this Article shall be charged against the employee's eligibility for leave under the Family and Medical Leave Act to the extent consistent with the terms of said Act. X. BEREAVEMENT 1. When death occurs in an employee's immediate family, which shall mean father, mother, husband, wife, son or daughter, the employee shall be entitled, on notification to the Company, to take the five (5) work days immediately following the employee's learning of such death with pay for bereavement leave. In the case of the death of the brother, sister, mother-in-law, father-in-law, grandchildren or grandparents of an employee who has completed his probationary period, the employee on request will be excused for three (3) consecutive working days with pay to grieve. The Company will not unreasonably withhold its consent to reasonable extensions on bereavement leave as circumstances warrant, but employees to whom such extensions are granted shall not be entitled to pay during the period of such extended leave. 2. Reasonable evidence of the death and relationship may be required by the Company supporting the claim for such time off from work. XI. JURY DUTY Full-time employees who are called for jury duty shall be granted the necessary time off for such purpose. The Company will pay the employee the greater of the employee's daily wages (to be computed on the same basis as holiday pay) or forty dollars ($40.00) per day for the first three (3) days of jury service. In the case of any employee required to serve on jury duty for more than three (3) days, the Company will pay such employee for such additional service the difference, if any, between the employee's daily earnings (to be computed the same as holiday pay) and the monies paid 23 to such employee by the authorized governmental agency, provided that such additional jury duty is not the result of a voluntary act by the employee. At the request of the Company, the employee shall present evidence of jury duty and receipt of compensation. The employee must notify the plant manager immediately upon receipt of summons for jury service in order to qualify for jury duty leave. XII. GENERAL 1. The Company and the Union agree that they will not discriminate against an employee by reason of race, color, creed, age, sex, sexual preference, physical or mental disability, national origin, membership or non-membership in the Union. 2. Nothing in this Agreement shall be construed as constituting an agreement that any work is or may become the exclusive right of any employee or classification of employees. The Company retains the sole and unrestricted discretion to direct employees, on a temporary basis, to perform work not within the job description of the position that they normally occupy whenever the Company determines that the interests of ensuring regulatory compliance and product quality and integrity, and maximizing productivity, efficiency or safety will best be served by doing so. This clause shall not contravene the seniority and overtime provisions. 3. All provisions of this Agreement are assumed to be in conformity with the applicable laws of the States of New Jersey and New York and the United States. If any provisions are later proven to be contrary to any applicable law existing at this time or subsequently enacted, such provision shall then be considered void, and the invalidity or unenforceability of such provision shall have no effect on the remaining provisions of the Agreement. 24 4. The Company has the right to use supervisors and other non-bargaining unit personnel to perform bargaining unit work to whatever extent and for whatever duration management deems best serves the Company's overall interests in ensuring regulatory compliance and product quality and integrity, and maximizing safety. Supervisors also may, in the interests of efficiency and orderly production, fill in or work on a particular job as dictated by the necessities of the operation. However, if an employee within the bargaining unit leaves the employ of the Company, he will not be replaced with a supervisory employee provided the position is still available. Likewise, if there are overtime opportunities, supervisory employees shall not replace bargaining unit employees; but this proscription shall not preclude qualified supervisors from doing up to two (2) hours of unit work if there are no qualified bargaining unit employees in the plant and available to do the work at the time. Some examples of supervisors working are: (a) Emergencies occurring during scheduled working days when an operation is not fully manned. (b) Instructing or training of employees, including self- training. (c) Performing experimental work involving new products, new equipment, new methods or new materials. (d) Making minor adjustments and set up. (e) Providing for the continuance of the work flow. (f) Product validation or other nonproduction scientific work. It is agreed that the Company shall not exercise its rights under this Section in such a way as to reduce systematically the number of bargaining unit positions. 25 5. The Company shall be responsible for instituting formal training procedures in all job classifications. Training shall be performed by such personnel as the Company deems, in its sole and unrestricted discretion, best suited to effective and efficient performance of the training function. Employees assigned to perform such training functions shall be compensated at a rate one dollar and fifty cents ($1.50) above their normal rate during the period of such assignment. A training guide shall be developed covering the skills and responsibilities which employees in each type of work shall be taught. Employees may be directed to participate in cross-training exercises to ensure the availability of adequate personnel with the appropriate skill mix to deal with emergency or peak load situations, or to best serve the Company's overall interests in ensuring regulatory compliance and product quality and integrity, and maximizing productivity, efficiency and safety. The determination of the departments in which cross-training will be done and the number of employees in such departments to be given cross-training is a matter committed to the sole and unrestricted discretion of the Company. If less than all employees in a job classification within a department are to be assigned to participate in cross-training exercises, employees shall be selected for such exercises on the basis of seniority. Employees temporarily assigned to positions, other than the ones they normally occupy, for cross-training purposes shall not be deemed to have transferred into such positions. The Company will inform the Union at least two (2) weeks prior to implementation of its plans, and any modifications thereof, for cross-training in any department with bargaining unit employees who will be involved in the cross-training program. All employees who participate in training, whether as trainers or trainees, shall be required to certify on documentation provided by the Company that such training has been completed. However, it is understood that an employee's signature as required by the preceding sentence does not necessarily signify that the 26 employee certifies or believes that the content of the training was sufficient to qualify the employee receiving the training to perform work of the sort that was the subject of the training. 6. MANAGEMENT TRAINEES: Whereas it is the expressed intent of the Company to train, educate and familiarize supervisors and managers with the Company's total operation, including each phase of the operation, department by department, the Company shall have the right to have management trainees work on any or all jobs, including production jobs included in the bargaining unit, with the following limitations: (a) Management trainees shall not be included in the bargaining unit and shall not be required to join the Union. (b) Management trainees shall not exceed fifteen percent (15%) or ten (10) employees, whichever is the lesser, of the total number of bargaining unit employees at any given time (i.e., if there are forty (40) bargaining unit employees, there shall not be more than six (6) management trainees). The Company will notify the Union of its decision to employ management trainees pursuant to this Section on or before the commencement date of the employment of any such employees. (c) A management trainee shall not perform bargaining unit work for a period in excess of fifteen (15) months on an over-all basis, and not more than four (4) consecutive months in any one department. (d) Although the company identifies with and subscribes to the policy of promotion from within, and may select employees from the bargaining unit to become management trainees, it is understood that it is within the Company's sole and 27 unrestricted discretion to determine and select employees to become management trainees and may make such selection from any outside source. (e) It is not the intent of the Company to substitute management trainees for bargaining unit employees in the performance of bargaining unit work. (f) The Union shall be entitled to meet with the Company every six (6) months to review the Management Trainee Program. 7. SUMMER HELP: Employees hired during the summer vacation period (90 days or less) or during the two-week Christmas period shall be excluded from coverage under the Agreement. SECTION 8. Coffee will be provided at Company expense in all break rooms utilized by bargaining unit employees. SECTION 9. Bargaining unit employees shall be supplied by the Company with uniforms to be worn in performing their work, and the Company shall make arrangements for periodic cleaning of such uniforms at Company expense. SECTION 10. When bargaining unit employees are required for job-related reasons to travel using their own vehicles between the Company's facilities at the Northvale, New Jersey location and the Pomona, New York location, they shall be reimbursed by the Company for such travel at the rate of twenty-eight cents ($0.28) per mile. SECTION 11. Paychecks for bargaining unit employees shall be issued weekly, and payday shall be on Wednesday. 