-----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, C6rK1Nnt6FdWovLUrLkwsjJdz+xaQI+Rwim1fF+CofUJtSfD9mHSyl7MksS2Q+pf B1mdP7nxMdLNl4ii0qaTlA== 0000950130-98-001619.txt : 19980401 0000950130-98-001619.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950130-98-001619 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROBERTS PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000853022 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 222429994 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10432 FILM NUMBER: 98581035 BUSINESS ADDRESS: STREET 1: MERIDIAN CENTER II STREET 2: 4 INDUSTRIAL WAY W CITY: EATONTOWN STATE: NJ ZIP: 07724 BUSINESS PHONE: 7323891182 MAIL ADDRESS: STREET 1: 4 INDUSTRIAL WAY WEST STREET 2: 4 INDUSTRIAL WAY WEST CITY: EATONTOWN STATE: NJ ZIP: 07755 10-K 1 FORM 10-K 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 DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-10432 - ------------------------------ ROBERTS PHARMACEUTICAL CORPORATION ----------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-2429994 - --------------------------------- ---------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) Meridian Center II 4 Industrial Way West Eatontown, New Jersey 07724 - --------------------------------- ---------------------------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (732) 389-1182 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------- --------------------- Common Stock, $.01 par value per share American Stock Exchange Rights American Stock 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 the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the common stock, $.01 par value per share (the "Common Stock"), of the Registrant held by non-affiliates of the Registrant, as determined by reference to the last sale price of the Common Stock as reported by the American Stock Exchange as of March 20, 1998 was $322,924,104. As of March 20, 1998, the number of outstanding shares of Common Stock was 30,662,475. Documents incorporated by Part of Form 10-K into which reference into this report document is incorporated -------------------------- ---------------------------- Proxy Statement for the Part III Annual Meeting of Shareholders to be held in May 1998. FORWARD LOOKING STATEMENTS Certain statements included in (i) Item 1(c) Description of Business with respect to the Registrant's development of its proprietary pipeline products and with respect to the Registrant's newly acquired manufacturing and distribution facilities and with respect to certain discontinued operations of the Registrant; (ii) Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations; and (iii) certain of the notes to the Registrant's consolidated financial statements included on pages F-7, F-8, F-13, F-14, F-17, F-19, F-21 and F-22 herein, are intended to be, and are hereby identified as, forward looking statements for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The Registrant cautions readers that forward looking statements, including, without limitation, those relating to the Registrant's future business prospects, revenues, cost of sales, intangible dispositions and write-offs, continuing operations and discontinued operations, and liquidity and capital resources, are subject to certain risks and uncertainties, including, without limitation, the ability of the Registrant to secure regulatory approval in the United States and in foreign jurisdictions for the Registrant's developmental pipeline drugs, the efforts of the Registrant's competitors and the introduction of rival pharmaceutical products which may prove to be more effective than the Registrant's products, general market conditions, the availability of capital, and the uncertainty over the future direction of the healthcare industry, that could cause actual results to differ materially from those indicated in the forward looking statements. PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Roberts Pharmaceutical Corporation (the "Company") is an international pharmaceutical company which licenses, acquires, develops and commercializes post-discovery drugs in selected therapeutic categories. The Company was incorporated under the laws of the State of New Jersey in 1982 and commenced operations in 1983. In 1988, its name was changed to Roberts Pharmaceutical Corporation from VRG International, Inc. The Company's executive offices are located at Meridian Center II, 4 Industrial Way West, Eatontown, New Jersey 07724, and its telephone number is (732) 389-1182. As used herein, the term the "Company" refers to Roberts Pharmaceutical Corporation and its subsidiaries unless the context indicates otherwise. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Substantially all revenues, operating profits or losses and assets of the Company are attributable to one line of business, the acquisition, development and sale of pharmaceutical products, primarily prescription pharmaceutical products. (c) DESCRIPTION OF BUSINESS The Company was founded to take advantage of the large and growing opportunity to license, acquire, develop and commercialize post-discovery drugs in selected therapeutic categories. The Company has organized its drug development, acquisition and marketing activities to focus on late-stage development drugs in Phase II or Phase III clinical trials and currently marketed prescription pharmaceutical products which (i) do not meet the strategic objectives or profit thresholds of larger pharmaceutical companies or (ii) are made available by government agencies and research institutions. The therapeutic categories targeted by the Company are Cardiovascular, Gynecology/Endocrinology, Urology, Oncology, Hematology and Gastroenterology. The Company has a broad product portfolio including PROAMATINE(R) and AGRYLIN/TM/, which are the Company's first proprietary drugs approved by the U.S. Food and Drug Administration (the "FDA"). See "Approved Pipeline Products." In addition, the Company has a number of other proprietary late-stage development products in the Company's pipeline. See "Late-Stage Development Products." During 1997, the Company continued the efforts commenced in 1995 and 1996 which were designed to concentrate the Company's business operations in its core business of licensing, acquiring, developing and selling prescription pharmaceuticals. The Company has since completed the sale of the core of its nonprescription pharmaceuticals and has essentially completed the sale of its home -2- care and medical products divisions ("Homecare"). See "Nonprescription Pharmaceutical Products," "Prescription Pharmaceutical Products" and "Homecare." Further, in March 1996, the Company announced its decision to discontinue and divest the Company's clinical research business operations. The Company is in the final stages of completing the sale of its contract clinical research operations. See "Contract Clinical Research." APPROVED PIPELINE PRODUCTS PROAMATINE(R). In 1985, the Company acquired from the predecessor in interest of Nycomed Pharma AG ("Nycomed Pharma") exclusive marketing rights in the United States, Canada, the United Kingdom and Ireland to PROAMATINE (midodrine), formerly AMATINE(R), a drug used for the treatment of orthostatic hypotension and other blood pressure disorders. Orthostatic hypotension is a condition involving the sudden drop in blood pressure upon assuming an upright posture, resulting in dizziness, weakness or unconsciousness. In September 1996, the FDA approved the Company's New Drug Application ("NDA") for PROAMATINE and cleared PROAMATINE for marketing in the United States for the treatment of symptomatic orthostatic hypotension. The Company commenced marketing and sales activities in the U.S. with respect to PROAMATINE in the fourth quarter of 1996. The FDA approved PROAMATINE pursuant to its accelerated approval process for new drugs for serious or life threatening illnesses. There are no other FDA approved treatments available for orthostatic hypotension. Other current therapies used to treat the condition are associated with significant adverse side effects such as potassium reduction, fluid retention and cardiac and central nervous system disorders. The Company is conducting post-approval and post-launch (Phase IV) studies of PROAMATINE as required as part of the FDA approval. PROAMATINE is in Phase II trials for stress urinary incontinence. See "Late Stage Development Products -Therapeutic Category - Urology." PROAMATINE for orthostatic hypotension has been designated by the FDA as an "Orphan Drug" under the Orphan Drug Act of 1983 (the "Orphan Drug Act"), which provides the Company with a seven year period of market exclusivity in the United States from the date of the FDA approval. See "Government Regulation." In 1990, the Company was granted approval by the Irish National Drugs Advisory Board to market PROAMATINE for use in the treatment of orthostatic hypotension in Ireland, where the drug is sold under the name MIDON(R). In 1991, the Company obtained regulatory approval for the sale in Canada of PROAMATINE for use in the treatment of orthostatic hypotension, where the drug is sold under the name AMATINE(R). AMATINE is sold in Canada by the Company's licensee, Knoll Pharma Inc. ("Knoll") (formerly Boots Pharmaceuticals Ltd.). In December 1997, the Company filed an -3- application in the United Kingdom for the approval to market PROAMATINE under the name MIDON(R) for the treatment of orthostatic hypotension. AGRYLIN(TM). In 1991, the Company obtained an exclusive worldwide license from Bristol-Myers Squibb to develop, market and sell AGRYLIN (anagrelide), which has been developed as an oral treatment for thrombocytosis, a blood disorder characterized by high blood platelet counts which could result in an abnormally high incidence of adverse blood clotting events, including heart attack and stroke. There is evidence that some patients with increased platelet counts have thrombosis or hemorrhage which can be treated successfully by lowering the platelet count. AGRYLIN is intended to inhibit excessive platelet production and reduce the morbidity and mortality of heart attack and stroke in thrombocytosis patients. In March 1997, the Company received notification from the FDA that the Company's NDA for AGRYLIN was approved. The Company commenced active marketing and sales activities with respect to AGRYLIN in the second quarter of 1997. There is no other FDA approved treatment available for thrombocytosis. Other current therapies used to reduce excessive platelet production have distinct disadvantages, such as leukemogenesis, leukopenia and anemia. Further, AGRYLIN has been designated by the FDA as an Orphan Drug. In December 1997, the Company filed an application with the FDA to expand the indications of AGRYLIN to include polycythemia vera. The Company has received approval of its New Drug Submission ("NDS") from the Health Protection Branch, Canada ("HPB") for the sale of AGRYLIN in the Canadian market, and has begun marketing the drug in Canada. AGRYLIN is currently in registration in Europe. AGRYLIN has been accepted by the European Community regulatory authorities as a "List B" product, which includes those products considered to be major therapeutic advances. The Company has filed a Product License Application with the European Medicines Evaluation Agency ("EMEA") according to the EMEA harmonization procedures for the approval of new drugs within the European Community. If approved by the EMEA, AGRYLIN would receive simultaneous approval throughout the European Community for sale in member countries. The Company also intends to pursue filing in other geographic locations such as Japan, Australasia and Latin America for the sale of AGRYLIN. PRESCRIPTION PHARMACEUTICAL PRODUCTS In addition to developing its proprietary pipeline products, the Company's principal objective is to concentrate its operations primarily on licensing, acquiring, developing, marketing and selling prescription pharmaceutical products. To enhance the Company's presence in its targeted therapeutic categories, the Company has acquired marketed prescription pharmaceutical products -4- from various pharmaceutical companies. These product lines generate cash flow, which contributes partial financial support to the Company's drug development activities, and provides enhanced product sales opportunities for the Company's sales force. Further, the sale of prescription pharmaceutical products has enabled the Company to establish marketing channels in its targeted therapeutic categories which the Company uses to market PROAMATINE and AGRYLIN and expects to use to market its other late-stage development products if such products are approved for sale. Over the last five years, the Company has acquired the United States and/or foreign product rights for many prescription pharmaceutical products from various pharmaceutical manufacturers such as Procter & Gamble Pharmaceuticals, Inc. ("Procter & Gamble"), Bristol-Myers Squibb Company ("Bristol-Myers Squibb"), Glaxo Canada, Inc. ("Glaxo Canada"), Du Pont Merck Pharmaceutical Company ("Du Pont Merck"), Merck and Co., Inc. ("Merck"), G.D. Searle & Co. ("G.D. Searle"), SmithKline Beecham plc ("SmithKline Beecham") and Wyeth Laboratories, U.K. Certain of these products are: NOROXIN(R), an antibiotic used for the treatment of urinary tract infections; TIGAN(R), a drug used to control nausea and vomiting; EMINASE(R), a thrombolytic agent used in the treatment of acute myocardial infarction to dissolve blood clots obstructing coronary arteries; ETHMOZINE(R), NORPACE(R), TRANDATE(R), SALUTENSIN(R), SALURON(R) and NITRODISC, cardiovascular products; FLORINEF(R), for adrenocortical insufficiency; MAXOLON(R), a gastro-intestinal agent used for treatment of nausea and vomiting associated with cancer chemotherapy; MINTEC(R), a gastro- intestinal drug used for symptomatic relief of irritable bowel and spastic colon syndromes in adults; ESTRACE(R), a line of estrogen replacement therapy products used for symptomatic relief of menopausal symptoms and for the prevention of osteoporosis; and MEPTID(R) and LODINE(R), analgesic agents. As part of the Company's divestiture activities, the Company completed the sale of NORETHIN, an oral contraceptive, to G.D. Searle in December, 1997. NONPRESCRIPTION PHARMACEUTICAL PRODUCTS In order to facilitate the growth of the Company's business, the Company had always focused a part of its operations on the acquisition, marketing and sale of nonprescription pharmaceutical products. Some of the nonprescription pharmaceutical products acquired from various pharmaceutical companies and which are marketed by the Company are CHERACOL D(R) and CHERACOL PLUS(R), cough/cold products; COLACE(R), PERI-COLACE(R), SQUIBB(R) mineral oil, SQUIBB(R) Glycerin Suppositories and SQUIBB(R) Cod Liver Oil, used in the treatment of gastrointestinal disorders, and SLOW-MAG(R), a magnesium supplement. In August 1995, the Company identified the sale of nonprescription pharmaceuticals as a non-core business activity and made the decision to divest most of the products it had acquired. -5- The Company divested a substantial portion of its nonprescription products during 1996. The Company has retained and will continue to sell, and under the right circumstances may acquire, only certain well known, high volume nonprescription pharmaceutical products, such as COLACE, PERI-COLACE, and SLOW- MAG, that do not require significant promotional outlays to establish and maintain consumer brand recognition and the demand for which is not susceptible to uncontrollable seasonal factors. LATE-STAGE DEVELOPMENT PRODUCTS The Company has a portfolio of several late-stage development products, including PROAMATINE which, in addition to the treatment of orthostatic hypotension for which it has received FDA approval, is being developed for the treatment of stress urinary incontinence. Rights to these late-stage development products were acquired by the Company after substantial value had been added to the products through research activities conducted by others. The Company's objective is to continue the development of these late- stage products and bring them to market as has been accomplished with PROAMATINE and AGRYLIN. There can be no assurance that regulatory approval of the late- stage developmental products will be obtained in the United States or abroad. The Company intends to contract-out the development of several of its late stage development products, utilizing contract clinical research organizations. Sales of products acquired from other pharmaceutical companies, and sales of the Company's prescription and nonprescription pharmaceutical products, have enabled the Company to develop a marketing and sales infrastructure to facilitate sales of these late-stage products, if approved. THERAPEUTIC CATEGORY - GASTROENTEROLOGY In the latter part of 1996, the Company and Eli Lilly and Company ("Lilly") entered into a series of License Agreements pursuant to which the Company acquired from Lilly certain rights to four developmental compounds designated LY246736, LY353433, LY213829 (also known as "Tazofelone") and LY315535 (collectively, the "Compounds"), which could potentially address some of the unmet medical needs with respect to certain gastrointestinal disorders such as inflammatory bowel disease and irritable bowel syndrome. Each of the License Agreements grants the Company an exclusive license to develop, manufacture, market and sell the Compounds anywhere in the world, except with respect to LY315535, for which the Company is licensed only in the United States and its territories, Canada and Mexico. For a description of certain other terms of the Lilly License Agreements, see "License Agreements." Tazofelone is being developed for the treatment of Inflammatory Bowel Diseases ("IBD"), including ulcerative colitis and Crohn's disease. A Phase II efficacy trial has been completed for Tazofelone, and Tazofelone could offer consumers an alternative to existing treatments for IBD which include corticosteroids, 5ASA and azsulfidine. -6- The other three Compounds are being developed to treat Functional Bowel Disorders ("FBD"), including irritable bowel syndrome and non-ulcerative dyspepsia. These Compounds could provide an alternative to current FBD therapies which include dietary changes, over-the-counter laxatives, antidiarrheals, prescription antispasmodics, gastroprokinetics, proton pump inhibitors, 5HT\3\ compounds and antacids. The Company has completed a Phase 1a study of LY315535. The compound is being developed for the treatment of irritable bowel syndrome and non-ulcer dyspepsia. The Phase 1a single rising dose study was conducted in human volunteers. The objectives of the placebo-controlled study were to 1) show safety across a range of doses and 2) establish a maximum tolerated dose. The study demonstrated a favorable safety profile with LY315535 being well-tolerated across a broad range of doses. Given the positive outcome of this study, the next stage of Phase I testing in humans is scheduled to commence in the near term. THERAPEUTIC CATEGORY - CARDIOVASCULAR In March 1997, the Company and Pfizer Inc. ("Pfizer") entered into a License Agreement pursuant to which the Company acquired from Pfizer worldwide rights to a compound in development called Sampatrilat. Sampatrilat, currently in phase II clinical trials, is intended to treat essential hypertension and congestive heart failure. The License Agreement grants the Company exclusive worldwide rights to develop, manufacture, market and sell Sampatrilat anywhere in the world. Sampatrilat incorporates, in a single substance, two different but complimentary modes of activity. It is a potent inhibitor of angiotensin converting enzyme ("ACE") and also inhibits neutral endopeptidase which, in turn, results in an elevation of atrial natriuretic factor ("ANF"), the body's own natural diuretic. This dual mode of activity may offer patients and managed care providers the potential advantages of a treatment regime involving fewer drugs, reduced risks, and lower costs in comparison to currently existing therapies. Today, treatment of uncomplicated essential hypertension follows a step therapy paradigm with the initial treatment often being an ACE inhibitor. However, normalization of blood pressure may require the addition of a second drug, generally a diuretic, in combination with the ACE inhibitor. This type of step therapy, involving two and sometimes three drugs, may produce side effects comprising the additive adverse reactions of the different products employed. Diuretics commonly employed with ACE inhibitors can produce side effects that include potassium depletion, gout, elevated blood lipids, and abnormalities in sugar metabolism. Because ANF is a natural diuretic that does not possess these properties, the use of Sampatrilat in hypertension or congestive heart failure patients -7- may confer, through the administration of a single drug, all the advantages of a pure ACE inhibitor with the addition of greater natruresis thus obviating the separate diuretics. THERAPEUTIC CATEGORY - RESPIRATORY MAXIVENT(R). In 1984, the Company obtained an exclusive license from ABC Laboratories of Italy ("ABC") to develop and market MAXIVENT (doxofylline) in the United States, Canada and Japan and, in 1989, obtained a nonexclusive license to develop and market the drug in the United Kingdom and Ireland. MAXIVENT is an oral bronchodilator intended for use in the treatment of asthma. Common asthma is a condition involving the periodic constriction of the airways resulting in labored and often painful breathing. Treatment is generally provided by means of bronchodilator drugs which relieve the constriction of the airways and, in turn, the distress of an attack. The most commonly used oral bronchodilator is theophylline, a drug with good efficacy but which is capable of producing certain undesirable side effects such as disturbances in heart rhythm, central nervous system irritability, convulsions, gastro-intestinal distress and excess urination. Phase II clinical studies and Phase III clinical trials indicate that MAXIVENT appears to be comparable in efficacy to theophylline; however, unlike theophylline, MAXIVENT does not appear to produce a high incidence of adverse side effects. The Company has completed Phase III trials and is reviewing various alternatives for commercialization of this compound, including the outlicensing thereof. MAXIVENT has been approved for commercial sale in Italy and is currently being sold in that country under the tradename "ANSIMAR" by the Company's unaffiliated licensor, ABC. THERAPEUTIC CATEGORY - GYNECOLOGY/ENDOCRINOLOGY SOMAGARD(R). In 1988, the Company acquired rights from the Salk Institute to manufacture and market SOMAGARD (deslorelin) in the United States and in certain foreign countries, including the United Kingdom and Canada. SOMAGARD is being developed for the treatment of central precocious puberty in children, an endocrine disorder that results in premature release of hormones, and endometriosis in women. Published reports of long-term studies conducted by the National Institutes of Health have indicated that the administration of SOMAGARD inhibits the release of hormones which cause the abnormal maturation process and causes a return to normal growth rates. The Company has completed Phase III trials for SOMAGARD for use in the treatment of central precocious puberty and is studying various alternatives for the commercialization of this product and may elect to complete its development through a licensing arrangement with a third party. The Company currently markets the product SUPPRELIN(R) (histrelin), an Orphan Drug, for central precocious puberty. See -8- "Government Regulation." The Company believes that SOMAGARD will complement SUPPRELIN. SOMAGARD, if approved by the FDA, would be marketed to endocrinologists and managed healthcare organizations. SOMAGARD also is being developed as a treatment for endometriosis. A number of Phase II clinical trials for this indication have been conducted. Endometriosis is a gynecologic abnormality which may result in pain, infertility and sexual and bowel dysfunction. Published reports of studies conducted by the National Institutes of Health indicate that SOMAGARD relieves pain and restores normal sexual and bowel function in women with this condition . THERAPEUTIC CATEGORY - HEMATOLOGY STANATE(TM). In 1994, the Company acquired the exclusive worldwide rights from The Rockefeller University to develop, manufacture, market and sell STANATE (stannsoporfin), which is being developed for the treatment of hyperbilirubinemia in neonates, a condition caused by an accumulation of excessive levels of bilirubin produced by the liver. Unless treated, hyperbilirubinemia can result in jaundice, brain damage and death. Bilirubin is excreted by the liver pursuant to a metabolic step requiring the presence of an enzyme which, studies have shown, is not fully functional in many early term and full term neonates. STANATE is intended to inhibit the accumulation of excessive levels of bilirubin in neonates and to provide neonate enzyme systems with an opportunity to mature and take over the normal elimination of bilirubin. The most common treatment for hyperbilirubinemia in neonates involves phototherapy which requires exposure to a light source in order to stimulate the temporary excretion of bilirubin by the kidneys. Phototherapy is often not fully effective and requires many hours and sometimes several days of exposure to light with resulting maternal separation, extensive nursing supervision and related time-sensitive costs. In contrast, STANATE is administered by injection and clinical studies have shown that one dose is generally all that is necessary for treatment purposes. STANATE is currently in Phase II/III clinical trials . THERAPEUTIC CATEGORY - UROLOGY PROAMATINE. In addition to its use in the treatment of blood pressure disorders, PROAMATINE is currently sold in several countries by unaffiliated third parties to treat stress urinary incontinence, the involuntary loss of urine from the bladder. There is no approved therapy for stress urinary incontinence in the United States. PROAMATINE is an alpha agonist which increases the tension of the urinary sphincter, thereby preventing the involuntary loss of urine from the bladder. The Company is conducting a Phase II clinical program in the United States for the use of PROAMATINE in the treatment of stress urinary incontinence. -9- THERAPEUTIC CATEGORY - ONCOLOGY RADINYL. In 1985, the Company obtained from the United States government rights to manufacture and sell the product RADINYL (etanidazole), a radiosensitizer being developed to enhance the anticancer effects of radiation therapy and a chemosensitizer being developed to increase the effectiveness of other anticancer drugs. For use in conjunction with radiotherapy, RADINYL is currently in Phase III clinical trials in patients with advanced head and neck cancer. The patients enrolled in these trials in the United States and Europe were randomized to receive either RADINYL in conjunction with radiotherapy or radiotherapy alone. The results of these studies are currently under analysis. Phase I and Phase II clinical studies are being conducted with RADINYL to determine its potential in increasing the effectiveness of other anticancer drugs in the treatment of brain, lung, prostate and bladder cancer and its potential for use with brachytherapy, a technique involving the direct implant of a radioactive source into or adjacent to large tumors. DIRAME(R). In 1992, the Company obtained exclusive worldwide rights from Bayer AG ("Bayer") to develop and market DIRAME (propiram), a potent, centrally acting analgesic with low addiction potential intended for use in the control of moderate to severe acute or chronic pain. See "Government Regulation." DIRAME is in Phase III clinical trials which indicate that the compound appears to be safe and effective in patients with various kinds of acute and chronic pain. A joint venture from which Bayer obtained the rights to DIRAME had initially filed an NDA for DIRAME. Subsequent to such filing, the FDA required additional studies regarding the drug. The Company is now addressing the issues raised by the FDA and, in 1993, commenced long-term carcinogenicity studies on two species of laboratory animals and other clinical studies. The in-life phase of these studies has been completed and the results are currently under analysis. In order to complete its NDA filing the Company believes it must complete an additional Phase III clinical trial. The Company plans to commence such clinical trial during 1998. SOMAGARD. In addition to the treatment of central precocious puberty and endometriosis, SOMAGARD has been studied as adjunctive treatment for prostate cancer. Other treatments for prostate cancer such as surgery and/or radiotherapy are often precluded because the cancer has spread to the bones. As a result, castration, hormonal therapy or chemotherapy are often the only available treatments. SOMAGARD is being evaluated by the Company as an alternative to these procedures. The Company has filed a Product License Application (NDA equivalent) for SOMAGARD for treatment of prostate cancer in the United Kingdom and has obtained approval from the Irish regulatory authorities to market the -10- product for this indication. Use of SOMAGARD for the treatment of prostate cancer in the United States is in Phase III clinical trials. LICENSE AGREEMENTS The Company has obtained rights to the late-stage drugs currently being developed by it through license agreements with pharmaceutical companies, government agencies and research-based institutions and has sublicensed certain of these rights to pharmaceutical companies through license and/or marketing agreements. A discussion of these agreements is provided below. PROAMATINE Agreements. In 1985, the Company entered into a license ---------------------- agreement with the predecessor in interest of Nycomed Pharma pursuant to which the Company obtained exclusive rights to develop and market the product PROAMATINE in the United States, Canada, the United Kingdom, Ireland and certain other countries. The agreement was amended in January 1994 to, among other things, provide for a reduction in the delivery price of the product to the Company in any territory covered by the agreement for a five year period commencing upon the Company's launch of the product in any such territory and the addition of minimum sales requirements which must be achieved by the Company in the territories covered by the agreement in order to maintain exclusivity. The Company's agreement with Nycomed Pharma, as amended, obligates it to develop PROAMATINE and obtain governmental approval to market the product in the licensed territories. The Company is obliged to pay a royalty to Nycomed Pharma on sales of PROAMATINE by the Company and its distributors and must purchase its requirements of PROAMATINE from Nycomed Pharma. In 1991, the Company entered into a marketing agreement with Knoll which granted Knoll the exclusive right to market and sell PROAMATINE in Canada (under the name AMATINE) for use in the treatment of orthostatic hypotension. AGRYLIN Agreements. In 1991, the Company entered into a license ------------------- agreement with Bristol-Myers Squibb pursuant to which the Company obtained exclusive worldwide rights to develop and market AGRYLIN. The Company is obliged to fund the continued development and registration of AGRYLIN, made a payment upon FDA approval and paid and will continue to pay royalties on sales of the drug. The Company entered into various distribution agreements with third parties for the distribution and sale of AGRYLIN in Norway, Sweden, Finland, Denmark, Iceland, Israel, Australia and New Zealand. AGRYLIN is not yet approved in these countries and, as part of the distribution agreement, the distributors are responsible for obtaining regulatory approval. If regulatory approval is obtained, the Company will supply finished goods to the distributors which will provide physical distribution along with marketing and sales support. -11- MAXIVENT Agreements. In 1984, the Company obtained an exclusive -------------------- license from ABC to develop and market MAXIVENT in the United States, Canada and Japan and, in 1989, obtained a nonexclusive license to develop and market the drug in the United Kingdom and Ireland. The exclusive license agreement requires the Company to develop the product and obtain the requisite FDA and other approvals. Each of the exclusive and nonexclusive license agreements requires the Company to purchase its requirements of the bulk drug substance from ABC. If the Company does not meet certain sales levels to be agreed upon, ABC may terminate the exclusive license agreement, appoint additional licensees in the United States, Canada and Japan or market the product directly or through third parties in the United Kingdom and Ireland. SOMAGARD License Agreement. In 1988, the Company and the Salk --------------------------- Institute entered into a license agreement pursuant to which the Company obtained certain rights to develop and market the product SOMAGARD in the United States and certain foreign markets, including the United Kingdom and Canada. Under the terms of the license agreement, the Company is required to pay royalties on sales of SOMAGARD in countries in which the Salk Institute has obtained patents. DIRAME License Agreement. In 1992, the Company entered into a license ------------------------- agreement with Bayer with respect to the product DIRAME. Pursuant to this agreement, the Company acquired exclusive worldwide rights from Bayer to develop, manufacture and market the product DIRAME. The Company paid an up-front royalty to Bayer for rights to develop and market DIRAME. The Company must also pay Bayer licensing fees and royalties on sales. RADINYL Agreements. In 1985, the United States government and the ------------------- Company entered into a license agreement pursuant to which the Company obtained certain rights to develop and market the product RADINYL. The license granted to the Company is exclusive for seven years from the date of the first commercial sale of the product and nonexclusive thereafter. The agreement pursuant to which the license has been granted requires the Company to pay certain patent maintenance fees and royalties to the United States government. In 1985, the Company and the predecessor in interest of Nycomed Pharma formed a joint venture company known as Linz-Roberts, Inc. ("Linz-Roberts") to develop RADINYL. The Company and Nycomed Pharma each owns 50% of the common stock of Linz-Roberts. The Company contributed its license to RADINYL to Linz- Roberts and the Company has been granted an exclusive license by the joint venture to manufacture and distribute RADINYL dosage forms in the United States, Canada, the United Kingdom and Ireland. Nycomed Pharma has been licensed on an exclusive basis to manufacture and distribute RADINYL dosage forms in Europe (except the United Kingdom and Ireland), the Middle East and Africa. Both parties have the right to grant sublicenses. Nycomed Pharma has been designated the supplier of bulk RADINYL substance, and the joint venture has contracted to purchase its entire requirements of -12- bulk RADINYL substance from Nycomed Pharma, provided that Nycomed Pharma can meet certain price requirements and supply all required quantities. Linz-Roberts has retained the right to distribute RADINYL in the territories not licensed to the Company or Nycomed Pharma. STANATE License Agreement. In 1994, the Company and The Rockefeller -------------------------- University entered into a license agreement pursuant to which the Company acquired the exclusive worldwide rights to develop, manufacture, market and sell STANATE. The Company paid an up-front license fee to Rockefeller University for the rights to develop, manufacture, market and sell STANATE. The Company must also pay Rockefeller University annual licensing fees and royalties on sales. License Agreements for TAZOFELONE and other Lilly Compounds. In 1996, ------------------------------------------------------------ the Company entered into four License Agreements with Lilly pursuant to which the Company acquired the exclusive rights to develop, manufacture, market and sell Tazofelone and the Compounds LY246736 and LY353433 anywhere in the world and the Compound LY315535 in the United States and its territories, Canada and Mexico. The term of each of the License Agreements shall be the later of either (i) the life of the last to expire of the patents covering a Compound or (ii) fifteen years. Under the terms of each of the License Agreements, the Company paid Lilly a signing fee and is obligated to make certain milestone payments to Lilly as well as pay Lilly certain royalties based on the sales of any products resulting from the Compounds. SAMPATRILAT License Agreement. In March, 1997, the Company entered ------------------------------ into a License Agreement with Pfizer pursuant to which the Company acquired the exclusive rights to develop, manufacture, market and sell Sampatrilat anywhere in the world. The term of the License Agreement shall be the earlier of the expiration of the last to expire of the patents covering Sampatrilat or fifteen years from the date of first commercial sale of a product containing Sampatrilat. Under the terms of the License Agreement, the Company paid Pfizer a signing fee and is obligated to make certain milestone payments as well as pay Pfizer certain royalties based on the sale of products containing Sampatrilat. Pfizer has retained the right under certain circumstances should the Company's sales of Sampatrilat dosage forms equal or exceed a certain percentage of the worldwide sales of pharmaceuticals sold for the treatment of hypertension in humans, to convert the Company's license to a non-exclusive license upon the making of certain payments to the Company. MARKETING In the United States, the Company markets and sells its products primarily through its own sales force and through a network of brokers and distributors. The Company has positioned its sales operation to impact selected physician specialties and major buying and decision making entities, such as managed care -13- organizations and large retail and mass merchandise operations. With the growing trend in the United States of providing health care through some form of managed care program, the Company has stepped-up its selling efforts of prescription products to such managed healthcare organizations. In an effort to increase its sales to managed healthcare organizations, the Company has employed national account managers to focus efforts on this growing market. Various marketing, promotion, sales and training programs have been initiated to improve the Company's