-----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, Fhi097bcOchDegUF7Lb8FyjzUr5fZzxzPigzCENhk2SClcnXH1L0uhfUENEZW474 rmP7H1FcKfqVqACWqkV9YQ== 0000069499-02-000030.txt : 20020806 0000069499-02-000030.hdr.sgml : 20020806 20020806171804 ACCESSION NUMBER: 0000069499-02-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MYLAN LABORATORIES INC CENTRAL INDEX KEY: 0000069499 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 251211621 STATE OF INCORPORATION: PA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09114 FILM NUMBER: 02720965 BUSINESS ADDRESS: STREET 1: 130 SEVENTH ST STREET 2: 1030 CENTURY BLDG CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122320100 MAIL ADDRESS: STREET 1: 1030 CENTURY BUILDING STREET 2: 130 SEVENTH STREET CITY: PITTSBURGH STATE: PA ZIP: 15222 FORMER COMPANY: FORMER CONFORMED NAME: FRM CORP DATE OF NAME CHANGE: 19711003 10-Q 1 quarter1fy2003.txt FISCAL YEAR 2003 QUARTER 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10 - Q - -------------------------------------------------------------------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 1-9114 MYLAN LABORATORIES INC. (Exact Name of registrant as specified in its charter) Pennsylvania 25-1211621 (State of incorporation) (I.R.S. Employer Identification No.) 130 Seventh Street 1030 Century Building Pittsburgh, Pennsylvania 15222 (Address of principal executive offices) (Zip Code) (412) 232-0100 (Registrant's telephone number, including area code) 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 twelve 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date Outstanding at Class of Common Stock August 1, 2002 - --------------------- -------------- $.50 par value 125,312,716 MYLAN LABORATORIES INC. AND SUBSIDIARIES FORM 10-Q For the Quarterly Period Ended June 30, 2002 INDEX Page Number -------- PART I. FINANCIAL INFORMATION ITEM 1: Financial Statements Condensed Consolidated Statements of Earnings - Three Months Ended June 30, 2002 and 2001 2 Condensed Consolidated Balance Sheets - June 30, 2002, and March 31, 2002 3 Condensed Consolidated Statements of Cash Flows - Three Months Ended June 30, 2002 and 2001 4 Notes to Condensed Consolidated Financial Statements 5 ITEM 2: Management's Discussion and Analysis of Results of Operations and Financial Condition 16 ITEM 3: Quantitative and Qualitative Disclosures About Market Risk 23 PART II. OTHER INFORMATION ITEM 1: Legal Proceedings 24 ITEM 6: Exhibits and Reports on Form 8-K 29 SIGNATURES 30 MYLAN LABORATORIES INC. AND SUBSIDIARIES Condensed Consolidated Statements of Earnings For the Three Months Ended June 30, 2002 and 2001 (unaudited; in thousands, except per share amounts) 2002 2001 ---- ---- Net revenues $275,473 $237,933 Cost of sales 127,871 116,074 -------- -------- Gross profit 147,602 121,859 Operating expenses: Research and development 16,843 16,783 Selling and marketing 16,887 15,142 General and administrative 19,221 25,595 -------- -------- Total operating expenses 52,951 57,520 -------- -------- Earnings from operations 94,651 64,339 Other income, net 1,988 14,799 -------- -------- Earnings before income taxes 96,639 79,138 Provision for income taxes 34,790 28,490 -------- -------- Net earnings $ 61,849 $ 50,648 ======== ======== Earnings per common share: Basic $ 0.49 $ 0.41 ======== ======== Diluted $ 0.49 $ 0.40 ======== ======== Weighted average common shares: Basic 125,952 125,031 ======== ======== Diluted 126,955 126,374 ======== ======== Cash dividends declared per common share: $ 0.04 $ 0.04 ======== ========
See Notes to Condensed Consolidated Financial Statements 2 MYLAN LABORATORIES INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (unaudited; in thousands) June 30, March 31, 2002 2002 ---- ---- Assets Current assets: Cash and cash equivalents $ 84,979 $ 160,790 Marketable securities 509,515 456,266 Accounts receivable, net 175,309 145,491 Inventories 207,634 195,074 Deferred income tax benefit 98,305 92,642 Other current assets 10,279 11,819 ---------- ---------- Total current assets 1,086,021 1,062,082 Property, plant and equipment, net 166,771 166,531 Intangible assets, net 164,479 169,315 Goodwill, net 103,196 103,196 Investment in and advances to Somerset 21,328 22,720 Other assets 93,712 92,866 ---------- ---------- Total assets $1,635,507 $1,616,710 ========== ========== Liabilities and shareholders' equity Liabilities Current liabilities: Trade accounts payable $ 43,201 $ 36,534 Income taxes payable 48,820 63,826 Other current liabilities 77,959 72,758 ---------- ---------- Total current liabilities 169,980 173,118 Long-term obligations 19,735 23,883 Deferred income tax liability 21,197 17,470 ---------- ---------- Total liabilities 210,912 214,471 ---------- ---------- Shareholders' equity: Common stock 66,252 66,100 Additional paid-in capital 353,859 349,719 Retained earnings 1,137,574 1,080,736 Accumulated other comprehensive earnings 10,077 7,920 ---------- ---------- 1,567,762 1,504,475 Less: treasury stock at cost 143,167 102,236 ---------- ---------- Total shareholders' equity 1,424,595 1,402,239 ---------- ---------- Total liabilities and shareholders' equity $1,635,507 $1,616,710 ========== ==========
See Notes to Condensed Consolidated Financial Statements 3 MYLAN LABORATORIES INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows For the Three Months Ended June 30, 2002 and 2001 (unaudited; in thousands) 2002 2001 ---- ---- Cash flows from operating activities: Net earnings $ 61,849 $ 50,648 Adjustments to reconcile net earnings to net cash provided from operating activities: Depreciation and amortization 10,180 11,070 Deferred income tax benefit (3,098) (11,509) Equity in loss of Somerset 1,338 642 Cash received from Somerset 54 74 Earnings from limited liability partnerships (1,286) (11,982) Adjustments to estimated accounts receivable credits 7,954 33,438 Litigation settlement (4,014) - Other noncash items 164 2,352 Changes in operating assets and liabilities: Accounts receivable (37,772) (22,518) Inventories (12,823) (10,546) Trade accounts payable 6,667 3,016 Income taxes (15,006) 7,418 Other operating assets and liabilities, net 7,455 5,545 ---------- ---------- Net cash provided from operating activities 21,662 57,648 ---------- ---------- Cash flows from investing activities: Proceeds from (purchase of): Capital assets (5,762) (3,195) Sale of capital assets 59 461 Other and intangible assets (125) 181 Marketable securities (213,303) (141,914) Sale and maturity of marketable securities 163,404 43,637 ---------- ---------- Net cash used in investing activities (55,727) (100,830) ---------- ---------- Cash flows from financing activities: Cash dividends paid (5,055) (4,997) Purchase of common stock (40,853) - Proceeds from exercise of stock options 4,162 2,815 ---------- ---------- Net cash used in financing activities (41,746) (2,182) ---------- ---------- Net decrease in cash and cash equivalents (75,811) (45,364) Cash and cash equivalents - beginning of period 160,790 229,183 ---------- ---------- Cash and cash equivalents - end of period $ 84,979 $ 183,819 ========== ========== Cash paid during the period for: Income taxes $ 52,893 $ 32,578 ========== ==========
See Notes to Condensed Consolidated Financial Statements 4 MYLAN LABORATORIES INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited; in thousands, except share and per share amounts) 1. General In the opinion of management, the accompanying unaudited interim consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q; therefore, as permitted under these rules, certain footnotes or other financial information required by generally accepted accounting principles and included in audited financial statements have been condensed or omitted. The accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly our consolidated results of operations, financial position and cash flows for the periods presented. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended March 31, 2002. Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on reported net earnings, earnings per share or shareholders' equity. The consolidated results of operations for the three months ended June 30, 2002, are not necessarily indicative of the results to be expected for the full fiscal year. 2. Revenue Recognition We recognize revenue for product sales upon shipment when title and risk of loss transfer to our customers and when provisions for estimates, including discounts, rebates, price adjustments, returns, chargebacks and other promotional adjustments are reasonably determinable. Accounts receivable are presented net of allowances relating to these provisions. Such allowances were $222,591 and $214,637 as of June 30, 2002, and March 31, 2002. Other current liabilities include $25,986 and $21,577 at June 30, 2002, and March 31, 2002, for certain rebates and other adjustments that are paid to indirect customers. 3. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. See Note 6 for a discussion of the SFAS 142 implementation process. 5 The FASB issued SFAS 143, Accounting for Asset Retirement Obligations, which establishes standards of accounting for obligations associated with the retirement of tangible long-lived assets. This statement is effective for the Company on April 1, 2003. We are currently evaluating the impact, if any, this statement will have on our financial position and results of operations. SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, was issued by the FASB in August 2001 and addresses financial accounting and reporting for the impairment and disposal of long-lived assets. SFAS 144 became effective for the Company as of April 1, 2002, and had no material effect on our financial position or results of operations. 4. Marketable Securities The amortized cost and market values of marketable securities are as follows: Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ---- ----- ------ ----- June 30, 2002 ------------- Debt securities $ 485,411 $ 3,143 $ 119 $ 488,435 Equity securities 8,615 13,877 1,412 21,080 --------- ------- ----- --------- $ 494,026 $ 17,020 $ 1,531 $ 509,515 ========= ======== ======= ========= March 31, 2002 -------------- Debt securities $ 435,592 $ 567 $ 660 $ 435,499 Equity securities 8,535 13,219 987 20,767 --------- -------- ------- --------- $ 444,127 $ 13,786 $ 1,647 $ 456,266 ========= ======== ======= =========
Maturities of debt securities at market value as of June 30, 2002, are as follows: Mature within one year $ 466,385 Mature in one to five years 4,872 Mature in five years and later 17,178 --------- $ 488,435 ========= 6 5. Balance Sheet Components Selected balance sheet components consist of the following: June 30, March 31, 2002 2002 ---- ---- Inventories: Raw materials $ 74,709 $ 74,782 Work in process 34,325 31,056 Finished goods 98,600 89,236 -------- -------- $207,634 $195,074 ======== ======== Other current liabilities: Accrued rebates $ 25,986 $ 21,577 Payroll and payroll related 20,737 18,936 Royalties and product license fees 14,116 12,363 Cash dividends payable 5,024 5,067 Litigation settlement - 4,014 Other 12,096 10,801 -------- -------- $ 77,959 $ 72,758 ======== ======== 6. Intangible Assets Intangible assets consist of the following components: Weighted Average Original Accumulated Net Book Life Cost Amortization Value (years) --- ------------ ----- ------- June 30, 2002 - ------------- Intangible assets subject to amortization: Patents and technologies $117,435 $31,495 $ 85,940 19 Maxzide(R) intangible 69,666 19,986 49,680 15 License fees and agreements 37,607 19,327 18,280 6 Other 13,875 4,548 9,327 20 -------- ------- -------- $238,583 $75,356 163,227 ======== ======= Intangible assets not subject to amortization: Trademarks 1,252 -------- $164,479 ======== March 31, 2002 - -------------- Intangible assets subject to amortization: Patents and technologies $119,663 $32,056 $ 87,607 Maxzide(R) intangibles 69,666 18,567 51,099 License fees and agreements 38,241 18,383 19,858 Other 24,380 14,881 9,499 -------- ------- -------- 251,950 83,887 168,063 Trademarks 1,800 548 1,252 -------- ------- -------- $253,750 $84,435 $169,315 ======== ======= ========
7 As of June 30, 2002, we removed from the balance sheet certain intangible assets with original costs of $13,368. Such assets were fully amortized at March 31, 2002, and have no ongoing benefit to our current operations. An assembled workforce does not meet the criteria for a separately identifiable intangible asset under the guidance of SFAS 141; accordingly, we reclassed an assembled workforce, with an original cost of $5,210 and a carrying value of $2,899 as of April 1, 2002, to goodwill. Unaudited pro forma consolidated net earnings information, assuming the adoption of SFAS 141 and SFAS 142 had occurred on April 1, 2001, is as follows: Three Months Ended June 30, 2001 ------------- Net earnings as reported $ 50,648 Add back amortization recorded for: Goodwill 1,599 Workforce 35 Trademarks 167 -------- 1,801 -------- Net earnings as adjusted $ 52,449 ======== Basic earnings per common share: As reported $ 0.41 ======== As adjusted $ 0.42 ======== Diluted earnings per common share: As reported $ 0.40 ======== As adjusted $ 0.42 ======== We are currently in the process of implementing SFAS 142. We have reviewed and determined that all non-goodwill intangible assets have definite lives, except certain trademarks. These trademarks were tested for impairment and determined not to be impaired. SFAS 142 also requires us, by September 30, 2002, to identify our reporting units, allocate to each of those units the appropriate share of goodwill, intangible assets, other assets and liabilities and determine the fair value of each identified unit. Until this process is complete, we are unable to determine any further impact SFAS 142 will have on our financial position and results of operations. 8 7. Earnings per Common Share Basic earnings per common share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period adjusted for the dilutive effect of stock options outstanding. The effect of dilutive stock options on the weighted average number of common shares outstanding was 1,003,000 and 1,343,000 for the three months ended June 30, 2002 and 2001. Antidilutive stock options of 709,000 and 663,000 were excluded from the diluted earnings per common share calculation for the three months ended June 30, 2002 and 2001. 8. Comprehensive Earnings Comprehensive earnings consist of the following: Three Months Ended June 30, -------- 2002 2001 ---- ---- Net earnings $61,849 $50,648 Other comprehensive earnings, net of tax: Net unrealized holding gains on securities 2,126 3,383 Reclassification for losses/(gains) included in net earnings 31 (134) ------- ------- Other comprehensive earnings, net of tax 2,157 3,249 ------- ------- Comprehensive earnings $64,006 $53,897 ======= ======= Accumulated other comprehensive earnings, as reflected on the balance sheet, is comprised solely of the net unrealized gains on marketable securities, net of deferred income taxes. 9. Common Stock As of June 30, 2002, and March 31, 2002, there were 300,000,000 shares of common stock authorized with 132,503,289 and 132,200,528 shares issued. Treasury stock held as of June 30, 2002, and March 31, 2002, was 7,210,646 and 5,813,033. In May 2002, the Board of Directors approved a stock purchase program to purchase up to 10,000,000 shares of our outstanding common stock. This program may be administered through open market or privately negotiated transactions. 