28 SECTION 12. Bagels and/or donuts shall be provided for bargaining unit employees required to work overtime on Saturday, unless one or more employees are scheduled to work straight time on that day. SECTION 13. Bargaining unit employees working the second shift shall not be required to begin mandatory overtime work on Saturdays any sooner than eight (8) hours after completion of their final, straight-time shift (which would have begun on the preceding Friday); notwithstanding the foregoing, second shift employees may begin overtime work on Saturdays in less than eight (8) hours after completion of their last preceding straight-time shift if such arrangement is mutually agreeable to the employee and the supervisor responsible for scheduling the overtime work. SECTION 14. The Company will generally seek to maintain a one-to-one ratio of QA Associates to QA Inspectors in the Quality Assurance Department. Notwithstanding the foregoing, it shall not be considered a violation of the terms of this Agreement for the Company to have as many as two (2) more QA Associates than QA Inspectors in the Department for a period of up to four (4) months if the Company deems that such an imbalance advances the Company's interests in ensuring regulatory compliance and product quality and integrity and maximizing productivity, efficiency and safety. SECTION 15. WORK AND FAMILY COMMITTEE: The Company and the Union recognize that counseling and other forms of assistance may be of value to an employee and his or her family in situations in which personal problems have the potential to interfere with the employee's performance of job responsibilities. The Company and Union also recognize that Company policies may have an impact on the lives of employees. The Company and the Union agree that employees should strive to achieve an appropriate balance between work and family responsibilities. In addition, 29 the Company and Union further agree to work together to address issues related to the mutual goal of achieving a balance between work and family responsibilities. Accordingly, the Company and the Union have agreed upon a Work and Family Policy and agree to maintain a Work and Family Committee as a forum in which such issues can be constructively considered and discussed. The Committee will be comprised of four (4) members, two (2) designated by the Union and two (2) designated by the Company. The Committee's mandate, in addition to sustaining dialog about work and family issues that are relevant to the Company's employees, shall include working to assure that employees are aware of the Company's Employee Assistance Plan, including the resources that employees can access through that Plan, and any other professional community resources that might be able to assist with problems relating to the employee's efforts to achieve a healthy balance between work and family. Communications by individual employees with Committee members regarding particular problems that such employees are encountering in striving to achieve that balance shall be treated as strictly confidential and shall not be discussed with anyone other than current members of the Work and Family Committee. Information that an employee shares with Work and Family Committee members, as is the case with all communications with Employee Assistance Program counsellors, in connection with the employee's efforts to obtain assistance from the Committee on matters within its mandate shall be treated as confidential and shall not be considered in any way as a basis for disciplinary action of any kind. The Committee will meet quarterly at agreed upon times and places to review issues brought to the Committee's attention by employees or Management. Chairing the Committee meetings and the preparation of minutes will alternate between Union and Management members. Union members of the Committee shall be compensated at their regularly assigned wage rates for time spent in the Committee's meetings. Nothing in this Section shall be construed as overriding or modifying any other provisions of this Agreement. 30 SECTION 16. CHILD CARE: The Company shall, as soon as is practicable after the effective date of this Agreement, establish a flexible spending account in accordance with Section 125 of the Internal Revenue Code, which will make it possible for employees to set aside a portion of pretax income each year to be used to defray dependent care expenses. The Company shall also contract with the Rockland Council for Young Children to provide child care counseling and referral services for any employees requiring such assistance. XIII. GRIEVANCES 1. For purposes of this Agreement, a grievance is any dispute or difference of opinion between the Company and the Union, or between the Company and any of its employees covered by this Agreement, involving the meaning, interpretation or application of the express provisions of this Agreement. Any dispute over whether a complaint is subject to these procedures shall be treated as a grievance, in accordance with the procedures prescribed in this Agreement, subject to the provisions of Article XXVIII, LOCKOUTS AND STRIKES. Permission to investigate grievances shall not be unreasonably denied, provided however that the Union shall conduct no grievance investigation in such a manner as to interfere in any way with Company operations without the prior, express consent of the Vice President Human Resources or Plant Manager. 2. Grievance adjustments below the Step 3 level shall be binding only with respect to that specific grievance and shall not be deemed to establish a binding standard for the bargaining unit as a whole, unless the Company and the Union specifically agree otherwise in writing. 3. Except as otherwise provided in Article VII, DISCHARGE AND DISCIPLINE, and Article XXVIII, LOCKOUTS AND STRIKES, no grievance shall be entertained by the Company, except in the following order and manner, and within the following time limits: 31 STEP 1: In the event an employee covered by this Agreement has a complaint involving the interpretation, application or alleged violation of this Agreement, he shall take the matter up with his immediate Supervisor at a mutually convenient time within ten (10) work days of the occurrence of the event out of which the grievance arises, or within ten (10) working days from the date when the Union or the employee should reasonably have been aware of the facts on which the grievance is based. The employee may be accompanied by a Union Representative if the employee so desires. The Supervisor shall give his answer to the employee as soon as practical, but in any event within ten (10) work days. STEP 2: In the event the grievance is not settled in Step 1, it shall be reduced to writing, stating the specific relief sought, signed by the employee and presented by the Department Steward to the Supervisor within ten (10) work days from the time the Supervisor gives his answer as provided in Step 1 above. The Supervisor will discuss the matter with the employee and the Department Steward presenting the written grievance as soon as is practical, and in any event within ten (10) work days after the Supervisor receives the written grievance. The Supervisor will give a written answer to the employee and the Union as soon as is practical, but in any event within ten (10) work days of the time the written grievance is presented. The presentation of the Supervisor's written answer shall terminate Step 2. STEP 3: In the event the grievance is not settled in Step 2, the Union may, within ten (10) work days after the termination of Step 2, request a meeting with the Vice President, Human Resources, or her representative, to discuss the grievance. The Vice President, Human Resources, or her representative, the employee, either the Chief Steward or a Department Steward of the Union, and a representative of the International or Local Union, if available, shall meet as soon as practical 32 at a mutually convenient time, but in any event within ten (10) work days of such written request, and discuss the matter in an attempt to arrive at a satisfactory resolution of the grievance. The answer of the Vice President, Human Resources, shall be given, in writing, to the employee and the Union within ten (10) work days of the meeting referred to in this Step. The issuance of the answer to the affected employee and the Union shall terminate Step 3. STEP 4: In the event the grievance is not settled in Step 3, the Union may, within ten (10) work days of receipt by the Union of said answer, request in writing that the grievance be submitted to arbitration as provided in Section 4 below. 4. Within ten (10) days of the Company's receipt of the Union's request for arbitration, the Union or the Company, on an alternating basis (beginning with the Union for the first arbitral panel requested during the term of this Agreement), shall request the American Arbitration Association ("AAA") to submit a panel of seven (7) qualified and available arbitrators, providing a copy of such request contemporaneously to the other party and pay any necessary fee to obtain such a panel. Within ten (10) work days after receipt of the panel, the parties shall alternately strike names from the panel, beginning with the party requesting the arbitration, until the name of the arbitrator is thus chosen. The request for an arbitral panel shall be deemed to have been made upon mailing it to AAA. If the party responsible for requesting the arbitral panel from AAA fails to do so within the ten (10) day period prescribed for the submission of such request, the other party shall have the right to request the panel and select the arbitrator from among any of the names on the panel obtained from AAA. If either party fails or refuses to participate in the arbitrator selection process in such a manner as to assure that it is completed within the aforementioned ten (10) day period allotted for the process, the other party shall have the right to designate the arbitrator from among those on the panel who have not been previously stricken by one of the parties. The arbitrator shall be notified of his 33 selection by a joint letter from the Company and the Union requesting that he set a time and place for the hearing, subject to the availability of the Company and Union representatives, and the letter shall specify the issue(s) to the arbitrator. Any grievance as to which the arbitration hearing is not completed within six (6) months after selection of the arbitrator shall be deemed finally determined on the basis of the Company's final response in Step 3 of the grievance procedure unless the failure to complete the hearing within such period is solely the product of either: (a) the Company's refusal to make its representative available to attend the hearing in that period; or (b) the unavailability of the arbitrator on any dates within such period. If the failure to complete the hearing within six (6) months is solely the result of the Company's refusal to make its representative available on any dates within such period, the Company shall be deemed to have waived all defenses to the issue of liability, leaving only the issue of appropriate relief to be determined by the arbitrator. 