penetration of the managed healthcare market and increase product sales to managed healthcare organizations. MANUFACTURING From its inception, the Company's initial strategy was to outsource its manufacturing and packaging functions in order to enable the Company to grow without requiring large capital outlays to produce and package its products. In that regard, the Company has engaged contractors, primarily large pharmaceutical companies, to convert active ingredients into finished drug products. In most instances where the Company has acquired the rights to approved products from other pharmaceutical companies, the seller or licensor has agreed to manufacture the Company's requirements of the products for a specified period of time. The manufacturing activities conducted by third parties for the Company have consisted of the receipt and storage of materials, purification, production, packaging and labeling. The Company maintains a manufacturing department which is responsible for (i) monitoring the manufacturing operations of its contractors, (ii) inventory control, and (iii) quality control. The Company's manufacturing department maintains a quality control and quality assurance program, including a set of standard operating procedures, designed to assure that the Company's products are manufactured in accordance with Good Manufacturing Practices standards ("GMP") and other applicable domestic and foreign regulations. The Company has determined that it will take control of a major portion of its manufacturing activities and seek to achieve certain cost efficiencies. In July, 1997, the Company concluded the purchase from Monsanto Canada, Inc. of a 100,000 square foot pharmaceutical manufacturing facility previously operated by Monsanto's Searle Division ("Searle") located in Oakville, Ontario, Canada. The facility is approved by both the FDA and HPB. In addition to manufacturing and processing capabilities, the facility includes laboratory, warehouse and administrative space. The Company has begun transferring certain product packaging from third parties to this facility, and should realize certain benefits, including, without limitation, lower production costs and more flexibility in determining appropriate inventory levels for the Company's products when it begins to transfer the manufacturing of certain products to this facility upon appropriate regulatory approval. In addition, the Company utilized the available office space in Oakville by relocating the operations of its subsidiary, Roberts Pharmaceutical Canada, Inc., to the Oakville facility. The Company's ability to transfer the production of certain of its products to the Oakville facility will be, in certain cases, dependent on the duration of its current agreements with suppliers, -14- and the ability to obtain regulatory approvals to transfer the manufacture of these products to Oakville. The Company is currently in the process of refitting the Oakville plant in order to accommodate the manufacture of as many of the Company's products as possible. In addition, the Company will explore the possibility of using the Oakville facility to engage in contract manufacturing for other pharmaceutical companies. DISTRIBUTION In October 1997, the Company completed the acquisition of an approximately 70,000 square foot distribution facility located in a suburb of Chicago. The Company anticipates that it will begin distributing its products from this facility in the second quarter, 1998. The Company anticipates that its distribution costs will decrease as a result of the acquisition of its own distribution facility. HOMECARE In August 1995, the Company announced its decision to discontinue and divest certain non-core, nonpharmaceutical business activities, including the operations of Homecare, which were no longer compatible with the Company's objective of growing and developing a pharmaceutical company with a primary focus on the sale of prescription drugs. Through Homecare, the Company distributed high value prescription injectable and biotechnology pharmaceutical products for physician office use and provided medical and other health oriented therapies in home and outpatient settings. While Homecare's businesses had a role in the initial stages of the Company's growth and development, those businesses never represented a significant portion of the Company's consolidated revenue or earnings. The Company has completely divested the Homecare operations located in New Jersey, North Carolina and South Carolina. The entity which purchased the New Jersey operations has also executed an agreement with the Company to purchase Homecare's New York operations. The final consummation of such agreement is pending as the purchasers seek state regulatory approval to finalize the transaction. See "Notes to Consolidated Financial Statements - Note 14." CONTRACT CLINICAL RESEARCH Since its inception, the Company, through its subsidiary VRG International, Inc. ("VRG"), has derived a portion of its revenues from contract clinical research. Under these arrangements, the Company is paid a fee to conduct clinical research for pharmaceutical companies that wish to test the safety and efficacy of their products. The Company has primarily conducted studies of investigational new drugs for major multinational pharmaceutical company clients and to a lesser degree performed safety and efficacy tests on a variety of over-the-counter products. The -15- Company has also provided clinical investigation services to pharmaceutical companies to assist them in reducing the time required to introduce new drugs to the market. The Company's integrated clinical research operations have been conducted through twelve research-dedicated outpatient clinics located throughout the U.S.; an in-house patient recruiting system; a custom designed multi-purpose computerized study tracking system; on-site study coordinators; qualified contract investigators; sophisticated data management and multi-level quality control. Consistent with the Company's decision in 1995 to discontinue and divest certain of its non-core, nonpharmaceutical businesses, the Company announced, in March 1996, its intentions to discontinue and divest the business operations of VRG. Contract clinical research generally has proven to have lower profit margins than the sale of prescription pharmaceuticals, and the Company believes that, in the future, contract clinical research has lower growth prospects for it than the sale of prescription pharmaceuticals. In January, 1998, the Company signed a Letter of Intent to sell VRG's operations subject to the execution of a definitive acquisition agreement and the successful completion of due diligence by the purchaser. To date, the Company and the purchaser are negotiating the terms of said definitive acquisition agreement and the transaction is expected to close within the month of April, 1998. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes to Consolidated Financial Statements - Note 14." PATENTS AND PROPRIETARY RIGHTS The Company considers the protection of discoveries in connection with its development activities important to its business. To date, the Company has acquired certain patents in connection with the acquisition of certain products and has filed applications for patents covering new processes for manufacturing anagrelide, the active ingredient in AGRYLIN. Additionally, rights to patented technology have been licensed to the Company. The late-stage products being developed by the Company which are afforded patent protection are: AGRYLIN - patents issued 1982 and applications filed in 1996; RADINYL - patent issued 1983; STANATE -patents issued 1987, 1988, 1992 and 1993. Also, regarding the Compounds acquired from Lilly, certain patents have been issued in the United States and several other countries with respect to Tazofelone and the Compound designated LY246736. In addition, there are other domestic or foreign patent applications pending for all of the Compounds. Patents have been issued with respect to the compound Sampatrilat, licensed from Pfizer. Certain of the Company's products may be afforded protection under laws which provide market exclusivity for Orphan Drugs and drugs which include a new active ingredient. See "Government Regulation." -16- COMPETITION Many companies, including large pharmaceutical, chemical and biotechnology firms with financial and marketing resources and research and development staffs and facilities substantially greater than those of the Company, are engaged in researching, developing, marketing and selling products intended to treat the same conditions and diseases as the products currently sold and under development by the Company. Further, other products now in use or under development by others may be intended to treat the same conditions as the Company's products. The pharmaceutical industry is characterized by rapid technological advances, and competitors may develop products more rapidly than the Company. In addition, competitors may be able to complete the regulatory approval process sooner than the Company, and therefore market their products earlier than the Company can market certain of its products. GOVERNMENT REGULATION The marketing of pharmaceutical products requires the approval of the FDA and comparable agencies in foreign countries. The FDA has established guidelines and safety standards which apply to the preclinical evaluation, clinical testing, manufacture and marketing of pharmaceutical products. The process of obtaining FDA approval for a new drug can take many years and involves the expenditure of substantial resources. The steps required before such a product can be produced and marketed for human use include preclinical studies, the filing of an IND, human clinical trials and the approval of an NDA. Drug marketing exclusivity protection is granted through the Orphan Drug Act of 1983 (the "Orphan Drug Act") and the Drug Price Competition and Patent Term Restoration Act of 1984 (commonly referred to as the "Waxman Hatch Act"). The Orphan Drug Act entitles a company to market exclusivity in the United States for a period of seven years from the date of FDA approval for drugs which, among other criteria, are intended to treat a patient population of less than 200,000. PROAMATINE for idiopathic orthostatic hypotension and AGRYLIN for thrombocythemia have been granted Orphan Drug status by the FDA. Certain provisions of the Waxman-Hatch Act grant market exclusivity in the United States for a period of five years from the date of FDA approval for drugs containing a new active ingredient. Based upon its review of industry and government data, the Company believes that DIRAME may qualify for this protection. The manufacturing processes of the Company and its contractors and licensors are subject to regulation, including the need to comply with Good Manufacturing Practices. These same regulations will apply to the Company with respect to the Oakville, Ontario manufacturing facility which it has purchased from Searle. See "Manufacturing." The Company's business is also subject to regulation under the Occupational Safety and Health Act, the -17- Environmental Protection Act, the Toxic Substances Control Act, the Drug Enforcement Act, the Resource Conservation and Recovery Act, the Pharmaceutical Marketing Act of 1988 and other current and potential future federal, state or local regulations. The Company markets various products containing controlled substances that are subject to the Department of Justice, Drug Enforcement Administration regulations. Distribution of prescription drugs classified as controlled substances or, in some cases, other pharmaceutical products, is subject to licensing or regulation in certain states. Generally, the entity engaged in the actual distribution is subject to such regulation. In addition, state licensing is generally required in the state in which such entity's principal place of business is located. United States Federal and state governments continue to seek means to reduce costs of Medicare and Medicaid programs, including placement of restrictions on reimbursement for, or access to, certain drug products. Major changes were made in the Medicaid program under the Omnibus Budget Reconciliation Act of 1990 (the "Act"). As a result, the Company entered into a Medicaid Rebate Agreement ("Rebate Agreement") with the United States Government, under Section 4401 of the Act. Pursuant to the Rebate Agreement, in order for federal reimbursement to be available for prescription drugs under state Medicaid plans, the Company must pay certain statutorily prescribed rebates on Medicaid purchases. Effective July 1, 1991, the law also denies federal Medicaid reimbursement for drug products of the original NDA-holder if a less expensive generic version of such drug is available from another manufacturer, unless the prescriber indicates on the prescription that the branded product is medically necessary. In most other markets, governments exert controls over pharmaceutical prices either directly or by controlling admission to, or levels for, reimbursement by government health programs. The nature of such controls and their effect on the pharmaceutical industry vary greatly from country to country. EMPLOYEES As of March 20, 1998, the Company had 498 employees, including 5 officers, 81 persons engaged in research and development activities and 215 persons engaged in marketing and sales activities. In addition to its full-time staff, the Company engages medical doctors and other professional personnel on a consultancy basis and, from time to time, consultants and others on a per diem or hourly basis. The Company believes its relations with its employees are satisfactory. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS Financial Information about Foreign and Domestic Operations is presented in Note 13 to the Company's financial statements. See "Notes to Consolidated Financial Statements - Note 13." -18- ITEM 2. PROPERTIES The Company's worldwide headquarters are located at Meridian Center II, 4 Industrial Way West, Eatontown, New Jersey. The building housing the Company's worldwide headquarters, which was purchased by the Company in 1992 and occupied in 1993, consists of an aggregate of 80,000 square feet. The Company owns an office and warehouse building consisting of 30,300 square feet, which is located across the street from the Company's worldwide headquarters. The Company uses this building for the warehousing of Company records, archives, certain offices and facilities. The Company has purchased a 100,000 square foot manufacturing facility located in Oakville, Ontario, Canada. The Company has purchased an approximately 70,000 square foot distribution center located in Buffalo Grove, Illinois, a suburb of Chicago. See "Item 1 Business - Manufacturing; Distribution." The Company's United Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., occupies 3,800 square feet of leased office space in the Surrey Research Park in Guildford, Surrey, England, approximately 30 miles south of London. The monthly rental for these offices is approximately 6,500 British pounds. The Company also leases office space in several other locations in the United States. -19- ITEM 3. LEGAL PROCEEDINGS On April 10, 1995, a shareholders' class action suit was instituted in the United States District Court for the District of New Jersey against the Company and certain of its officers and a former officer by Grace Cowitt ("Cowitt") on behalf of all persons who purchased shares of the Company's Common stock between November 7, 1994 and March 22, 1995. The complaint asserted claims against the Company and certain of its officers and a former officer for violations of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder with respect to press releases and filings with the Securities and Exchange Commission and certain public statements allegedly made by the Company and certain of its officers and a former officer relating to the Company's business. The plaintiff sought to recover damages in an unspecified amount. On June 26, 1995, a similar shareholders' class action suit was instituted in the United States District Court for the District of New Jersey against the Company and certain of its officers and a former officer by Dieter Zander ("Zander") on behalf of all persons who purchased shares of the Company's Common Stock between November 7, 1994 and May 31, 1995. This suit was voluntarily dismissed by Zander in October 1995. In August 1995, a consolidated complaint was filed in which the plaintiff, Cowitt, extended the proposed class period from March 22, 1995 through May 31, 1995. The Company fully and finally settled this matter in January of 1998. See "Notes to Consolidated Fiancial Statements - Note 11." There are no additional material legal, governmental, administrative or other proceedings pending against the Company, any of its subsidiaries or any of their properties, or to which the Company or any such subsidiary is a party, and to the knowledge of management, no such material proceedings are threatened or contemplated. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter ended December 31, 1997, no matter was submitted to a vote of the Company's security holders through the solicitation of proxies or otherwise. -20- ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company as of March 20, 1998 are listed below, and brief summaries of their business experience and certain other information with respect to each of them is set forth in the following table and in the information which follows the table. The executive officers of the Company are as follows:
NAME AGE POSITION - ------------------------------------------------------------------------------------------ ROBERT A. VUKOVICH, Ph.D. 54 Chairman of the Board JOHN T. SPITZNAGEL 56 President and Chief Executive Officer ROBERT W. LOY 60 Executive Vice President PETER M. ROGALIN 55 Vice President, Treasurer and Chief Financial Officer ANTHONY A. RASCIO, ESQ. 55 Vice President, Secretary and General Counsel
Robert A. Vukovich, Ph.D. served as Chairman of the Board and President of the Company from its inception in 1983 until September of 1997 when he announced that he would forego his day-to-day activities as President to concentrate on the Company's long-term strategic business and product development programs. Dr. Vukovich continues to serve as Chairman of the Board. From 1979 to 1983, he served as Director of the Division of Developmental Therapeutics for Revlon Health Care Group. From 1970 to 1974, Dr. Vukovich was employed in various capacities by the Squibb Institute and served as Director of Clinical Pharmacology for that organization from 1974 to 1979. Prior to 1970, Dr. Vukovich was a clinical research scientist for The Warner Lambert Research Institute. Dr. Vukovich is a graduate of Jefferson Medical College, Philadelphia, Pennsylvania, with training in pharmacology and pathology. John T. Spitznagel has served as President and Chief Executive Officer since September, 1997 when the Board of Directors elected him to such office in connection with Dr. Vukovich's decision to forego his duties as President of the Company. Mr. Spitznagel served as Executive Vice President - Worldwide Sales and Marketing from March 1996 to September 1997 and he has also been a Director of the Company since July 1996. Mr. Spitznagel served as President of Reed and Carnrick Pharmaceuticals from September 1990 through July 1995. In 1989 and 1990, Mr. Spitznagel served as Chief Executive Officer of BioCryst Pharmaceuticals, Inc. From 1979 through 1989, Mr. Spitznagel held various positions with Wyeth- -21- Ayerst Laboratories, advancing from Marketing Director to Senior Vice President of Marketing and Sales. Mr. Spitznagel was employed by Roche Laboratories from 1971 through 1979 and by Warner-Chilcott Laboratories from 1966 through 1971 in various sales, marketing and management positions. Mr. Spitznagel received his undergraduate degree from Rider University and an M.B.A. from Fairleigh Dickinson University. Robert W. Loy has served as Executive Vice President - Operations and New Business Development since March 4, 1996. Mr. Loy served as Chief Operating Officer of the Company from August 1992 to March 1996 and as Vice President of the Company from December 1992 to March 1996. Mr. Loy has served as a Director of the Company since October 1993. From 1963 to 1990, he held various positions at Squibb Corporation, including that of Vice President, Worldwide Operations for the Squibb Derm Division. From 1990 to 1992, Mr. Loy served as Vice President, International Sales and Marketing, with Hollister, Inc. Mr. Loy received his undergraduate degree from Old Dominion University and attended Villanova University Graduate School. Peter M. Rogalin has served as Vice President, Treasurer, Chief Financial Officer and a Director of the Company since February 5, 1996. From 1978 to 1992, Mr. Rogalin was employed in various executive capacities by Sterling Winthrop, Inc. (formerly Sterling Drug, Inc.), including Assistant Treasurer from 1987 through 1992. From 1993 through July 1994, Mr. Rogalin was a Principal in RK Associates, a consulting firm with specific expertise in financial and business operations and systems for small and medium sized companies. From July 1994 through January 1996, Mr. Rogalin served as Vice President - Finance and Chief Financial Officer of ImClone Systems, Inc., a biopharmaceutical company engaged in research and development of therapeutic products for the treatment of cancer and cancer related disorders. Mr. Rogalin, a Certified Public Accountant, received his undergraduate degree from St. Lawrence University and an M.B.A. from the Graduate School of Business, New York University. Anthony A. Rascio, Esq., has served as Vice President and General Counsel and a Director of the Company since June 1987. In addition, he served as Assistant Secretary of the Company from 1987 to 1992, at which time he assumed the position of Secretary of the Company. From January 1987 to June 1987, Mr. Rascio was Director, Legal Affairs for the Company. During 1986, Mr. Rascio was engaged in the private practice of law. From 1984 through 1985, Mr. Rascio was employed as Director, International Operations by Jeffrey Martin, Inc., a marketer of cosmetics and proprietary medicines. Mr. Rascio served as Legal Director, International Pharmaceutical Products Division for Schering-Plough Corporation from 1980 through 1984 and held various legal positions with that company from 1971 to 1980. Mr. Rascio received undergraduate and law degrees from Fordham University. -22- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS COMMON STOCK The Company's Common Stock is traded on the American Stock Exchange and was held by approximately 900 shareholders of record as of March 20, 1998. The following table sets forth, for the periods indicated, the high and low last sale prices for the Company's Common Stock, as reported on the NASDAQ National Market System in 1996 and from January 1, 1997 through May 21, 1997 and as reported by the American Stock Exchange from May 22, 1997 through December 31, 1997. High Low ---- --- YEAR ENDED DECEMBER 31, 1996 First Quarter $24 $18 5/8 Second Quarter $21 7/8 $17 7/8 Third Quarter $20 3/4 $15 5/16 Fourth Quarter $18 1/8 $11 YEAR ENDED DECEMBER 31, 1997 First Quarter $15 $11 Second Quarter $13 $10 7/8 Third Quarter $13 $ 9 7/16 Fourth Quarter $11 7/8 $ 9 The Company has not paid any cash dividends on its Common Stock in the past, and it is unlikely that the Company will pay any dividends on its Common Stock in the foreseeable future. -23- ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data for the Company for each of the five fiscal years in the period ended December 31, 1997 are derived from financial statements that have been audited and reported upon by Coopers & Lybrand L.L.P., independent accountants for the Company. This data should be read in conjunction with "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Company's consolidated financial statements and related notes appearing elsewhere in this report. -24- Operating Statement Data: Years Ended December 31, - -------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- (in thousands, except per share data) Total Revenue $57,561 $89,020 $113,427 $98,111 $122,508 Operating Income (Loss) from Continuing Operations 7,850 25,802 6,873 (50,195)/1/ (762) Net (Loss) Income from Continuing Operations 6,415 20,618 2,703 (34,275) 2,517 Net Income (Loss) from Discontinued Operations 813 (1,206) (27,045) 556 --- Net Income (Loss) 7,228 19,412 (24,342) (33,719) 2,517 Earnings (Loss) Per Share of Common Stock from Continuing Operations - Diluted .41 1.10 .15 (2.47)/2/ .06 Earnings (Loss) Per Share of Common Stock from Discontinued Operations - Diluted .05 (.06) (1.45) .03 --- Earnings (Loss) Per Share of Common Stock - Diluted .46 1.04 (1.30) (2.44) .06 Average Number of Common Shares - Diluted Outstanding 15,590 18,708 18,623 19,133 29,497 /1/ Intangible Dispositions and Write-Offs. During the fourth quarter of 1996, --------------------------------------- the Company completed the sale of the majority of its non-core nonprescription products along with the NUCOFED and QUIBRON brands in two independent sales transactions. These sales, net of proceeds, resulted in a one time, non-cash write off of $11.9 million, which amounted to $7.6 million net of taxes. Also, during the fourth quarter of 1996, the Company expensed certain purchased development products and recorded an impairment loss of long-lived intangible assets totalling $25.4 million, which amounted to $17.8 million net of taxes. Operating income and net loss were negatively affected by the purchase of development products and the sale and write down of the intangible assets in the amounts of $37.3 million for operating income and $25.4 million for net loss. In the event that these transactions had not occurred, the operating loss would have been $12.9 million and net loss would have been $8.3 million. /2/ Pursuant to a position taken by the SEC staff (the "Staff"), effective March 13, 1997, on accounting for preferred stock which is convertible at a discount to market, the Company recorded a charge for Earnings Per Share purposes of $.61 per share. This charge to Earnings Per Share is consistent with the Staff's position that the 10% discount available to holders of the Company's 5% Convertible Preferred Stock ("5% Preferred -25- Stock") should be amortized between the issuance date and the first date that conversion could occur. To clarify the adjustments indicated above, a reconciliation of Earnings Per Share for the twelve months ended December 31, 1996 is composed of the following elements: Net (loss) from continuing operations before the consideration of purchased research and development, write-off and the sale of intangible assets, the recognition of the discount upon the issuance of 5% Preferred Stock or preferred dividends $ (.47) Purchased research and development and the write-off and sale of intangible assets (1.33) 5% Preferred Stock dividends (.06) Issuance of 5% Preferred Stock at a 10% discount to market (.61) (.67) ------- ------- Net (loss) from continuing operations (2.47) Income from discontinued operations .03 ------- (Loss) attributable to common stock $(2.44) =======
Balance Sheet Data: As of December 31 - ------------------------------------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- (in thousands) Total Assets $343,103 $336,192 $340,290 $372,225 $367,855 Long-Term Debt and Redeemable Preferred Stock 45,668 22,411 16,183 10,639 10,327 Shareholders' Equity 238,999 259,129 235,467 309,759 317,303
-26- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1997 Corporate Revenues. For the year ended December 31, 1997, total ------------------- revenue increased $24.4 million from $98.1 to $122.5 million. This increase was the result of an increase in product sales. Product Sales. For the year ended December 31, 1997, product sales -------------- increased $23.5 million from $98.1 to $121.6 million. This increase is primarily the result of sales in the United States of AGRYLIN and PROAMATINE. AGRYLIN was launched in the first quarter of 1997 and PROAMATINE was launched in the fourth quarter of 1996. The COLACE line also contributed significant increases. For the year ended December 31, 1997, sales of the Company's United Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., increased $5.5 million from $12.0 million to $17.5 million. Increased sales of LODINE, launched in the fourth quarter of 1996, are the primary reason for this increase. Product sales of the Company's Canadian subsidiary, Roberts Pharmaceutical Canada, Inc., increased $0.8 million from $11.7 million to $12.5 million. Cost of Sales. For the year ended December 31, 1997, cost of sales -------------- amounted to 42% of product sales as compared to 51% in 1996. This decrease in cost of sales percentage and corresponding increase in gross profit percentage is primarily the result of the addition of AGRYLIN to the product mix. AGRYLIN has a higher gross profit percentage as it is a product the development of which was completed internally. Research and Development. Research and development expenses increased ------------------------- $5.7 million from $7.4 million in 1996 to $13.1 million in 1997. Approximately $1.6 million of this increase is due to the purchase of development-stage products where the cost of acquisition is charged immediately to research and development expense. Other reasons for the increase include a post-launch study for PROAMATINE, the continued development of DIRAME, STANATE and the purchased compounds, and increases in registration and user fees. The Company anticipates research and development expenses will continue to increase in 1998 due to potential purchases of development-stage drugs and the development of current compounds. Marketing and Administrative Expenses. Marketing and administrative -------------------------------------- expenses increased $1.5 million from $57.2 million -27- in 1996 to $58.7 million in 1997. Marketing expenses increased $0.5 million primarily as a result of increased sampling, market research, the introduction of AGRLYIN, and fleet expenses offset by decreases in outside services and travel and meetings. Administrative expenses increased $1.0 million during 1997 as compared to 1996 in large part due to increases in salaries and benefits offset by decreases in legal and accounting fees related to the shareholders' class action lawsuit which was fully and finally settled in January 1998 and the annual audit. Interest Income and Expense. For the year ended December 31, 1997, ---------------------------- interest income increased $2.3 million from $2.9 million to $5.2 million as the result of an increased cash balance due to the private placements that were completed during 1996. Interest expense decreased from $1.8 million in 1996 to $0.8 million in 1997 as a result of a decrease in long-term debt related to product acquisitions. Income Taxes. For the year ended December 31, 1997, income taxes from ------------- continuing operations increased $13.5 million from a benefit of $14.6 million to a benefit of $1.1 million, primarily as a result of improved 1997 operations versus 1996 and a 1996 write off and disposition of certain intangible assets. The Company's effective tax benefit of 77% was higher than the normal statutory rate primarily as a result of the elimination of certain reserves for taxes due to the closure of years 1991 through 1993 after an IRS audit. The Company has recorded net deferred tax assets of approximately $17.3 million. Realization is dependent upon generating sufficient taxable income to utilize such assets. Although realization is not assured, management believes it is more likely than not that the deferred tax assets for which a valuation allowance has not been provided will be realized. Discontinued Operations. See "Notes to Consolidated Financial ------------------------ Statements - Note 14" for a discussion of discontinued operations. YEARS ENDED DECEMBER 31, 1995 AND 1996 Corporate Revenues. For the year ended December 31, 1996, total ------------------- revenue decreased $15.3 million from $113.4 to $98.1 million. This decrease was the result of a decrease in product sales. Product Sales. For the year ended December 31, 1996, product sales -------------- decreased $15.3 million from $113.4 to $98.1 million. This decrease is the result of the divestiture of certain products during the year, a decline in the sale of certain products due in part to a shift in promotional activity and a change in the timing of special discounts and special -28- offers to the trade, increased generic competition and certain back order situations, offset by fourth quarter sales of PROAMATINE. For the year ended December 31, 1996, sales of the Company's United Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., decreased slightly from $12.1 million to $12.0 million. Sales of the Company's Canadian subsidiary, Roberts Pharmaceutical Canada, Inc., increased $0.6 million from $11.1 million to $11.7 million. This increase is primarily the result of an increase in the demand for products acquired during 1995 along with the launch of Advantage 24, a contraceptive product. Cost of Sales. For the year ended December 31, 1996, cost of sales -------------- amounted to 51% of product sales as compared to 47% in 1995. This increase in cost of sales percentage and corresponding decrease in gross profit percentage is primarily the result of an increase in inventory obsolescence resulting from the decrease in demand for certain products for which inventory production schedules had been previously agreed with third party suppliers. Cost of sales continues to be impacted by sales of NOROXIN, a lower gross profit margin product, in the Company's product mix. Research and Development. Research and development expenses increased ------------------------- from $6.1 million in 1995 to $7.4 million in 1996, an increase of 21.3%. (See "Notes to Consolidated Financial Statements - Note 1"). This increase results from expenditures in the development of the Company's two recently approved products, AGRYLIN and PROAMATINE and purchases of certain development products. Marketing and Administrative Expenses. Marketing and administrative -------------------------------------- expenses increased $9.6 million from $47.6 million in 1995 to $57.2 million in 1996. Marketing expenses increased $8.6 million primarily as a result of increased promotional activities for some of the Company's new products including PROAMATINE which was launched during the fourth quarter of 1996 and increased compensation for the sales forces in the United States, United Kingdom, and Canada. Administrative expenses increased $1.0 million during 1996 as compared to 1995 in large part due to expenses related to the shareholders' lawsuit and increased insurance costs. Interest Income and Expense. For the year ended December 31, 1996, ---------------------------- interest income increased $.9 million to $2.9 million as the result of an increased cash balance due to the private placements that were completed during 1996. Interest expense decreased from $3.5 million in 1995 to $1.8 million in 1996 as a result of a decrease in long-term debt related to product acquisitions. -29- Income Taxes. For the year ended December 31, 1996, income taxes from ------------- continuing operations decreased $17.4 million from a provision of $2.8 million to a benefit of $14.6 million, primarily as a result of a decline in net income including the write off and disposition of certain intangible assets. The Company's effective tax benefit of 30% was lower than the normal statutory rate primarily as a result of the Company's inability to recognize the benefit of the Canadian net operating loss carryforwards. Intangible Dispositions and Write-Offs. During the fourth quarter of --------------------------------------- 1996, the Company completed the sale of the majority of its nonprescription products along with the NUCOFED and QUIBRON brands in two independent transactions. These sales, net of proceeds, resulted in a one time, non-cash write off of $11.9 million, which amounted to $7.6 million net of taxes. Also, during the fourth quarter of 1996, the Company expensed certain purchased development products and recorded an impairment loss of long-lived intangible assets totalling $25.4 million, which amounted to $17.8 million net of taxes. If the estimate of undiscounted cash flows to be generated by the remaining intangible assets decreases in the future, an additional write-down of those assets may be required. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- For the year ended December 31, 1997, operating cash inflows amounted to $3.6 million as a result of the Company's net income enhanced by reductions in accounts receivable and non-cash charges, primarily depreciation and amortization, and offset by changes in accounts payable, other current liabilities and inventory. As of December 31, 1997, the Company had cash, cash equivalents and marketable securities of $82.8 million. These balances are primarily attributable to the Common Stock Private Placement completed in July 1996 which resulted in net proceeds of approximately $9.9 million and the Preferred Stock Private Placement completed in August 1996 which provided approximately $98.8 million in net proceeds. For the year ended December 31, 1996, operating cash inflows amounted to $0.2 million as a result of the Company's net loss offset by non-cash charges, including intangible asset dispositions and write-offs. Cash inflows from operations amounted to $22.8 million in 1995. The Company's funding requirements will depend on a number of factors, including the Company's product development programs, product acquisitions, the level of resources required for the expansion of marketing capabilities, especially relating to the Company's two approved pipeline products, PROAMATINE and AGRYLIN, increased investment in accounts receivable and inventory which may arise from increased sales levels, competitive and technological developments, the timing and cost of obtaining required regulatory approvals for new products, relationships -30- with parties to collaborative agreements, the success of acquisition activities and the continuing revenues generated from sales of PROAMATINE and AGRYLIN. Existing cash and securities balances and cash generated from operations are expected to be sufficient to fund operating activities for the foreseeable future, as well as support near and long term debt obligations, capital improvements for the manufacturing facility and development of the existing pipeline compounds. Cash equivalents and marketable securities currently consist of immediately available money market fund balances and investment grade securities. Capital Expenditures. Capital Expenditures in 1997 of approximately --------------------- $12 million relate primarily to the purchase of the pharmaceutical manufacturing facility in Canada and the purchase of the distribution facility in the United States. The Company anticipates additional capital expenditures in 1998 of approximately $10 million for the purchase of certain manufacturing and computer equipment associated with manufacturing, distribution and marketing activities. Foreign Currency Fluctuations. The Company has subsidiary operations ------------------------------ outside the United States. As a result, the Company is subject to fluctuations in subsidiary revenues and costs reported in United States dollars as a consequence of currency exchange rate fluctuations, especially rates for the British pound and Canadian dollar. Such fluctuations were not material in 1997, 1996 and 1995. Concentration of Credit Risk. Financial instruments that potentially ----------------------------- expose the Company to concentrations of credit risk consist primarily of short term cash investments and trade accounts receivable. The Company places its temporary excess cash investments in short term money market instruments. At times, such investments may be in excess of the FDIC insurance limit. The Company markets its products primarily to wholesale drug distributors, retail pharmacies and physicians in the United Stated and abroad. The Company performs certain credit evaluation procedures and does not require collateral. Reserves are maintained for estimated credit losses. Inflation. Although at reduced levels in recent years, inflation ---------- continues to apply upward pressure on the cost of goods and services used by the Company. However, the Company believes that the net effect of inflation on its operations has been minimal during the past three years. -31- New Accounting Pronouncements - ----------------------------- Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This Statement requires that a company (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. This Statement is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise Related Information" (SFAS No. 131), establishes standards for the way that public business companies report information about operating segments in annual financial statements and requires that those companies report selected information about operating segments in annual financial statements and requires that those companies report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirement to report information about major customers. This Statement is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. The adoption of these Statements will not have an impact on the Company's consolidated results of operation, financial position or cash flow. YEAR 2000 CONVERSION - -------------------- The Company has evaluated the impact of changes necessary to achieve a year 2000 date conversion. Software failures due to processing errors arising from calculations using the year 2000 date are a known risk. Major areas of potential impact have been identified and it is management's opinion that the software currently in use, or that which will be in use at the time, is year 2000 compliant. Therefore, the Company does not expect a material impact on future results due to conversion. -32- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary data of the Company called for by this item are submitted as a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. -33- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information relating to directors of the Company required to be furnished pursuant to this item is incorporated herein by reference to the sections entitled "Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act" from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in May 1998. Certain information relating to executive officers of the Company is set forth in Item 4A of Part I of this Form 10-K under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information pertaining to executive compensation is incorporated herein by reference to the section entitled "Election of Directors -Executive Compensation" from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in May 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information pertaining to security ownership of certain beneficial owners and management is incorporated herein by reference to the sections entitled "Principal Shareholders" and "Security Ownership of Management" from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in May 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Any information relating to this item is incorporated herein by reference from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in May 1998. -34- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. Reference is made to the Index of Financial Statements and Financial Statement Schedules hereinafter contained................................................. F-1 3. EXHIBITS Reference is made to the Index of Exhibits hereinafter contained..................................... E-1 (b) REPORTS ON FORM 8-K During the fourth quarter ended December 31, 1997, the following reports on Form 8-K were filed by the Company with the Securities and Exchange Commission: Form 8-K (Item 5. Other Events), date of earliest event reported November 5, 1997 with respect to the appointment by the Company of Mr. Louis Berardi as Senior Vice President, New Business Development and Strategic Planning. Form 8-K (Item 5. Other Events), date of earliest event reported November 10, 1997 with respect to the completion by the Company of a Phase Ia clinical study with the compound, LY315535. Form 8-K (Item 5. Other Events), date of earliest event reported November 24, 1997 with respect to the approval by the Canadian regulatory authorities of the Company's application to market AGRYLIN in Canada. Form 8-K (Item 5. Other Events), date of earliest event reported December 17, 1997 with respect to the Company's acquisition of exclusive distribution rights to the product SLOW MAG(R). -35- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROBERTS PHARMACEUTICAL CORPORATION ---------------------------------- (Registrant) Date: March 31, 1998 By: /s/ John T. Spitznagel --------------------------------- John T. Spitznagel, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date - --------- ----- ---- /s/ Robert A. Vukovich Chairman March 31, 1998 - ------------------------- ROBERT A. VUKOVICH /s/ John T. Spitznagel President and Director March 31, 1998 - ------------------------- (Principal Executive Officer) JOHN T. SPITZNAGEL /s/ Peter M. Rogalin Vice President, Treasurer March 31, 1998 - ------------------------- & Director (Principal PETER M. ROGALIN Financial and Accounting Officer) /s/ Robert W. Loy Director March 31, 1998 - ------------------------- ROBERT W. LOY /s/ Anthony A. Rascio Director March 31, 1998 - ------------------------- ANTHONY A. RASCIO /s/ Digby W. Barrios Director March 31, 1998 - ------------------------- DIGBY W. BARRIOS /s/ Zola P. Horovitz Director March 31, 1998 - ------------------------- ZOLA P. HOROVITZ /s/ Joseph Noonburg Director - ------------------------- March 31, 1998 JOSEPH NOONBURG /s/ Marilyn Lloyd Director March 31, 1998 - ------------------------- MARILYN LLOYD -36- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ROBERTS PHARMACEUTICAL CORPORATION Page ---- Report of Independent Accountants F-2 Consolidated Balance Sheets as of F-3 December 31, 1995, 1996 and 1997 Consolidated Statements of Operations for F-4 the years ended December 31, 1995, 1996 and 1997 Consolidated Statements of Cash Flows for F-5 the years ended December 31, 1995, 1996 and 1997 Consolidated Statements of Changes in Shareholders' F-6 Equity for the years ended December 31, 1995, 1996 and 1997 Notes to Consolidated Financial Statements F-7 Schedules* Schedule II, Valuation and Qualifying Accounts F-25 ________________ * Schedule I under Article 12 of Regulation S-X has been omitted because of the absence of the conditions under which certain information is required and because certain information required is presented in the financial statements and the notes thereto. F-1 Coopers Coopers & Lybrand L.L.P. &Lybrand a professional services firm Report of Independent Accountants --------------------------------- To the Board of Directors and Shareholders Roberts Pharmaceutical Corporation: We have audited the accompanying consolidated balance sheets of Roberts Pharmaceutical Corporation and Subsidiaries as of December 31, 1997, 1996 and 1995, and the related consolidated statements of operations, cash flows, changes in shareholders' equity for each of the three years in the period ended December 31, 1997 and the financial statement schedules on pages F-25 to F-27 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Roberts Pharmaceutical Corporation and Subsidiaries as of December 31, 1997, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Princeton, New Jersey February 5, 1998 F-2 Coopers & Lybrand L.L.P., a registered limited liability partnership, is a member firm of Coopers & Lybrand (International) ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
December 31, December 31, December 31, ASSETS 1995 1996 1997 --------------- --------------- --------------- Current assets: Cash and cash equivalents $ 16,357 $ 87,125 $ 42,950 Marketable securities 13,649 7,793 39,887 Accounts and Notes Receivable: Trade, net 26,318 30,791 24,730 Shareholder 600 - - - - - - Other - - - 2,889 225 Inventory 20,785 16,665 19,826 Deferred tax assets 10,419 9,040 4,962 Net assets held for sale 4,300 500 3,760 Other current assets 1,342 2,124 1,647 --------------- --------------- --------------- Total current assets 93,770 156,927 137,987 Fixed assets, net 15,681 14,945 25,913 Intangible assets 230,681 183,579 190,724 Notes receivable - - - 5,304 729 Deferred tax asset - - - 11,216 12,332 Other assets 158 254 170 --------------- --------------- --------------- Total assets $ 340,290 $ 372,225 $ 367,855 =============== =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt $ 34,809 $ 6,376 $ 8,037 Accounts payable 14,737 15,848 13,188 Other current liabilities 32,236 29,258 18,756 --------------- --------------- --------------- Total current liabilities 81,782 51,482 39,981 Long-term debt, excluding current installments 16,183 10,639 10,327 Deferred tax liabilities 6,311 - - - - - - Other liabilities 547 345 244 Committments and contingent liabilities (Note 9) - - - - - - - - - Shareholders' equity: Class B 5% Convertible Preferred stock, $.10 par value 10,000,000 shares authorized, 4,440,225 issued, 2,721,030 and 475,654 outstanding - - - 272 48 Common stock, $.01 par value, 100,000,000 shares authorized, 18,536,590, 22,961,707 and 29,536,647 outstanding 189 233 299 Additional paid-in capital 256,296 365,150 372,384 Cumulative translation adjustments (297) (301) (1,250) Retained earnings (deficit) (20,484) (55,358) (53,941) Treasury stock, 387,594 shares of common stock, at cost (237) (237) (237) --------------- --------------- --------------- Total shareholders' equity 235,467 309,759 317,303 --------------- --------------- --------------- Total liabilities and shareholders' equity $ 340,290 $ 372,225 $ 367,855 =============== =============== ===============
The accompanying notes are an integral part of these financial statements. F-3 ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Years ended December 31, 1995 1996 1997 -------------- -------------- ------------- Sales and revenue: Sales $ 113,380 $ 98,075 $ 121,612 Other revenue 47 36 896 -------------- -------------- ------------- Total sales and revenue 113,427 98,111 122,508 Operating costs and expenses: Cost of sales 52,870 49,753 51,386 Research & development 6,108 7,408 (2) 13,146 Marketing & administration 47,576 57,239 58,738 Intangible write-offs and dispositions - - - 33,906 (2) - -------------- -------------- ------------- Total operating costs & expenses 106,554 148,306 123,270 -------------- -------------- ------------- Operating income (loss) 6,873 (50,195) (762) -------------- -------------- ------------- Other income (expense): Interest income 2,050 2,907 5,212 Interest expense (3,453) (1,750) (755) Other income (expense), net 49 188 (2,279) -------------- -------------- ------------- Total other income (expense) (1,354) 1,345 2,178 -------------- -------------- ------------- Income (loss) from continuing operations before income taxes 5,519 (48,850) 1,416 Benefit (Provision) for income taxes (2,816) 14,575 1,101 -------------- -------------- ------------- Income (loss) from continuing operations 2,703 (34,275) 2,517 -------------- -------------- ------------- Discontinued operations: (Loss) from operations of discontinued divisions, net of tax benefits of $2,474, $0, and $0, respectively (4,547) - - - - - - Estimated (loss) income on disposal of divisions, net of tax benefits (provision) of $2,555, ($1,581), and $0 respectively (22,498) 556 - - - -------------- -------------- ------------- (Loss) income from discontinued operations (27,045) 556 - -------------- -------------- ------------- Net (loss) income $ (24,342) $ (33,719) $ 2,517 ============== ============== ============= Per share of common stock, basic: Net income (loss) from continuing operations $ 0.15 $ (2.47)(1)(2) $ 0.06 Net (loss) income from discontinued operations (1.46) 0.03 - -------------- -------------- ------------- Net (loss) income $ (1.31) $ (2.44)(1)(2) $ 0.06 Per share of common stock, fully diluted: Net income (loss) from continuing operations $ 0.15 $ (2.47)(1)(2) $ 0.06 Net (loss) income from discontinued operations (1.45) 0.03 - -------------- -------------- ------------- Net (loss) income $ (1.30) $ (2.44)(1)(2) $ 0.06 Weighted average number of common shares outstanding: Basic 18,536,590 19,132,863 29,414,440 Diluted 18,622,744 19,132,863 29,496,767
________________________ (1) Includes a $.61 per share charge pursuant to a position taken by the SEC staff, effective March 13, 1997, on accounting for preferred stock which is convertible at a discount to market. See Note 1. (2) Includes a $1.33 per share charge for the sale and write-off of certain intangible assets and purchased research and development. See Note 4. The accompanying notes are an integral part of these financial statements. F-4 ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Years Ended December 31, - ---------------------------------------------------------------------------------------------------------------------- 1995 1996 1997 - ---------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ (24,342) $ (33,719) $ 2,517 Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and amortization 7,164 7,531 6,940 Provision for losses on receivables 130 - - - 143 Provision for product sales returns 7,669 6,041 5,994 Provision for inventory obsolescence - - - 4,611 1,941 Write down of intangible assets - - - 14,364 - - - Loss on sale of intangible assets - - - 7,621 - - - Loss on abandonment of leasehold improvements - - - 71 - - - Loss on (income from) discontinued operations 22,498 (556) - - - Foreign currency (losses) gains (31) 387 - - - Change in accounts receivable 1,187 (2,544) 6,572 Change in other assets 1,144 (483) (60) Change in inventory (1,819) (627) (5,436) Change in accounts payable and other liabilities 12,460 (3,337) (14,430) Impact of discontinued operations (3,298) (2,582) (629) - ---------------------------------------------------------------------------------------------------------------------- Total adjustments 47,104 30,497 1,035 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 22,762 (3,222) 3,552 - ---------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: (Investment in) redemption of marketable securities 13,013 5,856 (32,094) Purchases of intangible assets (1,552) (4,762) (9,058) Proceeds from sale of intangible assets - - - 1,600 - - - Purchases of fixed assets (226) (168) (11,986) Collection on notes receivable - - - - - - 6,738 Impact of discontinued operations (243) - - - - - - - ---------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities 10,992 2,526 (46,400) - ---------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Payments on notes payable and long term debt (28,061) (36,773) (6,588) Net proceeds from issuance of common stock 803 9,923 1,075 Net proceeds from issuance of preferred stock - - - 99,247 6,000 Cash dividends paid - - - (476) (1,629) Impact of discontinued operations (7) (397) - - - - ---------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (27,265) 71,524 (1,142) - ---------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 49 (60) (185) - ---------------------------------------------------------------------------------------------------------------------- Change in cash and cash equivalents 6,538 70,768 (44,175) Beginning cash and cash equivalents 9,819 16,357 87,125 - ---------------------------------------------------------------------------------------------------------------------- Ending cash and cash equivalents $ 16,357 $ 87,125 $ 42,950 - ---------------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 2,979 $ 2,396 $ 823 Income taxes paid 268 233 29 Non cash activities: Present value of notes issued in connection with product acquisitions $ 18,279 - - - $ 7,250 Notes received for sale of Pronetics subsidiaries and product rights - - - $ 8,193 - - -
The accompanying notes are an integral part of these financial statements. F-5 ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands)
Additional Retained 5% Preferred Stock Common Stock Paid-In Earnings Shares Amount Shares Amount Capital (Deficit) ---------- ---------- ----------- --------- ---------- --------- Balance, December 31, 1994 18,807,794 $ 188 $ 255,994 $ 3,858 Issuance of common stock 116,390 1 302 - - - Cumulative translation adjustment - - - - - - - - - - - - Year ended December 31, 1995 net loss - - - - - - - - - (24,342) ----------- --------- ---------- --------- Balance, December 31, 1995 18,924,184 189 256,296 (20,484) Issuance of preferred shares 4,200,000 $ 420 - - - - - - 98,827 - - - Issuance of common stock - - - - - - 651,058 7 9,916 - - - Cumulative translation adjustment - - - - - - - - - - - - - - - - - - Year ended December 31, 1996 net loss - - - - - - - - - - - - - - - (33,719) 5% Preferred dividends - - - - - - - - - - - - - - - (1,155) 5% Preferred stock converted to common stock (1,478,970) (148) 3,774,059 37 111 - - - ---------- ---------- ----------- --------- ---------- --------- Balance, December 31, 1996 2,721,030 272 23,349,301 233 365,150 (55,358) Issuance of preferred shares 240,225 25 5,976 Issuance of common stock - - - - - - 97,245 1 1,074 Cumulative translation adjustment - - - - - - - - - - - - - - - - - - Year ended December 31, 1997 net income - - - - - - - - - - - - - - - 2,517 5% Preferred dividends - - - - - - - - - - - - - - - (1,100) 5% Preferred stock converted to common stock (2,485,601) (249) 6,477,695 65 184 - - - ---------- ---------- ----------- --------- ---------- --------- Balance, December 31, 1997 475,654 $ 48 29,924,241 $ 299 $ 372,384 $ (53,941) ========== ========== =========== ========= ========== ========= Cumulative Total Translation Treasury Shareholders' Adjustment Stock Equity --------- ---------- ---------- Balance, December 31, 1994 $ (674) $ (237) $ 259,129 Issuance of common stock - - - - - - 303 Cumulative translation adjustment 377 - - - 377 Year ended December 31, 1995 net loss - - - - - - (24,342) --------- ---------- ---------- Balance, December 31, 1995 (297) (237) 235,467 Issuance of preferred shares - - - - - - 99,247 Issuance of common stock - - - - - - 9,923 Cumulative translation adjustment (4) - - - (4) Year ended December 31, 1996 net loss - - - - - - (33,719) 5% Preferred dividends - - - - - - (1,155) 5% Preferred stock converted to common stock - - - - - - - --------- ---------- ---------- Balance, December 31, 1996 (301) (237) 309,759 Issuance of preferred shares 6,001 Issuance of common stock - - - - - - 1,075 Cumulative translation adjustment (949) - - - (949) Year ended December 31, 1997 net income - - - - - - 2,517 5% Preferred dividends - - - - - - (1,100) 5% Preferred stock converted to common stock - - - - - - - - - --------- ---------- ---------- Balance, December 31, 1997 $ (1,250) $ (237) $ 317,303 ========= ========== ==========
The accompanying notes are an integral part of these financial statements. F-6 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Basis of Presentation --------------------- Roberts Pharmaceutical Corporation is an international pharmaceutical company which licenses, acquires, develops and commercializes post-discovery drugs in selected therapeutic categories. The Company currently markets approved pharmaceutical products in the United States, Canada, the United Kingdom and several other European countries. The consolidated financial statements include the accounts of Roberts Pharmaceutical Corporation and its majority-owned subsidiaries. All significant intercompany transactions are eliminated. All dollar amounts are presented in thousands, except for earnings per share. Revenue Recognition ------------------- Product sales, net of estimated future returns, are recorded as the products are shipped against customer orders. Licensing revenues are recorded as earned under the terms of each underlying agreement and are included in other revenue. Cash Equivalents and Marketable Securities ------------------------------------------ Cash equivalents include all money market investments with original maturities of three months or less. Marketable securities consist primarily of debt instruments with maturities of more than three months and are stated at amortized cost plus accrued interest, which approximates fair value. Inventories ----------- Inventories, consisting primarily of finished goods, are stated at the lower of first-in, first-out cost or market. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of F-7 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates include accounting for allowance for doubtful accounts, inventory obsolescence, future product returns, depreciation and amortization, value of intangibles, employee benefit plans, taxes, discontinued operations and contingencies. Fixed Assets and Depreciation ----------------------------- Fixed assets are stated at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the related assets ranging from five to fifty years. Gains and losses on disposals are recognized in the year of the disposal. Expenditures for maintenance and repairs are expensed as incurred; significant renewals and betterments are capitalized. Intangible Assets ----------------- Intangible assets are stated at cost less accumulated amortization. Amortization is determined using the straight-line method over the estimated useful lives of the related assets which are estimated to range from ten to forty years. It is the Company's policy to review periodically and evaluate whether there has been an impairment in the value of intangibles. In the fourth quarter of 1996, the Company recorded a charge to earnings for an impairment of intangible assets and to expense certain purchased development products totalling $25.4 million. Foreign Currency Translation ---------------------------- Effective January 1, 1997, the functional currency of the United Kingdom subsidiary, Monmouth Pharmaceutical, Ltd., was changed from the U.S. dollar to the British pound as a result of a change in circumstance. Monmouth's translation gains and losses for 1997 are accumulated as a separate component of Shareholders' Equity. In 1996 and 1995, Monmouth's accounts were remeasured in dollars and translation gains and losses were included in income in those years. The functional currency of the Company's Canadian subsidiary is the Canadian dollar. Translation gains and losses of the Company's Canadian subsidiary are accumulated as a separate component of Shareholders' Equity. F-8 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Included in the balance sheet at December 31, 1995, 1996 and 1997 is debt of $1,849, $832 and $0, respectively, denominated in British pounds. Concentration of Credit Risk ---------------------------- The Company markets prescription and nonprescription pharmaceuticals primarily to wholesale drug distributors, retail pharmacies and physicians in the United States and abroad. The Company performs certain credit evaluation procedures and does not require collateral. The Company maintains reserves for estimated credit losses; at December 31, 1995, 1996 and 1997, the reserve for uncollectible accounts amounted to $1,754, $1,440 and $440, respectively. At December 31, 1997, cash equivalents and marketable securities consisted of immediately available money market fund balances and investment grade debt and preferred stock securities with maturities of less than one year. The fair value of investment securities classified as available for sale, totaled $40,086 at December 31, 1997. These investment securities mature within one year. Earnings (loss) per share ------------------------- As of December 15, 1997, the Company has adopted the provisions of SFAS 128. Basic income (loss) per share was computed based on the weighted average number of shares of Common Stock actually outstanding. Diluted earnings per share were calculated based on the Common Shares outstanding plus the dilutive effect of potentially dilutive common stock. F-9 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net income (loss) from operations used in the calculation of earnings per share was calculated as follows:
December 31, --------------------------------------- 1995 1996 1997 ----------- ------------ ------------ Net (loss) income from operations $ 2,703 $ (34,275) $ 2,517 Preferred dividends --- (1,155) (859) Discount on 5% Preferred Stock --- (11,670) --- ----------- ----------- ----------- Net (loss) income for computation of earnings per share $ 2,703 $ (47,100) $ 1,658 =========== =========== =========== Total common stock and potentially dilutive common stock for the calculation of diluted earnings per share were calculated as follows: December 31, --------------------------------------- 1995 1996 1997 ----------- ------------ ------------ Weighted average common shares outstanding 18,536,590 19,132,863 29,414,440 Dilutive effect of: Preferred Stock Warrants --- --- 82,246 Stock Options 86,154 --- 81 ----------- ----------- ----------- Total shares for computation of EPS 18,622,744 19,132,863 29,496,767 =========== =========== ===========
The effect of conversion of the original shares of Preferred Stock for December 31, 1996 is not included in the calculation of earnings per share because inclusion would be antidilutive. The remaining original 5% Preferred Stock shares were convertible into 1,332,322 shares of Common Stock at December 31, 1997. Other common stock equivalents which could result in dilution of earnings in future periods, depending on the market price of the Company's Common Stock, are stock options held by employees and Common Stock Warrants granted to the Placement Agent of the 5% Preferred Stock. See Note 8., Shareholders' Equity, for further discussion of these securities. Pursuant to a position taken by the SEC staff (the "Staff"), effective March 13, 1997, on accounting for preferred stock which is convertible at a discount to market, the Company adjusted its calculation of 1996 Earnings Per Share by $.61 per share. This reflected the Staff's position that the 10% discount available to holders of the Company's 5% Preferred Stock should be incorporated in the calculation of Earnings Per Share. F-10 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS To clarify the adjustments indicated above, a reconciliation of Earnings Per Share for the twelve months ended December 31, 1996 is composed of the following elements: Net (Loss) from continuing operations before the consideration of purchased research and development and write-off and the sale of intangible assets, the recognition of the discount upon the issuance of 5% Preferred Stock or preferred dividends $ (.47) Purchased research and development and write-off and sale of intangible assets (1.33) 5% Preferred Stock dividends (.06) Issuance of 5% Preferred Stock at a 10% discount to market (.61) (.67) ----- -------- Net (Loss) from Continuing Operations (2.47) Income from Discontinued Operations .03 -------- (Loss) attributable to Common Stock $ (2.44) ======== New Accounting Pronouncements - ----------------------------- Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This Statement requires that a company (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. This Statement is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise Related Information" (SFAS No. 131), establishes standards for the way that public business companies report information about operating segments in annual financial statements and requires that those companies report selected information about operating segments in annual financial statements and requires that those companies report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirement to report information about major customers. F-11 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS This Statement is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. The adoption of these Statements will not have an impact on the Company's consolidated results of operation, financial position or cash flow. Reclassification - ---------------- Certain items have been reclassified to conform to the current year presentation. 2. INVENTORY --------- Inventory consists of: December 31, ------------------------- 1995 1996 1997 ---- ---- ---- $ 3,539 $ 2,393 $ 2,487 Raw materials Work-in-process --- --- 451 Finished goods 17,246 14,272 16,888 ------- ------- ------- $20,785 $16,665 $19,826 ======= ======= ======= 3. FIXED ASSETS, NET Fixed assets consist of: December 31, ------------------------- 1995 1996 1997 ------- ------- ------- Land and buildings $14,823 $14,925 $23,440 Office furniture and equipment 2,588 2,616 5,466 Leasehold improvements 109 --- --- ------- ------- ------- 17,520 17,541 28,906 Less: Accumulated depreciation and amortization 1,839 2,596 2,993 ------- ------- ------- $15,681 $14,945 $25,913 ======= ======= ======= F-12 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. INTANGIBLE ASSETS ----------------- Intangible assets consist of: December 31, ---------------------------- 1995 1996 1997 -------- -------- -------- Product rights acquired $245,287 $204,611 $217,919 Goodwill 3,812 --- --- -------- -------- -------- 249,099 204,611 217,919 Less: Accumulated amortization 18,418 21,032 27,195 -------- -------- -------- $230,681 $183,579 $190,724 ======== ======== ======== Intangible Dispositions and Write-Offs. --------------------------------------- During the fourth quarter of 1996, the Company completed the sale of the majority of its non-core nonprescription brands along with the NUCOFED and QUIBRON brands in two independent sales agreements. These sales, net of proceeds, resulted in a one time, non-cash write off of $11.9 million, which amounted to $7.6 million net of taxes. Also, during the fourth quarter of 1996, the Company expensed certain purchased development products and recorded an impairment loss of long-lived intangible assets totalling $25.4 million, ($17.8 million net of taxes). If the estimate of undiscounted cash flows to be generated by the remaining intangible assets decreases in the future, an additional write-down of those assets may be required. Operating income and net loss for 1996 were negatively affected by the purchase of development products, the sale and write down of the intangible assets in the amounts of $37.3 million for operating income and $25.4 million for net loss. The operating loss would have amounted to $12.9 million and net loss would have been $8.3 million if such transactions had not occurred. 5. OTHER CURRENT LIABILITIES ------------------------- Other current liabilities consist of: December 31, ------------------------- 1995 1996 1997 ---- ---- ---- Accrued estimated loss on discontinuation of VRG and Homecare $ 8,848 $ 448 $ --- Accrued estimated future product returns 15,444 15,570 9,364 Accrued estimated Medicaid rebates 1,734 1,169 1,150 Income taxes payable 3,707 7,019 3,022 Other accrued liabilities 2,503 5,052 5,220 ------- ------- ------- $32,236 $29,258 $18,756 ======= ======= ======= F-13 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Product return reserves of $2,336, $728, and $728 have been offset against accounts receivable for 1995, 1996, and 1997, respectively. 6. LONG-TERM DEBT -------------- Long-term debt consists of: December 31, --------------------------- 1995 1996 1997 ------- ------- ------- Notes payable on product acquisitions at an imputed weighted average interest rate of 5.75%, 6.0% and 6.0% $50,846 $16,960 $18,364 Other notes payable 146 55 --- ------- ------- -------- 50,992 17,015 18,364 Less: Current installments 34,809 6,376 8,037 ------- ------- -------- $16,183 $10,639 $10,327 ======= ======= ======== Principal payments in each of the next five years on long-term debt outstanding at December 31, 1997 amount to: 1998........................................... $ 8,037 1999........................................... 7,025 2000........................................... 3,302 2001........................................... --- 2002........................................... --- ------- $18,364 ======= Notes payable are collateralized by acquired product rights. 7. SHAREHOLDERS' EQUITY -------------------- The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. If the Company had elected to recognize compensation cost based on the fair value at the grant dates for awards in 1995, 1996 and 1997, consistent with the provisions of SFAS No. 123, the Company's net loss and per share data would have been changed to the pro forma amounts indicated below: Years Ended December 31, ------------------------ 1995 1996 1997 ---- ---- ---- Net Income (Loss) As reported $(24,342) $(33,719) $ 2,517 Pro forma $(24,361) $(36,925) $( 4,620) --------- Income (Loss) As reported-Basic $( 1.31) $( 2.44) $ 0.06 per share As reported-Diluted $( 1.30) $( 2.44) $ 0.06 Pro forma - Both $( 1.30) $( 2.61) $( 0.19) ---------------- The fair value of stock options used to compute pro forma net loss and per share disclosures is the estimated present value at grant date using F-14 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 0%; expected volatility of 54%; a risk free interest rate of 6%; and a general expectation that employees will exercise options when they become vested. The weighted average fair value of stock options, calculated using the Black-Scholes option-pricing model, granted during the years ended December 31, 1996 and 1997 was $7.17 and $8.48, respectively. On July 17, 1996, the Company issued and sold in a private placement to certain investment funds 600,000 shares of the Company's Common Stock at an issue price of $16.65 per share resulting in gross proceeds to the Company of $9.9 million. In addition to receiving cash consideration equal to 5% of the gross proceeds and the reimbursement of certain expenses, the Placement Agent received Common Stock Warrants to acquire an aggregate of 15,000 shares of Common Stock for a purchase price of $16.65 per share. These warrants expire in July of 1999. On August 29, 1996, the Company issued and sold in a private placement to approximately eighty accredited investors for $25 per share an aggregate of 4,200,000 shares of cumulative 5% Preferred Stock resulting in gross proceeds of $105 million. In addition to receiving cash consideration equal to 5% of the gross proceeds and the reimbursement of certain expenses the Placement Agent received Preferred Stock Warrants to acquire 420,000 shares of 5% Preferred Stock for a purchase price of $25 per share. These warrants expire in August 1998. In 1997, 240,225 of these warrants were exercised, resulting in gross proceeds of $6 million. The 5% Preferred Stock is convertible into a number of shares of Common Stock which depends, in part, upon the conversion price in effect at the time of the conversion. The 5% Preferred Stock is convertible into Common Stock at a 10% discount to market. Of the total 4,440,225 5% Preferred Stock shares issued, 3,964,571 shares have been converted into shares of Common Stock, of which 2,485,601 shares were converted in 1997. On August 29, 1998, all remaining outstanding shares of the 5% Preferred Stock will be automatically converted into Common Stock at the conversion price then in effect. Stock Compensation Plans ------------------------ In prior years, executives and key employees of the Company were granted stock option awards under the Incentive Stock Option Plan. In May of 1996, the Company's shareholders approved the Equity Incentive Plan which became effective May 22, 1996. The Company's Incentive Stock Option F-15 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Plan was discontinued on the same date. The Equity Incentive Plan provides for the grant of incentive and nonqualified stock options, stock appreciation rights, deferred stock awards, restricted stock grants and other stock based awards to executives and key employees. The total number of shares of Common Stock authorized for grant under the Equity Incentive Plan is 1,500,000. Options to purchase Common Stock may be granted either alone or in addition to other awards. The term of each option will be fixed by the Compensation Committee (the "Committee") of the Company's Board of Directors, provided that no incentive stock option, as defined in the Internal Revenue Code, will be exercisable after the expiration of ten years from the date the option is granted. Options will be exercisable at such time or times as determined by the Committee at or subsequent to grant. Stock Appreciation Rights ("SARS") may be granted to participants either alone or in addition to stock options and may, but need not be, related to a specific option. The provisions of SARs need not be the same with respect to each recipient. Performance awards, restricted stock awards and other stock unit awards may also be granted. Presented below is the total number of the Company's shares of Common Stock represented by awards granted to the Company's employees for the years ended December 31, 1996 and December 31, 1997.
Weighted Weighted Average Average Market Value 1996 Market Value 1997 ------------ -------- ------------ ---- Stock Awards $11.25 16,500 --- --- Stock appreciation rights granted $11.50 255,000 --- ---
On December 3, 1996, out-of-the-money options were cancelled and reissued with a revalued exercise price of $11.375. All other terms and conditions remained in effect. The following table summarizes the status of the Company's stock options, outstanding and exercisable at January, 1998.