9 During the three months ended June 30, 2002, we purchased 1,395,100 shares for $40,853. 10. Segment Reporting Segment net revenues represent revenues from unrelated third parties. For the Generic and Brand Segments, segment profit (loss) represents segment gross profit less direct research and development, selling and marketing and general and administrative expenses. Corporate/Other includes legal costs, administrative expenses and other income and expense. The following table presents the results of operations for each of our business segments: Three Months Ended June 30, -------- 2002 2001 (1) ---- ---- Consolidated: Net revenues $275,473 $237,933 Pretax earnings 96,639 79,138 Generic: Net revenues $235,645 $209,822 Segment profit 106,323 89,405 Brand: Net revenues $ 39,828 $ 28,111 Segment loss (414) (10,948) Corporate/Other, net: Segment (loss) profit $ (9,270) $ 681 (1)Effective April 1, 2002, the Company adopted SFAS 142, Goodwill and Other Intangible Assets, and consequently, goodwill and certain other intangible assets were not amortized in the current quarter. For the quarter ended June 30, 2001, Corporate/Other Segment includes $1,599 of goodwill amortization, and the Generic and Brand Segments include amortization expense of $167 and $35 relating to certain indefinite lived intangible assets. 11. Contingencies The Company is involved in various legal proceedings that are considered normal to its business. While it is not feasible to predict the ultimate outcome of such proceedings, it is the opinion of management that the ultimate outcome of such proceedings, except those discussed below, will not have a material adverse effect on our financial position or results of operations. 10 While it is not possible to determine with any degree of certainty the ultimate outcome of the following legal proceedings, we believe that we have meritorious defenses with respect to the claims asserted against the Company, and we intend to defend vigorously our position. An adverse outcome in any one of these proceedings could have a material adverse effect on our financial position and results of operations. Product Litigation Paclitaxel In June 2001, NAPRO Biotherapeutics Inc. (NAPRO) and Abbott Laboratories Inc. (Abbott) filed suit against the Company in the US District Court for the Western District of Pennsylvania. Plaintiffs allege the Company's manufacture, use and sale of its paclitaxel product infringes certain patents owned by NAPRO and allegedly licensed to Abbott. Plaintiffs seek unspecified damages plus interest, a finding of willful infringement which could result in trebel damages, injunctive relief, attorneys' fees, costs of litigation, and such equitable and other relief as the court deems just and proper. The Company began selling its paclitaxel product in July 2001. Abbott's ANDA was approved in May 2002. Verapamil ER In July 2001, Biovail Laboratories Inc. (Biovail) filed a demand for arbitration against the Company with the American Arbitration Association. In response to such demand, the Company filed its answer and counterclaims. The dispute relates to a supply agreement under which the Company supplied extended-release verapamil to Biovail. The Company terminated the agreement in March 2001. Biovail's allegations include breach of contract, breach of implied covenant of good faith and fair dealing and unfair competition. Biovail is seeking damages plus interest, to be determined at trial but in an amount of not less than $20,000, punitive damages, attorneys' fees and costs of litigation and such other relief as the panel may deem just and proper. The Company's allegations as set forth in its counterclaims include breach of obligations of good faith and fair dealing, fraud and unjust enrichment. The arbitration hearing is scheduled to be held in September 2002. Zagam(R) The Company filed suit against Aventis Pharmaceuticals, Inc., successor in interest to Rhone-Poulenc Rorer Pharmaceuticals, Inc.; Rhone-Poulenc Rorer Pharmaceuticals, LTD.; Rorer Pharmaceutical Products, Inc.; Rhone-Poulenc Rorer, S.A., and their affiliates in the US District Court for the Western District of Pennsylvania in May 2001. The complaint sets forth claims of breach of contract, 11 rescission, breach of implied covenant of good faith and fair dealing and unjust enrichment. The defendants' answer includes a counterclaim, which alleges nonpayment of royalties and failure to mitigate. The defendants are seeking royalties allegedly owed by the Company, attorneys' fees and costs of litigation and such other relief as may be demonstrated at trial. Nifedipine In February 2001, Biovail filed suit against the Company and Pfizer Inc. (Pfizer) in the US District Court for the Eastern District of Virginia alleging antitrust violations with respect to agreements entered into between the Company and Pfizer regarding nifedipine. The Company filed a motion to transfer the case to the US District Court for the Northern District of West Virginia, which was granted. The Company's motion to dismiss Biovail's complaint was denied, and the Company's motion to dismiss certain claims by other plaintiffs was granted in part and denied in part. The Company has been named as a defendant in five other putative class action suits alleging antitrust claims based on the settlement entered into by the Company with Bayer AG, Bayer Corporation and Pfizer regarding nifedipine. Collectively, plaintiffs are seeking unspecified compensatory and trebel damages, attorneys' fees, costs of litigation, restitution, disgorgement and declaratory and injunctive relief. Buspirone The Company filed an ANDA seeking approval to market buspirone, a generic equivalent to Bristol-Myers Squibb's (BMS) BuSpar(R). The Company filed the appropriate certifications relating to the patents for this product that were then listed in the FDA publication entitled Approved Drug Products with Therapeutic Equivalence Evaluations, popularly known as the "Orange Book." In November 2000, a new patent claiming the administration of a metabolite of buspirone (which BMS claims also covers the administration of buspirone itself) was issued to BMS. The subsequent listing of this patent in the Orange Book prevented the FDA from granting final approval for the Company's buspirone ANDA. In November 2000, the Company filed suit against the FDA and BMS in the US District Court for the District of Columbia. The complaint asked the court to order the FDA to grant immediately final approval of the Company's ANDA for the 15mg buspirone product and require BMS to request withdrawal of the patent from the Orange Book. Upon the Company's posting a bond in the amount of $25,000, the court entered an order granting the Company's motion for a preliminary injunction. Following a brief stay by the US Court of Appeals for the Federal Circuit, the FDA granted approval of the Company's ANDA with respect to the 15mg strength. Upon receiving FDA approval, the Company began marketing and selling the 15mg tablet in March 2001. The Company has also been selling the 30mg buspirone tablet since August 2001. BMS appealed the preliminary injunction order 12 to both the US Court of Appeals for the Federal Circuit and the US Court of Appeals for the District of Columbia Circuit. The District of Columbia Court of Appeals denied BMS' application and stayed the Company's motion to dismiss pending the decision of the Federal Circuit Court of Appeals. The Federal Circuit heard oral arguments in July 2001. In October 2001, the Federal Circuit overturned the lower court ruling and held that the Company did not have a cognizable claim against BMS under the Declaratory Judgment Act to challenge the listing of BMS' patent, which the Federal Circuit viewed as an improper effort to enforce the Federal Food, Drug and Cosmetic Act. The Federal Circuit did not address the lower court's determination that the BMS patent does not claim buspirone or a method of administration of the drug. The Company filed a petition with the Federal Circuit asking that the court reconsider its holding. The petition was denied in January 2002. A petition for review by the United States Supreme Court is pending. In January 2002, the Company filed a motion in the US District Court for the District of Columbia seeking a preliminary injunction which, if granted, would require that the FDA refuse to list the BMS patent should BMS submit it for re-listing in the Orange Book. The District of Columbia Court has entered an order staying further proceedings in this case pending appeal of the order entered in the US District Court for the Southern District of New York granting the Company's motion for summary judgment of non-infringement. The Company is involved in three other suits related to buspirone. In November 2000, the Company filed suit against BMS in the US District Court for the Northern District of West Virginia. The suit seeks a declaratory judgment of non-infringement and/or invalidity of the BMS patent listed in November 2000. In January 2001, BMS sued the Company for patent infringement in the US District Court for the District of Vermont and also in the US District Court for the Southern District of New York. In each of these cases, BMS asserts that the Company infringes BMS' patent and seeks to rescind approval of the Company's ANDA. BMS seeks to recover damages equal to lost profits plus interest, a finding of willful infringement which could result in trebel damages, injunctive relief, attorneys' fees, costs of litigation and such other relief as the court deems just and proper. The Company subsequently filed motions to dismiss the Vermont case and dismiss and transfer the New York case to the US District Court for the Northern District of West Virginia. The Judicial Panel on Multi-District Litigation ordered these cases, along with another patent case and numerous antitrust suits filed against BMS, be consolidated in the US District Court for the Southern District of New York. The New York Court has granted the Company's motion for summary judgement that the BMS patent is not infringed or, alternatively, is 13 invalid. BMS has appealed this decision to the Court of Appeals for the Federal Circuit. The New York Court also denied the BMS motion to dismiss the Company's antitrust counterclaims. Lorazepam and Clorazepate In December 1998, the Federal Trade Commission (FTC) filed suit in US District Court for the District of Columbia against the Company. The FTC's complaint alleged that the Company engaged in restraint of trade, monopolization, attempted monopolization and conspiracy to monopolize arising out of certain agreements involving the supply of raw materials used to manufacture two products, lorazepam and clorazepate. In July 2000, the Company reached a tentative agreement to settle the actions brought by the FTC, the States Attorneys General and suits brought by or on behalf of third party reimbursers. The Company agreed to pay up to $147,000, including attorneys' fees. This tentative settlement became final in February 2002 and has been fully funded to date. Included in this settlement were three companies indemnified by the Company - Cambrex Corporation, Profarmaco S.r.I. and Gyma Laboratories, Inc. Lawsuits not included in this settlement principally involve alleged direct purchasers, such as wholesalers and distributors. In July 2001, the United States Court for the District of Columbia certified a litigation class consisting of these direct purchasers. The Company filed a petition with the United States Court of Appeals for the District of Columbia Circuit seeking appellate review of the district court's order. The appellate court denied the Company's appeal of the lower court's class certification order. In addition, four third party reimbursers opted-out of the class action settlement and, in November 2001, filed separate non-class actions against the Company. These actions are pending in the United States District Court for the District of Columbia. The Company has filed motions to dismiss those claims. The Company also is defending a civil action, which was filed in January 1999 and remains pending in the Superior Court of the State of California, County of San Francisco, brought on behalf of independent retail pharmacies in the State of California. The plaintiffs in each of these actions seek unspecified monetary damages, equitable relief, attorneys' fees and court costs. This case has not been certified as a class action. Other Litigation The Company was served in July 2002 with a putative class action suit filed in the Superior Court of the State of California, County of Alameda. The representative plaintiff claims to represent the general public. The plaintiffs allege that the defendants, primarily pharmaceutical manufacturers, have engaged 14 in improper price reporting practices. Plaintiffs seek injunctive and equitable relief in the form of disgorgement and restitution, compensatory damages, special and incidental damages, punitive damages, attorneys' fees, costs of litigation and such other relief as the court may deem just and proper. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion addresses material changes in the Company's results of operations and financial condition for the periods presented. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements, the related Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Results of Operations and Financial Condition included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2002, and the unaudited interim condensed consolidated financial statements and related notes included in Item 1 of this Report on Form 10-Q. Results of Operations - ---------------------- Quarter Ended June 30, 2002, compared to Quarter Ended June 30, 2001 Effective April 1, 2002, the Company adopted SFAS 142, Goodwill and Other Intangible Assets, and consequently, goodwill and certain other intangible assets were not amortized in the quarter ended June 30, 2002. However, the following discussions regarding the financial results for the quarter ended June 30, 2001, include amortization of $1.8 million ($1.6 million in Corporate/Other and $.2 million in Generic) for these same assets. Excluding this amortization, net earnings and earnings per diluted share for the quarter ended June 30, 2001, would have been $52.4 million or $.42 per share. Financial Highlights - - Net revenues increased 16% or $37.6 million to $275.5 million from $237.9 million. - - Gross profit increased 21% or $25.7 million to $147.6 million from $121.9 million. - - Gross margin increased to 54% from 51%. - - Operating income increased 47% or $30.4 million to $94.7 million from $64.3 million. - - Net earnings increased 22% or $11.2 million to $61.8 million from $50.6 million. - - Earnings per diluted share increased 23% to $.49 per share from $.40 per share. 