5. The arbitrator so appointed shall conduct a hearing and render his decision, in writing, with all reasonable promptness. Any decision rendered by an arbitrator appointed hereunder shall be final and binding upon the Company, the Union, and the employee or employees involved on matters that are the proper subject of arbitration hereunder. 6. Any arbitrator appointed under the provisions of this Article shall consider and decide only the particular issue(s) presented to him in writing by the Company and the Union, and his decision and award shall be based solely upon his interpretation of the meaning or application of the express terms of this Agreement to the facts of the grievance presented. If the matter sought to be arbitrated does not involve an interpretation of the express terms of this Agreement, the arbitrator shall so rule in his award and the matter shall not be further entertained by the arbitrator. The arbitrator shall have no right to amend, modify, nullify, ignore, add to or subtract from the provisions 34 of this Agreement. The arbitrator shall have no authority to overturn or modify any action of the Company unless the Union shows by clear and convincing evidence that such action was violative of the express terms of this Agreement or was arbitrary and capricious or, in any case involving disciplinary action taken against an employee, either that the employee did not commit the act on which the disciplinary action was based or that the Company's action against the employee was arbitrary and capricious. 7. The compensation and expenses of the arbitrator, and other expenses mutually agreed to in advance, shall be borne equally by the Company and the Union. 8. Employees losing time as a result of participation in arbitration proceeding sunder this Article, shall be made whole by the party on whose behalf they appear. 9. A grievance initiated by either the Company or the Union, involving the interpretation or application of this Agreement, may be commenced at the Step 3 level, as set forth above, by the filing of such grievance in writing with the other party within ten (10) work days after the party initiating the grievance has reason to believe that the other party has assumed a position inconsistent with the terms of this Agreement. In the event of a grievance initiated by the Company, the written grievance shall be accompanied by a request for a meeting with the Local President of the Union. All rights, obligations and time limits for action by the Vice President Human Resources, specified in Steps 3, 4 and 5 and Section 4 above, shall apply to the President of the Local Union in grievances initiated by the Company, and all rights, obligations and time limits applicable to the Union or employee in Steps 3, 4 and 5 and Section 4, shall apply to the Company. 10. If any steps or actions provided for in this Article are not taken, appeals herein provided for are not taken or filed, or notice is not given within the time limit specified for 35 such steps, actions, appeals or notice, then the grievance shall be deemed final and settled on the basis of the Company's last reply. If the Company's reply is not timely given at any stage in the grievance procedure, then the grievance shall be deemed denied at the expiration of the time limit within which an answer is required and such denial may be appealed to the next step in the grievance procedure specified. Any of the time limits specified in this Article may be extended by mutual agreement between the parties. Saturdays, Sundays, days on which the Company facilities are closed for any part or all of the day due to inclement weather, and those holidays specified in Article XV of this Agreement shall not be included in the computation of time periods specified by this Article. 11. In general, any investigation, discussion and settlement of grievances shall be done during working hours, provided however that no such activities shall be conducted in such a manner as to interfere in any way with Company operations without the prior, express permission of the Vice President Human Resources or Plant Manager. SECTION 12. The Company and the Union may, by mutual agreement in writing, submit any unresolved grievance to mediation under contract under the auspices of the New Jersey Board of Mediation. If the mediator in such a case is unable to arrive at a mediated settlement that is acceptable to both parties, the parties shall request that he or she issue a written "Mediator's Recommendation," which shall be final and binding on both parties as to the case in which it is issued but shall have no precedential effect and shall not be admissible for any purpose in any future cases. In any case in which the parties agree to mediation, they shall be deemed to have waived any right to arbitration to which they might otherwise have been entitled pursuant to the terms of this Agreement. The fact that a party declines to agree to mediation in a particular case shall not be admissible for any purpose in that or any other case. 36 XIV. VACATIONS 1. All employees covered by this Agreement shall be eligible for paid vacations according to the following schedule with the length of an employee's continuous service being calculated from the anniversary date of hire: Less than Two (2) years of continuous service One (1) week After Two (2) years of continuous service Two (2) weeks After Five (5) years of continuous service Three (3) weeks After Ten (10) years of continuous service Four (4) weeks After Fifteen (15) years of continuous service Five (5) weeks Employees shall accrue vacation rights each year at the rate of one twelfth (1/12) of the total amount of the employee's vacation eligibility under this Section for each month he or she works or is on vacation or paid leave provided for in Article XXII of this Agreement. For purposes of this Section, an employee shall be considered to have worked a month, and therefore to have earned vacation accrual credit, if he actually works or is on vacation or Article XXII paid leave for at least one hundred (100) hours in that month. Accrual will begin on January 1 of each year or, in the case of employees who are hired or return to work after January 1, on the date the employee begins work. Accrual rate increases provided for in the schedule set forth above shall become applicable on January 1 of the year of the anniversary date on which the employee will reach the amount of continuous service making him eligible for an increased amount of vacation. Any accrued vacation not taken before December 31 of the year following the year in which it accrued shall be lost, and in 37 no event will an employee be entitled to receive pay in lieu of vacation except where the employee is laid off or leaves the Company's employ with accrued and unused vacation, or where the employee is prevented from taking properly scheduled vacation by a Company requirement that he cancel such scheduled vacation and he is unable to reschedule the vacation to be taken before the end of the year. Employees with less than five (5) years of service shall be entitled to take vacation only to the extent that it has accrued. Beginning in the calendar year after completing four (4) years of continuous service with the Company and subject to the provisions of Section 3 of this Article, however, employees shall be entitled to take up to one-half of the vacation that they will be eligible to accrue during the calendar year at any time prior to July 1 of that year. Such employees shall be entitled to take up to the full amount of vacation that they will be eligible to accrue during the calendar year at any time after June 30 of that year. In the event the employee fails to work the entire year (including, without limitation, because of being discharged, suspended, or laid off, or because of going on disability or a leave without pay status), any pay received by the employee for vacation not accrued at the time the employee leaves the active workforce shall be deducted from the employee's paycheck for the final pay period preceding the employee's ceasing or interrupting work. If the employee's final paycheck is in an amount insufficient to reimburse the Employer for the amount of unaccrued vacation previously taken, the employee shall pay the Employer the difference on or before his final day at work. 2. Eligible employees who take vacation in a week when they are scheduled to work an eight (8) hour shift shall receive as vacation pay eight (8) times the employee's straight time hourly rate for each day of vacation. Vacation payment shall be made the last scheduled pay day before Eligible employees taking vacation in a week in which they are scheduled to work four (4) or 38 more ten (10) hour days shall receive vacation pay for each day of vacation equal to the amount of pay they would have received had they worked the scheduled ten (10) hours on that day. 3. Accrued vacation may be taken at any time during the calendar year, except that newly hired employees shall not be entitled to take vacation or receive pay in lieu of vacation until after successful completion of their probationary period. However, the employee must obtain permission to schedule any vacation from the Company at least one (1) month before the scheduled departure date. The Company will not unreasonably withhold its permission, but retains discretion to deny an employee's request if it is deemed inconsistent with production requirements or the Company's overall interests of ensuring regulatory compliance and product quality and integrity, and maximizing productivity, efficiency and safety. Subject to the foregoing, if two or more employees request the same vacation period and the Company deems it inadvisable for all of such employees to be out on vacation at the same time, the employee or employees with greater seniority shall be given preference. 4. Vacation must be taken in no less than eight hour blocks, or in the case of employees taking vacation on a day when they would have been scheduled to work ten (10) hour shifts, in ten-hour blocks. 