Stock Options Stock Options Outstanding Exercisable ----------- ----------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Contractual Exercise Exercise Prices Shares Life Price Shares Price - ---------------------------------------------------------------------------------------------- $10.06 to $11.375 1,371,763 2 yrs,11 mos $11.02 663,463 $11.37 $11.50 to $11.75 857,060 4 yrs,11 mos $11.51 511,910 $11.50 $12.375 to $13.25 58,500 5 yrs,3 mos $12.73 22,500 $12.86
F-16 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Presented below is a summary of the status of the Company's stock options held by employees, and the related transactions for the years ended December 31, 1996 and December 31, 1997.
Year Ended Year Ended December 31, December 31, 1996 1997 ------------------------------------------- Weighted Weighted Average Average Exercise Exercise Stock Options Price Shares Price Shares - ------------------------------------------------------------------------------- Options outstanding $19.060 1,175,710 $11.803 2,108,415 January 1 Granted $11.480 1,113,250 $ 10.78 549,848 Exercised $11.910 (51,058) $11.375 (76,825) Forfeited/Expired $18.553 (129,487) $ 11.42 (294,125) Options outstanding $11.803 2,108,415 $ 11.45 2,287,313 December 31 Options available for grant - Equity Incentive Plan 23,502
8.INCOME TAXES ------------ The Company utilizes the asset and liability method for taxes, which requires that deferred income taxes be provided for the cumulative temporary differences between the financial and tax bases of the Company's assets and liabilities. The (provision) benefit for income taxes consists of:
Year Ended December 31, 1995 1996 1997 --------- ------- -------- Current Federal $(3,641) $ --- $ 4,055 State and foreign (57) --- --- ------- ------- ------- Total current $(3,698) $ --- $ 4,055 ======= ======= ======= Deferred Federal 728 14,487 (3,148) State and foreign 154 88 194 ------- ------- ------- Total deferred $ 882 $14,575 $(2,954) ======= ======= =======
F-17 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A comparison of the provision for income taxes as reported, to a provision based on federal statutory rates and consolidated income before income taxes is as follows:
Year Ended December 31, 1995 1996 1997 -------- --------- -------- (Provision) benefit at federal statutory rates $(1,876) $16,609 $ (478) Non-deductible expense (404) (530) (262) State taxes net of federal effect (3) --- --- Research and development credits --- (266) --- Foreign items (405) (809) (523) Other (128) (429) (337) Adjustment to prior year liabilities --- --- 2,701 ------- ------- ------ (Provision) benefit for income taxes $(2,816) $14,575 $1,101 ======= ======= ======
The adjustment to prior year liabilities was a result of the elimination of certain reserves for taxes due to the closure of years 1991 through 1993 from an IRS audit. The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1996 and December 31, 1997 are presented below:
December 31, 1996 December 31, 1997 Federal Debits Credits Debits Credits - ------- --------------- ------- ------- ------- Inventory $ 718 $ --- $ 340 $ --- Allowance for bad debts 855 --- 181 --- Accrued liabilities 7,139 --- 5,144 --- Depreciation --- 409 --- 412 Foreign items 2,533 --- 3,159 --- Amortizable intangibles --- 314 --- 1,657 Loss on Discontinuance 152 --- --- 558 AMT credit --- --- 449 --- Other 158 --- 138 --- Net Operating Losses 10,104 --- 12,054 --- State taxes 4,799 290 3,994 --- ------- ------- ------- ------- Total 26,458 1,013 25,459 2,627 Valuation allowance - state and foreign (5,197) --- (5,538) --- $21,261 $ 1,013 $19,921 $2,627 ======= ======= ======= =======
At December 31, 1997, the Company has federal net operating loss carryforwards of approximately $35.5 million which expire in the year 2011 and 2012, foreign net operating loss carryforwards of approximately $9.8 million and net operating loss carryforwards for state tax purposes of approximately $64,635 which expire at various dates through 2004. F-18 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A valuation allowance was provided for certain foreign net operating losses and certain state deferred tax assets due to the uncertainty of realization of these assets. The Company has recorded net deferred tax assets of approximately $17.3 million. Realization is dependent upon generating sufficient taxable income to utilize such items. Although realization is not assured, management believes it is more likely than not that the deferred tax assets for which a valuation allowance has not been provided, will be realized. The amount of the deferred tax assets considered realizable, however, could be reduced at any time if estimates of future taxable income are reduced. 9. LEASES AND OTHER COMMITMENTS ---------------------------- The Company leases office space and certain office equipment under operating leases. Minimum rental payments in each of the next five fiscal years required under leases which have initial or remaining lease terms in excess of one year are as follows: December 31, 1997 ----------------- 1998....................................... $1,524 1999....................................... 960 2000....................................... 445 2001....................................... 277 2002....................................... 82 Rent expense for the years ended December 31, 1995, 1996, and 1997 was $1,321, $177, and $257 respectively. In accordance with several product acquisitions and licensing agreements and subject to certain cancellation rights reserved by the Company, the Company may be required to make minimum payments related to NOROXIN, SAMPATRILAT and the Lilly Compounds totalling $46.3 million and purchase PROAMATINE inventory in the amount of $50.1 million through 2002. 10.EMPLOYEE BENEFITS ----------------- The Company has employment agreements with certain of its employees which provide them with continued compensation for a period of two to five years in the event of their termination by the Company and provide certain of them with additional payments on termination by the Company equal to three to five times a portion of their average bonus and incentive compensation from July 1, 1988 to their termination date. F-19 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Through December 31, 1997 the Company maintained an employee savings plan available to all employees who met certain age and service requirements and made discretionary contributions to the plan based on employee compensation or employee contributions. In the years ended December 31, 1995, 1996 and 1997, the Company contributions amounted to $231, $197, and $258 respectively. Also through December 31, 1997, the Company had a money purchase pension plan available to all employees who met certain age and service requirements. The Company made discretionary contributions to the plan based on employee compensation, and the Company can choose to terminate the plan at any time. In 1995, 1996 and 1997, the Company recorded contributions amounting to $217, $206, and $248 respectively. As of January 1, 1998, the two plans were merged into one employee savings plan. This plan is available to all employees who meet certain age and service requirements. The plan requires mandatory contributions to the plan based on employee contributions and makes discretionary contributions to the plan based on employee compensation. Employee Stock Purchase Plan ---------------------------- The Company's Board of Directors approved the Employee Stock Purchase Plan (the "Plan"), which gives employees of the Company the opportunity to purchase shares of the Company's Common Stock through payroll deductions beginning on April 1, 1997. Employees can elect to participate in the Plan by designating from 1% to 10% of eligible compensation to be deducted from pay. On the date of exercise, which is the Friday before the 15th of the month following each quarter end, the per share purchase price will be 85% of the average high and low per-share trading price of Roberts common stock on the American Stock Exchange on that date. 500,000 shares of the Company's Common Stock have been reserved for issuance under the Employee Stock Purchase Plan. The total number of shares purchased under the plan in the year ended December 31, 1997 was 4,045 with a total value of $39,388. 11.CONTINGENCY ----------- A shareholder class action suit was instituted in March, 1995, in the United States District Court for the District of New Jersey against the Company and certain of its officers and a former officer for alleged violations of certain federal securities laws. This suit has been settled. The net expenses of this settlement to the Company amounted to $2.3 million and were included in other expense for the quarter ended September 30, 1997. F-20 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12.ACQUISITIONS ------------ In 1995, 1996, and 1997, the Company acquired inventory, trademarks and other rights to several products from various pharmaceutical companies. The aggregate price of these acquisitions was $22.3 million, $5.1 million, and $15.3 million respectively, consisting of cash and notes payable. The intangibles related to acquisitions are being amortized on the straight-line basis over periods ranging from twenty-five to forty years. 13.SEGMENT REPORTING ----------------- Selected financial information of the Company's geographic segments for the years ended December 31, 1995, 1996, and 1997 are as follows: Years Ended December 31, --------------------------------- Geographic segments 1995 1996 1997 --------- ---------- --------- Revenues - nonaffiliates Domestic $ 90,177 $ 74,422 $ 91,613 Foreign 23,250 23,689 30,895 -------- -------- -------- $113,427 $ 98,111 $122,508 ======== ======== ======== Revenues - affiliates Domestic $ 483 $ 174 $ 178 ======== ======== ======== Operating income (loss) Domestic $ 10,795 $(46,501) $ 4,471 Foreign (1,424) ( 1,513) ( 2,179) Adjustments and eliminations $ (2,498) $( 2,181) $( 3,054) -------- -------- -------- $ 6,873 $(50,195) $( 762) ======== ======== ======== Identifiable assets at end of period Domestic $294,247 $321,809 $304,038 Foreign 48,541 52,597 66,494 Adjustments and eliminations (2,498) (2,181) ( 2,975) -------- -------- -------- $340,290 $372,225 $367,557 ======== ======== ======== Intercompany revenues are based on market conditions at the time of sale. Foreign operations primarily include the results of operations in the United Kingdom, Canada and the Organization for Economic Cooperation and Development countries which include the Republic of Ireland, certain other Western European countries and Japan. F-21 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14.DISCONTINUED OPERATIONS ----------------------- In August 1995, the Company decided to seek a buyer for the assets of its Pronetics (Homecare) subsidiaries which were located in New York, New Jersey, North Carolina, and South Carolina. The sale of the Homecare division was expected to result in a loss at closing. Accordingly, the Company charged 1995 operations with the estimated loss on discontinuing Homecare of $9.7 million, including a provision of $1.9 million for operating losses until disposal of which $1.3 million was used in the third and fourth quarters of 1995. Sales of the Homecare subsidiaries were essentially completed in December 1996. The total realized from the sales was $2.7 million. The additional loss on sale was offset by a decrease in the assets held for sale and lower than expected losses from operations in 1996. There was no income statement effect from the final disposition of the Homecare division. An additional loss of $2.5 million on disposal of the Hauck division was recognized in 1996. This expense was due to impairment of the division's product intangibles. In March 1996, the Company announced its plan to discontinue and divest VRG, a contract clinical research organization. The Company expected the sale of VRG to result in a loss at closing. Accordingly, the Company charged 1995 operations with the estimated loss on discontinuing VRG of $12.8 million, including a provision of $5.0 million for operating losses until disposal. At December 31, 1995, net assets expected to be realized, consisting primarily of receivables and plant and equipment, totaled $0.5 million. In 1996, the Company reassessed the estimated operating loss which resulted in an income statement impact of a $3.1 million gain. In January, 1998, the Company signed a Letter of Intent to sell VRG's operations subject to the execution of a definitive acquisition agreement and the successful completion of due diligence by the purchaser. To date, the Company and the purchaser are negotiating the terms of said definitive acquisition agreement and the transaction is expected to close within the month of April, 1998. F-22 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15.FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturities of these instruments. The fair value of marketable securities was estimated based on quotes obtained from brokers. The fair value of long-term debt is estimated based on the discounted future cash flows using currently available interest rates. December 31, 1997 ------------------------------------ Carrying Amount Fair Value --------------- ---------- Cash and cash equivalents $ 42,950 $42,950 Marketable securities 39,887 40,086 Long-term debt 18,364 18,033 The carrying amounts in the table are included in the consolidated balance sheet under the indicated captions. 16.QUARTERLY RESULTS OF OPERATIONS The following table presents summarized quarterly results for 1997 (in thousands, except per share data). (Unaudited) First Second Third Fourth ----- ------ ----- ------ Revenues $ 26,330 $30,286 $28,357 $36,639 Gross profit 14,678 17,305 14,310 23,933 Net earnings 910/(1)/ 1,288 (2,995)/(2)/ 3,315/(3)/ Diluted net earnings per share $ 0.02 $ 0.04 $(0.11) $ 0.11 F-23 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents summarized quarterly results for 1996 (in thousands, except per share data). (Unaudited) First Second Third Fourth ----- ------ ----- ------ Revenues $17,228 $26,803 $21,688 $32,392 Gross profit 8,288 13,325 11,331 15,378 Net earnings (4,212) 2,215/(4)/ (3,133)/(5)/ (28,589)/(5)/ Diluted net earnings per share $ (.23) $ .12 $ (.40)/(6)/ $(1.94)/(6)/ (1) Subsequent to the filing of the Company's quarterly report on Form 10- Q for the three months ended March 31, 1997, the Company reclassified costs that had been capitalized as an intangible asset to research and development expense. The net of tax charge to earnings was $660,000, or $0.02 per share. (2) Includes a $2.3 million charge for the settlement of a lawsuit instituted against the Company for alleged violations of certain federal securities laws. (3) In fourth quarter 1997, management made several changes in the estimates of income tax reserves and allowances for returned goods. The reduction in income tax reserves resulted from the elimination of certain reserves due to the closure of years 1991 through 1993 after an IRS audit. The allowance for returned goods was revalued based upon a change in estimate of the economic benefit from the product returns. The impact of these revaluations was $2.7 million and $1.0 million respectively. (4) Includes a $4.0 million credit for the reassessment of the reserve for discontinued operations, established in 1995. (5) Includes a $25.4 million charge for the purchase of certain development products and the write-off and sale of certain intangible assets. (See Note 4.) (6) Includes $.21 and $.40 per share charge for the third and fourth quarter, respectively, pursuant to the 10% discount to market upon conversion of the 5% Preferred Stock into Common Stock. Such amount was not included in the Company's third quarter 1996 10-Q. The amount is included based on the SEC position effective March 13, 1997 on such discounts. In addition, includes $.02 and $.04 per share charge for the third and fourth quarter, respectively, pursuant to dividends paid and accrued on 5% Preferred Stock. F-24 SCHEDULE II ROBERTS PHARMACEUTICAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1997
Additions Balance ---------------------------------- Balance Beginning of Charged to Charged to End of Period Costs and Expenses Other Accounts Deductions Period -------------- ------------------ -------------- ---------- ------- Allowance for uncollectibles $ 1,440 $ 120 $ --- $(1,120) $ 440 Allowance for return goods $16,298 $ 5,667 $(3,000)/(1)/ $(9,130)/(2)/ $ 9,835
(1) Reversal of allowance established in connection with product acquisition. (2) $1,671 of the decrease in the allowance for returned goods is related to a change in the estimation of goods actually returned. Items returned due to billing and shipping errors are no longer included in the estimation as these items are restocked and salable. F-25 ROBERTS PHARMACEUTICAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1996
Additions Balance ---------------------------------- Balance Beginning of Charged to Charged to End of Period Costs and Expenses Other Accounts Deductions Period -------------- ------------------ -------------- ---------- ------- Allowance for uncollectibles $ 1,754 $ --- $ --- $ 314 $ 1,440 Allowance for return goods $17,780 $ 6,041 $ --- $ 7,523 $16,298
F-26 ROBERTS PHARMACEUTICAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1995
Additions Balance ---------------------------------- Balance Beginning of Charged to Charged to End of Period Costs and Expenses Other Accounts Deductions Period -------------- ------------------ -------------- ---------- ------- Allowance for uncollectibles $2,195 $ 130 --- $ (571) $ 1,754 Allowance for return goods $8,951 $7,669 $6,154(1) $(4,994) $17,780
(1) Allowance established in connection with product acquisitions. F-27 Exhibit Index Exhibit No. - ----------- o 3.1.1 Amended and Restated Certificate of Incorporation of Registrant filed with the Secretary of State of the State of New Jersey on February 1, 1988 and Certificates of Amendment thereto dated February 2, 1988 and October 31, 1989, respectively. zz 3.1.2 Certificate of Amendment, dated August 26, 1996, to the Amended and Restated Certificate of Incorporation of Roberts Pharmaceutical Corporation. ee 3.1.3 Certificate of Amendment, dated August 29, 1996, to the Amended and Restated Certificate of Incorporation of Roberts Pharmaceutical Corporation. zz 3.1.4 Certificate of Amendment, dated November 25, 1996, to the Amended and Restated Certificate of Incorporation of Roberts Pharmaceutical Corporation. y 3.2 By-laws of the Registrant, as amended. + 4.1 Form of Specimen Certificate, Roberts Pharmaceutical Corporation Common Stock. dd 4.2 Form of Specimen Certificate, Roberts Pharmaceutical Corporation 5% Convertible Preferred Stock. dd 4.4 Form of Stock Purchase Agreement, dated July 17, 1996, executed by and between Roberts and the purchasers of the Common Stock in the Common Stock Private Placement. dd 4.5 Form of Preferred Stock Investment Agreement, dated August 29, 1996, executed by and between Roberts and the purchasers of the 5% Convertible Preferred Stock in the Preferred Stock Private Placement. dd 4.6 Form of Stock Purchase Warrant used in connection with the Common Stock Private Placement. dd 4.7 Form of Stock Purchase Warrant used in connection with the Preferred Stock Private Placement. ff 4.8 Rights Agreement, dated as of December 16, 1996, between Roberts and Continental Stock Transfer & Trust Company and the Summary of Rights to purchase Roberts Preferred Stock. E-1 ff 4.9 Form of Specimen Rights Certificate to be used upon the occurrence of a "Distribution Date" as defined in the Rights Agreement. + 10.1 License Agreement (United States), dated November 6, 1989, between Roberts and Istituto Biologico Chemioterapico (ABC) S.p.A. + 10.2 License Agreement (United Kingdom), dated November 6, 1989, between Roberts and Istituto Biologico Chemioterapico (ABC) S.p.A. o 10.3 License Agreement, dated January 1, 1985, between the National Technical Information Service and Roberts. o 10.4 Agreement, dated October 1, 1985, between Hafslund Nycomed Pharma AG (formerly CL Pharma AG) and Roberts Laboratories, Inc., a wholly owned subsidiary of Roberts. aa 10.4.1 Amendment, dated January 19, 1994, to Agreement, dated October 1, 1985, between Hafslund Nycomed Pharma AG and Roberts Laboratories, Inc., a wholly owned subsidiary of Roberts. o 10.16 Agreements and other documents of Roberts, Hafslund Nycomed AG and Linz-Roberts, Inc. including the following exhibits thereto: (a) Subscription and Shareholders Agreement, dated December 1, 1985, between Roberts, Hafslund Nycomed Pharma AG and Linz- Roberts, Inc., including the following exhibits thereto: (i) Certificate of Incorporation of Linz-Roberts, Inc. (ii) By-Laws of Linz-Roberts, Inc. (iii) License Agreement, dated January 1, 1985, between the National Technical Information Service and Roberts. (See Exhibit 10.3) (iv) Agreement of Assignment, dated December 1, 1985, between Roberts and Linz-Roberts, Inc. (v) Research and Development Agreement, dated as of December 1, 1985, between Vukovich Research Group, Inc. and Roberts (b) License and Distribution Agreement, dated December 1, 1985, between Roberts and Hafslund Nycomed Pharma AG. E-2 o 10.17 License Agreement, dated October 31, 1988, between the Salk Institute for Biological Studies and Roberts. (*) zz 10.20.1 Employment Agreement, dated as of November 19, 1996, between Roberts and John T. Spitznagel. (*) zz 10.20.2 Employment Agreement, dated as of November 19, 1996, between Roberts and Peter M. Rogalin. (*) bb 10.21 Employment Agreement, dated as of December 20, 1994, between Roberts and Robert A. Vukovich. (*) bb 10.23 Employment Agreement, dated as of December 20, 1994, between Roberts and Robert W. Loy. (*) bb 10.24 Employment Agreement, dated as of December 20, 1994, between Roberts and Anthony A. Rascio. o 10.26 Rental Deposit Deed, dated September 28, 1988, between the University of Surrey and Roberts relating to the leased office space in Guildford, England. o 10.27 Underlease, dated September 28, 1988, between the University of Surrey and Roberts relating to the leased office space in Guildford, England. xx 10.42 Distribution Agreement, dated February 15, 1991, between Roberts and Flint Laboratories (Canada) Ltd. ++ 10.43 Agreement for Products and Sale of Assets, dated March 6, 1991, between Norwich Eaton Pharmaceuticals, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. y 10.48 License Agreement, dated as of August 1, 1991, between Bristol-Myers Squibb Co. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. y 10.51 Agreements of Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, Boehringer Ingelheim Limited, Windsor Healthcare Limited and Altam Pharmaceuticals Limited: (a) Agreement, dated December 5, 1991, by and among Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, Boehringer Ingelheim Limited and Windsor Healthcare Limited. E-3 (b) Supplemental Agreement, dated December 5, 1991, by and among Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, Boehringer Ingelheim Limited and Windsor Healthcare Limited. y 10.52 Dopar Agreement for Purchase and Sale of Assets, dated December 6, 1991, between Norwich Eaton Pharmaceuticals, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. k 10.53 Agreements of Roberts, Roberts Laboratories Inc. and Monmouth Pharmaceuticals Ltd., wholly owned subsidiaries of Roberts, American Home Products Corporation, John Wyeth & Brother Limited and Ayerst, McKenna & Harrison Inc. (a) Agreement, dated December 20, 1991, by and among Roberts, Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, American Home Products Corporation, John Wyeth & Brother Limited and Ayerst, McKenna & Harrison, Inc. (b) Manufacturing Agreement, dated December 24, 1991, between John Wyeth & Brother Limited and Monmouth Pharmaceuticals Ltd., a wholly owned subsidiary of Roberts. (c) AHPC License Agreement, dated December 24, 1991, between American Home Products Corporation and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (d) The Ayerst License Agreement, dated December 24, 1991, between Ayerst, McKenna & Harrison Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (e) The Wyeth License Agreement, dated December 24, 1991, between John Wyeth & Brother Limited and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (f) Distribution Agreement, dated December 24, 1991, between John Wyeth & Brother Limited and Monmouth Pharmaceuticals Ltd., a wholly owned subsidiary of Roberts. (g) Assignments, each dated December 24, 1991, between American Home Products Corporation and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. E-4 (h) Assignment, dated December 24, 1991, between John Wyeth & Brother Limited and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. k 10.55 Stock Purchase Agreement, dated as of January 22, 1992, between Roberts and Yamanouchi Pharmaceutical Co., Ltd., including Shareholder Agreement dated as of January 22, 1992 between Dr. Robert A. Vukovich and Yamanouchi Pharmaceutical Co., Ltd. which comprises Annex A to such agreement. j 10.56 Distribution Agreement, dated March 31, 1992, between Research Industries Corporation and Roberts Pharmaceutical of Canada Inc., a wholly owned subsidiary of Roberts. j 10.57 License Agreement, dated April 2, 1992, between Bayer AG and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. j 10.58 License Agreement, dated April 10, 1992, between Ortho Pharmaceutical Corporation and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. j 10.59 Purchase Agreement, dated July 6, 1992, between Galen Limited and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. kk 10.60 Asset Purchase Agreement, dated September 29, 1992, between Smith-Kline Beecham Pharmaceuticals, an unincorporated division of Smith-Kline Beecham Corporation, and Roberts Laboratories Inc, a wholly owned subsidiary of Roberts. j 10.61 Agreement for Purchase and Sale of COMHIST Assets, dated November 24, 1992, between Procter & Gamble Pharmaceuticals, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Schedules 1.1(a) through 6.11 and Exhibits A through C to the Agreement for Purchase and Sale of COMHIST Assets as follows: 1.1(a) - Schedule of Trademarks; 1.1(b) - Schedule of Know-How; 1.1(d) - Tooling Schedule; 1.4 - Allocation of Purchase Price Schedule; 6.6(4) - Intellectual Property Claims Schedule; 6.10 - Schedule of Customers; 6.11 - Financial Information Schedule; A - Form of Trademark Assignment; B - Form of Bill of Sale; C -Contract Manufacturing Agreement. j 10.63 Purchase and Sale Agreement, dated December 21, 1992, between The Du Pont Merck Pharmaceutical Company and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. E-5 j 10.64 Asset Purchase Agreement, dated December 28, 1992, between G.D. Searle & Co. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibits A and B, Schedules 1.12 through 4.2(d), and various miscellaneous assignments of copyrights and trademarks to the Asset Purchase Agreement as follows: A - Security Agreement; B - Supply Agreement; 1.12 - Product Registrations, 2.3 - Purchase Price Allocations; 4.1(c) - Contracts Requiring Consents; 4.1(f) - Pending Suits and Claims; 4.1(g) -Compliance; 4.1(h) - Material Contracts; 4.1(i) - Exceptions to Ownership of Intellectual Property; 4.1(j) - Financial Information; 4.1(l) -Customer List; 4.1(m) - Material Adverse Changes; 4.2(d) -Buyer's Financial Statements; assignments of copyrights; assignments of trademarks. j 10.65 Asset Purchase Agreement, dated March 23, 1993, by and between Searle Canada, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of the Company. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibit A and Schedules 1.5(a) through 5.19 to the Asset Purchase Agreement as follows: A - Supply Agreement; 1.5(a) - Sales Retained by Seller; 1.5(b) - Pricing Prior to Closing; 1.10 - Product Registrations; 4.1(c) - Contracts Requiring Consents; 4.1(f) - Pending Suits and Claims; 4.1(g) - Compliance; 4.1(h) - Material Contracts; 4.1(i) -Exceptions to Ownership of Intellectual Property; 4.1(j) - Financial Information; 4.1(l) - Customer List; 4.1(m) -Material Adverse Changes; 5.19 - Packaging Charges. # 10.67 Copy of form of Option Agreement used in connection with options granted under the Roberts Pharmaceutical Corporation Restricted Stock Option Plan. # 10.68 Copy of form of Option Agreement used in connection with options granted under the Roberts Pharmaceutical Corporation Incentive Stock Option Plan. j 10.69 Rebate Agreement, dated November 11, 1992, between the Secretary of Health and Human Services and Roberts Laboratories, Inc., a wholly owned subsidiary of Roberts. a 10.70 License Agreement, dated as of March 27, 1993, by and among Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, Sawai Pharmaceutical Co., Ltd. and Grelan Pharmaceutical Co., Ltd. a 10.71 Agreements, dated as of May 5, 1993, between Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, and Glaxo Canada Inc., dated as of May 5, 1993. (a) First Asset Purchase Agreement. E-6 (b) Promotion Agreement. (c) Supply Agreement. (d) Distribution Agreement. (e) License Agreement. (f) Registered User Agreement. (g) Assignment of Trademarks. (h) Second Asset Purchase Agreement. a 10.72 Stock Purchase Agreement, dated August 30, 1993, by and among Roberts, Yamanouchi Pharmaceutical Co., Ltd. and Yamanouchi U.S.A. Inc. aa 10.73 Amendment to Stock Purchase Agreement, dated August 30, 1993, by and among Roberts, Yamanouchi Pharmaceutical Co., Ltd. and Yamanouchi U.S.A. Inc. aa 10.74 Agreements, dated as of September 14, 1993, among Bristol- Myers Squibb Company, Bristol-Myers Squibb Company Canada Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (a) COLACE Et Al. Sale Agreement. (b) COLACE Et Al. Supply Agreement. (c) Security Agreement. (d) Notice of Security Interest in Trademark. (e) Assignment of Collateral. (f) Guaranty. bb 10.75 License Agreement, dated as of July 6, 1994, between The Rockefeller University and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. bb 10.76 Agreements between Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, and SmithKline Beecham Pharmaceuticals, an unincorporated division of SmithKline Beecham Corporation: (a) TIGAN Asset Purchase Agreement dated as of March 27, 1995. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibits A through D and Schedules 5.4 through 5.11 and Appendix I as follows: A - List of Products; B - Assignment and Assumption Agreement; C - Promissory Note; D - Transitional Services Agreement; 5-4 - Financial Information; 5.5 - Litigation; 5.6 -Inventory; 5.7 - Product Formulas; 5.8 - Regulatory Issues; 5.9 - FDA and Other Administrative Approvals, Registrations and Permits; 5.11 -Intellectual Property Rights; I - Purchase Price Adjustments. E-7 (b) EMINASE Asset Purchase Agreement dated as of March 27, 1995. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibits A through D, Schedules 2.1(a)(1) through 5.11 and Appendices I and II as follows: A - List of Products; B - Manufacturing Agreement; C - Promissory Note; D - Transitional Services Agreement; 2.1(a)(1)- Transferable Product Rights; 2.1(a)(2) - Non-Transferable Product Rights; 2.1(b) - Transferred Contracts; 5.4 - Financial Information; 5.5 - Litigation; 5.6 - Inventory; 5.7 - Product Formulas; 5.8 - Regulatory Issues; 5.9 - FDA and Other Administrative Approvals, Registrations and Permits; 5.11 - Intellectual Property Rights; I -Territories; II - Purchase Price Adjustments. gg 10.77 Distribution Agreement, dated February 23, 1995, between Roberts Laboratories, Inc., a wholly owned subsidiary of the Company, and Merck and Co., Inc. with respect to NOROXIN. zz 10.78 License Agreements between Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, and Eli Lilly and Company: (a) Tazofelone License Agreement dated November 5, 1996. (b) Compound LY246736 License Agreement dated November 5, 1996. (c) Compound LY353433 License Agreement dated November 5, 1996. (d) Compound LY315535 License Agreement dated December 4, 1996. zz 10.79 License Agreement between Roberts Laboratories Inc., a wholly owned subsidiary of the Company, and Pfizer Inc. with respect to Sampatrilat. Upon request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibits 1.7(a) and 3.1(b). zz 10.80 Agreement, dated December 3, 1996, by and between Roberts and Monsanto Canada, Inc. with respect to Oakville manufacturing facility. zz 10.81 Divestiture Agreement, dated December 1, 1996, by and among Roberts, Pronetics Health Care Group, Inc. (New Jersey), Pronetics Health Care Group, Inc. (New York), PHCG, Inc. and MJGC Corp. pertaining to the divestiture of certain Homecare operations. zz 10.82 Stock Purchase Agreement, dated January 31, 1997, by and among Roberts, Pronetics Health Care Group, Inc. (North Carolina) and American Homepatient, Inc. pertaining to the divestiture of certain Homecare operations. 10.83 Agreement of sale, August 1997, by and between Roberts Pharmaceutical Corporation and Novartis Pharmaceutical Corporation pertaining to the acquisition of the distribution facility. E-8 10.84 Asset Purchase Agreement, December 1997, by and between Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, and G.D. Searle & Co. pertaining to the divestiture of NORETHIN. Upon request of The Securities and Exchange Commission, Roberts agrees to furnish copies of Schedules 1.13, 2.3, 4.1(c), (f), (g), (h), (i), (j), (l), and (m). 10.85 Distribution Agreement, December 1997, by and between Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, and G.D. Searle & Co. pertaining to the distribution rights for SLOW-MAG. 21. Subsidiaries of the Registrant. 23. Consent of Coopers & Lybrand L.L.P. cc 27. Financial Data Schedules. E-9 (*) Constitutes a management contract required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. y Incorporated by reference to the identically numbered exhibit to the Registrant's Registration Statement on Form S-4 (Registration No. 33- 44441). o Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-1 (Registration No. 33- 31876). + Incorporated by reference to the identically numbered exhibit to Amendment No. 1 to Registrant's Registration Statement on Form S-1 (Registration No. 33-31876). x Incorporated by reference to the identically numbered exhibit to Amendment No. 2 to Registrant's Registration Statement on Form S-1 (Registration No. 33-31876). z Incorporated by reference pursuant to the identically numbered exhibit to Amendment No. 1 to Registrant's Registration Statement on Form S-1 (Registration No. 33-40636). k Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-1 (Registration No. 33- 45069). # Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-8 (Registration No. 33- 34767). a Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-3 (Registration No. 33- 68080). b Incorporated by reference to Registrant's Registration Statement on Form S-8 (Registration No. 33-51198). @ Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1990. j Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. aa Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. bb Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. E-10 gg Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. zz Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. cc Financial Data Schedules are submitted in electronic format only. dd Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-3 (Registration No. 333- 13729). ee Incorporated by reference to Exhibit No. 4.3 to Registrant's Registration Statement on Form S-3 (Registration No. 333-13729). ff Incorporated by reference to Exhibit No. 1 to Registrant's Registration Statement on Form 8-A. xx Incorporated by reference to Registrant's Current Report on Form 8-K, dated February 15, 1991. ++ Incorporated by reference to Registrant's Current Report on Form 8-K, dated March 6, 1991. vv Incorporated by reference to Registrant's Current Report on Form 8-K, dated November 5, 1991. kk Incorporated by reference to Registrant's Current Report on Form 8-K, dated September 29, 1992. E-11 EX-10.83 2 AGREEMENT OF SALE EXHIBIT 10.83 AGREEMENT OF SALE between NOVARTIS PHARMACEUTICALS CORPORATION, Seller and ROBERTS PHARMACEUTICAL CORPORATION, Purchaser Dated: August ____, 1997 TABLE OF CONTENTS ----------------- Page -- PRELIMINARY STATEMENT 1 SECTION 1 SALE OF PROPERTY; PURCHASE PRICE; PAYMENT TERMS; ESCROW TERMS 2 1.1 Sale of Property........................... 2 1.2 Purchase Price............................. 2 1.3 Payment Terms.............................. 2 1.4 Escrow Terms............................... 2 SECTION 2 TITLE TO PROPERTY................................. 6 2.1 Title to Premises.......................... 6 2.2 Title to Other Property.................... 6 2.3 Title Defects.............................. 6 2.4 Right to Pay Off Monetary Encumbrances............................... 6 2.5 Survey..................................... 6 SECTION 3 RIGHT OF ENTRY; TERMINATION; INDEMNIFICATION: INSURANCE 6 3.1 Right of Entry............................. 6 3.2 Due Diligence Period....................... 7 3.3 Indemnification............................ 7 3.4 Insurance.................................. 7 SECTION 4 REPRESENTATIONS AND WARRANTIES OF SELLER.......... 8 4.1 Representations and Warranties............. 8 4.2 Changes in Representations and Warranties............................. 9 4.3 Limitation on Seller's Representations, Warranties, Covenants and Agreements....... 10 4.4 Survival................................... 11 SECTION 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER....... 11 5.1 Representations and Warranties............. 11 5.2 Survival................................... 12 i TABLE OF CONTENTS ----------------- Page ---- SECTION 6 OTHER COVENANTS AND AGREEMENTS............... 12 6.1 No Liens or Encumbrances............. 12 6.2 Maintenance of Property.............. 12 6.3 Contracts............................ 13 6.4 Closing Deliveries................... 13 6.5 Litigation........................... 13 SECTION 7 CASUALTY; CONDEMNATION....................... 13 7.1 Casualty............................. 13 7.2 Condemnation......................... 