16 Segment Results (dollars in thousands) Quarter Ended June 30, -------- 2002 2001 Change ---- ---- ------ Consolidated: Net revenues $275,473 $237,933 16% Gross profit 147,602 121,859 21% Research and development 16,843 16,783 0% Selling and marketing 16,887 15,142 12% General and administrative 19,221 25,595 -25% Other income, net 1,988 14,799 -87% Pretax earnings 96,639 79,138 22% Generic Segment: Net revenues 235,645 209,822 12% Gross profit 124,483 109,163 14% Research and development 10,014 9,289 8% Selling and marketing 2,748 3,078 -11% General and administrative 5,398 7,391 -27% Segment profit 106,323 89,405 19% Brand Segment: Net revenues 39,828 28,111 42% Gross profit 23,119 12,696 82% Research and development 6,829 7,494 -9% Selling and marketing 14,139 12,064 17% General and administrative 2,565 4,087 -37% Segment loss (414) (10,948) -96% Corporate/Other Segment: Segment (loss) profit (9,270) 681 *Segment net revenues represent revenues from unrelated third parties. For the Generic and Brand Segments, segment profit (loss) represents segment gross profit less direct research and development, selling and marketing and general and administrative expenses. Corporate/Other includes legal costs, administrative expenses and other income and expense. Net Revenues and Gross Profit Consolidated net revenues for the current quarter were $275.5 million compared to $237.9 million for the prior year quarter, representing a $37.6 million or 16% increase despite the significant decrease in buspirone net revenues. The increase in net revenues was primarily attributable to volume growth, relatively stable pricing for generic products and the launch of new products, as well as improved marketing conditions for the brand products. Generic Segment net revenues for the current quarter increased 12% or $25.8 million to $235.6 million from $209.8 million for the prior year quarter. The growth in net revenues was driven by increased sales volume, relatively stable pricing, excluding 17 the competitive pressures experienced on buspirone, and sales associated with the launch of new products subsequent to June 30, 2001. Generic volume shipped, excluding unit dose, increased 0.254 billion doses or 10% from 2.530 billion doses in the prior year quarter to 2.784 billion doses. New product launches subsequent to June 30, 2001, contributed $17.0 million in net revenues during the current quarter. Brand Segment net revenues for the current quarter increased 42% or $11.7 million to $39.8 million from $28.1 million for the prior year quarter. The increase in net revenues was primarily due to increased sales volume, primarily phenytoin, and improved marketing conditions resulting from the curtailment of end-of-quarter promotions in the prior year. Consolidated gross profit for the current quarter was $147.6 million, or 54% of net revenues, compared to $121.9 million, or 51% of net revenues, for the prior year quarter, an increase in gross profit of 21% or $25.7 million. The increase in gross profit and gross margin was primarily attributable to volume growth, relatively stable pricing for generic products and the launch of new products, as well as improved marketing conditions for the brand products. Operating Expenses Research and development (R&D) expenses remained relatively unchanged for the current quarter at $16.8 million, or 6% of net revenues, compared to $16.8 million, or 7% of net revenues, for the prior year quarter. We expect R&D expenses to increase throughout fiscal year 2003 as activities related to our current projects, including nebivolol, progress. We are actively pursuing, and are involved in, joint development projects in an effort to broaden our scope of capabilities to market both generic and brand products. Many of these arrangements provide for payments by us upon the attainment of specified milestones. While these arrangements help to reduce our financial risk for unsuccessful projects, fulfillment of specified milestones or the occurrence of other obligations may result in fluctuations in R&D expenses. Selling and marketing expenses increased $1.8 million or 12% to $16.9 million, or 6% of net revenues, from $15.1 million, or 6% of net revenues, for the prior year quarter. The increase in selling and marketing expenses was attributable to increased advertising and promotional expenses in the Brand Segment of $1.9 million. The Brand Segment's advertising and promotional expenses have been primarily related to Phenytek(TM) and clozapine, in addition to the anticipated launch of Amnesteem(TM) (isotretinoin). General and administrative expenses for the current quarter were $19.2 million, or 7% of net revenues, down 25% or $6.4 million from $25.6 million, or 11% of net revenues, for the prior year quarter. This decrease in general and administrative 18 expenses is primarily a result of decreased amortization expense of $1.8 million, decreased legal and professional fees of $1.3 million and a $1.1 million decrease in relocation expense. Other Income, Net Other income, net of non-operating expenses, was $2.0 million for the current quarter, compared to $14.8 million for the prior year quarter, a decrease of 86% or $12.8 million. This decrease is primarily related to decreases in both limited liability partnership income of $10.7 million and interest income of $1.5 million. Additionally, the equity in the loss of Somerset Pharmaceuticals, Inc. (Somerset) increased to $1.3 million, compared to a loss of $.6 million for the prior year quarter. The increase in Somerset's loss for the quarter is the result of decreased net revenues and higher R&D spending. As R&D activities continue at Somerset, we anticipate our earnings to be adversely affected throughout fiscal 2003. Liquidity and Capital Resources - ------------------------------- Cash provided from operations continues to be the primary source of funds to operate and expand our business. This is reflected in cash flows from operations, which were $21.7 million for the current quarter and $57.6 million for the prior year quarter. The decrease in cash provided by operations is primarily a result of the timing of tax payments and receivable collections. Our business relies on new product approvals to generate significant future cash flows. An inability to introduce new products to the marketplace could cause a decline in operating cash flows. During the quarter ended June 30, 2002, our working capital increased $27.0 million to $916.0 million from $889.0 million at March 31, 2002. Of our $1.6 billion of total assets at June 30, 2002, 36% or $594.5 million was held in cash, cash equivalents or marketable securities. Investments in marketable securities consist primarily of high-quality government and commercial paper that generally mature within one year. These investments are highly liquid and are available for our operating needs. As these instruments mature, we generally reinvest these funds in instruments with similar characteristics. In May 2002, the Board of Directors approved a stock purchase program that authorized the purchase of up to 10.0 million shares of the Company's outstanding common stock. The purchase of common stock under this program could materially affect our cash, cash equivalents and marketable securities. During the quarter ended June 30, 2002, we purchased approximately 1.4 million shares of common stock for $40.9 million. Payments for state and federal income taxes increased to $52.9 million during the current quarter compared to $32.6 million for the prior year quarter. 19 Capital expenditures during the quarter ended June 30, 2002, were $5.8 million compared to $3.2 million during the prior year quarter. These expenditures in the current and prior quarters were primarily made to acquire machinery and equipment for our production facilities. We anticipate our capital expenditures, primarily to expand manufacturing capacity, to approximate amounts expended in previous years. We continue to pay quarterly cash dividends of $.04 per common share. Dividend payments totaled $5.1 million during the current quarter and $5.0 million during the prior year quarter. During the quarter ended June 30, 2002, we received $4.2 million from the exercise of stock options compared to $2.8 million in the prior year quarter. We are involved in various legal proceedings (see Note 11 to Condensed Consolidated Financial Statements). While it is not feasible to predict the outcome of such proceedings, an adverse outcome in any of these proceedings could materially affect our cash flows. We are actively pursuing, and are involved in, joint development projects in an effort to broaden our scope of capabilities to market both generic and brand products. Many of these arrangements provide for payments by us upon the attainment of specified milestones. While these arrangements help to reduce our financial risk for unsuccessful projects, fulfillment of specified milestones or the occurrence of other obligations may result in fluctuations in cash provided from operating activities. To provide additional operating leverage, if necessary, we maintain a revolving line of credit of up to $50.0 million with a commercial bank. As of June 30, 2002, no funds have been advanced under this line of credit. Additionally, we believe that the acquisition of new products, as well as other companies, will play a strategic role in our growth. Consequently, we may incur additional indebtedness to finance these acquisitions which would impact future liquidity. Recent Accounting Pronouncements - -------------------------------- In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. See Note 6 to Condensed Consolidated Financial Statements for a discussion of the SFAS 142 implementation process. The FASB issued SFAS 143, Accounting for Asset Retirement Obligations, which establishes standards of accounting for obligations associated with the retirement of tangible long-lived assets. This statement is effective for the Company on April 1, 2003. We are currently evaluating the impact, if any, this statement will have on our financial position and results of operations. 20 SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, was issued by the FASB in August 2001. This statement addresses financial accounting and reporting for the impairment and disposal of long-lived assets. SFAS 144 became effective for the Company as of April 1, 2002, and had no material effect on our financial position or results of operations. Critical Accounting Policies - ---------------------------- The following discussion of critical accounting policies has been condensed for presentation in this Report and should be read in conjunction with Management's Discussion and Analysis of Results of Operations and Financial Condition included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2002. The Company's critical accounting policies are the determination of revenue provisions, useful lives and impairment of intangibles and the impact of existing legal matters. These critical accounting policies affect each of the operating segments. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. We are currently not aware of any reasonably likely event or circumstance which would result in different amounts being reported that would have a material impact on our consolidated financial statements. Revenue Provisions Revenue is recognized for product sales upon shipment when title and risk of loss have transferred to the customer and when provisions for estimates, including discounts, rebates, price adjustments, returns, chargebacks and other promotional adjustments are reasonably determinable. These provisions are recognized as reductions to gross revenues, with the corresponding allowances recognized as reductions to accounts receivable and as components to other current liabilities. Accounts receivable are presented net of such allowances totaling $222.6 million and $214.6 million at June 30, 2002, and March 31, 2002. Other accrued liabilities include $26.0 million and $21.6 million at June 30, 2002, and March 31, 2002, for certain rebates and other adjustments that are paid to indirect customers. The provision for chargebacks is the most significant and complex estimate used in the recognition of revenue. The Company is a party to arrangements with other parties establishing prices for products for which they independently select a wholesaler from which to purchase. Such parties are referred to as indirect customers. A chargeback represents the difference between our invoice price to the wholesaler and the indirect customer's contract price. The provision for estimated chargebacks is calculated primarily using historical chargeback experience and estimated wholesaler inventory levels. We continually monitor our assumptions giving consideration to wholesaler buying patterns and current pricing trends and make necessary adjustments when we believe that the actual chargeback credits will differ from those estimated. 21 Useful Lives and Impairment of Intangibles As of June 30, 2002, and March 31, 2002, recorded goodwill, net of accumulated amortization, was $103.2 million. In addition to an annual impairment review, goodwill is reviewed for impairment when events or other changes in circumstances may indicate that the carrying amount of the goodwill may not be recoverable. Historically, impairment has been determined when the undiscounted future cash flows, based on estimated sales volumes, pricing and the anticipated cost environment, are less than the carrying value of the goodwill. However, with the adoption of SFAS 142, potential impairment will be identified when the fair value, determined at least annually, of a reporting unit is less than the carrying value of its net assets. For the initial impairment test required by SFAS 142, we have engaged valuation specialists to assist us in determining the fair value of our reporting units. Until these evaluations are complete, we are unable to determine the impact SFAS 142 will have on our financial position and results of operations. As of June 30, 2002, and March 31, 2002, recorded intangible assets, excluding goodwill, net of accumulated amortization, were $164.5 million and $169.3 million. These intangible assets consist of both purchased and acquired product rights, as well as internally developed patents and technologies. Intangible assets are reviewed for impairment when certain events or other changes in circumstances may indicate that the carrying amount of the asset or asset group may not be recoverable. Certain product rights associated with the Brand Segment were reviewed for impairment in fiscal 2002. Impairment is determined when the undiscounted future cash flows, based on estimated sales volume, anticipated pricing and estimated product costs, are less than the carrying value of the intangible asset. The carrying values of the product rights reviewed were not impaired. If these projections do not properly reflect future activity, results of operations could be negatively impacted. Legal Matters The Company is involved in various legal proceedings, some of which involve claims for substantial amounts. An accrual for a loss contingency relating to any of these legal proceedings is made if it is probable that a liability was incurred at the date of the financial statements and the amount of loss can be reasonably estimated. After review, it was determined, at June 30, 2002, and March 31, 2002, that for each of the various legal proceedings in which we are involved, the conditions mentioned above were not met. However, if any of these legal proceedings would result in an adverse outcome for the Company, the impact could have a material adverse effect on our financial position and results of operations. 