5. The Company will maintain a record of all vacation time used by an employee and provide updated information regarding the amount of vacation taken and accrued to employees on request. If the Company acquires the payroll accounting capability to provide periodic information of the employees' vacation account balances on payroll stubs or through other means without incurring substantial additional expense during the term of this Agreement, it shall do so. 39 XV. HOLIDAYS AND HOLIDAY PAY 1. Full-time and regular part-time employees shall be eligible for holiday pay. Eligible full-time employees will be credited with eight (8) hours (or ten (10) hours in the case of employees who would have been scheduled to work a ten (10) hour shift but for the holiday) worked on holidays enumerated in Section 2 below, provided they have passed their probationary period. Holiday pay for eligible part-time employees shall be prorated on the basis of the average daily straight-time hours they are regularly scheduled to work in the week in which the holiday falls. Otherwise eligible employees shall not receive holiday pay (or be credited with hours worked) under the following conditions: (a) An employee who has an unexcused tardiness or who is absent on the work day or part of the work day preceding or following the holiday, except for employees absent because of serious illness or serious accident for no more than five (5) working days prior to or following the holiday. (b) Employees who are off on a personal leave of absence. (c) Employees on suspension or disciplinary layoff. (d) The employee who would not normally be scheduled to work and who would not normally work on such day in any event. 2. The following days shall be considered holidays under this Agreement: New Years Day Thanksgiving Day Martin Luther King's Birthday Day after Thanksgiving Presidents' Day Christmas Eve Memorial Day Christmas Day 40 July 4th Day before New Year's Day Labor Day Employee's Birthday Religious holidays shall be permitted to be celebrated without pay and employees shall not be penalized for their absence on such days. 3. Subject to the limitations set forth in Article 4, Section 3, work performed on holidays shall be paid at the rate of time and one-half (1/2) the employee's regular rate in addition to the holiday pay. 4. If a holiday falls within an employee's vacation, such employee shall be paid holiday pay for the holiday in addition to his vacation pay, or shall receive an extra day of vacation, as agreed by the Company and the employee. 5. Except as otherwise provided in Article IV, Section 2 of this Agreement, holiday pay for an employee entitled thereto shall be computed on the basis of eight (8) times the employee's average straight time hourly earnings in the last calendar quarter ending immediately prior to the particular paid holiday. Overtime premium payments, holiday payments, vacation payments and all other non-working time payments shall be excluded from the holiday computation. 6. All holidays falling on a Sunday shall be celebrated on the following Monday. 7. All holidays falling on a Saturday shall be celebrated on the preceding Friday. 41 XVI. WAGE INCREASES 1. (a) Effective April 1, 1996, all employees in the Chemical Operator II, Maintenance Mechanic, Machine Mechanic, Chemical Operator I, Set-Up Mechanic, and QA Inspector classifications will receive a wage increase of $1.20 per hour; all employees in the Licensed Trailer Truck Driver, Line Technician, and Supplier/Material Handler classifications will receive a wage increase of $1.00 per hour; and all employees in the Packer and Porter classifications will receive a wage increase of $0.50 per hour. (b) Effective April 1, 1997, all employees in the Senior Manufacturing Operator, Chemical Operator II, Maintenance Mechanic, Machine Mechanic, Chemical Operator I, Set-Up Mechanic, and QA Inspector classifications will receive a wage increase of $0.50 per hour; all employees in the Licensed Trailer Truck Driver, Line Technician, and Supplier/Material Handler classifications will receive a wage increase of $0.40 per hour; and all employees in the Packer and Porter classifications will receive a wage increase of $0.30 per hour. (c) Effective April 1, 1998, all employees in the Senior Manufacturing Operator, Chemical Operator II, Maintenance Mechanic, Machine Mechanic, Chemical Operator I, Set-Up Mechanic, and QA Inspector classifications will receive a wage increase of $0.50 per hour; all employees in the Licensed Trailer Truck Driver, Line Technician, and Supplier/Material Handler classifications will receive a wage increase of $0.40 per hour; and all employees in the Packer and Porter classifications will receive a wage increase of $0.30 per hour. 42 (d) Effective April 1, 1999, all employees in the Senior Manufacturing Operator, Chemical Operator II, Maintenance Mechanic, Machine Mechanic, Chemical Operator I, Set-Up Mechanic, and QA Inspector classifications will receive a wage increase of $0.50 per hour; all employees in the Licensed Trailer Truck Driver, Line Technician, and Supplier/Material Handler classifications will receive a wage increase of $0.50 per hour; and all employees in the Packer and Porter classifications will receive a wage increase of $0.30 per hour. (e) Effective April 1, 2000, all employees in the Senior Manufacturing Operator, Chemical Operator II, Maintenance Mechanic, Machine Mechanic, Chemical Operator I, Set-Up Mechanic, and QA Inspector classifications will receive a wage increase of $0.50 per hour; all employees in the Licensed Trailer Truck Driver, Line Technician, and Supplier/Material Handler classifications will receive a wage increase of $0.50 per hour; and all employees in the Packer and Porter classifications will receive a wage increase of $0.50 per hour. 2. The Company shall have sole and unrestricted discretion with respect to establishing new job classifications, revising old job classifications and/or combining job classifications, and establishing the hourly rates of pay for employees who perform work therein. In the event the Company determines that revision or combination of an old job classification warrants a reduction in the hourly rates of employees in the positions affected by a revision or combination, and in all cases in which the Company establishes a new job classification, the Company shall propose the new rate to the Union at least two (2) weeks before it is scheduled to go into effect and the parties shall negotiate in good faith in an effort to reach agreement on the new rate. In the event the Union believes that the hourly rates of jobs affected by a classification revision or combination should be 43 increased, the Union shall propose a new rate and the parties shall negotiate in good faith in an effort to reach agreement on the rate. If the parties reach impasse during the term of this Agreement in negotiations regarding wage rate changes entered into pursuant to this Section, the Company shall have the right to implement unilaterally its final offer. The Union has the right to grieve this decision pursuant to the terms of Article XIII of this Agreement. In the event the Union grieves the Company's implementation of its final offer, and the Company later agrees or an arbitrator rules that a different rate should apply, such revised rate shall be applied retroactively to the date of the Company's unilateral implementation of its final offer put forth in the original negotiations. 3. The Company shall have the right to establish hourly rates of pay for various jobs, and to revise or otherwise change such hourly rates, but in no event shall any rate be revised downward, except as provided above in Section 2 of this Article. 4. The Company shall negotiate with the Union, the rate of all newly created jobs, prior to posting a bid or interviewing potential candidates. 5. The parties agree that there will be one rate of hire in each classification for new employees. 6. As noted in the schedules set forth below in Section 8 of this Article, employees shall receive the general wage increase and incremental wage increases in progression until they reach the maximum rate. 7. JOB DESCRIPTIONS: The Company has sole and unrestricted discretion to determine whether and when written job descriptions for bargaining unit jobs need to be revised or updated. Whenever such job descriptions are revised or updated, the Company shall promptly 44 provide the Union with copies of the new descriptions. The Union has the right, within twenty (20) workdays after receipt of the new job descriptions, to submit written suggestions for changes in such job descriptions (with explanations of the rationales for any such suggestions) that it believes the Company should consider. The Company shall consider any such suggestions offered by the Union in good faith. If the Company declines to accept any such suggestion and there remains a dispute as to whether, without the suggested change, the job description in question accurately describes the content of the job that is its subject, the Union may process the dispute through the grievance and arbitration procedure prescribed in Article XIII of this Agreement. 8. WAGE RATES: The wage rates applicable to positions covered by this Agreement shall be as follows: Senior Manufacturing Operator Effective Effective Effective Effective Effective 4/1/96 4/1/97 4/1/98 4/1/99 4/1/00 $18.20 $18.70 $19.20 $19.70 $20.20 To be eligible to bid on Senior Manufacturing Operator internship position openings, employees must, at the time of their submission of a bid on such openings, be currently employed as a Chemical Operator I, Chemical Operator II, or a Machine Mechanic, and have worked for at least one (1) year and demonstrated proficiency in one or more of the five (5) production disciplines in which Senior Manufacturing Operators are expected to demonstrate and maintain a high level of proficiency (i.e., Compounding, Tableting, Coating, Encapsulation, and Packaging). Employees who successfully bid on Senior Manufacturing Operator internships shall receive a $0.25/hr. increase upon moving into an internship assignment or within fifteen (15) days of receiving the bid, whichever occurs first. Upon becoming certified as proficient in two (2) of the Senior Manufacturing Operator disciplines, interns shall receive an additional $0.25/hr. increase in their wages. Additional increases in the amount of $0.50/hr, would occur for interns who become certified as proficient in the third and fourth disciplines. Upon certification of an intern's proficiency in the fifth of the five (5) disciplines in which Senior Manufacturing Operators must demonstrate proficiency, employees shall begin to receive the appropriate full Senior Manufacturing Operator rate specified above. The probationary period prescribed in Article XXIX of this Agreement shall apply upon an employee's initial assignment to a Senior Manufacturing Operator internship and at each assignment to a new discipline during the employee's internship. 