13 SECTION 8 CLOSING DATE AND DELIVERY OF DOCUMENTS. 14 8.1 Closing Date......................... 14 8.2 Documents to be Delivered by Seller............................... 14 8.3 Documents to be Delivered by Purchaser............................ 15 8.4 Form 1099............................ 16 SECTION 9 CLOSING ADJUSTMENTS.......................... 16 9.1 Adjustment Time...................... 16 9.2 Description of Items to be Adjusted.. 16 9.3 Final Adjustment of Real Estate Taxes 17 9.4 Errors in Closing Adjustments........ 17 9.5 Survival............................. 17 9.6 Closing Costs........................ 17 SECTION 10 DEFAULT; REMEDIES............................ 17 10.1 Default by Purchaser................. 17 10.2 Default by Seller.................... 18 10.3 Remedies............................. 18 ii TABLE OF CONTENTS ----------------------------------- (Continued) Page -- SECTION 11 MISCELLANEOUS............................ 18 11.1 Time of Essence.................... 18 11.2 Brokerage Commission and Finder's Fee................................ 18 11.3 Assignment......................... 19 11.4 Notices............................ 19 11.5 Attorney's Fees.................... 20 11.6 Successors and Assigns............. 20 11.7 Governing Law...................... 20 11.8 Incorporation of Prior Agreements.. 20 11.9 Modification of Agreement.......... 20 11.10 Drafting Ambiguities............... 20 11.11 Further Assurances................. 21 11.12 Partial Invalidity................. 21 11.13 Counterparts....................... 21 11.14 Confidentiality.................... 21 11.15 Effective Date..................... 22 11.16 Publication........................ 22 EXHIBIT A LEGAL DESCRIPTION OF LAND EXHIBIT B PERSONAL PROPERTY EXHIBIT C PERMITTED EXCEPTIONS EXHIBIT D BILL OF SALE EXHIBIT E FIRPTA AFFIDAVIT iii AGREEMENT OF SALE ----------------- AGREEMENT OF SALE (this "Agreement"), dated as of August ___, 1997, between NOVARTIS PHARMACEUTICALS CORPORATION, a Delaware corporation having offices at 59 Route 10, East Hanover, New Jersey 07936-1080 ("Seller") and ROBERTS PHARMACEUTICAL CORPORATION, a New Jersey corporation, whose address is Meridian Center II, Four Industrial Way West, Eatontown, New Jersey 07724-2274, its successors and assigns ("Purchaser"). PRELIMINARY STATEMENT --------------------- Seller is the owner of (a) certain lands lying in the Village of Buffalo Grove, County of Lake, State of Illinois, having an address of 900 Corporate Grove Drive, Buffalo Grove, Illinois 60089, more particularly described by metes and bounds on Exhibit A annexed hereto (the "Land"), (b) a --------- building and all fixtures, structures, facilities and improvements presently located on the Land (the "Improvements"), (c) all equipment, machinery and personal property located on the Land or on the Improvements owned by Seller and identified on Exhibit B annexed hereto, (the "Personal Property") (the Land, the --------- Improvements and the Personal Property being herein collectively called the "Premises"), (d) all easements, rights and appurtenances relating to the Land and the Improvements, including all right, title and interest of Seller in any highways, roads, streets, alleys and other public ways and in the bed of any body of water bordering on or adjacent to the Land, (e) to the extent they may be transferred under applicable law, but without cost to Seller, all licenses, permits, approvals, certificates of occupancy and other approvals necessary for the current use and operation of the Premises, including, without limitation, sewer rights and permits, presently issued in connection with the operation of all or any part of the Premises or necessary to operate the Property (as hereinafter defined) as it is presently being operated (collectively "Permits"), and (f) warranties and rights, if any, booklets and manuals issued or inuring to Seller by any manufacturers and/or contractors in connection with the manufacture, construction or installation of equipment and Improvements included as part of the Premises, together with the record building plans and specifications for the Improvements and any engineering data or reports relating to the Premises or any part thereof, to the extent any of the foregoing are in Seller's possession. The items listed above in (a) through (f) are collectively referred to herein as the "Property". Seller desires to sell, convey, transfer and assign to Purchaser, and Purchaser desires to acquire from Seller, the Property. NOW, THEREFORE, for and in consideration of the premises, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1 SALE OF PROPERTY; PURCHASE PRICE; PAYMENT TERMS; ESCROW TERMS ------------------------------------------------------------- 1.1 Sale of Property. Seller hereby agrees to sell, convey, ---------------- transfer and assign to Purchaser, and Purchaser agrees to purchase from Seller, the Property upon the terms and conditions herein contained. 1.2 Purchase Price. The aggregate purchase price for the Property -------------- is FOUR MILLION ONE HUNDRED TWENTY FIVE THOUSAND DOLLARS ($4,125,000.00) (the "Price"). 1.3 Payment Terms. The Price shall be payable as follows: ------------- (a) upon execution of this Agreement, the sum of $750,000.00 (the "Deposit") shall be paid by Purchaser to the Escrow Agent (as hereinafter defined); and (b) upon closing of title the sum of $3,375,000.00, plus or minus any Closing Adjustments (as defined in Section 9 hereof), shall be paid by certified, cashiers or attorneys' trust account check or, if requested by Seller, by wire transfer of immediately available funds to Seller or its designee. - 2 - 1.4 Escrow Terms. ------------ (a) The Deposit shall be held in escrow by Shanley & Fisher, P.C. (the "Escrow Agent") in an interest bearing account until disbursed as herein provided. Any interest accrued on the Deposit shall be paid to whichever party is entitled to the Deposit in accordance with the provisions of this Agreement. If the transaction contemplated in this Agreement is consummated, the interest earned on the Deposit shall be split evenly between Seller and Purchaser. The Deposit shall be held and disbursed by Escrow Agent in the following manner: (i) to Seller at the closing upon consummation of the closing; or (ii) to Purchaser if Purchaser elects to terminate the Agreement in accordance with Sections 2, 3, 4, 7 and 10 -------------------------- hereof; or (iii) to Seller upon receipt of written demand therefor, stating that Purchaser has defaulted in performance of Purchaser's obligations under this Agreement and the facts and circumstances underlying such default and that Seller is entitled to the Deposit under the provisions of this Agreement; provided however, that Escrow Agent shall not honor said demand until the period of time for objection thereto as set forth in subsection 1.4(b) hereof shall have expired, nor thereafter if Escrow Agent shall have received written notice of objection from Purchaser in accordance with the provisions of clause (b) of this Section 1.4; ----------- (iv) to Purchaser upon receipt of written demand therefor, stating that Seller has defaulted in performance of Seller's - 3 - obligations under this Agreement and the facts and circumstances underlying such default and that Purchaser is entitled to the Deposit under the provisions of this Agreement; provided, however, that Escrow Agent shall not honor such demand until the period of time for objection thereto as set forth in subsection 1.4(b) hereof shall have expired, nor thereafter if Escrow Agent shall have received written notice of objection from Seller in accordance with the provisions of clause (b) of this Section 1.4. ----------- (b) Upon receipt of written demand for the Deposit by Purchaser or Seller pursuant to clause (iii) or (iv) of Section 1.4(a), -------------- Escrow Agent shall promptly send a copy thereof to the other party. The other party shall have the right to object to the delivery of the Deposit by sending written notice of such objection to Escrow Agent within the greater of five (5) days or three (3) business days after Escrow Agent delivers a copy of the written demand to the objecting party but not thereafter. Such notice shall set forth the basis for objecting to the delivery of the Deposit. Upon receipt of such notice, Escrow Agent shall promptly send a copy thereof to the party who made the written demand. (c) In the event of any dispute between the parties regarding the Deposit, Escrow Agent, at its option, may disregard all instructions received and either (i) hold the Deposit until the dispute is mutually resolved and Escrow Agent is advised of this fact in writing by both Seller and Purchaser, or Escrow Agent is otherwise instructed by a final unappealable judgment of a court of competent jurisdiction, or (ii) deposit the Deposit with a court of competent jurisdiction (whereupon Escrow Agent shall be released and relieved of any and all liability - 4 - and obligations hereunder from and after the date of such deposit). (d) In the event Escrow Agent shall be uncertain as to its duties or rights hereunder or shall receive conflicting instructions, claims or demands from the parties hereto, or instructions which conflict with any of the provisions of this Agreement, Escrow Agent shall be entitled (but not obligated) to refrain from taking any action other than to keep safely the Deposit until Escrow Agent shall be instructed otherwise, in writing signed by both Seller and Purchaser, or by final judgment of a court of competent jurisdiction. (e) Escrow Agent may rely upon, and shall be protected in acting or refraining from acting upon, any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties, provided that no modification of this Agreement which purports to affect the rights, duties or obligations of Escrow Agent hereunder shall be binding upon Escrow Agent unless Escrow Agent has signed such modification. (f) Seller and Purchaser shall jointly and severally hold Escrow Agent harmless against any loss, damage, liability or expense incurred by Escrow Agent not caused by its willful misconduct or gross negligence, arising out of or in connection with its entering into this Agreement and the carrying out of its duties hereunder, including the reasonable costs and expenses of defending itself against any claim of liability or participating in any legal proceeding. Escrow Agent may consult with counsel of its choice, and shall have full and complete authorization and protection for any action taken or suffered by it - 5 - hereunder in good faith and in accordance with the opinion of such counsel. (g) Escrow Agent may resign at will and be discharged from its duties or obligations hereunder by giving notice in writing of such resignation specifying a date when such resignation shall take effect; provided, however, that Escrow Agent, prior to such resignation, identifies a replacement escrow agent (the "Replacement Escrow Agent") who: (i) is approved in writing by Seller and Purchaser, which approval shall not be unreasonably withheld or delayed; (ii) signs a counterpart of this Agreement; (iii) receives the Deposit from Escrow Agent and acknowledges receipt thereof; and (iv) agrees to be bound by all of the provisions hereof. If Escrow Agent resigns and no Replacement Escrow Agent is designated, Escrow Agent shall deposit the Deposit with a court of competent jurisdiction. After resigning, as described above, Escrow Agent shall have no further duties or liability hereunder. (h) Purchaser and Seller, together, shall have the right to terminate the appointment of Escrow Agent hereunder by giving to it notice of such termination, specifying the date upon which such termination shall take effect and designating a Replacement Escrow Agent, consistent with clauses (i) through (iv) of Section 1.4(g) above. After such termination, Escrow Agent -------------- shall have no further duties or liability hereunder. (i) Seller and Purchaser shall share equally the responsibility for reimbursement to Escrow Agent or Replacement Escrow Agent of all out-of-pocket expenses, disbursements and advances incurred or made by either in connection with the carrying out of its duties hereunder. - 6 - (j) Escrow Agent's and Replacement Escrow Agent's agreements and obligations hereunder shall terminate and such Escrow Agent or Replacement Escrow Agent shall be discharged from further duties and obligations hereunder upon final disbursement of the Deposit in accordance with the terms of this Agreement. SECTION 2 TITLE TO PROPERTY ----------------- 2.1 Title to Premises. Title to the Premises shall, as a condition ----------------- to closing, be good, marketable and insurable at regular rates by Chicago Title Insurance Company (the "Title Insurer"), subject only to the exceptions set forth on Exhibit C annexed hereto (the "Permitted Exceptions"). --------- 2.2 Title to Other Property. Title to the Personal Property and all ----------------------- other property intended to be conveyed or assigned hereunder to Purchaser shall be good and valid, subject to no encumbrances or security interests. 2.3 Title Defects. If Seller is unable to convey title as aforesaid ------------- due to a title encumbrance or survey exception not caused by any action or inaction of Seller, this Agreement may be terminated by Purchaser at any time between the Effective Date (as defined in Section 11.15 hereof) and the Closing Date (as defined in Section 8.1 hereof); provided, however, that (a) Seller shall have the right to pay off any monetary encumbrances against the Property and (b) if legal or other action is necessary to cure title defects or survey exceptions not willfully caused by any act or inaction of Seller, Seller shall have the right, but not the obligation, to take such action at its own expense to cure same whereupon the Closing Date shall be extended for up to forty-five (45) days. In the event such title encumbrance or survey matter is not cured within such forty five (45) day period, the Purchaser shall have the option, to be elected within ten (10) days after the expiration of such forty five (45) day period, to (i) terminate this Agreement on written notice to Seller and the Escrow Agent, whereupon the Deposit shall be returned to - 7 - Purchaser, or (ii) purchase the Property without any reduction in the Price. 2.4 Right to Pay Off Monetary Encumbrances. Seller shall have the -------------------------------------- right to pay off any monetary encumbrances against the Property on the Closing Date out of the cash then payable. 2.5 Survey. Within thirty (30) days from the date of this ------ Agreement, Seller shall obtain and deliver, at its sole cost and expense, to Purchaser a current ALTA Survey for the Property containing optional items 1 through 4, 6 through 11 and 13. SECTION 3 --------- RIGHT OF ENTRY; TERMINATION; INDEMNIFICATION; INSURANCE ------------------------------------------------------- 3.1 Right of Entry. Subject to the requirements of Section 3.3 --------------- ----------- hereof, Purchaser and its authorized representatives shall have the right, from time to time prior to the Closing Date, upon at least two (2) business days notice to Seller, to enter the Land and the Improvements for the purpose of conducting any inspections or investigations of the Property. Purchaser agrees to conduct all such inspections during normal business hours (unless otherwise agreed by Seller), with a representative of Seller present (at Seller's option). Upon Purchaser's reasonable notice to Seller, Seller agrees to make available to Purchaser Seller's files that contain material information relating to the Property. 3.2 Due Diligence Period. Within thirty (30) days after the date -------------------- hereof, Purchaser shall notify Seller in writing if any inspections conducted by Purchaser or its agents or contractors reveal the presence of any environmental contamination, or structural defects or other Major Defects (collectively, "Defects"). For purposes hereof, "Major Defects" shall mean defects which cost $50,000 or more to cure or repair. Purchaser shall include with such notification to Seller a copy of the inspection report. If Seller is unwilling to correct, repair, clean up or remediate the Defects prior to the Closing Date or provide a credit against the Purchase Price for the estimated cost of such repair, Purchaser shall have the right to terminate this Agreement by delivering written notice thereof to Seller within three (3) days after Purchaser's receipt of Seller's notice that - 8 - it does not intend to make such repairs or provide such credit. Time shall be of the essence with respect to Purchaser's right to terminate this Agreement pursuant to this Section 3.2. Notwithstanding the foregoing, Purchaser shall have the absolute right to terminate this Agreement should Seller be unwilling or unable, at its sole cost and expense, to correct, repair, clean up or remediate any Defects. 3.3 Indemnification. Purchaser hereby agrees to indemnify, and --------------- shall pay, protect and hold Seller harmless from and against all liabilities, losses, claims, demands, costs, expenses (including reasonable attorneys' fees and expenses) and judgments of any nature arising or alleged to arise, from or in connection with any injury to, or death of, any person or loss or damage to property caused by Purchaser or it agents, employees or consultants in connection with any entry permitted under Section 3.1 but only to the extent not ----------- arising out of any act or omission of Seller. The obligations of Purchaser under this Section 3.3 shall survive any termination of this Agreement. ----------- 3.4 Insurance. Prior to the exercise by Purchaser of its right of --------- entry under Section 3.1 involving any intrusive testing, Purchaser shall ----------- furnish, or cause to be furnished, to Seller evidence of comprehensive general public liability insurance with an insurer authorized to do business in the State of Illinois rated A++ in Best's Key Rating Guide (or equivalent) against claims for bodily injury, death and property damage in a single limit amount of not less than $1,000,000 per occurrence with respect to all claims for bodily injury or death and $500,000 per occurrence with respect to all claims for property damage, naming Seller as an additional insured. The policy of insurance required to be maintained pursuant to this Section 3.4 shall remain in ----------- effect until the later of thirty (30) days after termination of this Agreement or the Closing Date. Purchaser's failure to comply with the requirements of this Section 3.4 shall constitute a material default (as that term is understood ----------- in Section 10.1 hereof) under this Agreement. ------------ SECTION 4 REPRESENTATIONS AND WARRANTIES OF SELLER ---------------------------------------- - 9 - 4.1 Representations and Warranties. As an inducement to Purchaser ------------------------------ to enter into this Agreement, Seller represents and warrants to Purchaser that: (a) Seller is a corporation duly organized and validly existing under the laws of the State of Delaware, is authorized to do business in the State of Illinois, has the power and authority to enter into this Agreement and to consummate the transactions herein contemplated, and the execution and delivery hereof and the performance by Seller of its obligations hereunder will not violate or constitute an event of default under the terms or provisions of any agreement, document or other instrument to which Seller is a party or by which it or the Property is bound; (b) the execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby in the manner contemplated herein will not violate any provision of law, statute, rule or regulation to which Seller or the Property is subject or violate any judgment, order, writ, injunction or decree of any court applicable to Seller or the Property; (c) Seller has not entered into any outstanding agreements (written or oral) granting any rights of possession to the Property to any third party; (d) all proceedings required to be taken by or on behalf of Seller to authorize it to make, deliver and carry out the terms of this Agreement have been or will be duly and properly taken and this Agreement is the legal, valid and binding obligation of Seller enforceable in accordance with its terms; (e) Seller is not a "foreign person" under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA") and upon consummation of the - 10 - transaction contemplated hereby, Purchaser will not be required to withhold from the Price any withholding tax; (f) Seller has not derived title to the Property by adverse possession; (g) Seller has no knowledge, nor has received any notice, of any pending or threatened, general or special assessment(s) against the Property; (h) Seller has not received any notice of proceedings to take all or any part of the Property by condemnation or right of eminent domain, nor has Seller received any notice that such proceedings are threatened; (i) there are, and as of the Closing Date shall be, no leases, tenancies or occupancies affecting the Property; (j) there are no options, rights of first refusal or any other agreements affecting Seller's right to complete the transactions contemplated by this Agreement; (k) there are no outstanding FDA Form 483 inspection reports pertaining to the Property; (l) Seller will comply with the requirements of the Illinois Responsible Property Transfer Act, if, and to the extent, applicable; (m) Seller has not received any notice from any governmental authority having jurisdiction over the Property that the Property is in violation of any legal requirements; and (n) Seller has not received any notice of any pending litigation or, to the best of knowledge of Seller, threatened litigation, against the Property. - 11 - 4.2 Changes in Representations and Warranties. (a) If before the ----------------------------------------- closing Seller acquires knowledge of any condition which constitutes a material and adverse change in any of the representations and warranties set forth in Section 4.1, Seller shall have the right to cure such condition before the - ----------- closing, and the existence of such condition shall not be a ground for Purchaser terminating this Agreement, provided that (i) Seller, promptly after discovering the condition, assures Purchaser in writing that Seller is capable of curing such condition prior to the closing, and (ii) Seller acts diligently to cure the condition and completes such cure prior to the closing. Seller agrees that it shall not intentionally take any action or intentionally omit to take any action, which action or omission would have the effect of violating any of the representations or warranties of Seller set forth herein in any material manner. (b) Seller shall promptly inform Purchaser of any adverse change in any representation or warranty made by Seller. Subject to the provisions of clauses (a) and (c) of this Section 4.2, Purchaser's exclusive remedy upon being --- --- ----------- advised of any material change in the representations and warranties shall be the termination of this Agreement. If Purchaser desires to terminate this Agreement due to a material change in any representation or warranty, Purchaser shall notify Seller within ten (10) days after receipt of notice from Seller advising of any such change, whereupon, except as expressly provided herein, this Agreement and all rights and obligations of the respective parties hereunder shall be null and void. (c) Seller shall have no responsibility for all current or future notices of violations of, and/or any enforcement action of any kind whatsoever taken by any federal, state or municipal government to enforce any federal, state or municipal laws, statutes, regulations, ordinances, orders or requirements of any kind whatsoever, whether or not noted by or issued by any governmental authorities having jurisdiction of any type or character whatsoever, against or affecting the Property, or any part thereof ("Governmental Enforcement Actions"). Such Governmental Enforcement Actions shall be the sole responsibility of Purchaser. Notwithstanding the foregoing, Seller shall cure, - 12 - prior to the Closing Date, any Governmental Enforcement Actions which are outstanding at or prior to closing, which action(s) are curable by the payment of a sum not to exceed $10,000.00 in the aggregate. In the event any such Governmental Enforcement Action(s) are not curable by the payment of such sum, then subject to the provisions of clauses (a) and (c) of this Section 4.2, --- --- ------------ Purchaser's sole option shall be (i) to proceed with the closing and waive such Governmental Enforcement Action(s) or (ii) to terminate this Agreement and receive a return of the Deposit. 4.3 Limitation on Seller's Representations, Warranties, Covenants ------------------------------------------------------------- and Agreements. PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY SET - -------------- FORTH IN THIS AGREEMENT AND THE DOCUMENTS TO BE DELIVERED BY SELLER ON THE CLOSING DATE, NEITHER SELLER NOR ANY AGENT OR REPRESENTATIVE OF SELLER HAS MADE, AND SELLER IS NOT LIABLE OR RESPONSIBLE FOR OR BOUND IN ANY MANNER BY, ANY EXPRESS OR IMPLIED REPRESENTATIONS, WARRANTIES, COVENANTS, AGREEMENTS, OBLIGATIONS, GUARANTEES, STATEMENTS, INFORMATION OR INDUCEMENTS PERTAINING TO THE PROPERTY OR ANY PART THEREOF, THE TITLE, PHYSICAL AND FINANCIAL CONDITION THEREOF, THE QUANTITY, FITNESS AND QUALITY THEREOF, THE INCOME, EXPENSES OR OPERATION THEREOF, THE VALUE AND PROFITABILITY THEREOF, THE USES WHICH CAN BE MADE THEREOF OR ANY OTHER MATTER OR THING WHATSOEVER WITH RESPECT THERETO. PURCHASER ACKNOWLEDGES, AGREES, REPRESENTS AND WARRANTS THAT AS OF THE CLOSING DATE IT WILL HAVE HAD SUCH ACCESS TO THE PROPERTY AND TO INFORMATION AND DATA RELATING TO ALL OF SAME AS PURCHASER HAS CONSIDERED NECESSARY, PRUDENT, APPROPRIATE OR DESIRABLE FOR THE PURPOSES OF THIS TRANSACTION AND, WITHOUT LIMITING THE FOREGOING, THAT PURCHASER AND ITS AGENTS AND REPRESENTATIVES HAVE INDEPENDENTLY INSPECTED, EXAMINED, INVESTIGATED, ANALYZED AND APPRAISED ALL OF SAME INCLUDING THE CONDITION, ENVIRONMENTAL CONDITION, VALUE AND PROFITABILITY THEREOF. WITHOUT LIMITING THE FOREGOING, PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE DOCUMENTS TO BE DELIVERED BY SELLER ON THE CLOSING DATE, SELLER IS NOT LIABLE OR RESPONSIBLE FOR OR BOUND IN ANY MANNER BY (AND PURCHASER HAS NOT RELIED UPON) ANY VERBAL OR WRITTEN OR SUPPLIED REPRESENTATIONS, WARRANTIES, COVENANTS, AGREEMENTS, OBLIGATIONS, GUARANTEES, STATEMENTS, INFORMATION OR INDUCEMENTS PERTAINING TO THE PROPERTY OR ANY PART THEREOF, SUCH CONDITION AND SUCH OPERATION AND ANY OTHER INFORMATION RESPECTING SAME FURNISHED BY OR OBTAINED FROM SELLER OR ANY AGENT OR REPRESENTATIVE OF - 13 - SELLER. WITHOUT LIMITING THE FOREGOING, PURCHASER ACKNOWLEDGES AND AGREES THAT EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE DOCUMENTS TO BE DELIVERED BY SELLER ON THE CLOSING DATE, PURCHASER IS PURCHASING THE PROPERTY "AS IS" AT THE DATE HEREOF, WEAR AND TEAR AND DEPLETION AND CASUALTY BETWEEN SUCH DATE AND THE CLOSING DATE EXCEPTED. 4.4 Survival. The truth, accuracy and completeness of each of the -------- representations and warranties of Seller as of the date hereof, and as of the Closing Date, shall constitute a condition precedent to the obligations of Purchaser hereunder. Each such representation and warranty shall survive the Closing Date but only with respect to matters for which a claim is made against the Seller within one year after the Closing Date. SECTION 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER ------------------------------------------- 5.1 Representations and Warranties. As an inducement to Seller to ------------------------------ enter into this Agreement, Purchaser represents and warrants that: (a) Purchaser is a corporation duly organized and validly existing under the laws of the State of New Jersey, is in good standing, has the power and authority to enter into this Agreement and to consummate the transactions herein contemplated and that the execution and delivery hereof and the performance by Purchaser of its obligations hereunder will not violate or constitute an event of default under the terms or provisions of any agreement, document or other instrument to which Purchaser is a party or by which it is bound; (b) the execution, delivery and performance of this Agreement by Purchaser and the consummation of the transactions contemplated hereby in the manner contemplated herein will not violate any provision of law, statute, rule or regulation to which Purchaser is subject or violate any - 14 - judgment, order, writ, injunction or decree of any court applicable to Purchaser; and (c) no consent, authorization, license, permit, registration or approval of, or exemption or other action by, any governmental or public body, commission or authority is required in connection with the execution, delivery and performance by Purchaser of this Agreement. 5.2 Survival. The truth, accuracy and completeness of each of the -------- representations and warranties of Purchaser as of the date hereof, and as of the Closing Date, shall be a condition precedent to the obligations of Seller hereof. Each such representation and warranty shall survive the Closing Date but only with respect to matters for which a claim is made against the Purchaser within one year after the Closing Date. SECTION 6 OTHER COVENANTS AND AGREEMENTS ------------------------------ 6.1 No Liens or Encumbrances. Seller agrees that it will not ------------------------ create, suffer or permit to be created, and that it will promptly remove (subject to Section 2.3) or discharge, any liens or encumbrances against the ----------- Property arising subsequent to the Effective Date (as defined in Section 11.15 hereof). 6.2 Maintenance of Property. From and after the Effective Date ----------------------- through the Closing Date, Seller will cause the Property to be maintained in substantially the same condition as such was maintained as of the Effective Date. 6.3 Contracts. Seller will not enter into contracts or agreements --------- related to the operation or maintenance of the Property except for a management agreement or other contracts in good faith and in the ordinary course of business, any of which provide that same may be terminated on or before the closing at no cost to Purchaser. - 15 - 6.4 Closing Deliveries. Seller shall deliver to Purchaser at closing ------------------ the documents and other items listed in Section 8.2 hereof. ----------- 6.5 Litigation. Seller shall, at its sole cost and expense, defend ---------- any action arising out of the ownership of the Property by Seller, which obligation shall survive the Closing. SECTION 7 CASUALTY; CONDEMNATION ---------------------- 7.1 Casualty. The provisions of the Illinois Uniform Vendor and -------- Purchaser Risk Act shall not be applicable to this Agreement. The risk of loss or damage to the Premises by fire or other casualty before the delivery of the deed out of escrow hereunder is assumed by Seller. In the event of any damage to or destruction of the Premises due to fire or any other cause or hazard, Seller shall promptly give notice thereof to Purchaser describing such damage and indicating the estimated cost and period required for restoration to substantially the same condition as existed prior to the damage (the "Restoration"). If the cost of such Restoration is estimated by an architect or engineer selected by Seller to be in excess of $300,000.00, or if the estimated time to substantially complete such Restoration is longer than forty five (45) days, then Purchaser may, upon notice to Seller given within fifteen (15) days after receipt of notice of such occurrence and determination of the amount of the casualty, terminate this Agreement. Upon such termination, except as expressly provided herein, neither party shall have any further rights or obligations hereunder. In the event that (i) the cost of Restoration is less than $300,000.00, or (ii) if the cost of Restoration is in excess of $300,000.00 and Purchaser does not elect to terminate this Agreement, or (iii) the time to complete the Restoration will not exceed forty five (45) days, or (iv) the time to complete the Restoration exceeds forty five (45) days and Purchaser does not elect to terminate this Agreement, Purchaser shall close in accordance with this Agreement and pay the entire Price, and Seller shall pay to Purchaser, at or prior to closing, the insurance proceeds Seller receives as a result of such casualty, or if Seller self-insures, the cost of such restoration. - 16 - 7.2 Condemnation. In the event any proceedings or negotiations are ------------ instituted which do or may result in a taking by condemnation or eminent domain of the Premises or any portion thereof, Seller shall promptly notify Purchaser thereof, describing the nature and extent thereof. Purchaser may then, at its election, at any time before the Closing Date terminate this Agreement by written notice to Seller, whereupon neither party shall have any further rights against the other hereunder. In the event Purchaser does not terminate this Agreement by reason of any such taking, then and in that event, the sale of the Property shall be consummated as herein provided and Seller shall assign to Purchaser on the Closing Date all of Seller's right, title and interest in and to all awards payable by reason thereof and shall pay over to Purchaser all amounts theretofore received by Seller in connection with such taking. SECTION 8 CLOSING DATE AND DELIVERY OF DOCUMENTS -------------------------------------- 8.1 Closing Date. The closing of the transaction contemplated ------------ hereby shall be held at the offices of Shanley & Fisher, P.C., 131 Madison Avenue, Morristown, New Jersey, not later than forty-five (45) days from the Effective Date (as defined in Section 11.15 hereof) (the "Closing Date"). Upon ------------- closing of this transaction, Purchaser shall have the right to possession of the Premises. 8.2 Documents to be Delivered by Seller. On the Closing Date, ----------------------------------- Seller shall deliver to Purchaser the following documents: (a) duly executed Warranty Deed for the Land and the Improvements in proper statutory form for recordation and conveying title to Purchaser as required by Section 2.1 hereof (b) duly executed Bill of Sale for the Personal Property in form annexed hereto as Exhibit D; --------- - 17 - (c) a complete set of all surveys, record building plans, specifications and drawings (and of all documents and other materials related thereto) for the Premises, to the extent in Seller's possession; (d) the original tax bills for the Premises, or copies thereof if the originals are not available; (e) duly executed FIRPTA Affidavit of Seller in form annexed hereto as Exhibit E; --------- (f) all manuals, diagrams, shop drawings, warranties and related data in possession of Seller concerning the Premises and the use, maintenance and operation of its systems, equipment and facilities; (g) all keys to the Improvements and Personal Property; (h) such other documents and instruments as Purchaser or its Title Insurer may reasonably request to perfect title to any of the Property in Purchaser; (i) a closing settlement sheet; (j) a copy of the latest FDA Form 483 regarding the Property and Seller's activities conducted on the Property; (k) any and all warranties, guarantees and service, maintenance and management contracts which are not terminated as of the Closing Date with respect to the Property and any work performed thereon, if any, with an executed assignment thereof in form and substance reasonably satisfactory to Purchaser and Seller; - 18 - (l) a certified resolution of Seller's Board of Directors authorizing the execution of the Agreement and the conveying of the Property; (m) evidence that all dues or other fees due and payable, as of the Closing Date, to the Corporate Grove Association have been paid or otherwise discharged by Seller; (n) evidence that the Corporate Grove Association has neither a right of first offer nor a right of first refusal regarding the sale or transfer of the Property; and (o) a certification that the representations and warranties included in this Agreement are, as of the closing, true and accurate. 8.3 Documents to be Delivered by Purchaser. On the Closing Date, -------------------------------------- Purchaser shall deliver to Seller the following documents: (a) a corporate resolution of the Purchaser's directors, authorizing the consummation of the transactions contemplated herein; and (b) a closing settlement sheet. 8.4 Form 1099. On the Closing Date, Seller shall execute and --------- deliver a Form 1099 and shall instruct the Escrow Agent to file the same with the Internal Revenue Service. SECTION 9 CLOSING ADJUSTMENTS ------------------- 9.1 Adjustment Time. All apportionments and adjustments (the --------------- "Closing Adjustments") shall be made as of 12:00 midnight on the day immediately preceding the Closing Date, with Purchaser to be treated as owner of the Property, for purposes of this Section 9, on and after the Closing Date. --------- - 19 - 9.2 Description of Items to be Adjusted. The following ----------------------------------- apportionments and adjustments shall be made as of the time set forth in Section 9.1 unless otherwise expressly provided: (a) maintenance costs associated with the Common Areas (as that term is defined in the Covenants referenced in Exhibit C) due --------- and payable as of the Closing Date shall be paid by Seller; (b) real estate taxes assessed against the Premises shall be appropriately pro-rated and paid by Seller; (c) any special assessments for work commenced prior to the Effective Date shall be credited against the Price (including the amount of any unpaid installments of such assessment), and any assessments for work commenced after the date hereof shall be Purchaser's responsibility; (d) the amount of the real estate transfer or stamp tax payable in connection with the conveyance of the Premises shall be paid by Seller directly to the taxing authority and Seller and Purchaser shall execute and deliver real estate transfer declarations; (e) water, sewer, gas, telephone and other utility charges shall not be adjusted but shall be paid by Seller based upon a reading to be obtained by Seller immediately prior to the Closing Date; (f) all other income and expense from the Property of every type and nature. If any of the foregoing cannot be apportioned at the Closing Date because of the unavailability of the amounts which are to be apportioned, such items shall be apportioned as soon as practicable after the Closing Date; and - 20 - (g) Seller shall be entitled to the return of any deposits made by Seller with utility companies servicing the Property. 