22 Forward-Looking Statements - -------------------------- This Quarterly Report on Form 10-Q may contain "forward-looking statements." Such forward-looking statements may include, without limitation, statements about our market opportunities, strategies, competition and expected activities and expenditures. You can identify these statements by the use of words such as "may," "will," "could," "should," "would," "project," "believe," "anticipate," "expect," "plan," "estimate," "forecast," "potential," "intend," "continue" and variations of these words or comparable words. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations expressed or implied by these forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including, but not limited to, those factors described in this Quarterly Report on Form 10-Q in the "Notes to Condensed Consolidated Financial Statements" under the heading "Contingencies," in the section titled "Management's Discussion and Analysis of Results of Operations and Financial Condition" under the headings "Results of Operations" and "Liquidity and Capital Resources," in the section titled "Legal Proceedings" and elsewhere in this Quarterly Report on Form 10-Q, as well as in our other documents filed with the Securities and Exchange Commission. We do not undertake to update any forward-looking statements contained in this Quarterly Report on Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk primarily from changes in the market values of investments in marketable debt and equity securities, including marketable securities owned indirectly through certain pooled asset funds that are classified as other assets on our balance sheet. Additional investments are made in overnight deposits, money market funds and marketable securities with maturities of less than three months. These instruments are classified as cash equivalents for financial reporting purposes and have minimal or no interest rate risk due to their short-term nature. The majority of our investments are managed by professional portfolio managers. We also invest in nonpublic securities that are classified as other assets on our balance sheet and we do not consider these investments to be sensitive to market risk. The following table summarizes the investments which subject the Company to market risk: (in thousands) June 30, March 31, 2002 2002 ---- ---- Marketable debt securities $488,435 $435,499 Marketable equity securities 21,080 20,767 Certain pooled asset funds 27,430 26,144 -------- -------- $536,945 $482,410 ======== ======== 23 The primary objectives of our marketable debt securities investment portfolio are liquidity and safety of principal. Investments are made to achieve the highest rate of return while retaining principal. The investment policy limits investments to certain types of instruments issued by institutions and government agencies with investment grade credit ratings. Of the $488.4 million invested in marketable debt securities at June 30, 2002, $466.4 million will mature within one year. This short duration to maturity creates minimal exposure to fluctuations in market values for these investments. A significant change in current interest rates could affect the market value of the remaining $22.0 million of marketable debt securities that mature after one year. A 5% change in the market value of the marketable debt securities that mature after one year would result in a $1.1 million change in our balance of marketable debt securities. PART II. OTHER INFORMATION - --------------------------- ITEM 1. LEGAL PROCEEDINGS The Company is involved in various legal proceedings that are considered normal to its business. While it is not feasible to predict the ultimate outcome of such proceedings, it is the opinion of management that the ultimate outcome of such proceedings, except those discussed below, will not have a material adverse effect on our financial position or results of operations. While it is not possible to determine with any degree of certainty the ultimate outcome of the following legal proceedings, we believe that we have meritorious defenses with respect to the claims asserted against the Company, and we intend to defend vigorously our position. An adverse outcome in any one of these proceedings could have a material adverse effect on our financial position and results of operations. Product litigation Paclitaxel In June 2001, NAPRO Biotherapeutics Inc. (NAPRO) and Abbott Laboratories Inc. (Abbott) filed suit against the Company in the US District Court for the Western District of Pennsylvania. Plaintiffs allege the Company's manufacture, use and sale of its paclitaxel product infringes certain patents owned by NAPRO and allegedly licensed to Abbott. Plaintiffs seek unspecified damages plus interest, a finding of willful infringement which could result in trebel damages, injunctive relief, attorneys' fees, costs of litigation, and such equitable and other relief as the court deems just and 24 proper. The Company began selling its paclitaxel product in July 2001. Abbott's ANDA was approved in May 2002. Verapamil ER In July 2001, Biovail Laboratories Inc. (Biovail) filed a demand for arbitration against the Company with the American Arbitration Association. In response to such demand, the Company filed its answer and counterclaims. The dispute relates to a supply agreement under which the Company supplied extended-release verapamil to Biovail. The Company terminated the agreement in March 2001. Biovail's allegations include breach of contract, breach of implied covenant of good faith and fair dealing and unfair competition. Biovail is seeking damages plus interest, to be determined at trial but in an amount of not less than $20.0 million, punitive damages, attorneys' fees and costs of litigation and such other relief as the panel may deem just and proper. The Company's allegations as set forth in its counterclaims include breach of obligations of good faith and fair dealing, fraud and unjust enrichment. The arbitration hearing is scheduled to be held in September 2002. Zagam(R) The Company filed suit against Aventis Pharmaceuticals, Inc., successor in interest to Rhone-Poulenc Rorer Pharmaceuticals, Inc.; Rhone-Poulenc Rorer Pharmaceuticals, LTD.; Rorer Pharmaceutical Products, Inc.; Rhone-Poulenc Rorer, S.A., and their affiliates in the US District Court for the Western District of Pennsylvania in May 2001. The complaint sets forth claims of breach of contract, rescission, breach of implied covenant of good faith and fair dealing and unjust enrichment. The defendants' answer includes a counterclaim, which alleges nonpayment of royalties and failure to mitigate. The defendants are seeking royalties allegedly owed by the Company, attorneys' fees and costs of litigation and such other relief as may be demonstrated at trial. Nifedipine In February 2001, Biovail filed suit against the Company and Pfizer Inc. (Pfizer) in the US District Court for the Eastern District of Virginia alleging antitrust violations with respect to agreements entered into between the Company and Pfizer regarding nifedipine. The Company filed a motion to transfer the case to the US District Court for the Northern District of West Virginia, which was granted. The Company's motion to dismiss Biovail's complaint was denied, and the Company's motion to dismiss certain claims by other plaintiffs was granted in part and denied in part. The Company has been named as a defendant in five other putative class action suits alleging antitrust claims based on the settlement entered into by the Company with Bayer AG, Bayer Corporation and Pfizer regarding nifedipine. Collectively, plaintiffs 25 are seeking unspecified compensatory and trebel damages, attorneys' fees, costs of litigation, restitution, disgorgement and declaratory and injunctive relief. Buspirone The Company filed an ANDA seeking approval to market buspirone, a generic equivalent to Bristol-Myers Squibb's (BMS) BuSpar(R). The Company filed the appropriate certifications relating to the patents for this product that were then listed in the FDA publication entitled Approved Drug Products with Therapeutic Equivalence Evaluations, popularly known as the "Orange Book." In November 2000, a new patent claiming the administration of a metabolite of buspirone (which BMS claims also covers the administration of buspirone itself) was issued to BMS. The subsequent listing of this patent in the Orange Book prevented the FDA from granting final approval for the Company's buspirone ANDA. In November 2000, the Company filed suit against the FDA and BMS in the US District Court for the District of Columbia. The complaint asked the court to order the FDA to grant immediately final approval of the Company's ANDA for the 15mg buspirone product and require BMS to request withdrawal of the patent from the Orange Book. Upon the Company's posting a bond in the amount of $25.0 million, thecourt entered an order granting the Company's motion for a preliminary injunction. Following a brief stay by the US Court of Appeals for the Federal Circuit, the FDA granted approval of the Company's ANDA with respect to the 15mg strength. Upon receiving FDA approval, the Company began marketing and selling the 15mg tablet in March 2001. The Company has also been selling the 30mg buspirone tablet since August 2001. BMS appealed the preliminary injunction order to both the US Court of Appeals for the Federal Circuit and the US Court of Appeals for the District of Columbia Circuit. The District of Columbia Court of Appeals denied BMS' application and stayed the Company's motion to dismiss pending the decision of the Federal Circuit Court of Appeals. The Federal Circuit heard oral arguments in July 2001. In October 2001, the Federal Circuit overturned the lower court ruling and held that the Company did not have a cognizable claim against BMS under the Declaratory Judgment Act to challenge the listing of BMS' patent, which the Federal Circuit viewed as an improper effort to enforce the Federal Food, Drug and Cosmetic Act. The Federal Circuit did not address the lower court's determination that the BMS patent does not claim buspirone or a method of administration of the drug. The Company filed a petition with the Federal Circuit asking that the court reconsider its holding. The petition was denied in January 2002. A petition for review by the United States Supreme Court is pending. In January 2002, the Company filed a motion in the US District Court for the District of Columbia seeking a preliminary injunction which, if granted, would require that the FDA refuse to list the BMS patent should BMS submit it for re-listing in the Orange Book. The District of Columbia Court has entered an order staying further proceedings in this case pending appeal of the order entered in the US District Court 26 for the Southern District of New York granting the Company's motion for summary judgment of non-infringement. The Company is involved in three other suits related to buspirone. In November 2000, the Company filed suit against BMS in the US District Court for the Northern District of West Virginia. The suit seeks a declaratory judgment of non-infringement and/or invalidity of the BMS patent listed in November 2000. In January 2001, BMS sued the Company for patent infringement in the US District Court for the District of Vermont and also in the US District Court for the Southern District of New York. In each of these cases, BMS asserts that the Company infringes BMS' patent and seeks to rescind approval of the Company's ANDA. BMS seeks to recover damages equal to lost profits plus interest, a finding of willful infringement which could result in trebel damages, injunctive relief, attorneys' fees, costs of litigation and such other relief as the court deems just and proper. The Company subsequently filed motions to dismiss the Vermont case and dismiss and transfer the New York case to the US District Court for the Northern District of West Virginia. The Judicial Panel on Multi-District Litigation ordered these cases, along with another patent case and numerous antitrust suits filed against BMS, be consolidated in the US District Court for the Southern District of New York. The New York Court has granted the Company's motion for summary judgement that the BMS patent is not infringed or, alternatively, is invalid. BMS has appealed this decision to the Court of Appeals for the Federal Circuit. The New York Court also denied the BMS motion to dismiss the Company's antitrust counterclaims. Lorazepam and Clorazepate In December 1998, the Federal Trade Commission (FTC) filed suit in US District Court for the District of Columbia against the Company. The FTC's complaint alleged that the Company engaged in restraint of trade, monopolization, attempted monopolization and conspiracy to monopolize arising out of certain agreements involving the supply of raw materials used to manufacture two products, lorazepam and clorazepate. In July 2000, the Company reached a tentative agreement to settle the actions brought by the FTC, the States Attorneys General and suits brought by or on behalf of third party reimbursers. The Company agreed to pay up to $147.0 million, including attorneys' fees. This tentative settlement became final in February 2002 and has been fully funded to date. Included in this settlement were three companies indemnified by the Company - Cambrex Corporation, Profarmaco S.r.I. and Gyma Laboratories, Inc. Lawsuits not included in this settlement principally involve alleged direct purchasers, such as wholesalers and distributors. In July 2001, the United States Court for the District of Columbia certified a litigation class consisting of these direct 27 purchasers. The Company filed a petition with the United States Court of Appeals for the District of Columbia Circuit seeking appellate review of the district court's order. The appellate court denied the Company's appeal of the lower court's class certification order. In addition, four third party reimbursers opted-out of the class action settlement and, in November 2001, filed separate non-class actions against the Company. These actions are pending in the United States District Court for the District of Columbia. The Company has filed motions to dismiss those claims. The Company also is defending a civil action, which was filed in January 1999 and remains pending in the Superior Court of the State of California, County of San Francisco, brought on behalf of independent retail pharmacies in the State of California. The plaintiffs in each of these actions seek unspecified monetary damages, equitable relief, attorneys' fees and court costs. This case has not been certified as a class action. Other Litigation The Company was served in July 2002 with a putative class action suit filed in the Superior Court of the State of California, County of Alameda. The representative plaintiff claims to represent the general public. The plaintiffs allege that the defendants, primarily pharmaceutical manufacturers, have engaged in improper price reporting practices. Plaintiffs seek injunctive and equitable relief in the form of disgorgement and restitution, compensatory damages, special and incidental damages, punitive damages, attorneys' fees, costs of litigation and such other relief as the court may deem just and proper. 28 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits 3.1 Amended and Restated Articles of Incorporation of the registrant, filed as Exhibit 4.2 to the Form S-8 on December 23, 1997, (registration number 333-43081) and incorporated herein by reference. 