45 Maintenance Mechanic Effective Effective Effective Effective Effective 4/1/96 4/1/97 4/1/98 4/1/99 4/1/00 $16.35 $16.85 $17.35 $17.85 $18.35 Chemical Operator II Effective Effective Effective Effective Effective 4/1/96 4/1/97 4/1/98 4/1/99 4/1/00 Maximum Rate $16.20 $16.70 $17.20 $17.70 $18.20 The number of Chemical Operator II positions, if any, on each shift and in each department shall be determined by the Company in its sole and unrestricted discretion. Machine Mechanic Effective Effective Effective Effective Effective 4/1/96 4/1/97 4/1/98 4/1/99 4/1/00 Rate $15.30 $15.80 $16.30 $16.80 $17.30 46 Chemical Operator I Effective Effective Effective Effective Effective 4/1/96 4/1/97 4/1/98 4/1/99 4/1/00 Start $12.70 $13.20 $13.70 $14.20 $14.70 After 3 months from Date of Hire $13.20 $13.70 $14.20 $14.70 $15.20 After 6 months from Date of Hire $13.70 $14.20 $14.70 $15.20 $15.70 After 9 months from Date of Hire $14.20 $14.70 $15.20 $15.70 $16.20 After 12 months from Date of Hire $14.70 $15.20 $15.70 $16.20 $16.70 Employees designated by the Company as Special Materials Operators shall be paid a premium for all time spent working in such capacity of ten (10) percent above the otherwise applicable rate for a Chemical Operator. 47 Set-Up Mechanic Effective Effective Effective Effective Effective 4/1/96 4/1/97 4/1/98 4/1/99 4/1/00 Start $13.50 $14.00 $14.50 $15.00 $15.50 After 3 months from Date of Hire $14.15 $14.65 $15.15 $15.65 $16.15 After 6 months from Date of Hire $14.90 $15.40 $15.90 $16.40 $16.90 Quality Assurance Effective Effective Effective Effective Effective 4/1/96 4/1/97 4/1/98 4/1/99 4/1/00 Start $12.35 $12.85 $13.35 $13.85 $14.35 After 3 months from Date of Hire $12.70 $13.20 $13.70 $14.20 $14.70 After 6 months from Date of Hire $13.05 $13.55 $14.05 $14.55 $15.05 After 9 months from Date of Hire $13.40 $13.90 $14.40 $14.90 $15.40 After 12 months from Date of Hire $13.75 $14.25 $14.75 $15.25 $15.75 48 Line Technician Effective Effective Effective Effective Effective 4/1/96 4/1/97 4/1/98 4/1/99 4/1/00 Start $11.90 $12.30 $12.70 $13.20 $13.70 After 3 months from Date of hire $12.25 $12.65 $13.05 $13.55 $14.05 After 6 months from Date of hire $12.65 $13.05 $13.45 $13.95 $14.45 After 9 months from Date of hire $12.95 $13.35 $13.75 $14.25 $14.75 After 12 months from Date of hire $ 13.30 $13.70 $14.10 $14.60 $15.10 Shipping, Receiving, Supplier and Material Handler Effective Effective Effective Effective Effective 4/1/96 4/1/97 4/1/98 4/1/99 4/1/00 Start $11.40 $11.80 $12.20 $12.70 $13.20 After 3 months from Date of Hire $11.75 $12.15 $12.55 $13.05 $13.55 After 6 months from Date of Hire $12.15 $12.55 $12.95 $13.45 $13.95 After 9 months from Date of Hire $12.45 $12.85 $13.25 $13.75 $14.25 After 12 months from Date of Hire $12.80 $13.20 $13.60 $14.10 $14.60 Material Handler Truck Drivers shall be paid at a rate fifty cents ($0.50) per hour higher than those otherwise applicable to employees in the Shipping, Receiving, Supplier, Material Handler classification. 49 Packers Effective Effective Effective Effective Effective 4/1/96 4/1/97 4/1/98 4/1/99 4/1/00 Start $9.15 $9.45 $9.75 $10.05 $10.55 After 3 months from Date of Hire $9.65 $9.95 $10.25 $10.55 $11.05 After 6 months from Date of Hire $10.15 $10.45 $10.75 $11.05 $11.55 After 9 months from Date of Hire $10.65 $10.95 $11.25 $11.55 $12.05 After 12 months from Date of Hire $11.15 $11.45 $11.75 $12.05 $12.55 Porter Effective Effective Effective Effective Effective 4/1/96 4/1/97 4/1/98 4/1/99 4/1/00 Start $8.90 $9.20 $9.50 $9.80 $10.30 After 3 months from Date of Hire $9.40 $9.70 $10.00 $10.30 $10.80 After 6 months from Date of Hire $9.90 $10.20 $10.50 $10.80 $11.30 After 9 months from Date of Hire $10.40 $10.70 $11.00 $11.30 $11.80 After 12 months from Date of Hire $10.90 $11.20 $11.50 $11.80 $12.30 Licensed Tractor Trailer Driver Effective Effective Effective Effective Effective 4/1/96 4/1/97 4/1/98 4/1/99 4/1/00 $14.50 $14.90 $15.30 $15.80 $16.30 50 Any employee who was classified as a Labeler as of June 30, 1989 shall continue to have his/her rate RED circled. All Porters hired prior to July 1, 1989 shall continue to be paid at the Supplier/Material handler rate. SECTION 9. HOLIDAY BONUS: The Company shall pay a holiday bonus to all nonprobationary employees beginning in December of 1996. The amount of the bonus shall be $200.00, with prorated lesser amounts for employees who have worked less than the full calendar year preceding the date on which the bonus is to be paid. The bonus checks prescribed in this Section shall be distributed to eligible employees on or before December 15 of each year. XVII. HEALTH AND WELFARE 1. The Company agrees to make available to its regular full-time employees (and their dependents) covered by this Agreement who are actively employed, Health and Welfare coverage with the OIL, CHEMICAL AND ATOMIC WORKERS INTERNATIONAL UNION, LOCAL 8-149 Welfare Plan, which shall include dental insurance coverage with a benefit of up to $1,250 per employee per year. For the remainder of the term of this Agreement, the Employer contribution shall be 20.6% of gross payroll straight time excluding overtime, unused sick pay and unused vacation pay. This rate shall, however, be adjusted to cover any changes in premium charges to the Union by its providers during the first four years of this Agreement up to a maximum aggregate increase of thirty percent (30%) over the premium levels in effect on the effective date of this Agreement, and for any increase of up to seven percent (7%) in the fifth and final year of this Agreement. The Employer shall calculate such contribution for any employee who actually works and/or is paid time for vacation, Article XXII sick leave and/or holidays for a total in excess of one hundred (100) hours in any calendar month, as if said employee had worked all scheduled straight 51 time in that month. The contribution on behalf of any employee whose total paid time for time worked is equal to or less than one hundred (100) hours shall be calculated on a pro-rated basis by multiplying the amount of a full contribution by the ratio derived by dividing the amount of the employee's paid time in that month by the total amount of scheduled straight time in that month, plus any paid holiday time for which the employee would have been eligible if he had actually worked all scheduled straight time. 2. EMPLOYEES' ELIGIBILITY: Full-time employees covered by this agreement are eligible upon completion of one hundred twenty (120) days of continuous active service. Full-time employees are defined as those employees completing 2,080 hours of service in a calendar year. Part-time employees are defined as those employees completing at least 1,560 hours of service in a calendar year. 3. The Employer shall contribute to the Oil, Chemical and Atomic Workers International Union, Local 8-149 Welfare Plan for those eligible employees who are on family or medical leave pursuant to the terms of Article IX, and for employees who are on disability and workers' compensation for a maximum period of six (6) months. XVIII. CHECKOFF In a manner and to the extent permitted by law, the Company agrees to deduct each month from the wages of each of its employees who are members of the Union and who have voluntarily authorized same, the prescribed union dues and initiation fees, and to remit the same monthly to the Union. Each authorization shall be in writing, signed by the employee, and shall be delivered by the Union to the Company. The Union agrees to indemnify and save the Company harmless from any and all claims and/or disputes arising out of the Company's actions in compliance with this provision. 52 XIX. RELOCATION In the event the Company shall at any time move its operations from its present location to any other place within a radius of 100 miles, the employees in service with the Company at the time of such move shall be offered a opportunity for employment in the new location, and this Agreement shall continue in full force and effect and shall be applicable to such employees in the new location, provided, however, a majority of the employees so offered employment relocate and are employed with the Company at the new location. XX. UNION SECURITY 1. It shall be a condition of employment that all employees of the Employer covered by this Agreement who are members of the Union in good standing on the effective date of this Agreement shall remain members in good standing, and those current employees who are not members on the effective date of this Agreement, shall, on the thirty-first (31st) day thereafter, become and remain members in good standing in the Union. It shall also be a condition of employment that all employees covered by this Agreement and hired after the effective date of this Agreement, shall, on the thirty-first (31st) day after said hiring date, become and thereafter remain members in good standing in the Union. 