9.3 Final Adjustment of Real Estate Taxes. If on the Closing Date ------------------------------------- final real estate tax bills for the calendar year in which the closing occurs are not available and the real estate tax adjustment is based upon prior tax bills, a final tax adjustment shall be made within ten (10) days after the final tax bill is issued, and Seller or Purchaser, as the case may be, shall make an appropriate payment to the other based upon such re-adjustment. 9.4 Errors in Closing Adjustments. If after the closing, the ----------------------------- parties discover any errors in adjustments and apportionments, same shall be corrected as soon after their discovery as possible. 9.5 Survival. The provisions of this Section 9 shall survive the -------- --------- closing, except that no adjustments shall be made later than twelve (12) months after the Closing Date (except with respect to the provisions of Section 9.3 ----------- which shall survive for a period of twenty-four (24) months, unless prior to such date the party seeking the adjustment shall have delivered a written notice to the other specifying the nature and basis for such claim). 9.6 Closing Costs. The parties hereby agree that Purchaser shall be ------------- responsible for the payment of any and all title insurance fees and premiums in connection with the transaction contemplated hereby. Seller hereby agrees to pay at closing any and all transfer taxes payable by reason of the contemplated transaction. Each party shall be responsible for their respective counsel's attorney fees. SECTION 10 DEFAULT; REMEDIES ----------------- 10.1 Default by Purchaser. Seller may terminate this Agreement by -------------------- notice to Purchaser at any time prior to the Closing Date in the event of a material default by Purchaser under this Agreement (which remains uncured for ten (10) business days after Seller's notice to Purchaser thereof) or a material breach of any - 21 - representation or warranty by Purchaser expressly set forth in this Agreement. 10.2 Default by Seller. Purchaser may terminate this Agreement by ----------------- notice to Seller at any time prior to the Closing Date in the event of a material default by Seller under this Agreement (which remains uncured for ten (10) business days after Purchaser's notice to Seller thereof) or a material breach of any representation or warranty by Seller expressly set forth in this Agreement. 10.3 Remedies. (a) If Seller fulfills its obligations hereunder but -------- Purchaser materially defaults under this Agreement, or materially breaches any representation or warranty contained herein, Seller shall, as its sole and exclusive remedy hereunder, have the right to terminate this Agreement and receive the Deposit together with all interest earned thereon and upon payment thereof this Agreement shall terminate and the parties hereto shall be relieved of any further liability or obligation to each other, it being expressly understood that the payment of such sum to Seller as aforesaid shall be the sole and exclusive right and remedy of Seller, and constitutes a fair and reasonable estimate of the amount of damages to be sustained by Seller by reason of Purchaser's breach of this Agreement. (b) If Purchaser fulfills its obligations hereunder but Seller materially defaults under this Agreement, or materially breaches any representation or warranty contained herein, Purchaser may elect, as the sole and exclusive remedy of Purchaser, to (i) terminate this Agreement and receive the Deposit from the Escrow Agent or (ii) seek specific performance of this Agreement, provided, however, if Seller willfully breaches its obligations hereunder, Purchaser shall have the right to sue Seller for the damages Purchaser may incur as a result of such willful breach. Following such election, Seller shall be relieved of any and all further liability and under no circumstances shall Seller be liable to Purchaser for any damages whether such damages are direct or consequential. - 22 - SECTION 11 MISCELLANEOUS ------------- 11.1 Time of the Essence. Seller and Purchaser agree that time is ------------------- of the essence of this Agreement. 11.2 Brokerage Commission and Finder's Fee. The parties agree that ------------------------------------- they have dealt with each other and not through any real estate broker, investment banker, person, firm or entity who would by reason of such dealings be able to claim a real estate brokerage, business opportunity brokerage or finder's fee as the procuring cause of this transaction. Each of the parties agrees to indemnify the other and hold the other harmless of and from any and all loss, cost, damage, injury or expense arising out of, or in any way related to, assertions by any other person, firm or entity of a claim to real estate brokerage, business opportunity brokerage or finder's fee based on alleged contacts between a party claiming to be a broker and an indemnifying party which have resulted in allegedly providing the party claiming to be a broker the right to claim such commission or finder's fee. The provisions of this Section 11.2 ------------ shall survive the closing of title. 11.3 Assignment. Purchaser shall not have the right to assign this ---------- Agreement without the prior consent of Seller, provided, however, that Purchaser shall have the right to assign its rights under this Agreement to an entity controlling, controlled by or under common control with Purchaser ("Affiliate") without the consent of Seller. In the event of an assignment to an Affiliate, Purchaser shall notify Seller and the named Purchaser herein shall remain fully liable for the obligations of the Purchaser hereunder. For purposes hereof, the term "control" means the power to direct and influence the management of an entity. 11.4 Notices. All notices or other communications required or ------- permitted to be given hereunder shall be given in writing and delivered either by (a) certified mail, postage prepaid, or (b) a reputable messenger service or a nationally recognized priority delivery service such as Federal Express, addressed as follows: - 23 - To Seller: Gerald McAllister Novartis Pharmaceuticals Corporation 59 Route 10 Building 101 East Hanover, NJ 07936-1080 copies to: Deborah A. Morel, Esq. Novartis Pharmaceuticals Corporation 59 Route 10 East Hanover, NJ 07936-1080 Robert A. Klausner, Esq. Shanley & Fisher, P.C. 131 Madison Avenue Morristown, New Jersey 07962-1979 Fax No. (201) 285-1625 To Purchaser: Roberts Pharmaceutical Corporation Meridian Center II Four Industrial Way West Eatontown, New Jersey 07724-2274 Attn: Anthony A. Rascio, Esq. The foregoing addresses may be changed or supplemented by written notice given as above provided. Any such notice sent by mail shall be deemed to have been received by the addressee on the third business day after posting in the United States mail, or, if delivered personally or by facsimile before 5:00 p.m. EST, on a business day, on the date of such delivery. 11.5 Attorney's Fees. Notwithstanding the provisions of Section 10 --------------- hereof, in the event any action or proceeding is commenced to obtain a declaration of rights hereunder, to enforce any provision hereof or to seek rescission of this Agreement for default contemplated herein, whether legal or equitable, the - 24 - prevailing party in such action shall be entitled to recover its reasonable attorneys' fees in addition to all other relief to which it may be entitled therein. All indemnities provided for herein shall include, but without limitation, the obligation to pay costs of defense in the form of court costs and reasonable attorneys' fees. 11.6 Successors and Assigns. The terms, covenants and conditions ---------------------- herein contained shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. 11.7 Governing Law. This Agreement shall be governed by and ------------- construed and enforced in accordance with the laws of the State of Illinois. 11.8 Incorporation of Prior Agreements. This Agreement contains the --------------------------------- entire understanding of the parties hereto with respect to the subject matter hereof, and no prior or other written or oral agreement or undertaking pertaining to any such matter shall be effective for any purpose. 11.9 Modification of Agreement. This Agreement may not be amended or ------------------------- modified, nor may any obligation hereunder be waived orally, and no such amendment or modification shall be effective for any purpose unless it is in writing and signed by both parties. 11.10 Drafting Ambiguities. In interpreting any provision of this -------------------- Agreement, no weight shall be given to, nor shall any construction or interpretation be influenced by, the fact that counsel for one of the parties drafted this Agreement, each party recognizing that it and its counsel have had an opportunity to review this Agreement and have contributed to the final form of same. Unless otherwise specified (a) whenever the singular number is used in this Agreement, the same shall include the plural, and the plural shall include the singular; (b) the words "consent" or "approve" or words of similar import, mean the prior written consent or approval of Seller or Purchaser, (c) the words "include" and "including", and words of similar import, shall be deemed to be followed by the words "without limitation" and (d) the Exhibits to this Agreement are incorporated herein by reference. The captions and paragraph headings are provided for - 25 - purposes of convenience of reference only and are not intended to limit, define the scope of or aid in interpretation of any of the provisions hereof. 11.11 Further Assurances. After the Closing Date Seller shall ------------------ execute, acknowledge and deliver, for no further consideration, all such assignments, transfers, consents and other documents as Purchaser may reasonably request to vest in Purchaser, and protect Purchaser's right, title and interest in, and enjoyment of, the Property. 11.12 Partial Invalidity. If any provision hereof shall be declared ------------------ invalid by any court or in any administrative proceedings, then the provisions of this Agreement shall be construed in such manner so as to preserve the validity hereof and the substance of the transaction herein contemplated to the extent possible. 11.13 Counterparts. This Agreement may be executed and delivered in ------------ several counterparts, each of which, when so executed and delivered, shall constitute an original, fully enforceable counterpart for all purposes. 11.14 Confidentiality. Purchaser covenants and agrees that all --------------- information provided to it by Seller in connection with the Property or resulting from Purchaser's inspections of the Property and review of relevant materials will be held in strict confidence by it, its agents, employees, and third-party professional advisers. Purchaser further covenants and agrees that such information furnished to Purchaser by Seller and reports obtained by Purchaser during its due diligence which were prepared by third parties, shall be returned and/or delivered to Seller in the event the transaction contemplated by this Agreement is not consummated. Purchaser further covenants and agrees to indemnify and hold Seller harmless from and against any and all claims, costs, expenses, losses, injuries, liens or damages, including reasonable attorneys' fees, resulting from Purchaser's, its agents, employees or third-party professional advisors' unauthorized dissemination of such information. The indemnification contained herein shall, without limitation, survive the termination of this Agreement. - 26 - 11.15 Effective Date. This Agreement shall be effective upon -------------- delivery of this Agreement fully executed by Seller and Purchaser, which date shall be deemed the Effective Date hereof (the "Effective Date"). Either party may request that the other party promptly execute a memorandum specifying the Effective Date hereof. 11.16 Publication. Seller and Purchaser agree that they shall not ----------- make any press announcement or other public announcement regarding the execution of this Agreement or the transactions contemplated herein without the approval of the other party, which shall not be unreasonably withheld. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. NOVARTIS PHARMACEUTICALS CORPORATION By: __________________________ Name: Title: ROBERTS PHARMACEUTICAL CORPORATION By: __________________________ Name: Title: - 27 - EXHIBIT A LEGAL DESCRIPTION OF LAND ------------------------- 1. "Lots 148, 149, 150, 151, 152, 153, 154, 155, 156 in The Corporate Grove, being a subdivision of part of the South West 1/4 of Section 26 and part of the South 1/2 of Sections 27, Township 43 North, Range 11, East of the Third Principal Meridian, Village of Buffalo Grove, County of Lake, Illinois, according to the plat thereof recorded August 22, 1984, in the Office of the Recorder of Deeds of Lake County, as Document No. 2305059." 2. "That part of Lot 147 lying east of Asbury Drive, all in The Corporate Grove being a subdivision of part of the South West 1/4 of Section 26 and part of the South 1/2 of Section 27, Township 43 North, Range 11, East of the Third Principal Meridian, Village of Buffalo Grove, County of Lake, Illinois, according to the plat thereof recorded August 22, 1984, in the Office of the Recorder of Deeds in Lake County, as Document No. 2305059." EXHIBIT B PERSONAL PROPERTY ----------------- EXHIBIT C PERMITTED EXCEPTIONS -------------------- The Premises shall be conveyed subject to the following exceptions, as the same may be revised prior to the Effective Date (collectively the "Permitted Exceptions"): (1) Terms, covenants and conditions contained in the Declaration of Protective Covenants for the Corporate Grove, Buffalo Grove, Illinois dated November 8, 1984 and recorded November 9, 1984 as document 2321627 and amended by document 2340915 (the "Covenants"). (2) Private water detention easement over the easterly portion of Lot 156 as shown on the subdivision plat referred to in the legal description of the Land ("Plat"). (3) Drainage easement over the North twenty (20) feet of the Land as shown on the Plat. (4) Public utility easement over the southerly ten (10) feet of the Land as shown on the Plat. (5) Building line thirty five (35) feet northerly of the southerly line of the Land as shown on the Plat. (6) Waiver and release of all damages to the land by reason of taking and the construction of railroad on the Land as contained in Warranty Deed from Andreas Walter and Kathrina Walter, to Chicago and Wisconsin Railroad Company, dated October 10, 1885 and recorded October 12, 1885 as document 32638. (7) Terms, covenants and conditions contained in instrument dated May 7, 1984 and recorded May 17, 1984, as document 2284076. (8) Non-exclusive easements for serving the subdivision and other property with electric and communications services. (9) Non-exclusive private easement for serving the subdivision with drainage, storm water detention, and railroad spur. (10) General Real Estate Taxes for the year 1997 and subsequent years not then due or payable. EXHIBIT D BILL OF SALE ------------ KNOW ALL MEN BY THESE PRESENTS THAT: NOVARTIS PHARMACEUTICALS CORPORATION, a Delaware corporation (herein "Seller"), for ONE DOLLAR, the receipt of which is hereby acknowledged, does hereby grant, bargain, sell and assign unto ROBERTS PHARMACEUTICAL CORPORATION, a New Jersey corporation (herein the "Buyer"), its successors and assigns, all right, title and interest of Seller in and to the items set forth in Exhibit A which is attached hereto (herein collectively, the "Personal Property"). TO HAVE AND TO HOLD the said Personal Property unto Buyer, its successors and assigns, forever. The interest of Seller in the Personal Property, and the interest transferred by this Bill of Sale, is that of absolute ownership. Seller hereby warrants unto Buyer, its successors and assigns, that there is hereby vested in Buyer good and marketable title to the Personal Property, free and clear of all liens, claims, charges, encumbrances and rights of others of every kind whatsoever, and Seller hereby warrants and agrees to defend such title forever against all other claims and demands whatsoever. THE PERSONAL PROPERTY SOLD HEREUNDER IS SOLD IN ITS "AS IS", "WHERE IS" CONDITION WITHOUT ANY REPRESENTATION OR WARRANTY BY SELLER. IN WITNESS WHEREOF, the Seller has executed this Bill of Sale this ______ day of ________, 1997. NOVARTIS PHARMACEUTICALS CORPORATION By: _________________________ Name: Title: EXHIBIT E FIRPTA AFFIDAVIT ---------------- Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. To inform Roberts Pharmaceutical Corporation ("Transferee") that withholding of tax is not required upon the disposition of a U.S. real property interest by Novartis Pharmaceuticals Corporation ("Transferor"), the undersigned hereby certifies the following: 1. Transferor is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations); 2. The U.S. employer identification number of Transferor is 221-857- 084. 3. The office address of Transferor is: 59 East Route 10 East Hanover, New Jersey 07936-1080 Transferor understands that this certification may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both. Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and behalf it is true, correct and complete, and I further declare that I have authority to sign this document on behalf of Transferor. Sworn to and subscribed NOVARTIS PHARMACEUTICALS before me this _______ day CORPORATION of __________, 1997 ________________________ By: ____________________ Notary Public Name: Title: EX-10.84 3 ASSET PURCHASE AGREEMENT EXHIBIT 10.84 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement ("Agreement") made as of this ____ day of December, 1997 by and between Roberts Laboratories Inc., a New Jersey corporation ("Roberts") and G. D. Searle & Co., a Delaware corporation ("Searle"). Whereas, Roberts currently markets certain products; and Whereas, the parties wish to provide for the acquisition by Searle of the rights to the Product (as defined below) in the Territory (as defined below); and Whereas, the parties wish to provide for the acquisition by Roberts of certain distribution rights as provided in the Distribution Agreement (as defined below) in the territory specified therein. Now, therefore, the parties agree as follows: ARTICLE 1 -- DEFINITIONS - ------------------------ For purposes of this Agreement: 1.1 "Affiliate" means any entity controlled by, able to control or under --------- common control with a party to this Agreement. For purposes of this definition, "control" means possession, direct or indirect, of the power to direct or cause direction of the management and policies of an entity. 1.2 "Business" means Roberts' business of manufacturing, packaging, -------- promoting, marketing, distributing and selling the Product in the Territory. 1.3 "Closing Date" means the date set forth in Section 3.1 for the closing of -------------- the transaction contemplated herein. 1.4 "Distribution Agreement" means the Distribution Agreement to be entered ------------------------ into by Searle and Roberts, a copy of which is attached hereto as Exhibit A. 1.5 "FDA" means the United States Food and Drug Administration or any --- successor agency. 1.6 "Fully Absorbed Cost" means: ------------------- (a) Costs of third party manufacturers, utilities, materials, indirect materials and supplies used in the manufacturing and packaging of Product; -2- (b) wages of those employees directly employed in the manufacturing and packaging of Product; (c) wages of employees directly employed in quality control, materials management or related functions which are applicable to the manufacturing and packaging of Product, and the salaries of the supervisors of said functions (or an appropriate portion of such wages and salaries if such personnel are not employed exclusively in said manufacture); (d) that portion of payroll taxes, benefits, social security payments, vacation and bonus payments and other employee costs allocable to the wages and salaries included within the provisions of subparagraphs (b) and (c) above; (e) that portion of manufacturing overhead and expenses (excluding general and administrative expenses) apportioned in accordance with generally accepted accounting principles to the manufacture and packaging of Product; and (f) costs of transportation of the Product to Roberts' warehouse. 1.7 "Knowledge" means actual knowledge of the officers or directors of an --------- entity without independent investigation. 1.8 "Net Sales" means the gross invoice value of the Product sold to third --------- parties in the Territory by Searle and its Affiliates and Transferee, less: (a) promotional, cash and trade discounts, contract chargebacks and rebates and government mandated rebates (including Medicaid rebates); (b) allowances and adjustments actually credited to customers for spoiled, damaged, outdated and returned Product; and (c) transportation and handling charges, excise, value added and other taxes and insurance premiums and duties which are billed to customers as separate items on invoices. 1.9 "Ordinary Course of Business" means the ordinary course of business --------------------------- consistent with past custom and practice (including with respect to quantity and frequency). 1.10 "Other Rights" means such of Roberts' confidential know-how, process ------------ patents, and other intangible rights, if any, which are not solely related to the Product but which are necessary to allow Searle to manufacture, package, promote, market, distribute and -3- sell such Product in the Territory. It is understood and agreed that no rights to Roberts' trademark PHARMACOUNSEL(R) or any logo associated therewith are to be considered as included in "Other Rights" as defined herein or otherwise. 1.11 "Permitted Exceptions" means all exceptions, charges, restrictions, -------------------- encumbrances and other matters expressly created pursuant to or permitted by this Agreement or the agreements to be executed at the closing under this Agreement. 1.12 "Product" means the Roberts' prescription product Norethin sold in the ------- Territory in tablet form. 1.13 "Product Registration" means the approved new drug application governing --------------------- the manufacture, sale and use of the Product as listed on Schedule 1.13. 1.14 "Product Rights" means all of Roberts' right, title and interest in or to -------------- intangible rights and other assets (other than accounts receivable) solely related to the manufacture, promotion, marketing, distribution and sale of the Product in the Territory, including, but not limited to: inventions, confidential know-how, trade secrets, Product Registration, common law rights to the trademark "Norethin" and to the extent assignable, sales contracts, customer orders, purchase orders and other agreements for the supply by Roberts of the Product in the Territory. Product Rights shall also not include the trademark PHARMACOUNSEL and associated logo, sales contracts, customer orders, purchase orders and other agreements as to which consent to assignment is required but has not been obtained as of the date of the closing. 1.15 "Territory" means the United States of America, including its territories --------- and possessions. 1.16 "Transferee" means such third party as Searle may elect to transfer the ------------ Product and any or all of the Product Rights and Other Rights by written notice to Roberts no later than five (5) days prior to the Closing Date. -4- ARTICLE 2 -- SALE OF ASSETS AND CONSIDERATION - --------------------------------------------- 2.1 Grant of Distribution Rights. At the closing referred to in Section 3.1, ---------------------------- Searle shall execute and deliver to Roberts the Distribution Agreement. 2.2 Sale of Assets. Roberts shall assign to Searle the Product Rights and -------------- shall license to Searle or Transferee the Other Rights on the terms set forth herein. 2.2 Consideration. As consideration for the transactions herein ------------- contemplated: (a) Roberts shall assume the obligations set forth in the Distribution Agreement. (b) Searle shall assume the obligations set forth herein. 2.3 Assumption of Obligations. Searle shall assume and shall agree to pay, ------------------------- perform and discharge all of Roberts' liabilities and obligations under all commitments and other agreements included within Product Rights but only to the extent that they remain to be performed or fulfilled after the date of closing, are not overdue or in default as of the closing, and are set forth and described on Schedule 2.3 attached hereto. Searle may elect to assign its assumption of obligations hereunder to Transferee, upon which Transferee shall be directly responsible with respect thereto. 2.4 Inventories. Searle shall purchase Roberts' inventory of finished ----------- Product on hand as of the Closing Date upon the following terms: (a) Within fifteen (15) days following the Closing Date, Roberts shall provide Searle with a statement and count of finished goods inventory of Product, less finished goods inventory required for customer orders received prior to Closing, which orders shall be processed for Roberts' account. Searle shall purchase such finished goods inventory, EX WORKS (as defined by INCOTERMS 1990 Edition) such facilities where such inventory is held, at a purchase price equal to Roberts' Fully Absorbed Cost. Searle shall pay the purchase price within sixty (60) days following receipt of the statement with respect to said inventory. (b) Searle shall, at its own expense, arrange for shipment of the finished goods inventory of the Product to its designated facility. -5- (c) Notwithstanding the foregoing, Searle shall not be required to purchase any such inventory of the Product which is damaged, misbranded, adulterated or otherwise unsalable or which will expire on a date than twelve (12) months from the Closing Date. ARTICLE 3 -- CLOSING - -------------------- 3.1 Date of Closing. The closing under this Agreement shall take place at --------------- the offices of Searle, 5200 Old Orchard Road, Skokie, Illinois 60077 at 10:30 a.m. local time on December ___, 1997 (or at such other place or time as the parties may agree upon in writing) (the "Closing Date"). 3.2 Outside Date for Closing. If without the fault of such party, the ------------------------ closing has not occurred by March 31, 1998, Searle or Roberts may terminate this Agreement by written notice to the other party. Upon such termination, neither of the parties shall have any liability of any kind arising out of this Agreement, other than for any liability resulting from its breach of this Agreement prior to termination. 3.3 Deliveries at the Closing. ------------------------- (a) At the closing, Roberts shall deliver, or cause to be delivered, the following: (i) such bills of sale, assignments or other instruments of transfer and assignment, all in form and substance reasonably satisfactory to Searle and its counsel, as shall be effective to vest in Searle or Transferee valid title to the Product Rights, free and clear of any claims, liens or encumbrances other than Permitted Exceptions; (ii) a copy of resolutions of the board of directors of Roberts authorizing the execution, delivery and performance by Roberts of this Agreement, and a certificate of the secretary or an assistant secretary of Roberts, dated the Closing Date, that such resolutions were duly adopted and are in full force and effect; (iii) the certificate referred to in Section 6.1(d); and (iv) copies of all consents and approvals received pursuant to Section 5.5; and -6- (v) a copy of all existing marketing materials (including marketing plans), advertising copy, key physician records, and detailing aids solely related to the Product and all DDD, IMS and prescription data solely related to the Product, to the extent disclosure and delivery are permitted under Roberts' agreements with third parties. (b) At the closing, Searle shall deliver, or cause to be delivered, the following: (i) instruments, in form and substance reasonably satisfactory to Roberts and its counsel, pursuant to which Searle shall assume the obligations and liabilities to be assumed pursuant to Section 2.3; (iii) a copy of resolutions of the board of directors of Searle authorizing the execution, delivery and performance by Searle of this Agreement, and a certificate of the secretary or an assistant secretary of Searle, dated the Closing Date, that such resolutions were duly adopted and are in full force and effect; and (iv) the certificate referred to in Section 6.2(d). (c) At the closing, Roberts and Searle shall execute and deliver the Distribution Agreement. ARTICLE 4 -- REPRESENTATIONS AND WARRANTIES - ------------------------------------------- 4.1 Representations and Warranties of Roberts. Roberts represents and ----------------------------------------- warrants to Searle that: (a) Existence. Roberts is a corporation validly existing and in good --------- standing under the laws of the State of New Jersey and is duly authorized to carry on its business where and as now conducted and to own, lease and operate properties as it now does. (b) Authority. Roberts has full power and authority to enter into and --------- perform this Agreement in accordance with its terms; the execution, delivery and performance of this Agreement by Roberts has been duly authorized by all necessary action of Roberts; and this Agreement constitutes a valid and -7- binding obligation of Roberts enforceable in accordance with its terms, except as may be limited by applicable bankruptcy, reorganization, insolvency or other similar laws affecting the enforcement of creditors' rights in general and subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). (c) Consents of Third Parties. Subject to receipt of the consents and ------------------------- approvals required under agreements described in Schedule 4.1(c), the execution, delivery and performance of this Agreement by Roberts will not (i) conflict with its organizational documents or conflict with or result in the breach or termination of or constitute a default under any agreement, commitment or other instrument, or any order, judgment or decree, to which it is a party, by which it is bound or to which any of the Product Rights is subject, except for any conflicts, breaches, terminations or defaults that are not in the aggregate material to the Business; (ii) constitute a violation by it of any law or regulation applicable to it, the enforcement of which would have a material adverse effect on the Business; or (iii) result in the creation of any lien, charge or encumbrance upon any of the Product Rights, other than Permitted Exceptions. No consent, approval or authorization of, or declaration or filing (other than filings with the FDA to assign Product Rights) with, any governmental authority or any third party (other than consents with respect to agreements referred to in Schedule 4.1(c)) is required on the part of Roberts in connection with the execution, delivery and performance of this Agreement. (d) Title. Following the closing, Searle or Transferee will own good ----- and marketable title (free and clear of any rights of third parties other than Permitted Exceptions) to the Product Rights transferred hereunder and have the right to practice and/or use the Other Rights licensed herein on its behalf. (e) Necessary Rights. Following the closing, Searle or Transferee will ---------------- have received from Roberts all permits, licenses, registrations and other approvals which are then necessary for the registration, marketing, promotion, -8- distribution, and sale of the Product in the Territory in the manner conducted by Roberts prior to the closing. (f) Litigation. Except as set forth in Schedule 4.1(f), there are no ---------- claims, suits, actions or other proceedings which are pending or threatened against Roberts and which relate to the Product, the Product Rights, the Other Rights or the Business in which the claimant seeks recovery of an amount in excess of $10,000. (g) Compliance. To Roberts' Knowledge except as set forth in Schedule ---------- 4.1(g), (i) the Product Registration is currently maintained, and the labeling, packaging, marketing, promotion, distribution and sale of the Product in the Territory are, in compliance in all material respects with applicable laws and regulations; and (ii) there are no ongoing (or completed within the last calendar year) investigations or inquiries, by any governmental agency in the Territory, regarding any problem with the efficacy, safety, labeling, distribution or sale of the Products by Roberts which could materially and adversely affect the marketing, promotion, distribution or sale of the Product in the Territory by Searle or Transferee. (h) Agreements. Schedule 4.1(h) contains a complete list of all ---------- material agreements and commitments relating to the Business. Except as set forth in such Schedule, and to the Knowledge of Roberts, the other parties to those agreements and commitments have performed all their respective obligations thereunder required to be performed by them on or before the date of this Agreement, and there has occurred no event which with the lapse of time or giving of notice or both would constitute a default under said agreements, except to the extent that any such failures to perform or defaults would not have a material adverse effect on the Business. (i) Intellectual Property. Roberts (a) owns all trade secrets, know- --------------------- how, inventions, copyrights, and Product Registrations, necessary for the conduct of -9- the Business as currently conducted ("Intellectual Property") (subject as indicated on Schedule 4.1(i)) except for the Other Rights, (b) is, to Roberts' Knowledge, not infringing any other party's patents, trade secrets, know-how, inventions, or copyrights, with respect to the Business and (c) has the full right and power to convey the Intellectual Property to Searle or Transferee as provided herein. To the Knowledge of Roberts and except as set forth in Schedule 4.1(i), no other party is infringing in any material respect any of Robert's trade secrets, or copyrights used in the Business. (j) Financial Results. The pro forma financial information in Schedule ----------------- 4.1(j) is correct and fairly presents in all material respects the results of operations of the Business for the periods identified. (k) Undisclosed Liabilities. There are no liabilities relating to or ----------------------- affecting the Product, Product Rights and/or the Business which Searle shall be obligated to assume except the obligations expressly referred to in Section 2.3 or contained elsewhere in this Agreement (including the Exhibits thereto). (l) Customer List. Schedule 4.1(l) consists of a true, correct and ------------- complete listing of all customers of Roberts who accounted for Product revenues for the three (3) quarters ending September 30, 1997. (m) Material Adverse Change. Except as set forth in Schedule 4.1(m) ----------------------- attached hereto, since December 31, 1996, Roberts has conducted the Business and used the Product Rights only in the Ordinary Course of Business and there has been no material adverse change in the Business and/or the Product Rights or any material change in Roberts' accounting methods, principles or procedures relating to the Business and/or the Product Rights. 4.2 Representations and Warranties of Searle. Searle represents and warrants ---------------------------------------- to Roberts that: (a) Existence. Searle is a corporation validly existing under the laws --------- of the State of Delaware, and is duly authorized to carry on its business where and as now conducted and to own, lease and operate properties as it now does. -10- (b) Authority. Searle has full power and authority to enter into and --------- perform this Agreement in accordance with its terms; the execution, delivery and performance of this Agreement by Searle has been duly authorized by all necessary action of Searle; and this Agreement constitutes a valid and binding obligation of Searle enforceable in accordance with its terms, except as may be limited by bankruptcy, reorganization, insolvency or other similar laws affecting the enforcement of creditors' rights in general and subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). (c) Consents of Third Parties. The execution, delivery and performance ------------------------- of this Agreement by Searle will not (i) conflict with its organizational documents and will not conflict with or result in the breach or termination of or constitute a default under any agreement, commitment or other instrument, or any order, judgment or decree, to which it is a party or by which it is bound; or (ii) constitute a violation by it of any law or regulation applicable to it. No consent, approval or authorization of, or declaration or filing (other than the filings with the FDA to assign Product Rights) with, any governmental authority or any third party is required on the part of Searle in connection with the execution, delivery and performance of this Agreement. ARTICLE 5 -- FURTHER AGREEMENTS OF THE PARTIES - ---------------------------------------------- 5.1 Operations of Roberts. From the date of this Agreement through the --------------------- Closing Date, Roberts shall: (a) operate the Business in the Ordinary Course of Business; and (b) use reasonable efforts, consistent with past practice, to preserve the goodwill of Roberts' customers, suppliers and others having business relations with it with respect to the Business. 