3.2 By-laws of the registrant, as amended to date, filed as Exhibit 3.2 to the Form 10-K for the fiscal year ended March 31, 2001, and incorporated herein by reference. 10.1 Executive Employment Agreement with Robert J. Coury, dated July 22, 2002, filed herewith. 10.2 Executive Employment Agreement with Louis J. DeBone, dated July 22, 2002, filed herewith. 10.3 Executive Employment Agreement with John P. O'Donnell, dated July 22, 2002, filed herewith. b. Reports on Form 8-K On July 22, 2002, we filed a Report on Form 8-K announcing changes in senior management. 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report filed on Form 10-Q for the quarterly period ended June 30, 2002, to be signed on its behalf by the undersigned thereunto duly authorized as of August 6, 2002. Mylan Laboratories Inc. (Registrant) /s/ Milan Puskar ---------------------------- Milan Puskar Chairman of the Board and Chief Executive Officer (Principal executive officer) /s/ Edward J. Borkowski ---------------------------- Edward J. Borkowski Chief Financial Officer (Principal financial officer) /s/ Gary E. Sphar ----------------------------- Gary E. Sphar Vice President, Corporate Controller (Principal accounting officer) 30 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Milan Puskar, Chairman of the Board and Chief Executive Officer of Mylan Laboratories Inc. (the "Company"), do hereby certify as of August 6, 2002, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The foregoing Quarterly Report on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and, (2) The information contained in the foregoing Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Milan Puskar ---------------------------- Milan Puskar Chairman of the Board and Chief Executive Officer 31 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Edward J. Borkowski, Chief Financial Officer of Mylan Laboratories Inc. (the "Company"), do hereby certify as of August 6, 2002, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The foregoing Quarterly Report on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and, (2) The information contained in the foregoing Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Edward J. Borkowski ---------------------------- Edward J. Borkowski Chief Financial Officer 32 EX-10 3 coury.txt EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement (the "Agreement") is dated this July 22, 2002, by and between Mylan Laboratories Inc. (the "Company") and Robert J. Coury ("Executive"). RECITALS: WHEREAS, the Company wishes to employ Executive as Chief Executive Officer - - Elect effective immediately and as Chief Executive Officer effective September 1, 2002; and WHEREAS, Executive is desirous of assisting the Company in said capacity; NOW, THEREFORE, in consideration of the promises and mutual obligations of the parties contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive agree as follows: 1. Employment of Executive; Termination of Consulting Agreement. The Company agrees to employ Executive, and Executive accepts employment by the Company on the terms and conditions provided herein. The Company and the Executive agree that the consulting agreement dated July 27, 2000, as amended, pursuant to which the Executive previously provided consulting services to the Company has been terminated. 2. Effective Date: Term of Employment. This Agreement shall commence and be effective as of the date hereof and shall remain in effect, unless earlier terminated, or extended or renewed, as provided in Section 8 of this Agreement, through March 31, 2007. 3. Executive's Compensation. Executive's "Compensation" shall include the following: (a) Minimum Base Salary. The Executive's minimum base salary (the "Minimum Base Salary") shall be as follows: for the period of July 22, 2002 through March 31, 2003 a monthly rate of $75,000 (or $900,000 annualized); $1,100,000 for the Company's fiscal year beginning April 1, 2003; $1,300,000 for the Company's fiscal year beginning April 1, 2004; $1,500,000 for the Company's fiscal year beginning April 1, 2005 and $1,700,000 for the Company's fiscal year beginning April 1, 2006, payable in accordance with the Company's normal payroll practices for its executive officers. The Minimum Base Salary may be increased from time to time at the discretion of the Board of Directors of the Company or any committee thereof having authority over executive compensation. (b) Annual Bonus. The Company shall guarantee Executive an annual bonus equal to fifty percent (50%) of Executive's then-current Minimum Base Salary ("Annual Bonus"), and the Executive shall be eligible to receive, as determined by the compensation 1 committee of the Board of Directors, an additional annual bonus in the amount of at least an additional fifty percent (50%) of Executive's then-current Minimum Base Salary. (c) Non-Qualified Stock Options. On the effective date of this Agreement, the Executive shall receive a grant of fully vested non-qualified options to purchase up to 300,000 shares of Mylan Laboratories Inc. common stock under the 1997 Mylan Laboratories Inc. Incentive Stock Option Plan (the "Plan"), and on January 1, 2003 the Executive shall receive another grant of fully vested non-qualified options to purchase up to 300,000 shares under the Plan. One-third (1/3) of each such grant shall be immediately exercisable upon such grant, and one-third (1/3) of each such grant shall be exercisable on each of the next two anniversaries of the grant. These options will be subject to all terms of the Plan, as amended and the applicable stock option agreement. (d) Fringe Benefits and Expense Reimbursement. The Executive shall receive such benefits and perquisites of employment as have been customarily provided to the Company's Chief Executive Officer including but not limited to, health insurance coverage, profit-sharing, participation in the Company's 401(k) plan, short-term disability benefits, twenty-five (25) vacation days, expense reimbursement, and automobile usage in accordance with the plan documents or policies that govern such benefits. Because of heightened security concerns the Executive shall also be entitled to personal usage of the Company's aircraft for the Executive and the Executive's family for vacations and other personal purposes. To the extent that any income or employment taxes ("Taxes") are due with respect to the Executive's or his family's personal use of the Company's aircraft, the Company shall provide the Executive with a "gross up" of Taxes due on such use. The Company shall reimburse Executive for all ordinary and necessary business expenses in accordance with established Company policy and procedures. 4. Confidentiality. Executive recognizes and acknowledges that the business interests of the Company and its subsidiaries, parents and affiliates (collectively the "Mylan Companies") require a confidential relationship between the Company and Executive and the fullest protection and confidential treatment of the financial data, customer information, supplier information, market information, marketing and/or promotional techniques and methods, pricing information, purchase information, sales policies, employee lists, policy and procedure information, records, advertising information, computer records, trade secrets, know how, plans and programs, sources of supply, and other knowledge of the business of the Mylan Companies (all of which are hereinafter jointly termed "Confidential Information") which have or may in whole or in part be conceived, learned or obtained by Executive in the course of Executive's employment with the Company. Accordingly, Executive agrees to keep secret and treat as confidential all Confidential Information whether or not copyrightable or patentable, and agrees not to use or aid others in learning of or using any Confidential Information except in the ordinary course of business and in furtherance of the Company's interests. During the term of this Agreement and at all times thereafter, except insofar as is necessary disclosure consistent with the Company's business interests: (a) Executive will not, directly or indirectly, disclose any Confidential Information to anyone outside the Mylan Companies; 2 (b) Executive will not make copies of or otherwise disclose the contents of documents containing or constituting Confidential Information; (c) As to documents which are delivered to Executive or which are made available to him as a necessary part of the working relationships and duties of Executive within the business of the Company, Executive will treat such documents confidentially and will treat such documents as proprietary and confidential, not to be reproduced, disclosed or used without appropriate authority of the Company; (d) Executive will not advise others that the information and/or know how included in Confidential Information is known to or used by the Company; and (e) Executive will not in any manner disclose or use Confidential Information for Executive's own account and will not aid, assist or abet others in the use of Confidential Information for their account or benefit, or for the account or benefit of any person or entity other than the Company. The obligations set forth in this paragraph are in addition to any other agreements the Executive may have with the Company and any and all rights the Company may have under state or federal statutes or common law. 5. Non-Competition and Non-Solicitation. Executive agrees that during the term of this Agreement and for a period ending two (2) years after termination of Executive's employment with the Company for any reason: (a) Executive shall not, directly or indirectly, whether for himself or for any other person, company, corporation or other entity be or become associated in any way (including but not limited to the association set forth in i-vii of this subsection) with any business or organization which is directly or indirectly engaged in the research, development, manufacture, production, marketing, promotion or sale of any product the same as or similar to those of the Mylan Companies, or which competes or intends to compete in any line of business with the Mylan Companies within North America. Notwithstanding the foregoing, Executive may during the period in which this paragraph is in effect own stock or other interests in corporations or other entities that engage in businesses the same or substantially similar to those engaged in by the Mylan Companies, provided that Executive does not, directly or indirectly (including without limitation as the result of ownership or control of another corporation or other entity), individually or as part of a group (as that term is defined in Section 13 (d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) (i) control or have the ability to control the corporation or other entity, (ii) provide to the corporation or entity, whether as an Executive, consultant or otherwise, advice or consultation, (iii) provide to the corporation or entity any confidential or proprietary information regarding the Mylan Companies or its businesses or regarding the conduct of businesses similar to those of the Mylan Companies, (iv) hold or have the right by contract or arrangement or understanding with other parties to hold a position on the board of directors or other governing body of the corporation or entity or have the right by contract or arrangement or understanding with other parties to elect one or more persons to any such position, (v) hold a position as an 3 officer of the corporation or entity, (vi) have the purpose to change or influence the control of the corporation or entity (other than solely by the voting of his shares or ownership interest) or (vii) have a business or other relationship, by contract or otherwise, with the corporation or entity other than as a passive investor in it; provided, however, that Executive may vote his shares or ownership interest in such manner as he chooses provided that such action does not otherwise violate the prohibitions set forth in this sentence. (b) Executive will not, either directly or indirectly, either for himself or for any other person, partnership, firm, company, corporation or other entity, contact, solicit, divert, or take away any of the customers or suppliers of the Mylan Companies. (c) Executive will not solicit, entice or otherwise induce any employee of the Mylan Companies to leave the employ of the Mylan Companies for any reason whatsoever; nor will Executive directly or indirectly aid, assist or abet any other person or entity in soliciting or hiring any employee of the Mylan Companies, nor will Executive otherwise interfere with any contractual or other business relationships between the Mylan Companies and its employees. 6. Severability. Should a court of competent jurisdiction determine that any section or sub-section of this Agreement is unenforceable because one or all of them are vague or overly broad, the parties agree that this Agreement may and shall be enforced to the maximum extent permitted by law. It is the intent of the parties that each section and sub-section of this Agreement be a separate and distinct promise and that unenforceability of any one subsection shall have no effect on the enforceability of another. 7. Injunctive Relief. The parties agree that in the event of Executive's violation of sections 4 and/or 5 of this Agreement or any subsection thereunder, that the damage to the Company will be irreparable and that money damages will be difficult or impossible to ascertain. Accordingly, in addition to whatever other remedies the Company may have at law or in equity, Executive recognizes and agrees that the Company shall be entitled to a temporary restraining order and a temporary and permanent injunction enjoining and prohibiting any acts not permissible pursuant to this Agreement. Executive agrees that should either party seek to enforce or determine its rights because of an act of Executive which the Company believes to be in contravention of sections 4 and/or 5 of this Agreement or any subsection thereunder, the duration of the restrictions imposed thereby shall be extended for a time period equal to the period necessary to obtain judicial enforcement of the Company's rights. 8. Termination of Employment. (a) Resignation. Executive may resign from employment at any time upon ninety (90) days written notice to the Company. During the ninety (90) days notice period Executive will continue to perform duties and abide by all other terms and conditions of this Agreement. Additionally, Executive will use his best efforts to effect a smooth and effective transition to whomever will replace Executive. The Company reserves the right to accelerate the effective date of Executive's resignation. Except as provided in sections 8(c) and (d), the Company shall have no liability to Executive under this subsection other than that the Company shall pay Executive's wages and benefits through the effective date of Executive's resignation. 