2. Upon written notice from the Union, the Employer shall discharge any employee not a member in good standing as defined under the National Labor Relations Act, as amended. XXI. UNION REPRESENTATION AND STEWARDS 1. (a) The establishment of a Union Committee composed of not more than three (3) members, which shall also serve as the Grievance Committee and the establishment of a Steward 53 system is agreed to by the Company. The Union shall be permitted to have two (2) alternate stewards. (b) Representatives of the International Union shall be permitted to assist the Committee at all times, provided that such representatives shall accord at least forty-eight (48) hours advance notice to the Company's Vice President Human Resources of any need for access to Company facilities, respect and observe any applicable sign-in and site security rules, and refrain from interfering with or impeding Company operations or the work of any employee. In cases of emergency, the Union may request and the Vice President Human Resources may permit access to Company premises on less than forty-eight (48) hours notice. Such permission shall not be unreasonably denied. (c) In the event the Company establishes a second shift, there shall be one (1) steward employed on the second shift and the Union shall be permitted to have one (1) alternate steward on said shift. (d) The Chief Steward and Stewards shall be allowed two (2) hours off, without pay, four (4) times a calendar year, for the purpose of attending Union Educational and Training Sessions related to the performance of their responsibilities as stewards at Barr Laboratories. (e) The Department Stewards will be expected to perform on a full-time basis the responsibilities of the jobs to which they are assigned in the bargaining unit. Management will allow them a reasonable amount of time away from their duties (up to a maximum of four (4) hours per week) to handle union business, provided a request for such excused time is made and approved in advance by the Vice President Human Resources or Plant Manager and the proposed scheduling of 54 the release time requested will not significantly interfere with or impair the Company's overall interests of ensuring regulatory compliance and product quality and integrity, and maximizing productivity, efficiency and safety. The Chief Steward shall be expected to perform on a full- time basis the responsibilities of a bargaining unit position, except that he will be granted a total of twelve (12) hours per week to handle Union business, to be scheduled in advance in at least four (4) hour blocks at times that are mutually agreeable to the Company and the Union, and which may be changed no more frequently than quarterly. In the event of extraordinary need, the Vice President Human Resources may, in her sole and unrestricted discretion, grant a request of the Chief Steward for release time in addition to the weekly period(s) regularly set aside for Union business pursuant to the terms of this Section. The Chief Steward's bargaining unit work will be scheduled to be performed on a Monday through Friday schedule. The Chief Steward shall be eligible for overtime assignments on the same basis as other similarly situated employees in his classification and so long as he confines his handling of Union business to the prearranged twelve (12) hour schedule prescribed above, such hours shall be treated as time worked for purposes of eligibility for overtime premium pay as provided for in Article IV, Section 3 of this Agreement. All employment conditions applicable to the Chief Steward under this Section shall also apply to the Unit Secretary. SECTION 2. The Company will make available for the exclusive use of the Union at least one (1) office with a telephone and a reasonable amount of file space. SECTION 3. Department Stewards shall be allowed up to three and one-half (3.5) hours of unpaid leave to attend each quarterly meeting of the Union. The amount of such leave will vary based on the individual shift schedule of each Steward, but shall not exceed three and one-half (3.5) hours for any Steward. If shift schedules should change in such a manner during the term of this 55 Agreement as to make the aforementioned amount of release time clearly inadequate to permit attendance at the quarterly meetings, the Company and the Union will meet to work out a reasonable accommodation of their respective interests. Notwithstanding any other provision of this Agreement, the Company reserves the right to deny any Department Steward's request for leave to attend any one or more quarterly meetings because of unusual work related problems that would significantly affect productivity, efficiency, quality or regulatory compliance, although the Company acknowledges that it expects such instances to be rare. The Union will provide the Company with a schedule of its quarterly meetings in January of each calendar year. Each Department Steward shall be responsible for confirming with his or her Supervisor the time and dates of any release requirements pursuant to this Section one (1) week prior to the scheduled quarterly meeting with respect to which leave is requested. XXII. SICK LEAVE, PERSONAL DAYS, LONGEVITY DAY 1. The Company agrees to continue, for the life of this Agreement, its current policy of paid sick leave. Each employee employed eight (8) months or more, shall be entitled to five (5) days of paid sick leave per calendar year. 2. New employees shall be eligible to receive paid sick leave at the rate of one (1) day for each two (2) months of employment to commence after the employee's eighth (8th) month of employment, but not retroactively. 3. Employees not using all or any of the five (5) paid sick days shall have the option of receiving unused sick pay on or about December 15th of each calendar year, or banking up 56 to five (5) days for use in the following year. The number of paid sick days an employee has available shall not affect charging of occurrences under the Company's attendance policy. 4. Sick days may be used in four (4) hour blocks, but not less, except that employees assigned to work ten (10) hour shifts must use their sick days in blocks of not less than five (5) hours. 5. The Company will maintain a record of all sick leave and personal time used by the employee and provide updated information regarding the amount of sick leave taken and accrued and unused personal and longevity days to employees on request. If the Company acquires the payroll accounting capability to provide such information periodically on payroll stubs or through other means without incurring substantial additional expense during the term of this Agreement, it shall do so. 6. PERSONAL DAYS: In order to qualify for one (1) personal day per contract year, the following conditions must be met by an employee: (a) The employee must give 3 working days advance notice to department supervisor as to which day is to be taken as a personal day, and (b) The personal day cannot be added to the employee's vacation period, and (c) The personal day cannot be taken during a week of a holiday, nor shall it be taken on a working day before or after a holiday. (d) The personal day may be used in four (4) hour blocks, or in five (5) hour blocks in the case of employees assigned to work ten (10) hour shifts. The 57 above conditions must be met for an employee to take the personal day in four (4) or five (5) hour blocks unless a personal emergency exists. If all the above conditions are met, said personal day may be taken at the employee's option. Subject to the foregoing conditions, employees who have been employed by Barr for five (5) or more consecutive years, shall be entitled to take one (1) additional personal day per year. 7. LONGEVITY DAY: Those employees who have attained ten (10) years of service or more shall receive a personal day off with pay as a longevity day. Said employee must give one (1) week's notice to his Supervisor before taking such day: If there is any limitation on the number of people taking the longevity day at a particular time, seniority shall apply. The longevity day must be taken as a day, not less. XXIII. SHIFT DIFFERENTIAL In the event the Company establishes a second shift, there shall be a ten percent (10%) shift differential paid to each employee employed on said second shift. In the event the Company establishes a third shift, there shall be a fifteen percent (15%) shift differential paid to each employee employed on said third shift. The differential for the shift starting at midday (Example: 11:30 a.m. to 8:00 p.m.) shall be eight percent (8%). XXIV. REPORTING AND CALL-IN PAY 1. REGULAR WORK (REPORTING TIME): Any employee who reports to work unless otherwise previously notified eight (8) hours prior to starting time by the Company shall 58 receive four (4) hours work or pay for that day. If in the course of the day an employee is sent home because of lack of work, and has completed at least four (4) hours of work, or five (5 hours work if he is assigned to work a ten (10) hour shift, he shall be paid for the remainder of his shift. 2. EMERGENCY WORK (CALL-IN): When an employee is called for emergency work, has completed his regular eight (8) hour shift, and is eligible under Article IV for overtime pay, he shall be paid a minimum of four (4) hours pay at the rate of time and one-half (1-1/2). If, upon completion of the first four (4) hours of work on the emergency job the employee is required to stay over for additional work, he shall be paid a minimum of an additional four (4) hours pay at the rate of time and one-half (1- 1/2). XXV. SAFETY AND HEALTH 1. The Company shall assume the responsibility imposed in accordance with State Workers Compensation Laws for employees who suffer injury or disease resulting from conditions on the job. 2. No employee shall knowingly be permitted to work on a job which poses a recognized health hazard (including any medically demonstrated sensitivity that would make continued exposure to a substance with which he comes into contact in the performance of his assigned job duties where continued exposure to the substance would be detrimental to his health) unless effective control measures (i.e., engineering and/or administrative controls and, where appropriate, personal protective equipment) have been provided. No employee shall knowingly perform any unsafe act that presents a danger either to the employee or to others. In the event that an individual cannot perform a specific job function due to illness, injury or physical sensitivity to substances present in the workplace, that individual will be given suitable alternative work, if such work is available, provided 59 the employee provides the Company with a statement from his physician confirming that, despite the limitation that precludes him from performing his normal job functions, he is fit to perform the job functions of the available alternative work. In addition, the Company may, in its sole and unrestricted discretion, require that any employee claiming to have a job related illness or injury or a physical sensitivity that interferes with or precludes his performance of the normal responsibilities of his position submit to an examination by a physician chosen and paid for by the Company for the purpose of obtaining independent medical verification of the condition and any work limitations resulting from it. In the event no alternative work is available, "bumping" shall apply unless the Company determines in its discretion that allowing the employee to exercise "bumping" rights would be inconsistent with the Company's overall interests of ensuring regulatory compliance and product quality and integrity, and maximizing productivity, efficiency and safety. Employees who are transferred or bump into positions pursuant to this Section that have lower wage rates than their usual jobs shall be compensated at the higher rate for one (1) month, and will thereafter be compensated at the lower rate. 3. The Company shall make available annually, to all employees, a physical examination and pay for same. The Health and Safety Committee will help determine the protocol for physical examinations. The Company shall inform the Union of any changes in the physicians or medical group performing the physicals. In addition to annual physical examinations, all employees shall be required to participate and cooperate fully in all medical surveillance programs deemed by the Company to be necessary for compliance with applicable provisions of the Code of Federal Regulations or other regulatory provisions, or any other medical surveillance approved by the Health and Safety Committee. 