5.2 Notice of Events. From the date hereof and until the Closing Date, ---------------- Roberts shall promptly advise Searle in writing of, and furnish any information Searle may reasonably request with respect to, (a) any claim, litigation, proceeding or -11- governmental investigation of which it has knowledge that is threatened or asserted by or against Roberts and directly involves the Business and (b) any event or condition of which it has Knowledge that would cause any of the conditions to Searle's obligation to consummate the purchase and sale under this Agreement not to be fulfilled. Searle shall promptly advise Roberts in writing of, and furnish any information Roberts may reasonably request with respect to, any event or condition of which Searle has Knowledge that would cause any of the conditions to Roberts' obligation to consummate the purchase and sale under this Agreement not to be fulfilled. 5.3 Access to Information. Prior to the closing, Roberts shall permit Searle --------------------- and its representatives to make such investigation of the Product Rights and Business as Searle may reasonably request and give Searle and its counsel, accountants and other representatives full access, upon reasonable notice, during normal business hours throughout the period prior to the Closing Date, to information concerning such Product Rights and the records and files of the Business. Any investigation by Searle shall be conducted in such manner as to minimize interruption of Roberts' business. If for any reason the purchase and sale under this Agreement is not consummated, Searle shall return any documents delivered to it by Roberts. 5.4 Confidentiality of Information Prior to Closing. Except as otherwise ----------------------------------------------- required by law, Searle shall keep confidential any information obtained by it and its representatives in connection with the transactions contemplated by this Agreement, pursuant to the confidentiality agreement referenced in Section 9.7. 5.5 Consents; Assignment of Agreements. Roberts shall use reasonable efforts ---------------------------------- (but shall not be required to make any payment) to obtain at the earliest practicable date but in no event later than the Closing Date, by instruments in form and substance reasonably satisfactory to Searle, all consents and approvals to the assignment of material agreements and commitments as listed in Schedule 4.1(h). If, with respect to any commitment or agreement to be assigned to Searle or Transferee (whether or not listed on Schedule 4.1(h)), a required consent to the assignment is not obtained (and, accordingly, pursuant to Section 1.14, it is excluded from the sale to Searle), Roberts shall use reasonable efforts to keep in effect and give Searle or Transferee (at Searle's -12- or Transferee's cost and expense) the benefit of such commitment or agreement to the same extent as if it had been assigned and to the extent not prohibited by that commitment or agreement, and Searle or Transferee shall perform Roberts' obligations under the commitment or agreement or cooperate in Roberts' performance of such obligations. Nothing in this Agreement shall be construed as an attempt to assign any commitment or agreement that is by its terms nonassignable without the consent of the other party. 5.6 Other Action. Each of the parties to this Agreement shall use all ------------ reasonable efforts to cause the fulfillment at the earliest possible date of all the conditions to the obligations of the other party to consummate the purchase and sale under this Agreement. 5.7 Further Assurances. At any time and from time to time after the Closing ------------------ Date, each of the parties shall, without further consideration, execute and deliver such additional instruments of transfer and assumption, and shall take such other action, as the other party may reasonably request to carry out the transactions contemplated by this Agreement and effect an orderly transition of the Business. 5.8 License. From and after the Closing Date, but limited to use in the ------- Territory with respect to the Product, Roberts hereby grants Searle and Transferee the non-exclusive, perpetual, royalty-free right (which may be sub-licensed by Searle or Transferee to third parties for use on behalf of Searle or Transferee) to practice and use the Other Rights. 5.9 NDC Numbers. Promptly following the Closing Date, Searle or Transferee ----------- shall take any and all action necessary to change the National Drug Code number for the Product. 5.10 Labels and Package Inserts. Subject to compliance with applicable laws -------------------------- and regulations, (i) Roberts agrees to permit Searle and Transferee to continue to use the labeling and packages, and package inserts that are existing in Roberts' finished goods inventory on the Closing Date and (ii) Roberts agrees to permit Searle and Transferee to use, without modification, the Product literature currently in stock, if any, for distribution and sales efforts. In no event shall Searle or Transferee use such existing materials or any other Product labeling, packages or package inserts (including any -13- referencing Roberts name) for a period longer than one hundred eighty (180) days from the Closing Date (the "Initial Period"), plus an additional ninety (90) days after the expiration of the Initial Period for those materials described in sub-section (i) of this Section 5.10 used in finished goods existing as of the end of the Initial Period. Notwithstanding the foregoing, Searle and Transferee shall use their best efforts to reduce each period of such uses to the minimum time possible. 5.11 Returns of Product ------------------ (a) Returns will be the financial responsibility of the party that originally sold the returned Product. Returns shall be tracked by lot number. Returned Product with lot numbers sold exclusively by Roberts will be the financial responsibility of Roberts; returned Product with lots numbers sold exclusively by Searle will be the responsibility of Searle; financial responsibility for returned Product from lots where each party sold a portion of the lot will be prorated based on the portion of the shared lot that each party sold. (b) Both parties agree to enforce preauthorized return or scan and destroy procedures in an attempt to have customer return Product and obtain credit from the party who originally sold the Product to them. Both parties agree to accept returns from the prorated lot. However, either party may accept Product returns for which they are not financially responsible in order to maintain their reputation and good will in the marketplace and the financially responsible party will reimburse the party processing the return. In these cases, the processing party will verify the price the customer originally paid (and therefore the credit provided) with the party who originally sold the Product. 5.12 Chargebacks and Rebates ----------------------- (a) Roberts will be financially responsible for all chargeback claims related to Product sold by a wholesaler to a chargeback contract customer on and after the Closing Date and during the first three (3) months of 1998. (b) Roberts will be financially responsible for all managed care rebates related to Product dispensed by a pharmacist on and after the Closing Date and during the first six (6) months of 1998. -14- (c) In general, Searle will forward to Roberts for payment any claims received related to Sections 5.12(a) and (b) above for which Roberts is financially responsible. However, for the purpose of administrative convenience or at the specific request of a customer, Searle may elect to pay the claim for which Roberts is financially responsible and Roberts will reimburse Searle with respect to such claim. (d) Roberts will be financially responsible for all Medicaid rebates related to Product dispensed by a pharmacist on and after the Closing Date and during the first six (6) months of 1998. HCFA will continue to bill Roberts for Medicaid rebates for up to one year after the expiration date on the last Norethin product issued with a Roberts labeler code. For administrative convenience, Roberts will continue to pay all future Medicaid rebates claims it receives. Searle will reimburse Roberts for any rebate claims paid by Roberts but which relate to Product dispensed by a pharmacist after the aforesaid first six months of 1998. (e) Roberts shall continue to make any chargeback or rebate payments with respect to the Product required under agreements, government mandates or otherwise which relate to supply contracts not assigned or assignable under Section 5.5 or which are processed by Roberts due to direct requests of a customer, provided that Searle shall reimburse Roberts for all such payments pursuant to Section 5.12(d) above. 5.13 Assignment to Transferee. Searle may elect to assign its --------------------------- responsibilities under Sections 5.11 and 5.12 to Transferee, upon which Transferee shall be directly responsible with respect thereto. Notwithstanding the foregoing, Searle shall remain liable for its obligations under Sections 5.11 and 5.12 in the event that Transferee fails to honor such obligations. 5.14 Post-Closing Services. From the Closing Date and until the expiration of --------------------- twelve (12) weeks thereafter, Roberts shall perform the following services: (a) notify all customers and government formularies of the transfer of the Product to Searle or Transferee (providing Searle or Transferee with a duplicate set of mailing labels for its use); -15- (b) print notifications of the sale of the Product on selected invoices; and (c) invoice, book sales and ship Product as agent for Searle or Transferee and use all reasonable efforts (short of instituting third party collection or legal proceedings) to collect amounts due for Product so shipped. For its services, Searle or Transferee shall pay Roberts a fee equal to [DELETION] such fee to be paid in monthly installments within ten (10) days of Roberts' invoice therefor. ARTICLE 6 -- CONDITIONS TO OBLIGATIONS OF THE PARTIES - ----------------------------------------------------- 6.1 Conditions Precedent to Obligation of Searle. The obligation of Searle -------------------------------------------- to consummate the purchase and sale under this Agreement is subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions (any or all of which may be waived by Searle): (a) there shall be no governmental or judicial action, law or regulation making the purchase and sale under this Agreement unlawful nor any threat or notice of such action; (b) all representations and warranties of Roberts shall be true in all material respects at and as of the Closing Date with the same effect as though made again at and as of that time; (c) Roberts shall have performed and complied with all obligations and agreements required by this Agreement to be performed or complied with by it prior to or on the Closing Date; (d) Searle shall have been furnished with a certificate of an officer of Roberts, dated as of the Closing Date, certifying to the fulfillment of the conditions specified in Sections 6.1(b) and (c); (e) there shall not have been from the date of execution to the Closing Date any material adverse change in the condition (financial or otherwise) of the Business, the Product, or the Product Rights; (f) execution and delivery to Searle of the Distribution Agreement in accordance with the provisions set forth therein; and -16- (g) execution and delivery by Roberts Pharmaceutical Corporation of the Performance Guarantee attached as Exhibit B hereto. 6.2 Conditions Precedent to Obligation of Roberts. The obligation of Roberts --------------------------------------------- to consummate the purchase and sale under this Agreement is subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions (any or all of which may be waived by Roberts): (a) there shall be no governmental or judicial action, law or regulation making the purchase and sale under this Agreement unlawful nor any threat or notice of such action; (b) all representations and warranties of Searle shall be true in all material respects at and as of the Closing Date with the same effect as though made again at and as of that time; (c) Searle shall have performed and complied with all obligations and agreements required by this Agreement to be performed or complied with by it prior to or on the Closing Date; (d) Roberts shall have been furnished with a certificate of an officer of Searle, dated as of the Closing Date, certifying to the fulfillment of the conditions specified in Sections 6.2(b) and (c); and (e) execution and delivery to Roberts of the Distribution Agreement. ARTICLE 7 -- SURVIVAL OF REPRESENTATIONS AND WARRANTIES, INDEMNIFICATION; AND - -------------------------------------------------------- -------------------- DEFAULT - ------- 7.1 Survival. Subject to Sections 7.4 and 7.5, the representations and -------- warranties of each of the parties contained in this Agreement shall survive the closing; provided however, that the representations and warranties will expire on the first anniversary of the Closing Date. There are no representations or warranties other than those set forth in this Agreement. Except as set forth in this Article 7, neither party shall have any claim against the other for misrepresentation or breach of warranty, covenant or agreement under this Agreement. -17- 7.2 Indemnification of Searle. Subject to the limitations stated in this ------------------------- Article 7, Roberts shall indemnify and hold Searle, Transferee and their respective Affiliates harmless from and against any loss, liability, damage or expense (including, but not limited to, reasonable attorneys' fees) based upon, arising out of or otherwise resulting from any inaccuracy in any representation or any breach of any warranty, covenant or agreement of Roberts contained in this Agreement or in any certificate or instrument of assignment delivered by it pursuant to this Agreement. 7.3 Indemnification of Roberts. Subject to the limitations stated in this -------------------------- Article 7, Searle shall indemnify and hold Roberts and its Affiliates harmless from and against any loss, liability, damage or expense (including, but not limited to, reasonable attorneys' fees) based upon, arising out of or otherwise resulting from any inaccuracy in any representation or any breach of any warranty, covenant or agreement of Searle contained in this Agreement or in any certificate delivered by it pursuant to this Agreement. 7.4 Limitations on Recovery. Neither Roberts nor Searle shall be liable to ----------------------- the other party under Sections 7.2 or 7.3 of this Article 7, as applicable, except to the extent that the aggregate amount of all claims for indemnity by the other party exceeds an amount equal to [DELETION]. 7.5 Notice of Claims. Indemnification pursuant to Sections 7.2 or 7.3 of ---------------- this Article 7 shall apply only to the extent that notice of a claim therefor is asserted in writing and delivered to the indemnifying party prior to the end of the applicable time period set forth below: (a) if the claim is based upon a third party claim for damages to property or personal injury resulting from the manufacture and/or use of the Product, whether based on breach of warranty, negligence, product liability or strict liability, the notice period shall be the statute of limitations for such claim; (b) if the claim is based upon an assessment of taxes due, the notice period shall be the applicable statute of limitations; and (c) for all other claims the notice period shall be one (1) year from the Closing Date. -18- Any notice of such a claim shall state with reasonable specificity the representation, warranty, covenant or agreement with respect to which the claim is made, the facts giving rise to, and the alleged basis for, the claim, and, if known, the amount of liability asserted by reason of the claim. 7.6 Defense of Claims. If any claim is made that would give rise to a right ----------------- of indemnification under this Agreement, the party against whom the claim is made ("Claimant") shall afford the other party ("Indemnifying Party") and its counsel (reasonably satisfactory to Claimant), at the Indemnifying Party's expense, the opportunity to defend or settle the claim. If such notice and opportunity are not given to the Indemnifying Party, no liability for indemnification under this Agreement shall be imposed upon the Indemnifying Party by reason of such claim. The Indemnifying Party shall notify Claimant no later than ten (10) days after the date of the notice described in Section 7.5 of this Article 7 of its intention to assume the defense of any such claims. In the event the Indemnifying Party fails to give such notice to Claimant within the said time, the Indemnifying Party shall no longer be entitled to assume such defense and the Claimant shall have the right to assume the defense thereof with counsel of its choice at the Indemnifying Party's expense and defend, settle or otherwise dispose of such claim. With respect to any such claim which the Indemnifying Party shall fail to defend promptly, said party shall not thereafter question the liability of the Indemnifying Party to Claimant for any loss or payment with respect to such claim (including attorneys' fees and cost of defense). 7.7 Determination of Loss. The parties shall make appropriate adjustments --------------------- for tax benefits and insurance proceeds (reasonably certain of receipt and utility in each case) and for the time cost of money (using the Applicable Rate as the discount rate) in determining the amount of loss for purposes of this Article 7. For the purpose of this Section 7.7 of this Article 7, "Applicable Rate" means the base rate published from time to time by Citibank N.A., New York, New York. 7.8 Consequential Damages. Notwithstanding any provision of this Agreement --------------------- which might otherwise be to the contrary, neither party shall be liable to the other for lost profits or other consequential damages. -19- ARTICLE 8 -- NON-COMPETITION - ---------------------------- 8.1 Non-Competition. In consideration of the transactions contemplated --------------- hereunder and other valuable consideration but subject to Section 5.5 of this Agreement, Roberts hereby covenants and agrees with Searle that Roberts and each of its Affiliates will not, between the Closing Date and the second (2nd) anniversary of the Closing Date, engage in, directly or indirectly, or carry on any business in the Territory in whatever form which shall consist of the manufacturing and/or packaging, distribution or sale of any ethical pharmaceutical product whose active ingredient(s) consist(s) solely of the same active ingredient(s) as the Product; provided that, nothing in this Article 8 shall in any way restrict or preclude Roberts or any of its Affiliates from acquiring another company, business or line of products (including by license thereof or through investment therein), a non-material portion of which includes such ethical pharmaceutical products. "Non-material" for purposes of this Article 8 means that ethical pharmaceutical products containing such active ingredients, account at the time of purchase for less than ten per cent (10%) of the gross sales in the Territory of all products included in the acquired company, business or line of products. If Roberts acquires any company, line of products or business with products as in (i) above, Roberts agrees to negotiate with Searle or Transferee, as applicable, toward a possible sale of such products to Searle or Transferee in the Territory. ARTICLE 9 -- MISCELLANEOUS - -------------------------- 9.1 Notices. Any notice or other communication under this Agreement shall be ------- in writing and shall be considered given when delivered personally or three (3) days after being mailed by registered mail, return receipt requested, to the applicable party at the address set forth below (or at such other address as a party may specify by notice given to the other): If to Roberts, to: Roberts Laboratories Inc. Meridian Center III 6 Industrial Way West Telecopy: (908) 389-1014 Eatontown, NJ 07724 Att'n: John T. Spitznagel -20- Att'n: John T. Spitznagel President with a copy to: Roberts Laboratories Inc. Meridian Center III 6 Industrial Way West Telecopy: (908) 389-1014 Eatontown, NJ 07724 Att'n: Anthony A. Rascio Att'n: Anthony A. Rascio Vice President and General Counsel If to Searle, to: G. D. Searle & Co. 5200 Old Orchard Road Skokie, Illinois 60077 Telecopy: (847) 470-6743 Att'n: Controller, Att'n: Controller, US Operations US Operations with a copy to: G. D. Searle & Co. 5200 Old Orchard Road Telecopy: (847) 967-2045 Skokie, Illinois 60077 Att'n: Robert L. Bogomolny Att'n: Robert L. Bogomolny Vice President and General Counsel 9.2 Finders. Each of the parties represents and warrants to the other that ------- it has not retained or dealt with any broker or finder in connection with the transactions contemplated by this Agreement. 9.3 Headings. The Section headings of this Agreement are for reference -------- purposes only and are to be given no effect in the construction or interpretation of this Agreement. 9.4 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the domestic law of the state of Illinois applicable to agreements made and to be performed in Illinois, without regard to principles of conflicts of laws thereof. 9.5 Severability. If any provision of this Agreement shall be deemed illegal ------------ or unenforceable, such illegality or unenforceability shall not affect the validity and enforceability of any other provision of this Agreement, which shall be construed as if such illegal or unenforceable provision or provisions had not been inserted herein. -21- 9.6 Assignment. Neither party may assign any of its rights or delegate any ---------- of its duties under this Agreement without the prior written consent of the other party. No assignment shall relieve the assigning party of any of its obligations or liabilities under this Agreement. 9.7 Entire Agreement. This Agreement, including the schedules and exhibits, ---------------- together with the confidentiality agreement dated August 26, 1997 between Searle and Roberts, contains a complete statement of all the arrangements between the parties with respect to the transaction contemplated herein, and cannot be changed or terminated orally. This Agreement may not be amended except by an instrument in writing signed on behalf of each party hereto by a duly authorized officer of such party. 9.8 Costs. Each party shall bear its own costs and expenses incurred in ----- negotiating this Agreement. 9.9 Waiver of Default. No waiver of any default hereunder by any party or ----------------- any failure to enforce any rights hereunder shall be deemed to constitute a waiver of any subsequent default with respect to the same or any other provision hereof. No waiver shall be effective unless made in writing with specific reference to the relevant provisions(s) of this Agreement and signed by a duly authorized representative of the party granting the waiver. 9.10 Publicity. Except as required by law, the parties agree to keep this --------- Agreement confidential until they mutually agree on publicity. All publicity regarding this Agreement shall be jointly planned and coordinated between the parties. 9.11 Survival. All indemnification and confidentiality provisions contained -------- or referenced in this Agreement shall survive the termination of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. G. D. SEARLE & CO. ROBERTS LABORATORIES INC. By: _______________________ By: ___________________________ its_____________________ its__________________________ -22- Exhibits and Schedules ---------------------- Exhibit ------- A Distribution Agreement B Performance Guarantee Schedule -------- 1.13 Product Registration 2.3 Assumed Obligations 4.1(c) Contracts Requiring Consents 4.1(f) Pending Suits and Claims 4.1(g) Compliance 4.1(h) Material Contracts 4.1(i) Exceptions to Ownership of Intellectual Property 4.1(j) Financial Information 4.1(l) Customer List 4.1(m) Material Adverse Changes EXHIBIT A DISTRIBUTION AGREEMENT ---------------------- EXHIBIT B PERFORMANCE GUARANTEE --------------------- In consideration of the execution by G. D. Searle & Co. of the foregoing Asset Purchase Agreement, ("Agreement") Roberts Pharmaceutical Corporation hereby guarantees to G. D. Searle & Co. and its Affiliates, as principal and not as surety, the performance by Roberts Laboratories Inc. of all of its obligations under the Agreement (including, without limitation, the Exhibits thereto). This Guarantee shall survive the amendment, expiration or other termination of the Agreement or any assignment by Roberts Laboratories Inc. of its rights and obligations under such agreement. Roberts Pharmaceutical Corporation By Its Date ________________ EX-10.85 4 DISTRIBUTION AGREEMENT EXHIBIT 10.85 ------------- DISTRIBUTION AGREEMENT ---------------------- This DISTRIBUTION AGREEMENT is entered into as of the ___ day of December, 1997 ("Effective Date") between ROBERTS LABORATORIES INC., a New Jersey corporation ("Distributor") and G. D. SEARLE & CO., a Delaware corporation ("Company"). Whereas, Company has heretofore, directly and/or through others, promoted, marketed and sold the Product (as hereinafter defined) in the Territory (as hereinafter defined); and Whereas, Distributor has the necessary facilities and resources to develop the market for such Product in the Territory, as well as to carry out the duties hereinafter specified and is desirous of being granted the right to sell such Product in the Territory; and Whereas, Company is willing to grant such right to Distributor upon the terms and conditions herein set forth; Now, therefore, it is mutually agreed by the Company and Distributor as follows: 1. Appointment and Acceptance; Contingency. --------------------------------------- (a) Subject to the following terms and conditions, Company hereby appoints Distributor as Company's exclusive distributor (exclusive even as to the Company and its affiliates and subsidiaries) in the countries listed on Exhibit A (the "Territory") of the product described in Exhibit B (the "Product") for sale under the trademark "SLOW-MAG" (the "Trademark") to any and all customers and accounts. Distributor hereby accepts such appointment. The Company will not, directly or indirectly, use the Trademark in the Territory during the term of this Agreement. (b) It is understood and agreed by the Company and Distributor, that Distributor may from time to time find it convenient, for the discharge of its obligations hereunder, to appoint -2- subdistributors, agents or dealers within the Territory. Distributor shall be entitled to appoint subdistributors, agents or dealers only if the following conditions have been satisfied: (i) Distributor shall have notified the Company in writing of the name, address, and commercial experience of such prospective subdistributor, agent or dealer and the Company shall have approved such subdistributor, agent or dealer (which approval will not be unreasonably withheld); and (ii) Distributor shall have secured the enforceable written agreement, in form and substance satisfactory to the Company, of any subdistributor, agent or dealer that the latter: (A) shall look solely and exclusively to Distributor for any compensation of any kind and shall not have any claim or right to any compensation of any kind whatsoever from the Company, in particular, termination indemnities, payments, compensations or other benefits; (B) shall have no rights with respect to the distribution of the Product within the Territory greater than the rights of Distributor under this Agreement; and (C) shall be subject to the responsibilities and obligations of Distributor set forth in this Agreement (c) Distributor agrees that it shall be responsible for the full and faithful performance of any duty or obligation under this Agreement delegated, expressly or by implication, by Distributor to any subdistributor, agent or dealer and shall indemnify and hold harmless the Company against any liability, termination indemnity, loss, injury, claim, cost, or expense incurred by the Company as a result of Distributor's appointment of any subdistributor, agent or dealer, except as such loss, injury, claim, cost, or expense is caused by the fault of the Company. -3- (d) Company represents and warrants to Distributor that: (i) [DELETION] (ii) [DELETION] (iii) [DELETION] (iv) [DELETION] (v) Company's execution and performance of this Agreement does not conflict with any of the terms and conditions of the License. (vi) Except as set forth in Schedule 7(a), no third party has any option, license or other contract or arrangement with Company with respect to the manufacture, use or sale of the Product in the Territory or the use of the Trademark, any related patent right or know-how in the Territory, except for contracts or arrangements with customers of the Company in the ordinary course of business. (vii) Company has disclosed to Distributor all material information in Company's possession, whether scientific or otherwise, concerning the Product, the rights granted hereunder and the Trademark. (e) Distributor acknowledges and agrees that the distribution rights granted under this Agreement are subject to, and limited by, the terms and conditions of the License, including any termination rights thereunder. 2. Duties of Distributor. --------------------- -4- (a) Distributor accepts the foregoing appointment and agrees to provide all of the usual and customary services of a distributor in the Territory, which shall include, without limitation, the following: (i) Distributor shall use all reasonable efforts to distribute and sell and diligently promote the Product in the Territory. In this regard, Distributor shall provide and maintain a sales organization adequate to meet the needs of the market in the Territory. Nothing in this Agreement shall be construed as requiring Distributor to maintain a sale organization outside the United States of America. (ii) Distributor agrees not to sell and distribute knowingly counterfeit Company products or Product which has been misbranded or adulterated or which is otherwise illicit. (iii) Distributor agrees to include the Product at frequent intervals in lists, bulletins or catalogs, as they may be issued by Distributor to its customers, and agrees to check such customers' supplies of Product regularly to insure adequate stocking and that the Product is in saleable condition. (iv) Distributor agrees not to sell the Product outside the Territory or knowingly sell the Product to customers in the Territory which intend to or who resell outside the Territory. (v) Distributor agrees to store and ship the Product strictly in accordance with the specifications in Exhibit B ("Specifications") and Company's instructions and as otherwise required by law. (vi) Distributor agrees not to make any warranty, guarantee, claim or representation in connection with the Product, unless authorized by Company or contained in written materials forwarded by Company to Distributor. -5- (vii) Distributor shall promptly provide Company with copies of any known Product related complaints of a medical nature, including adverse reaction and events, or product quality nature. (b) Nothing contained in this Agreement shall be construed to restrict Company's right, in its sole discretion, after discussion with Distributor, to discontinue manufacturing (or having the Product manufactured on its behalf) or having the Product distributed within the Territory at any time, immediately upon prior written notice to Distributor if in Company's reasonable scientific or medical judgment (based upon medical or scientific reasons or on information or circumstances not known or existing as of the date hereof by Company's senior medical officer), further sale of the Product in the Territory is not advisable. (c) Distributor represents and warrants that it is not now selling and will not during the term hereof sell in the Territory any products directly competitive with the Product. As used in this Section 2(c), "directly competitive" means a magnesium supplement product. (d) Company represents and warrants that it will not during the term hereof, and for a period of two (2) years after the expiration or earlier termination of this Agreement other than termination by Company under Section 10(b), sell in the Territory any products directly competitive with the Product. As used in this Section 2(d), "directly competitive" means a magnesium supplement product. Nothing in this Section 2(d) shall in any way restrict or preclude Company or any of its Affiliates from acquiring another company, business or line of products (including by license thereof or through investment therein), a non- material portion of which includes such magnesium supplement pharmaceutical product. "Non-material" for purposes of this Section 2(d) means that such magnesium supplement product accounts at the time of purchase for less than ten per cent (10%) of the gross sales in the Territory of all products included in the acquired company, business or line of products. If Company acquires any company, line of products or business with products as in (i) above, Company agrees to negotiate -6- with Distributor, as applicable, toward a possible sale of such products to Distributor in the Territory. 