4 Executive, however, will continue to be bound by all provisions of this Agreement that survive termination of employment. (b) Termination for Cause. If the Company desires to terminate the Executive's employment for Cause, as defined herein, it shall give Executive written notice of its belief that acts or events constituting Cause exist. Executive shall have the right within ninety (90) days of the Company's giving of such notice, (i) to cure the acts, events or conditions which led to such notice being given, or (ii) to resign. If the Executive elects to resign, such resignation shall be deemed to be a Resignation With Good Reason (as defined below). "Cause" shall mean: (i) Executive's willful and substantial misconduct with respect to the Company's business or affairs; (ii) Executive's gross neglect of duties, (iii) Executive's conviction of a crime involving moral turpitude or (iv) Executive's conviction of any felony. (c) Resignation With Good Reason or Termination Without Cause. If Executive resigns with Good Reason (exclusive of Disability) and complies in all respects with his obligations hereunder, or if the Company terminates Executive without Cause, then Executive shall be paid (i) two (2) times his then-current Minimum Base Salary plus the Annual Bonus applicable for that year in a lump sum within thirty (30) days of resignation or termination, plus (ii) his Minimum Base Salary plus the Annual Bonus determined under this Agreement for such remaining years in accordance with the Company's payroll practices for the remainder of the contract period. If the Executive resigns with Good Reason that is a Disability, the Company will continue to pay Executive his Minimum Base Salary plus Annual Bonus for the remainder of the contract period. In either case, Employee Benefits shall be continued during the remainder of the payment period provided, however, that in the case of health insurance continuation, the Company's obligation to provide health insurance benefits shall end at such time as Executive, at his option, voluntarily obtains health insurance benefits through another employer or otherwise in connection with rendering services for a third party. Executive shall also be entitled to exercise immediately one hundred percent (100%) of all stock options described in this Agreement in the event of a Resignation With Good Reason or Termination Without Cause. Executive will continue to be bound by all provisions of this Agreement that survive termination of employment. "Good Reason" shall mean a reduction of Executive's Compensation, a change (other than a mutually agreed-upon change) in the Executive's responsibilities, a relocation of Executive's principal place of work to a location more than thirty (30) miles from Morgantown, WV or Pittsburgh, PA, the Executive's Disability (as defined herein), failure of Executive to be nominated and/or elected to the Company's Board of Directors, or a resignation pursuant to section 8 (b). "Disability" means the inability to perform normal functions of the position of Chief Executive Officer due to mental, physical or emotional disability which is expected to last more than one year. 5 The Executive and the Company intend that no part of these payments under Section 8(c) be deemed to be a "parachute payment" as defined under IRC ss.280G and instead such payments are meant to compensate Executive for services rendered. However, should any portion of these payments give rise to the excise taxes imposed under IRC ss.4999, the Company shall gross up the payments for the amount of the excise taxes (and the amount of income and payroll taxes due on such excise taxes) payable by the Executive. (d) Resignation Without Good Reason after Thirty-six (36) Months. If the Executive resigns after the first thirty-six (36) months of the term of this Agreement without Good Reason, the Executive's Minimum Base Salary plus the Annual Bonus shall continue to be paid for a period of twenty-four (24) months. Employee Benefits shall be continued during the remainder of the payment period provided, however, that in the case of health insurance continuation, the Company's obligation to provide health insurance benefits shall end at such time as Executive, at his option, voluntarily obtains health insurance benefits through another employer or otherwise in connection with rendering services for a third party. (e) Extension or Renewal. The Term of Employment may be extended or renewed upon mutual agreement of Executive and the Company. If the Term of Employment is not extended or renewed on terms mutually acceptable to Executive and the Company, and if this Agreement has not been already terminated for reasons stated in Section 8 (a), (b), (c) or (d) of this Agreement, Executive shall be paid severance in an amount equal to two (2) times Executive's then-current Minimum Base Salary plus the Annual Bonus applicable for that year in a lump sum, less applicable withholding, within thirty (30) days of termination and Executive's health insurance benefits shall be continued for twenty four (24) months at the Company's cost; provided, however, that in the case of health insurance continuation, the Company's obligation to provide health insurance benefits shall end at such time as Executive, at his option, voluntarily obtains health insurance benefits through another employer or otherwise in connection with rendering services for a third party. Executive, however, will continue to be bound by all provisions of this Agreement that survive termination of employment. (f) Return of Company Property. Upon the termination of Executive's employment for any reason, Executive shall immediately return to the Company all records, memoranda, files, notes, papers, correspondence, reports, documents, books, diskettes, hard drives, electronic files, and all copies or abstracts thereof that Executive has concerning the Company's business. Executive shall also immediately return all keys, identification cards or badges and other Company property. (g) No Duty to Mitigate. There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is otherwise entitled under the contract, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by Executive from other employment. 9. Indemnification. The Company shall maintain D&O liability coverage pursuant to which Executive shall be a covered insured. Executive shall receive indemnification in accordance with the Company's Bylaws in effect as of the date of this Agreement. Such 6 indemnification shall be contractual in nature and shall remain in effect notwithstanding any future change to the Company's Bylaws. To the extent not otherwise limited by the Company's Bylaws in effect as of the date of this Agreement, in the event that Executive is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, (including those brought by or in the right of the Company) whether civil, criminal, administrative or investigative ("proceeding"), by reason of the fact that he is or was an officer, employee or agent of, or is or was serving the Company or any subsidiary of the Company, or is or was serving at the request of the Company or another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, Executive shall be indemnified and held harmless by the Company to the fullest extent authorized by law against all expenses, liabilities and losses (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Executive in connection therewith. Such right shall be a contract right and shall include the right to be paid by the Company expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by Executive in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by Executive while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding will be made only upon delivery to the Company of an undertaking, by or on behalf of Executive, to repay all amounts to Company so advanced if it should be determined ultimately that Executive is not entitled to be indemnified under this section or otherwise. Promptly after receipt by Executive of notice of the commencement of any action, suit or proceeding for which Executive may be entitled to be indemnified, Executive shall notify the Company in writing of the commencement thereof (but the failure to notify the Company shall not relieve it from any liability which it may have under this Section 9 unless and to the extent that it has been prejudiced in a material respect by such failure or from the forfeiture of substantial rights and defenses). If any such action, suit or proceeding is brought against Executive and he notifies the Company of the commencement thereof, the Company will be entitled to participate therein, and, to the extent it may elect by written notice delivered to Executive promptly after receiving the aforesaid notice from Executive, to assume the defense thereof with counsel reasonably satisfactory to Executive, which may be the same counsel as counsel to the Company. Notwithstanding the foregoing, Executive shall have the right to employ his own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of Executive unless (i) the employment of such counsel shall have been authorized in writing by the Company, (ii) the Company shall not have employed counsel reasonably satisfactory to Executive to take charge of the defense of such action within a reasonable time after notice of commencement of the action or (iii) Executive shall have reasonably concluded, after consultation with counsel to Executive, that a conflict of interest exists which makes representation by counsel chosen by the Company not advisable (in which case the Company shall not have the right to direct the defense of such action on behalf of Executive), in any of which events such fees and expenses of one additional counsel shall be borne by the Company. 7 Anything in this Section 9 to the contrary notwithstanding, the Company shall not be liable for any settlement of any claim or action effected without its written consent. 10. Reasonable Time. Executive shall be permitted reasonable time to devote to personal investments, service on corporate, professional and charitable boards and other philanthropic activities and service as a fiduciary or administrator with respect to estates and trusts. 11. Transition and Succession Agreement. A Transition and Succession Agreement shall be executed by the Executive and the Company that contemplates this Agreement. It is the intent of the Executive and the Company that the benefits and compensation paid under this Agreement and the Transition and Succession Agreement shall not be duplicated and that the Executive shall be entitled to the higher of the benefits and compensation payable under this Agreement or under the Transition and Succession Agreement. 12. Other Agreements. The rights and obligations contained in this Agreement are in addition to and not in place of any rights or obligations contained in any other agreements between the Executive and the Company, except as to the existing Consulting Agreement between the parties which shall terminate upon execution of this Agreement and all terms contained within said Consulting Agreement will be superceded by the terms of this Agreement. 13. Notices. All notices hereunder to the parties hereto shall be in writing sent by certified mail, return receipt requested, postage prepaid, and by fax, addressed to the respective parties at the following addresses: MYLAN: Mylan Laboratories Inc. 781 Chestnut Ridge Road Morgantown, West Virginia 26504-4310 Attention: Chairman of the Board With a copy to: Mylan Laboratories Inc. 781 Chestnut Ridge Road Morgantown, West Virginia 26504-4310 Attention: Chief Legal Officer EXECUTIVE: Robert J. Coury 2000 Englishturn Drive Nevillewood, PA 15142 Either party may, by written notice complying with the requirements of this section, specify another or different person or address for the purpose of notification hereunder. All notices shall be deemed to have been given and received on the day a fax is sent or, if mailed only, on the third business day following such mailing. 8 14. Withholding. All payments required to be made by the Company hereunder to Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law. 15. Modification and Waiver. This Agreement may not be changed or terminated orally, nor shall any change, termination or attempted waiver of any of the provisions contained in this Agreement be binding unless in writing and signed by the party against whom the same is sought to be enforced, nor shall this section itself by waived verbally. This Agreement may be amended only by a written instrument duly executed by or on behalf of the parties hereto. 16. Construction of Agreement. This Agreement and all of its provisions were subject to negotiation and shall not be construed more strictly against one party than against another party regardless of which party drafted any particular provision. 17. Successors and Assigns. This Agreement and all of its provisions, rights and obligations shall be binding upon and inure to the benefit of the parties hereto and the Company's successors and assigns. This Agreement may be assigned by the Company to any person, firm or corporation which shall become the owner of substantially all of the assets of the Company or which shall succeed to the business of the Company; provided, however, that in the event of any such assignment the Company shall obtain an instrument in writing from the assignee in which such assignee assumes the obligations of the Company hereunder and shall deliver an executed copy thereof to Executive. No right or interest to or in any payments or benefits hereunder shall be assignable by Executive; provided, however, that this provision shall not preclude him from designating one or more beneficiaries to receive any amount that may be payable after his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term "beneficiaries" as used in this Agreement shall mean a beneficiary or beneficiary or beneficiaries so designated to receive any such amount, or if no beneficiary has been so designated, the legal representative of the Executive's estate. No right, benefit, or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect. 18. Choice of Law and Forum. This Agreement shall be construed and enforced according to, and the rights and obligations of the parties shall be governed in all respects by, the laws of the Commonwealth of Pennsylvania. Any controversy, dispute or claim arising out of or relating to this Agreement, or the breach hereof, including a claim for injunctive relief, or any claim which, in any way arises out of or relates to, Executive's employment with the Company or the termination of said employment, including but not limited to statutory claims for discrimination, shall be resolved by arbitration in accordance with the then current rules of the American Arbitration Association respecting employment disputes except that the parties shall be entitled to engage in all forms of discovery permitted under the Pennsylvania Rules of Civil Procedure (as such rules may be in effect from time to time). The hearing of any such dispute 9 will be held in Pittsburgh, Pennsylvania, and the losing party shall bear the costs, expenses and counsel fees of such proceeding. Executive and Company agree for themselves, their, employees, successors and assigns and their accountants, attorneys and experts that any arbitration hereunder will be held in complete confidence and, without the other party's prior written consent, will not be disclosed, in whole or in part, to any other person or entity except as may be required by law. The decision of the arbitrator(s) will be final and binding on all parties. Executive and the Company expressly consent to the jurisdiction of any such arbitrator over them. 19. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall in no way affect the interpretation of any of the terms or conditions of this Agreement. 20. Execution in Counterparts.This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above mentioned. MYLAN LABORATORIES INC. EXECUTIVE: By: ------------------------------ ----------------------- Robert J. Coury Its: ------------------------------ 10 EX-10 4 odonnell.txt EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement (the "Agreement") is dated this 22nd day of July, 2002, by and between Mylan Laboratories Inc. (the "Company") and John P. O'Donnell ("Executive"). RECITALS: WHEREAS, the Company wishes to employ Executive as Chief Scientific Officer, but may be interested in utilizing Executive in capacities other than as Chief Scientific Officer in order to avail itself of Executive's skills and abilities in light of the Company's business needs; and WHEREAS, Executive is desirous of assisting the Company in whatever manner the Chairman, Chief Executive Officer, and/or Board of Directors deem appropriate; NOW, THEREFORE, in consideration of the promises and mutual obligations of the parties contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive agree as follows: 1. Employment of Executive. The Company agrees to employ Executive, and Executive accepts employment by the Company on the terms and conditions provided herein. 2. Effective Date: Term of Employment. This Agreement shall commence and be effective as of the date hereof and shall remain in effect, unless earlier terminated, or extended or renewed, as provided in Section 8 of this Agreement, through March 31, 2007. 3. Executive's Compensation. Executive's "Compensation" shall include the following: (a) Minimum Base Salary. The Executive's minimum base salary (the "Minimum Base Salary") shall be a monthly rate of $29,167 (or $350,000 annualized), payable in accordance with the Company's normal payroll practices for its executive officers. The Minimum Base Salary may be increased from time to time at the discretion of the Chief Executive Officer of the Company. (b) Annual Bonus. Executive shall be eligible to receive, as determined by and at the discretion of the Chief Executive Officer and/or the Compensation Committee, an Annual Bonus up to seventy-five percent (75%) of Executive's then-current Minimum Base Salary. 1 (c) Non-Qualified Stock Options. On the effective date of this Agreement, Executive shall receive a grant of fully vested non-qualified options to purchase up to 200,000 shares of Mylan Laboratories Inc. common stock under the 1997 Mylan Laboratories Inc. Incentive Stock Option Plan (the "Plan"). One-third (1/3) of said grant shall be exercisable on the first anniversary of such grant, and one-third (1/3) of said grant shall be exercisable on each of the next two (2) anniversaries of the grant. These options will be subject to all terms of the Plan, as amended and the applicable stock option agreement. (d) Fringe Benefits and Expense Reimbursement. The Executive shall receive such benefits and perquisites of employment as have been customarily provided to the Company's Senior Officers including but not limited to, health insurance coverage, profit-sharing, participation in the Company's 401(k) plan, short-term disability benefits, twenty-five (25) vacation days, expense reimbursement, and automobile usage in accordance with the plan documents or policies that govern such benefits. The Company shall reimburse Executive for all ordinary and necessary business expenses in accordance with established Company policy and procedures. 4. Confidentiality. Executive recognizes and acknowledges that the business interests of the Company and its subsidiaries, parents and affiliates (collectively the "Mylan Companies") require a confidential relationship between the Company and Executive and the fullest protection and confidential treatment of the financial data, customer information, supplier information, market information, marketing and/or promotional techniques and methods, pricing information, purchase information, sales policies, employee lists, policy and procedure information, records, advertising information, computer records, trade secrets, know how, plans and programs, sources of supply, and other knowledge of the business of the Mylan Companies (all of which are hereinafter jointly termed "Confidential Information") which have or may in whole or in part be conceived, learned or obtained by Executive in the course of Executive's employment with the Company. Accordingly, Executive agrees to keep secret and treat as confidential all Confidential Information whether or not copyrightable or patentable, and agrees not to use or aid others in learning of or using any Confidential Information except in the ordinary course of business and in furtherance of the Company's interests. During the term of this Agreement and at all times thereafter, except insofar as is necessary disclosure consistent with the Company's business interests: (a) Executive will not, directly or indirectly, disclose any Confidential Information to anyone outside the Mylan Companies; (b) Executive will not make copies of or otherwise disclose the contents of documents containing or constituting Confidential Information; (c) As to documents which are delivered to Executive or which are made available to him as a necessary part of the working relationships and duties of Executive within the business of the Company, Executive will treat such documents confidentially and will treat such documents as proprietary and confidential, not to be reproduced, disclosed or used without appropriate authority of the Company; 2 (d) Executive will not advise others that the information and/or know how included in Confidential Information is known to or used by the Company; and (e) Executive will not in any manner disclose or use Confidential Information for Executive's own account and will not aid, assist or abet others in the use of Confidential Information for their account or benefit, or for the account or benefit of any person or entity other than the Company. The obligations set forth in this paragraph are in addition to any other agreements the Executive may have with the Company and any and all rights the Company may have under state or federal statutes or common law. 5. Non-Competition and Non-Solicitation. Executive agrees that during the term of this Agreement and for a period ending two (2) years after termination of Executive's employment with the Company for any reason: (a) Executive shall not, directly or indirectly, whether for himself or for any other person, company, corporation or other entity be or become associated in any way (including but not limited to the association set forth in i-vii of this subsection) with any business or organization which is directly or indirectly engaged in the research, development, manufacture, production, marketing, promotion or sale of any product the same as or similar to those of the Mylan Companies, or which competes or intends to compete in any line of business with the Mylan Companies within North America. Notwithstanding the foregoing, Executive may during the period in which this paragraph is in effect own stock or other interests in corporations or other entities that engage in businesses the same or substantially similar to those engaged in by the Mylan Companies, provided that Executive does not, directly or indirectly (including without limitation as the result of ownership or control of another corporation or other entity), individually or as part of a group (as that term is defined in Section 13 (d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) (i) control or have the ability to control the corporation or other entity, (ii) provide to the corporation or entity, whether as an Executive, consultant or otherwise, advice or consultation, (iii) provide to the corporation or entity any confidential or proprietary information regarding the Mylan Companies or its businesses or regarding the conduct of businesses similar to those of the Mylan Companies, (iv) hold or have the right by contract or arrangement or understanding with other parties to hold a position on the board of directors or other governing body of the corporation or entity or have the right by contract or arrangement or understanding with other parties to elect one or more persons to any such position, (v) hold a position as an officer of the corporation or entity, (vi) have the purpose to change or influence the control of the corporation or entity (other than solely by the voting of his shares or ownership interest) or (vii) have a business or other relationship, by contract or otherwise, with the corporation or entity other than as a passive investor in it; provided, however, that Executive may vote his shares or ownership interest in such manner as he chooses provided that such action does not otherwise violate the prohibitions set forth in this sentence. (b) Executive will not, either directly or indirectly, either for himself or for any other person, partnership, firm, company, corporation or other entity, contact, solicit, divert, or take away any of the customers or suppliers of the Mylan Companies. (c) Executive will not solicit, entice or otherwise induce any employee of the Mylan Companies to leave the employ of the Mylan Companies for any reason whatsoever; nor will Executive directly or indirectly aid, assist or abet any other person or entity in soliciting or hiring any employee of the Mylan Companies, nor will Executive otherwise interfere with any contractual or other business relationships between the Mylan Companies and its employees. 6. Severability. Should a court of competent jurisdiction determine that any section or sub-section of this Agreement is unenforceable because one or all of them are vague or overly broad, the parties agree that this Agreement may and shall be enforced to the maximum extent permitted by law. It is the intent of the parties that each section and sub-section of this Agreement be a separate and distinct promise and that unenforceability of any one subsection shall have no effect on the enforceability of another. 7. Injunctive Relief. The parties agree that in the event of Executive's violation of sections 4 and/or 5 of this Agreement or any subsection thereunder, that the damage to the Company will be irreparable and that money damages will be difficult or impossible to ascertain. Accordingly, in addition to whatever other remedies the Company may have at law or in equity, Executive recognizes and agrees that the Company shall be entitled to a temporary restraining order and a temporary and permanent injunction enjoining and prohibiting any acts not permissible pursuant to this Agreement. Executive agrees that should either party seek to enforce or determine its rights because of an act of Executive which the Company believes to be in contravention of sections 4 and/or 5 of this Agreement or any subsection thereunder, the duration of the restrictions imposed thereby shall be extended for a time period equal to the period necessary to obtain judicial enforcement of the Company's rights. 8. Termination of Employment. (a) Resignation. Executive may resign from employment at any time upon ninety (90) days written notice to the Company. During the ninety (90) days notice period Executive will continue to perform duties and abide by all other terms and conditions of this Agreement. Additionally, Executive will use his best efforts to effect a smooth and effective transition to whomever will replace Executive. The Company reserves the right to accelerate the effective date of Executive's resignation. Except as provided in section 8(c), the Company shall have no liability to Executive under this subsection other than that the Company shall pay Executive's wages and benefits through the effective date of Executive's resignation. Executive, however, will continue to be bound by all provisions of this Agreement that survive termination of employment. (b) Termination For Cause. The Company may terminate Executive's employment for Cause, as defined herein, at any time. Notice of a Termination For Cause shall be in writing. In the event of a Termination For Cause, the Company shall have no liability to Executive other than that the Company shall pay Executive's wages and benefits through the 4 effective date of Executive's termination. Executive, however, will continue to be bound by all provisions of this Agreement that survive termination of employment. "Cause" shall mean: (i) Executive's willful and substantial misconduct with respect to the Company's business or affairs; (ii) Executive's gross neglect of duties, (iii) Executive's conviction of a crime involving moral turpitude; (iv) Executive's conviction of any felony; or (v) Executive's material breach of any provision of this Agreement. (c) Resignation With Good Reason or Termination Without Cause. If Executive provides ninety (90) days notice and resigns with Good Reason, as defined herein, and complies in all respects with his obligations hereunder, or if the Company terminates Executive without Cause, then Executive shall be paid (i) his then-current Minimum Base Salary plus the Annual Bonus applicable for the prior year for such ninety (90) day notice period, plus (ii) his Minimum Base Salary plus the Annual Bonus determined under this Agreement for twelve (12) months in accordance with the Company's payroll practices. If the Executive resigns with Good Reason that is a Disability and complies in all respects with his obligations hereunder, the Company will continue to pay Executive his Minimum Base Salary plus Annual Bonus under this Agreement for twelve (12) months in accordance with the Company's payroll practices. In either case, Employee Benefits shall be continued during the remainder of the payment period provided, however, that in the case of health insurance continuation, the Company's obligation to provide health insurance benefits shall end at such time as Executive, at his option, voluntarily obtains health insurance benefits through another employer or otherwise in connection with rendering services for a third party. Executive shall also be entitled to exercise immediately one hundred percent (100%) of all stock options described in this Agreement in the event of a Resignation With Good Reason or Termination Without Cause. Executive will continue to be bound by all provisions of this Agreement that survive termination of employment. "Good Reason" shall mean a reduction of Executive's Compensation unless all other similarly situated senior executives of the Company are required to accept a similar reduction, a relocation of Executive's principal place of work to a location more than thirty (30) miles from Morgantown, WV, or the Executive's Disability (as defined herein). "Disability" means the inability to perform normal functions of the positions due to mental, physical or emotional disability which is expected to last more than one year. (d) Extension or Renewal. The Term of Employment may be extended or renewed upon mutual agreement of Executive and the Company. If the Term of Employment is not extended or renewed on terms mutually acceptable to Executive and the Company, and if this Agreement has not been already terminated for reasons stated in Section 8 (a), (b), or (c) of this Agreement, Executive shall be paid severance in an amount equal to his then-current Minimum Base Salary plus the Annual Bonus applicable for the prior year in a lump sum, less applicable withholding, within thirty days of termination and Executive's health insurance benefits shall be continued for twelve (12) months at the Company's cost; provided, however, that in the case of health insurance continuation, the Company's obligation to provide health insurance benefits shall end at such time as Executive, at his option, voluntarily obtains health insurance benefits 5 through another employer or otherwise in connection with rendering services for a third party. Executive, however, will continue to be bound by all provisions of this Agreement that survive termination of employment. (e) Return of Company Property. Upon the termination of Executive's employment for any reason, Executive shall immediately return to the Company all records, memoranda, files, notes, papers, correspondence, reports, documents, books, diskettes, hard drives, electronic files, and all copies or abstracts thereof that Executive has concerning the Company's business. Executive shall also immediately return all keys, identification cards or badges and other Company property. (f) No Duty to Mitigate. There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is otherwise entitled under the contract, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by Executive from other employment. 