60 4. The Company shall institute and maintain all necessary precautions for safeguarding its employees against conditions that the Company knows or should know are likely to be harmful their health and safety. Both the Company and the Union recognize their mutual obligation to assist in the prevention, correction, and elimination of all unhealthy and unsafe working conditions and practices. 5. There shall be established a joint labor-management Health and Safety Committee consisting of two Union and two Company representatives. It shall hold meetings eight (8) times per year at times and places mutually convenient and agreeable to the representatives of the Union and the Company attending and scheduled by or before December 31 of the year prior to the year in which the meetings are to be held. The purpose of such meetings shall be to consider, review and/or provide recommendations for workplace conditions and health and safety related practices. Members of the Committee shall also conduct monthly tours of the Company's manufacturing facilities with advance notice to and in cooperation with plant and departmental Management. Findings from these tours shall be reviewed at the regular meetings of the Committee. Union representatives shall be compensated at their regularly assigned wage rate for reasonable time spent in connection with the work of the Committee. 6. Any employee who is injured on the job, and who must miss time from work on the day of the injury and (or the following day) on the instructions of the Company physician or other physicians acceptable to the Company, will be paid special compensation pay up to the balance of the work day as well as the following day. Any employee who receives compensation pay for this time period due to a claim from Workers' Compensation shall not be eligible for special compensation pay. 61 7. At least once each year, the parties will undertake an industrial hygiene survey in the plants performed by a certified industrial hygienist mutually acceptable to the Company and the Union, and whose fee shall be paid by the Company. A Company representative and a Union representative shall accompany such hygienist at all times during any on-site inspection activities. An unedited report of the survey shall be submitted in writing to the Company and the Union. At a mutually established time, subsequent to the receipt of reports, the Company and the Union will meet to review such reports and to consider the findings. The parties may conduct a second survey in any year by mutual agreement. 8. The Company and the Union agree that the Director of OCAW's District Resource Center and the Company's Associate director of Health and Safety shall meet and confer for the purpose of developing a mutually acceptable protocol for a joint training program on health and safety awareness for Barr's bargaining unit employees. It is agreed that the curriculum and course content will be fully reviewed and approved in advance of any training sessions, that the training sessions will be in segments of no more than two (2) hours at a time and for a cumulative total in any calendar year of no more than four (4) hours, and that all such training sessions shall be scheduled at mutually agreeable times and in such a way as to minimize any disruption of the Company's production and any impact on the Company's ability to ensure regulatory compliance, product quality and integrity, productivity, efficiency and safety. Any further health and safety training deemed necessary by Management will be provided by the Company. 9. The Company will provide protective equipment including waterproof boot coverings and outdoor clothing for employees as required. 62 10. The Company will reimburse employees in departments where required and applicable, up to Seventy Dollars ($70.00) for one pair of safety shoes upon completion of their probationary period. Employees will also be reimbursed for the cost of replacement safety shoes, up to a maximum of Seventy Dollars ($70.00) upon turning in worn out safety shoes previously paid for in whole or in part by the Company. XXVI. WASH UP TIME AND REST PERIODS 1. There shall be a five (5) minute wash-up time in all departments prior to the lunch period. 2. For employees working an eight (8) hour shift, there shall be a fifteen (15) minute rest period with the first four (4) hours worked, and another fifteen (15) minute rest period within the second four (4) hours worked. XXVII. TUITION REFUND PLAN The Company will reimburse an employee for up to $1,500 per semester with a limit of two (2) semesters per contract year, for tuition costs only. The course to be taken must be related to the employee's job. All courses must be taken at an accredited school approved by the Company. In order to qualify for this benefit, the employee must apply to the Vice President Human Resources or her designee at least six (6) weeks prior to the date on which the tuition payment would be due, providing a detailed description of the course to be taken and identifying the institution offering it. Such applications may be denied if the Company determines, in its sole and unrestricted discretion, either that the course is insufficiently related to the employee's job or that the Company should not approve the school. 63 It is further agreed that the employee in question must attain a "B" average or better (or, in the case of approved courses offered on a pass-fail basis, the employee must obtain a passing mark in the course); and if the employee fails to attain same, the Company will not reimburse such monies expended towards tuition costs. Enrollment is subject to the Company's prior approval. It is further agreed that educational tuition shall be available to all employees in the bargaining unit employed at least one (1) year or more. XXVIII. LOCKOUTS AND STRIKES 1. The Union shall not call or authorize any strike, work stoppage, slowdown, sit-in or any other interference with work, and the Employer shall not cause any lockout. Where an unauthorized strike, work stoppage, slowdown, sit-in or any other interference with work occurs, the Union will make immediate efforts to return the strikers to their respective jobs, and shall request the strikers to cease any action which may affect production. The Employer agrees, in consideration of the performance of the Union of the aforesaid undertakings, to absolve the Union, its officers or agents, of any liability by suit for damages for breach of contract, or of any kind or character whatsoever. It is distinctly understood and agreed that the Union will not be held liable for any unauthorized or outlaw strikes or the individual acts or actions of any employee or group of employees, so long as the Union faithfully discharges its duty as hereinbefore described to use its best efforts to discourage such acts and to bring about their early cessation. 2. Should any employee or group of employees engage in any strike, work stoppage, slowdown, sit-in or any other interference with work, the Employer shall have the right to summarily discharge the aforesaid employee or groups of employees. In any such case, resort may 64 be had to the grievance procedure under Article XIII of this Agreement only to determine the question of whether the disciplined employee did, in fact, engage in the conduct of which he is accused. 3. In the event the Union or any of its officers, agents or members engage in conduct violative of Section 1 of this Article, it is agreed that the Company may: (a) Seek to enjoin such conduct in any appropriate State Court; (b) Submit the matter to an arbitrator mutually agreed to by the Company and the Union or, in the absence of such agreement, an arbitrator chosen by the Company from a panel of five (5) arbitrators obtained from the American Arbitration Association; and (c) Seek any other legal, equitable, administrative, judicial or contract remedies available to the Company under law. XXIX. BIDDING AND POSTING 1. All job vacancies shall be posted on all bulletin boards in all Company production facilities for three (3) days, exclusive of Saturday, Sunday, and paid holidays provided for in Article XV of this Agreement. Qualifications will be determined by seniority and ability to perform the job. The Company has sole and unrestricted discretion to determine who, among two (2) or more qualified candidates is the best qualified to perform the work of the position in such a manner as to maximize the contributions of the position to the Company's overall interests of ensuring regulatory compliance and product quality and integrity, and maximizing productivity, efficiency and safety. In evaluating the qualifications of candidates, the Company will take into full 65 consideration the employee's past performance, demonstrated skills, disciplinary record, and over-all competency. Among equally qualified bidders, seniority shall control. An employee bidding on a job shall give the job bid to the Human Resources Department which shall notify the chief steward as soon as bidding is closed. The Company shall interview all bidders within five (5) working days from the end of the posting date. Within three (3) days of the close of interviewing of bidders, or as soon as any labor-management dispute is resolved, the Company shall notify the steward and award the bid. Upon request by the steward, the Company will provide a written explanation of why an employee was not awarded the job. Proficiency, aptitude, manual dexterity, and/or other scientifically developed and validated testing developed in-house or from other sources will, to the extent deemed helpful by the Company in its sole and unrestricted discretion, be administered to bidders to determine their suitability for training and performance. Such tests shall be related to those skills and qualifications necessary to the position. Any employee who has previously worked for at least six (6) months and demonstrated proficiency in a position on which he seeks to bid shall not be required to take