3. Purchase of Product. ------------------- (a) Distributor shall place purchase orders with Company for, and will purchase and warehouse, such quantities of the Product as Distributor believes may from time to time be required to meet trade requirements and sampling in the Territory. (b) Distributor shall submit written purchase orders to the Company for the Product and Company shall accept such orders to the extent that they meet the other requirements of this Section (b) and do not exceed Company's capacity to produce Product. All sales hereunder shall be subject to the terms and conditions of this Agreement, except for quantity and delivery date terms which may be specified in any purchase order hereunder; provided that, delivery shall in no event be required in less than one hundred twenty (120) days from Company's receipt of the applicable purchase order. In the event of any conflict, the terms of this Agreement shall prevail over those contained in purchase orders or any other documents submitted by Distributor in connection with this Agreement. Concurrently with the execution of this Agreement, Distributor will provide Company a forecast of estimated requirements for Product during the following six (6) calendar quarters. Distributor shall exert all reasonable efforts to make each forecast as accurate as possible and shall update such forecast at the end of each calendar quarter for the following six (6) calendar quarters. Company shall accept and fill orders to the extent they do not exceed one hundred and twenty percent (120%) of Distributor's forecast for the applicable calendar quarter and use all reasonable efforts to fill any portion of such orders in excess of such amount. Unless the parties subsequently agree to the contrary, Company's obligation to supply Product shall cease as of January 1, 2002. If Company does not agree to extend its obligation to supply Product as described above, Company will provide reasonable assistance to Distributor to find an alternative source of supply; provided that if an alternative source of supply is not available to Distributor, Company shall extend its obligation to supply to December 31, 2002. -7- (c) The parties contemplate that Company may transfer manufacture of the Product to the Company's subsidiary, Searle Industrie, in Evreux, France. Upon such transfer, the supply of Product and the related provisions hereunder shall be assumed by said subsidiary, but Company shall guaranty, as principal and not as surety, the performance by said Searle Industrie of all its obligations of supply. (d) The Product shall meet the Specifications, as the same may be amended from time to time by agreement of the parties or by requirement of the U.S. Food and Drug Administration ("FDA"). (e) Sales by Company to Distributor shall be made as follows: (i) Sales shall be made FOB shipping point (Incoterms 1990) at such facility at which the final packaging of the Product is completed, whether such facility is a Company facility, third party manufacturer facility, or, as is currently applicable, Distributor's facility (or such other shipping point as may be agreed between the parties), initially for the first twelve (12) months after the Effective Date at the prices specified in Exhibit C annexed hereto and made a part hereof. (ii) After the first twelve (12) months period in subsection 3(e)(i) above, if Company proposes in increase the price of the Product [DELETION], it shall so notify Distributor of such increase no less than ninety (90) days prior to the expiration of such period. Such price shall be in effect for the ensuing twelve (12) months period. Any subsequent price increases must be notified to Distributor in accordance with the foregoing procedure. In no event however, shall Company notify Distributor of its desire to increase its price for the Product more than once in any one year during the term of this Agreement. The price which Distributor shall pay for the Product shall be that price in effect when an order for the Product is placed. The foregoing price increases shall include any increases in active ingredient costs or finished packaging costs charged by Distributor or its Affiliates ("Distributor Increases"), and such Distributor Increases shall not be subject to or included in determining the [DELETION] set forth above. -8- (iii) All sales, use, gross receipts, added-value and other taxes, duties, and similar charges, shall be borne by Distributor. Distributor shall assume responsibility for risk of loss or damage to the Product to the extent the Product is held at Distributor's facility or is otherwise in the possession of Distributor, and Distributor shall be deemed a warehouseman with respect thereto. Title to the Product shall pass to Distributor upon delivery of payment to Company for the Product in accordance with Section 3(f) below. (f) All payments by Distributor for Product shall be made in United States dollars to Company (or other designated affiliate), by wire transfer to the bank account designated by Company or such affiliate from time to time, in a written notice to Distributor. Payment shall be due thirty (30) days from the date of shipment. It is understood and agreed that Distributor shall not be obligated to pay for any shipment, or portion thereof, of Product that has been properly rejected by Distributor pursuant to this Agreement. (g) Company shall keep full and accurate books and records related to the fully absorbed cost of the Product in sufficient detail so amounts payable hereunder can be properly calculated. Such books and records shall be kept for the longer of two (2) years after the close of the calendar year to which the records apply or the period required by law. Commencing with the books and records for calendar year 1998, Company shall permit (not more than once each calendar year during the term hereof) independent accountants designated by Distributor to whom Company has no reasonable objection, to examine said books and records at reasonable times for the sole purpose of verifying the accuracy of the written statements submitted to Distributor and the purchase price for Product paid or payable. Said independent accountants shall not disclose to Distributor any information other than information relating solely to the accuracy of the accounting and payments made by Distributor pursuant to this Agreement and shall otherwise be bound by the confidentiality provisions of this Agreement. (h) Distributor shall purchase Company's inventory of finished Product on hand as of the Effective Date upon the following terms: -9- (i) Within fifteen (15) days following the Effective Date, Company shall provide Distributor with a statement and count of finished goods inventory of Product, less finished goods inventory required for customer orders received prior to the Effective Date, which orders shall be processed for Company's account. Distributor shall purchase such finished goods inventory, EX WORKS (as defined by INCOTERMS 1990 Edition) such facilities where such inventory is held, at a purchase price [DELETION]. Distributor shall pay the purchase price within sixty (60) days following receipt of the statement with respect to said inventory. (ii) Distributor shall, at its own expense, arrange for shipment of the finished goods inventory of the Product to its designated facility. (iii) Notwithstanding the foregoing, Distributor shall not be required to purchase any such inventory of the Product which is damaged, misbranded, adulterated or otherwise unsalable or which will expire on a date than twelve (12) months from the Effective Date. 4. Obligations of Company ---------------------- (a) Subject to Article 3 above, Company agrees to use all reasonable efforts to or cause to be sold to Distributor by one or more of Company's affiliates, on a timely basis the Product in quantities adequate to meet the needs of the market throughout the Territory. In the event that Company is unable to fill any accepted purchase order, Company shall promptly notify Distributor. Distributor shall have the right under this Agreement to cancel any quantity of Product for which Company has failed or will be unable for any reason to deliver within one (1) month following the applicable delivery date set forth in written purchase orders accepted pursuant to this Agreement. -10- (b) Company shall inform Distributor of any orders and/or inquiries for Product in the Territory which it receives. Company shall not knowingly sell the Product to customers intending to resell the Product in the Territory. (c) To the extent permitted by law, any decision to recall or cease distribution of the Product, as a result of the Product being in violation of any law, rule or regulation or presenting a possible safety risk, shall be made by Company, after consultation with Distributor. In the event of any recall, Company shall, with Distributor's cooperation and assistance, determine the scope and form of the recall and Distributor shall conduct the recall. Company will provide Distributor with any information concerning the manufacturing of the Product which may reasonably be required by Distributor to determine the need for a recall. Costs for any recall shall be borne by the party required to indemnify the other party in relation to such recall pursuant to Article 9 hereof. Notwithstanding the foregoing, if Company fails within a reasonable period of time to recall Product delivered to Distributor pursuant to this Agreement that Distributor reasonably determines should be recalled due to safety concerns, Distributor reserves the right to recall such Product after consultation with Company and subject to such reasonable conditions and limitations as Company may request. (d) Company shall perform quality control tests and assays on raw materials and on finished Product as required under the Specifications. Distributor shall provide Company and its representatives access to Distributor's facility where Product is held, if applicable, for the purpose of performing such tests and assays. To the extent Distributor provides final packaging of Product, Distributor shall accept and warehouse on behalf of Company such bulk finished Product as Company or its designated third party manufacturer shall ship to Distributor's facility. 5. Distribution Rights Payments. ---------------------------- (a) In order to further secure the rights to distribute and market the Product in the Territory, Distributor has agreed to pay Company the following sums: -11- (i) Concurrently with the execution and delivery of a Letter of Intent, dated October 20, 1997, between the parties, Distributor has paid Company [DELETION] as earnest money ("Earnest Money") by wire transfer to account number [DELETION]. (ii) [DELETION] concurrently with the signing of this Agreement; (iii) [DELETION] on the earlier of the termination of this Agreement by Company under Section 10 or the first anniversary of the Effective Date; (iv) [DELETION] on the earlier of the termination of this Agreement by Company under Section 10 or the second anniversary of the Effective Date ; (v) Interest on the amounts set forth in Sections 5(a)(iii) and (iv) above at an annual rate of [DELETION], payable within thirty (30) days following the end of each calendar quarter and the date of payment, as applicable, from the Effective Date to the respective dates of payment of such amounts; and (vi) [DELETION] of Net Sales (as defined below) of the Product in the Territory from the Effective Date through December 31, 2002. Payments under this sub-Section (v) shall be made quarterly within sixty (60) days of the close of each calendar quarter. (b) "Net Sales" means the gross invoice value of the Product billed by ---------- Distributor or its affiliates, to unrelated third parties, less (i) ordinary and customary cash and trade discounts and bid contract discounts, (ii) chargebacks, rebates, credits or allowances actually credited or made to customers for spoiled, damaged, outdated and returned Product, (iii) sales, turnover, excise, and value-added or other taxes and duties (other than income taxes), and (iv) reasonable freight, insurance and handling charges to the extent included in gross invoice value. -12- (c) Each payment shall be accompanied by the report required under Section (d) of this Article 5 below, plus such other information on the sale of Product as Company may reasonably request. Except as otherwise provided in Article 3 of this Agreement, all payments to be made by Distributor to Company pursuant to this Agreement shall be made in United States dollars by wire transfer to Company's account number [DELETION] (or other bank or account designated by Company) in immediately available funds and shall not be reduced by any taxes, licenses, fees or other withholdings. (d) Within thirty (30) days after the end of each calendar quarter during the term hereof, Distributor will provide Company a statement showing the calculation of Net Sales and the calculation of the payment due. (e) The payments set forth in Section 5(a) of this Agreement shall be non-refundable and not creditable against Section 5(a)(vi) payments. (f) Distributor shall keep full and accurate books and records related to Net Sales of the Product in sufficient detail so amounts payable hereunder can be properly calculated. Such books and records shall be kept for the longer of the term of this Agreement plus two (2) years or the period required by law. Distributor shall permit (not more than once each calendar year during the term hereof) independent accountants designated by Company to whom Distributor has no reasonable objection, to examine said books and records at all reasonable times for the sole purpose of verifying the accuracy of the written statements submitted by Distributor and the distribution rights fees paid or payable. Said independent accountants shall not disclose to Company any information other than information relating solely to the accuracy of the accounting and payments made by Distributor pursuant to this Agreement and shall otherwise be bound by the confidentiality provisions of this Agreement. (g) Any and all taxes payable in connection with the payments to be made pursuant to this Agreement shall be for the account of the party upon which such tax is imposed by law. In the event that Distributor shall be required to withhold or pay any taxes in the Territory -13- applicable to Company with respect to any such payment, Distributor shall promptly furnish Company with the respective tax receipts, or other evidence of payment deemed by Company to be sufficient. (h) Upon request by Company, Distributor shall file on behalf of Company any tax returns which the law of the Territory may require. Such tax returns shall be filed in accordance with Company's instructions and Distributor shall pay such taxes on Company's behalf, deducting the amounts on such tax payments from the payments due pursuant to this Agreement. (i) Overdue amounts payable by Distributor to Company or its affiliate under Articles 3 and 5 shall bear interest, payable quarterly, from the date due to and including the date paid at the rate of [DELETION] or, if lower, the highest rate permitted by applicable law. (j) [DELETION] 6. Sales Promotion and Reports. Distributor shall maintain: --------------------------- (a) such facilities in the United States of America as are necessary for storing and distributing the Product in the Territory; (b) an accurate and up-to-date list of customers; and (c) a system of record keeping to permit tracking of the Product sold hereunder, in the event a recall of any Product is ordered. Distributor shall retain, and upon reasonable notice and at reasonable times grant Company and its representatives access to, such records during the term of this Agreement and for a period of at least two (2) years following its expiration or other termination. 7. Trademarks and Other Proprietary Rights. --------------------------------------- -14- (a) Except as set forth in Schedule 7(a) attached hereto and made a part hereof, Company represents that, to the best of its knowledge, the trademark registration for the Trademark is valid and subsisting in the United States and other countries of the Territory, and the Company has the exclusive right to use the Trademark in the Territory. (b) The parties have agreed, subject to any governmental approvals or changes, to make changes in the labeling and packaging for the Product so that they would include Distributor's corporate name. All labels, boxes and literature shall acknowledge that HCT is the licensee of the Trademark in the United States. (c) Distributor acknowledges that the Trademark used in connection with the Product is not Distributor's property, and Distributor shall not contest such Trademark or seek to register or have registered any such Trademark or trade name in the Territory. Distributor shall not display or use any Trademark or trade name owned by the Company except during the term of this Agreement and then only in a manner previously approved by Company; provided, however, that no -------- ------- such prior approval shall be required for the use of advertising or promotional materials prepared, designed, furnished or approved in writing in advance by Company. Company shall respond to Distributor's written submissions in this regard within five (5) business days of receipt. Distributor shall execute any documents necessary for the recordal of any required registered user agreement in the Territory. (d) Distributor shall promptly notify Company if Distributor becomes aware of any actual or potential infringement of or conflict with the Trademark or any other proprietary rights relating to the Product in the Territory. Company, at its expense, shall have the right to deal with such infringement or conflict by appropriate legal proceedings (but Distributor shall provide all reasonable assistance in connection therewith) and Company shall be solely entitled to any compensation or other payment received in connection therewith. However, if Company and HCT fail to commence and diligently pursue appropriate legal proceedings against the infringer within ninety (90) days of Distributor's notice to Company, Distributor shall be solely entitled to -15- deal with such infringement or conflict by such means as Distributor sees fit (but Company shall provide all reasonable assistance in connection therewith) and Distributor shall be solely entitled to any compensation or other payment received in connection therewith. If the use of the Trademark is enjoined in the Territory, Company shall provide Distributor with a substitute trademark. (e) Notwithstanding the foregoing Section, in the event Company fails to commence and diligently pursue appropriate legal proceedings under Section 7(d) above, Distributor may, in addition to the other remedies provided in Section 7(d) above, in its sole discretion, elect to register a new trademark for the Product, which trademark shall be the sole and exclusive property of Distributor. 8. Compliance with Applicable Law. ------------------------------ (a) Subject to Company's compliance with Section 9 and 15 below, Distributor shall be responsible for compliance of the Product with all applicable laws and regulations and governmental orders and decrees in the Territory, federal, state and local, including but not limited to the dietary supplement regulations promulgated by the FDA and any labeling and advertising constraints imposed thereunder. Further, Distributor shall promptly inform Company in writing of any change or proposed change in requirements for production, promotion or sale of the Product imposed by any governmental entity in the Territory. (b) Company shall promptly notify Distributor of any inspections by federal, state or local regulatory representatives of any Company facility where the Product is manufactured and/or packaged, and shall, if such inspections directly relate to the Product, send Distributor copies of the portions of the reports of any such inspections which directly relate to the Product, including actions taken by Company to remedy conditions cited in such inspections. -16- (c) Subject to Distributor's compliance with its obligations under this Agreement, Company shall obtain and maintain all government license, permits and registrations necessary for the Company's manufacturing, packaging and supply of Product hereunder. (d) Not more frequently than once each calendar year during the term hereof, unless in an emergency situation, Company shall allow a representative of Distributor (to whom Company has no reasonable objection) to inspect any Company facility where the Product is manufactured and/or packaged, to assure compliance with Company's obligations under this Agreement. Such inspection shall be at reasonable times, following reasonable notice and be subject to such confidentiality agreement and rules as Company shall designate from time to time. 9. Warranty, Indemnity and Inspection. ---------------------------------- (a) Company warrants, represents and covenants that, during the supply period specified in Section 3(b) or any extension thereof, (i) on the date of shipment, no Product supplied hereunder shall be adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, as amended (the "Act"), or within the meaning of any applicable state or municipal laws in which the definitions of adulteration and misbranding are substantially the same as those contained in the Act, as the Act and such laws are constituted and effective at the time of shipment, or consist of or include any product or article which may not be introduced into interstate commerce; and (ii) Company shall have good title to all Product supplied hereunder, which title shall pass to Distributor as provided herein following payment therefor, free and clear of any lien, encumbrance or other conflicting interest of any kind, except as to any lien, encumbrance or conflicting interest arising with respect thereto as a result of any act or omission by Distributor. -17- (b) THE WARRANTIES SET FORTH IN SECTION (a) ARE EXCLUSIVE AND IN LIEU OF ANY OTHER EXPRESS OR IMPLIED WARRANTY CONCENING THE PRODUCT, INCLUDING ANY IMPLIED WARRANTY OF FITNESS OR MERCHANTABILITY. (c) All Product ordered hereunder shall be subjected to a visual inspection upon receipt by Distributor. All claims for shortages, alleged defects, or breaches of warranty which could be discovered by visual inspection shall be made in writing to Company no later than thirty (30) days after receipt of such Product and, if not so made, shall be irrevocably waived by Distributor. If Company disputes Distributor's rejection (for alleged Product quality reasons) made as provided above of all or part of any shipment of finished Product such dispute shall be resolved by an independent testing organization or consultant, of recognized repute within the industry in the United States mutually agreed upon by the parties, the appointment of which shall not be unreasonably withheld or delayed by either party. The determination of such entity with respect to the rejection of all or part of any shipment of finished Product shall be final and binding upon the parties. The cost of such determination shall be borne by the party against whom the decision is made. (d) Except as provided in Section 9(e) below, Distributor shall indemnify and hold Company, its subsidiaries and affiliates and their respective directors, officers, employees and agents harmless against all claims, suits, demands, judgments or damages, including reasonable attorneys' fees and court costs, arising out of or relating to Distributor's (i) breach of this Agreement, or (ii) packaging, warehousing, handling, sale or promotion of the Product, as applicable, in the Territory (including, without limitation any strict liability, product liability, tort or similar claim). (e) Company will indemnify and hold Distributor, its subsidiaries and affiliates and their respective directors, officers, employees and agents harmless against all claims, suits, demands, judgments or damages, including, reasonable attorneys' fees and court costs, arising -18- out of or relating to Company's (i) breach of this Agreement or (ii) failure to supply Product complying with any of the Company's express Product quality requirements of this Agreement or (iii) third party claims resulting from Product sold prior to the Effective Date. (f) Notwithstanding the foregoing or any other provision of this Agreement, neither party shall be liable to the other for lost profits or consequential damages of any kind. 10. Duration and Termination and Remedies. ------------------------------------- (a) Subject to Sections (b) and (c) of this Article 10, this Agreement shall be in effect for the period from the Effective Date until terminated pursuant to Section (b) below or as otherwise agreed by the parties. (b) This Agreement may be terminated, effective immediately, by a party ("Injured Party") at any time upon written notice to the other party upon (i) the failure of the other party to comply with this Agreement in respect of any obligation, other than an obligation to make any payments under Sections 5(a) (ii), (iii) and (iv) hereof, which failure is not cured within thirty (30) days of written notice thereof, (ii) the suspension, liquidation, dissolution or bulk sale, or notice thereof, of the other party's business without the prior written consent of the Injured Party or in the event of the calling of a meeting of such party's creditors, an assignment by such other party for the benefit of creditors, the insolvency of any kind of such other party, or the filing of any attachment, distraint, levy, execution or judgment against such party, any filing of a voluntary or involuntary petition under the provisions of any bankruptcy act, or any application for or appointment of a receiver for the property of such other party, or -19- (iii) the cessation by such other party of its business; or by the Company if, (iv) Distributor fails to make any payment under Sections 5(a) (ii), (iii) and (iv) hereof when due and such failure continues for a period in excess of thirty (30) days. (c) Upon termination of this Agreement for any reason, Distributor shall promptly return to Company all price lists, catalogs and other advertising literature furnished by Company and, if so requested by Company in writing, all Product on hand which is in good and saleable condition. If so requested by Company, Company shall pay Distributor for such Product at Distributor's purchase price therefor under Section 3. Upon termination of this Agreement for any reason, all related subdistributorship, agency or dealership agreements entered into by Distributor shall be automatically terminated. If Company does not request return of Product held by Distributor, Distributor shall have six (6) months from the date of termination within which to sell the Products, subject to all the terms and conditions of this Agreement. (d) No termination pursuant to this Agreement shall give rise to any obligation by either party to the other except as specifically provided in this Agreement. In particular, each party agrees that it shall not be entitled to any payment, whether by way of compensation, indemnity or penalty, arising out of such termination, except as specifically provided in Section 5(j). Any pre-existing claims, however, shall not be waived by the parties as a result of such termination. 11. Insurance. --------- Distributor shall obtain and maintain, at its expense, product liability insurance which includes the Product in an aggregate amount for all products of not less than [DELETION]. All such insurance shall include Company as an additional insured and must be issued by such insurer. -20- Distributor shall provide a certificate of insurance evidencing such insurance concurrently with the execution of this Agreement and will provide new certificates complying with this Agreement at least thirty (30) days in advance of the stated expiration date of the period of coverage. Each such certificate shall recite that the subject insurance is not cancelable and may not be amended absent at least sixty (60) days notice to Distributor and Company. 12. Current Product Supply Contracts. -------------------------------- Company shall, if requested by Distributor, use reasonable efforts (but shall not be required to make any payment) to obtain at the earliest practicable date, by instruments in form and substance reasonably satisfactory to Distributor, all consents and approvals to the assignment of material agreements for the supply of Product to customers within the Territory. If, with respect to any agreement to be assigned, a required consent to the assignment is not obtained Company shall use reasonable efforts to keep in effect and give Distributor (at Distributor's cost and expense) the benefit of such agreement to the same extent as if it had been assigned and to the extent not prohibited by that agreement, and Distributor shall perform Company's obligations under the agreement or cooperate in Company's performance of such obligations. Nothing in this Agreement shall be construed as an attempt to assign any agreement that is by its terms nonassignable without the consent of the other party. 13. NDC Numbers and Medicaid Rebates. -------------------------------- (a) Promptly following the Effective Date, Distributor shall take any and all action necessary to change the National Drug Code number ("NDC") for the Product, which change shall be implemented as reasonably agreed upon by the parties. (b) For purposes of Company's Rebate Agreement with the Secretary of Health and Human Services ("HHS") under Section 4401 of the Omnibus Budget Reconciliation Act of 1990, Company shall continue to make any Rebate Payment (as defined in such Rebate Agreement) with respect to the Product required thereunder; provided that, for Rebate Payments -21- for which State Medicaid Utilization Information reports show that Medicaid payment was made for such drug after the Effective Date, Distributor shall promptly reimburse Company for all such Rebate Payments in accordance with Article 17 hereof. (c) Distributor shall notify all relevant persons and entities, including Company and First Data Bank, of such NDC change and comply with all laws and regulations of HHS or its sub-divisions and agencies (including HCFA) and the Rebate Agreement. (d) Distributor shall also provide Company all relevant information regarding Distributor's sales, promotion, pricing and other activities with respect to the Product, including pricing calculations for purposes of determining "Best Price", necessary for Company to comply with the Rebate Agreement. 14. Returns of Product ------------------ (a) Returns will be the financial responsibility of the party that originally sold the returned Product. Returns shall be tracked by lot number. Returned Product with lot numbers sold exclusively by Company will be the financial responsibility of Company; returned Product with lots numbers sold exclusively by Distributor will be the responsibility of Distributor; financial responsibility for returned Product from lots where each party sold a portion of the lot will be prorated based on the portion of the shared lot that each party sold. (b) Both parties agree to enforce preauthorized return or scan and destroy procedures in an attempt to have customer return Product and obtain credit from the party who originally sold the Product to them. Both parties agree to accept returns from the prorated lot. However, either party may accept Product returns for which they are not financially responsible in order to maintain their reputation and good will in the marketplace and the financially responsible party will reimburse the party processing the return. In these cases, the processing party will verify the price the customer originally paid (and therefore the credit provided) with the party who originally sold the Product. -22- 15. Chargebacks and Rebates ----------------------- (a) Company will be financially responsible for all chargeback claims related to Product sold by a wholesaler to a chargeback contract customer on and after the Effective Date and during the first three (3) months of 1998. (b) Company will be financially responsible for all managed care rebates related to Product dispensed by a pharmacist on and after the Effective Date and during the first six (6) months of 1998. (c) In general, Distributor will forward to Company for payment any claims received related to Sections 15(a) and (b) above for which Company is financially responsible. However, for the purpose of administrative convenience or at the specific request of a customer, Distributor may elect to pay the claim for which Company is financially responsible and Company will reimburse Distributor with respect to such claim. (d) Company will be financially responsible for all Medicaid rebates related to Product dispensed by a pharmacist on and after the Effective Date and during the first six (6) months of 1998. HCFA will continue to bill Company for Medicaid rebates for up to one year after the expiration date on the last Product issued with a Company labeler code. For administrative convenience, Company will continue to pay all future Medicaid rebates claims it receives. Distributor will reimburse Company for any rebate claims paid by Company but which relate to Product dispensed by a pharmacist after the aforesaid first six months of 1998. (e) Company shall continue to make any chargeback or rebate payments with respect to the Product required under agreements, government mandates or otherwise which relate to supply contracts not assigned or assignable under Section 12 or which are processed by Company due to direct requests of a customer, provided that Distributor shall reimburse Company for all such payments pursuant to Section 17 below. -23- 16. Special Services. From and after the Effective Date and until the ---------------- expiration of twelve (12) weeks thereafter, Company shall, (a) in written form and substance satisfactory to Distributor, notify all customers and formularies under contracts existing as of the Effective Date of this Agreement that as of such date Distributor shall be the seller of the Product in the Territory (providing Distributor with a duplicate set of mailing labels for its use). (b) invoice, book sales and ship Product as agent for Distributor and use all reasonable efforts (short of instituting third party collection or legal proceedings) to collect amounts due for Product so shipped. For its services, Distributor shall pay Searle a fee equal to [DELETION], such fee to be paid in monthly installments within thirty (30) days of Company's invoice therefor. 17. Quarterly Payments. Company shall provide Distributor on a calendar ------------------ quarterly basis (within thirty (30) days after the end of the quarter) the information necessary to calculate payments due under Sections 14 and 15(d) for the calendar quarter just ended. The payments due under these separate Sections will be aggregated for each party and shall be made not later than sixty (60) days after the end of each calendar quarter by wire transfer in immediately available funds to the bank and account designated from time to time in a notice from Company. 18. Assignment of Trademark and Paid-up License. [DELETION] ------------------------------------------- 19. Miscellaneous Provisions. ------------------------ (a) The relationship between Company and Distributor hereunder is solely that of seller and purchaser of the Product. Neither party shall have any power or authority to bind the other in any manner and shall not hold itself out as agent or representative of the other party for any purpose. -24- (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without regard to the conflict of laws principles of such state or any other jurisdiction. (c) Any notice required to be given by either party shall be in writing and hand delivered, sent by telecopier or mailed by certified airmail, postage prepaid, to the other party at its address set forth below or at such other address as shall have been designated by such other party by written notice. Notices shall be deemed given (i) when received, if hand delivered or telecopied or (ii) the earlier of receipt or five (5) days after deposit in the mails as aforesaid, if mailed. if to Company, addressed to: G. D. Searle & Co. 5200 Old Orchard Road Skokie, IL 60077 Attention: President Telecopier: (847) 967-2045 with a copy to: General Counsel Telecopier: (847) 967-2045 if to Distributor, addressed to: Roberts Laboratories Inc. Meridian Center II 4 Industrial Way Eatontown, New Jersey 07724 Attention: Anthony A. Rascio Telecopier: (732) 389-1014 -25- (d) The obligations of either party to perform under this Agreement (other than any obligation to pay money) shall be excused if failure to perform or any delay is caused by acts of God, strikes, civil commotion, riots, war, revolution, acts of governments, or any other cause beyond the reasonable control of the party obligated to perform. Upon the occurrence of any such event, the duties and obligations of the parties shall be suspended for the duration of the event preventing proper performance under this Agreement. (e) No waiver of any default hereunder by either party or any failure to enforce any rights hereunder shall be deemed to constitute a waiver of any subsequent default with respect to the same or any other provision. No waiver shall be effective unless made in writing and signed by the parties. (f) This Agreement constitutes the complete agreement of the parties with respect to the subject matter thereof. All prior proposals, communications, agreements or understandings between Distributor and Company, whether oral or written, concerning the subject matter hereof, if any, are superseded by this Agreement. This Agreement may not be modified except in writing signed by both parties. (g) Distributor may not assign this Agreement or any right under it without the prior written consent of Company. (h) Company shall not be bound to honor any of Distributor's contracts for resale or supply of the Product. (i) Each party agrees for the term of this Agreement [DELETION] not to disclose, or use for any purpose except as otherwise expressly provided herein, any confidential information relative to the other party's business acquired pursuant to or during the term of this Agreement. For the avoidance of doubt, all confidential and proprietary information previously disclosed to Distributor by Company or related to the Product's Specifications are confidential and proprietary information of Company's and subject to the foregoing -26- obligation. The foregoing obligation shall not apply, however, to information (i) which is or becomes public through no fault of the recipient, or (ii) which is made lawfully available to the recipient by an independent third party, or (iii) which was already in recipient's possession at the time of receipt from the disclosing party as evidenced by its written records, or (iv) which is independently developed by employees of the recipient after the date of this Agreement or (v) which is required by law, regulation, rule, act or order of any governmental authority or agency to be disclosed. (j) If either party wishes to make any public disclosure concerning this Agreement or the terms hereof, the other party shall be provided with an advance copy of the proposed disclosure and shall have five (5) business days within which to approve or disapprove such disclosure. Approval shall not be unreasonably withheld by either party. Absent approval, no public disclosure concerning this Agreement or the terms hereof shall be made by either party. Notwithstanding the foregoing, it is understood and agreed that no approval shall be required in the event that the information to be disclosed has been the subject of a prior public disclosure. (k) The provisions of Articles 1, 2, 3, 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 shall survive the expiration or other termination of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. G.D. Searle & Co. Roberts Laboratories Inc. By ________________________ By ______________________ Title: Title: -27- Exhibit A Territory --------- United States of America, its territories and possessions [DELETION] -28- Exhibit B Specifications for Product -------------------------- ATTACHED [ATTACHMENT DELETED] -29- Exhibit C Price for Product ----------------- [DELETION] EX-21 5 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 LIST OF SUBSIDIARIES STATE OR OTHER JURISDICTION SUBSIDIARIES OF INCORPORATION - ------------ --------------------------- Roberts Laboratories, Inc. New Jersey Linz-Roberts, Inc. Delaware VRG International, Inc. New Jersey Monmouth Pharmaceuticals, Ltd. United Kingdom Roberts Pharma GmbH Germany Roberts Pharmaceutical of Canada, Inc. Canada Roberts Investments, Inc. Delaware RPC Acquisition Corp. New Jersey EX-23 6 CONSENT OF INDEPENDENT ACCOUNTANTS COOPERS Coopers & Lybrand L.L.P. & LYBRAND a professional services firm EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Roberts Pharmaceutical Corporation on (1) Form S-3 (File No. 333-13729) and (2) Form S-8 (File No.'s 33-34767, 33-61543 and 333-09847) of our report dated February 5, 1998, on our audits of the consolidated financial statements of Roberts Pharmaceutical Corporation and Subsidiaries as of December 31, 1997, 1996 and 1995 and for each of the three years in the period ended December 31, 1997, which report is included in the Corporation's 1997 Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Princeton, New Jersey March 31, 1998 Coopers & Lybrand L.L.P., a registered limited liability partnership, is a member firm of Coopers & Lybrand (International). EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF ROBERTS PHARMACEUTICAL CORPORATION AND SUBSIDIARIES AS OF DECEMBER 31, 1997, AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS PERIOD ENDED DECEMBER 31, 1997 (THE "FINANCIAL STATEMENTS") AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 42,950 39,887 24,730 0 19,826 137,987 25,913 0 367,855 39,981 10,327 0 48 299 316,956 367,855 121,612 122,508 51,386 51,386 71,884 0 755 1,416 1,101 2,517 0 0 0 2,517 0.06 0.06 Includes raw material inventory of $2,487. Non-current portion of long term debt. Benefit
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