any mechanical aptitude test administered to other bidders for the job to demonstrate qualification for that job. Discriminatory administration of tests will be subject to the Union Grievance procedure. If the bidding employee fails the proficiency or aptitude test for the relevant position, that employee shall not be entitled to bid on that position or other positions requiring similar qualifications for a period of one (1) year. In order to assist incumbent bargaining unit employees who for any reason anticipate that they may have difficulty in performing well enough on aptitude tests utilized by the Company to determine qualifications of job bidders, the Company agrees that it will offer a basic skills training course 66 (covering reading and math skills) to all interested employees at least twice a year. Attendance at such training course shall be entirely voluntary, on the participating employee's own time, and uncompensated. In general, aptitude tests (designed to test a candidate's knowledge, skills and abilities for performance of job functions), when administered, will be given to candidates prior to selection of an employee to fill a job and used to assess the candidate's capabilities for completing training and successfully performing the job. Proficiency testing may be used to assess job knowledge at the preselection stage, where prior experience and/or specific job knowledge are prerequisites to selection for a job, or after the completion of training to assess whether the employee has acquired sufficient job knowledge through training to be able to perform the responsibilities of the job successfully. Testing for aptitude and proficiency will be limited to testing for knowledge, skills and abilities necessary for successful job performance, and the Union agrees that selection procedures meet this criterion if professionally developed and validated in accordance with the Principles for Validation and Use of Personnel Selection Procedures issued by the Society for Industrial and Organizational Psychology. Further, tests that have been in recent use in the Company's employee selection procedures shall be presumed to meet this criterion until new, professionally developed tests are available. A successful bidder must be transferred to his new position within fifteen (15) days. If transfer to the new position takes longer than fifteen (15) days, he/she will in any event, be entitled to the higher rate of pay (if a higher rate is otherwise applicable under the terms of this Agreement) effective fifteen (15) days after an award. An employee who successfully bids on a higher rated job will receive the 3-month rate for that job or their current rate, whichever is higher, and will progress through the wage schedule thereafter. 67 In the event that none of the bidding employees are qualified for the available position, the Company may go outside. Each employee shall be eligible for only one successful lateral bid per year. In addition, each employee shall be eligible for only two (2) successful upgrade bids in a calendar year. But, in no event, shall any employee be eligible for more than two (2) successful bids in one (1) calendar year. Therefore, an employee who has successfully bid laterally shall be allowed only one (1) upgrade bid. If a bidding employee refuses an award, that employee shall not be entitled to bid on any other job for a period of one (1) year. Any employee selected for a new position in accordance with this Article shall be on probation which will not last more than ninety (90) days, to demonstrate the necessary skill, ability and physical capability to learn and perform all aspects of the work in a satisfactory manner consistent with the Company's overall interests of ensuring regulatory compliance and product quality and integrity, and maximizing productivity, efficiency and safety. Such probationary period may be extended for an additional thirty (30) days on mutual agreement between the Union and the Company. At any time during the probationary day period the Company may elect to return the employee to his old job and is under no obligation to retain in the position an employee who has been determined by the Company to be unsatisfactory for any reason. In the event that an employee awarded a bid is not successful during the probationary period (i.e., performance is deemed by the Company to be unacceptable or employee decides to return to previous position), the Company shall award the job to the next senior bidder whose name appears on the original bid list, assuming that such employee is deemed by the Company to be qualified for the 68 new position. After exhausting those employees deemed by the Company to be qualified on the original bid list, the Company, in its sole and unrestricted discretion, may fill the position by hiring from among applicants from outside the Company. Any employee who voluntarily returns to his old job during the probationary period shall not be eligible to bid on any new job for a period of twelve (12) months. New employees shall not be permitted to bid on any new job until they successfully complete their probationary period. XXX. CREDIT UNION CHECK-OFF 1. In a manner and to the extent permitted by law, the Company agrees to deduct each week from the wages of each of its employees who are members of the Union and who have voluntarily authorized same, the prescribed credit union deductions and to remit the same monthly to the Union. Each authorization shall be in writing, signed by the employees, and shall be delivered by the Union to the Company. The Union agrees to indemnify and save the Company harmless from any and all claims and/or disputes arising out of the Company's actions in compliance with this provision. 2. The Company agrees to allow payroll deductions for the Local 8-149 OCAW Federal Credit Union. Such deductions, if elected by employee, are to be made on a weekly basis and remitted on a monthly basis. XXXI. 401(k) PLAN (EMPLOYEE SAVINGS AND RETIREMENT PLAN) 1. The employees may elect to contribute two percent (2%) of annual straight time wages and have the option of contributing up to twelve percent (12%) of annual straight time 69 wages according to the by-laws of the plan. The Company agrees to match at one hundred percent (100%) the first two percent (2%) of each participating employee's annual straight time wages contributed to the plan. 2. The Company guarantees past service credit for vesting purposes only for employees hired prior to July 1, 1983. The minimum vesting schedule shall be as follows unless changed by Federal Regulations: 20% after 1st year of service 40% after 2nd year of service 60% after 3rd year of service 80% after 4th year of service 100% after 5th year of service If an employee quits or is terminated, he shall receive all of his contribution and interest earned pursuant to the above schedule. 3. An employee must be eighteen (18) years of age or older in order to be eligible to participate in the employee 401(k) Plan. 4. All employees hired before October 23, 1978 will receive a one-time severance pay as follows: (a) Two percent (2%) of their straight-time pay earned since they began working with Barr until July 1, 1983. 70 (b) Collect a lump sum at age 55 or upon retirement, if they retire after age 55 at their option. (c) Provided they are employed as of July 1, 1984. 5. The plan shall be attached hereto and become a part hereof. 6. The Company will notify the Union in advance and discuss any changes in the 401(k) Plan. Any such changes will not have retroactive effect. The Company and the chief shop steward will regularly educate the employees in regard to the 401(k) Plan. XXXII. SUCCESSORS AND ASSIGNS This Agreement will be binding upon successors and/or assigns and shall survive any sale, change of name or reorganization. XXXIII. SEVERANCE PAY Employees who are permanently laid off or who retire at age 59-1/2 or after, shall be eligible to receive severance pay as follows: 0 but less than 1 Year of Service None 1 Year of Service but less than 2 Years of Service 1 Week 2 Years of Service but less than 5 Years of Service 2 Weeks 5 Years of Service but less than 8 Years of Service 4 Weeks 8 Years of Service but less than 10 Years of Service 6 Weeks 71 10 Years of Service but less than 12 years of Service 8 Weeks 12 Years of Service and over 10 Weeks Pay for each week of severance entitlement shall be paid at forty (40) hours per week at the employee's straight time rate. "Permanent layoff" as used in this Section shall mean a layoff that is contemplated by the Company at the time it is implemented to result, or does in fact result, in the affected employee losing work for a period of one (1) year or more. Severance pay as hereinbefore provided shall be payable within ten (10) days of the anniversary of the effective date of the employee's layoff, except that severance pay for employees laid off prior to the effective date of this Agreement shall be payable within ten (10) days after the second anniversary of their layoffs. Permanently laid off employees entitled to severance pay pursuant to this Article may request early payment of their severance pay benefits within sixty (60) days of their layoff (or, in the case of employees laid off prior to the effective date of this Agreement, within fourteen (14) months of their layoff), and severance pay in such cases shall be payable within ten (10) days of the Company's receipt of the request. XXXIV. DURATION AND TERMINATION This Agreement shall be in full force and effect, commencing April 1, 1996 up to and including March 31, 2001, and shall automatically renew itself from year to year thereafter, but either party may terminate it or propose modifications or amendments at the end of the contract expiration date and the end of each year thereafter, by giving the other party written notice by registered mail no earlier than ninety (90) days nor later than sixty (60) days before each automatic renewal date. 72 It is agreed that all rights and obligations arising under or provided in this Agreement shall expire on its termination date. IN WITNESS WHEREOF, the parties hereto have set their hands the day and year first above written. OIL, CHEMICAL AND ATOMIC WORKERS INTERNATIONAL UNION, LOCAL 8-149, AFL-CIO By /s/ Mark Dudzic Its President, O.C.A.W. Local 8-149 BARR LABORATORIES, INC. By /s/ Catherine F. Higgins Vice President Human Resources COMMITTEE: By /s/ Raymond Stever By /s/ Brian Kopac By /s/ Jean Lahens By /s/ Larry Graham, Int'l Representative, O.C.A.W. Local 8-149 73 -----END PRIVACY-ENHANCED MESSAGE-----