9. Indemnification. The Company shall maintain D&O liability coverage pursuant to which Executive shall be a covered insured. Executive shall receive indemnification in accordance with the Company's Bylaws in effect as of the date of this Agreement. Such indemnification shall be contractual in nature and shall remain in effect notwithstanding any future change to the Company's Bylaws. To the extent not otherwise limited by the Company's Bylaws in effect as of the date of this Agreement, in the event that Executive is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, (including those brought by or in the right of the Company) whether civil, criminal, administrative or investigative ("proceeding"), by reason of the fact that he is or was an officer, employee or agent of or is or was serving the Company or any subsidiary of the Company, or is or was serving at the request of the Company or another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, Executive shall be indemnified and held harmless by the Company to the fullest extent authorized by law against all expenses, liabilities and losses (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Executive in connection therewith. Such right shall be a contract right and shall include the right to be paid by the Company expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by Executive in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by Executive while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding will be made only upon delivery to the Company of an undertaking, by or on behalf of Executive, to repay all amounts to Company so advanced if it should be determined ultimately that Executive is not entitled to be indemnified under this section or otherwise. 6 Promptly after receipt by Executive of notice of the commencement of any action, suit or proceeding for which Executive may be entitled to be indemnified, Executive shall notify the Company in writing of the commencement thereof (but the failure to notify the Company shall not relieve it from any liability which it may have under this Section 9 unless and to the extent that it has been prejudiced in a material respect by such failure or from the forfeiture of substantial rights and defenses). If any such action, suit or proceeding is brought against Executive and he notifies the Company of the commencement thereof, the Company will be entitled to participate therein, and, to the extent it may elect by written notice delivered to Executive promptly after receiving the aforesaid notice from Executive, to assume the defense thereof with counsel reasonably satisfactory to Executive, which may be the same counsel as counsel to the Company. Notwithstanding the foregoing, Executive shall have the right to employ his own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of Executive unless (i) the employment of such counsel shall have been authorized in writing by the Company, (ii) the Company shall not have employed counsel reasonably satisfactory to Executive to take charge of the defense of such action within a reasonable time after notice of commencement of the action or (iii) Executive shall have reasonably concluded, after consultation with counsel to Executive, that a conflict of interest exists which makes representation by counsel chosen by the Company not advisable (in which case the Company shall not have the right to direct the defense of such action on behalf of Executive), in any of which events such fees and expenses of one additional counsel shall be borne by the Company. Anything in this Section 9 to the contrary notwithstanding, the Company shall not be liable for any settlement of any claim or action effected without its written consent. 10. Efforts. During the Term of Employment, Executive shall: (i) devote his full working time and attention to the business and affairs of the Company and to the performance of his duties hereunder; (ii) serve the Company faithfully and to the best of his ability, and use his best efforts to promote the interests of the Company; and (iii) follow and implement the policies and directions of the Chief Executive Officer and Board of Directors. 11. Amended Transition and Succession Agreement. An Amended Transition and Succession Agreement that contemplates this Agreement shall be executed by the Executive and the Company and replace, in its entirety, the existing Transition and Succession Agreement. It is the intent of the Executive and the Company that the benefits and compensation paid under this Agreement and the Amended Transition and Succession Agreement shall not be duplicated and that the Executive shall be entitled to the higher of the benefits and compensation payable under this Agreement or under the Amended Transition and Succession Agreement. 12. Other Agreements. The rights and obligations contained in this Agreement are in addition to and not in place of any rights or obligations contained in any other agreements between the Executive and the Company. 7 13. Notices. All notices hereunder to the parties hereto shall be in writing sent by certified mail, return receipt requested, postage prepaid, and by fax, addressed to the respective parties at the following addresses: MYLAN: Mylan Laboratories Inc. 781 Chestnut Ridge Road Morgantown, West Virginia 26504-4310 Attention: Chairman of the Board With a copy to: Mylan Laboratories Inc. 781 Chestnut Ridge Road Morgantown, West Virginia 26504-4310 Attention: Chief Legal Officer EXECUTIVE: John P. O'Donnell, Ph.D. 24 Heather Drive Morgantown, WV 26505 Either party may, by written notice complying with the requirements of this section, specify another or different person or address for the purpose of notification hereunder. All notices shall be deemed to have been given and received on the day a fax is sent or, if mailed only, on the third business day following such mailing. 14. Withholding. All payments required to be made by the Company hereunder to Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law. 15. Modification and Waiver. This Agreement may not be changed or terminated orally, nor shall any change, termination or attempted waiver of any of the provisions contained in this Agreement be binding unless in writing and signed by the party against whom the same is sought to be enforced, nor shall this section itself by waived verbally. This Agreement may be amended only by a written instrument duly executed by or on behalf of the parties hereto. 16. Construction of Agreement. This Agreement and all of its provisions were subject to negotiation and shall not be construed more strictly against one party than against another party regardless of which party drafted any particular provision. 17. Successors and Assigns. This Agreement and all of its provisions, rights and obligations shall be binding upon and inure to the benefit of the parties hereto and the Company's successors and assigns. This Agreement may be assigned by the Company to any person, firm or corporation which shall become the owner of substantially all of the assets of the Company or which shall succeed to the business of the Company; provided, however, that in the event of any such assignment the Company shall obtain an instrument in writing from the assignee in which such assignee assumes the obligations of the Company hereunder and shall deliver an executed copy thereof to Executive. No right or interest to or in any payments or benefits hereunder shall be assignable by Executive; provided, however, that this provision shall not preclude him from designating one or more beneficiaries to receive any amount that may be payable after his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term "beneficiaries" as used in this Agreement shall mean a beneficiary or beneficiary or beneficiaries so designated to receive any such amount, or if no beneficiary has been so designated, the legal representative of the Executive's estate. No right, benefit, or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect. 18. Choice of Law and Forum. This Agreement shall be construed and enforced according to, and the rights and obligations of the parties shall be governed in all respects by, the laws of the Commonwealth of Pennsylvania. Any controversy, dispute or claim arising out of or relating to this Agreement, or the breach hereof, including a claim for injunctive relief, or any claim which, in any way arises out of or relates to, Executive's employment with the Company or the termination of said employment, including but not limited to statutory claims for discrimination, shall be resolved by arbitration in accordance with the then current rules of the American Arbitration Association respecting employment disputes except that the parties shall be entitled to engage in all forms of discovery permitted under the Pennsylvania Rules of Civil Procedure (as such rules may be in effect from time to time). The hearing of any such dispute will be held in Pittsburgh, Pennsylvania, and the losing party shall bear the costs, expenses and counsel fees of such proceeding. Executive and Company agree for themselves, their, employees, successors and assigns and their accountants, attorneys and experts that any arbitration hereunder will be held in complete confidence and, without the other party's prior written consent, will not be disclosed, in whole or in part, to any other person or entity except as may be required by law. The decision of the arbitrator(s) will be final and binding on all parties. Executive and the Company expressly consent to the jurisdiction of any such arbitrator over them. 19. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall in no way affect the interpretation of any of the terms or conditions of this Agreement. 9 20. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above mentioned. MYLAN LABORATORIES INC. EXECUTIVE: By: ------------------------------- ------------------------- John P. O'Donnell, Ph.D. Its: ------------------------------ 10 EX-10 5 debone.txt EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement (the "Agreement") is dated this July 22, 2002, by and between Mylan Laboratories Inc. (the "Company") and Louis J. DeBone ("Executive"). RECITALS: WHEREAS, the Company wishes to employ Executive as President and Chief Operating Officer - Elect immediately and as President and Chief Operating Officer effective September 1, 2002 but may be interested in utilizing Executive in capacities other than as President and Chief Operating Officer in order to avail itself of Executive's skills and abilities in light of the Company's business needs; and WHEREAS, Executive is desirous of assisting the Company in whatever manner the Chairman, Chief Executive Officer, and/or Board of Directors deem appropriate; NOW, THEREFORE, in consideration of the promises and mutual obligations of the parties contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive agree as follows: 1. Employment of Executive. The Company agrees to employ Executive, and Executive accepts employment by the Company on the terms and conditions provided herein. 2. Effective Date: Term of Employment. This Agreement shall commence and be effective as of the date hereof and shall remain in effect, unless earlier terminated, or extended or renewed, as provided in Section 8 of this Agreement, through March 31, 2005. 3. Executive's Compensation. Executive's "Compensation" shall include the following: (a) Minimum Base Salary. The Executive's minimum base salary (the "Minimum Base Salary") shall be as follows: for the period of July 22, 2002 through March 31, 2003 a monthly rate of $41,667 (or $500,000 annualized); $600,000 for the Company's fiscal year beginning April 1, 2003; and $750,000 for the Company's fiscal year beginning April 1, 2004, payable in accordance with the Company's normal payroll practices for its executive officers. The Minimum Base Salary may be increased from time to time at the discretion of the Board of Directors of the Company or any committee thereof having authority over executive compensation. (b) Annual Bonus. Executive shall be eligible to receive, as determined by and at the discretion of the Chief Executive Officer and/or the Compensation Committee, an Annual Bonus up to one hundred percent (100%) of Executive's then-current Minimum Base Salary. 1 (c) Non-Qualified Stock Options. On the effective date of this Agreement, Executive shall receive a grant of fully vested non-qualified options to purchase up to 300,000 shares of Mylan Laboratories Inc. common stock under the 1997 Mylan Laboratories Inc. Incentive Stock Option Plan (the "Plan"). One-third (1/3) of said grant shall be immediately exercisable upon such grant, and one-third (1/3) of said grant shall be exercisable on each of the next two (2) anniversaries of the grant. These options will be subject to all terms of the Plan, as amended and the applicable stock option agreement. (d) Fringe Benefits and Expense Reimbursement. The Executive shall receive such benefits and perquisites of employment as have been customarily provided to the Company's President and Chief Operating Officer including but not limited to, health insurance coverage, profit-sharing, participation in the Company's 401(k) plan, short-term disability benefits, twenty-five (25) vacation days, expense reimbursement, and automobile usage in accordance with the plan documents or policies that govern such benefits. The Company shall reimburse Executive for all ordinary and necessary business expenses in accordance with established Company policy and procedures. 4. Confidentiality. Executive recognizes and acknowledges that the business interests of the Company and its subsidiaries, parents and affiliates (collectively the "Mylan Companies") require a confidential relationship between the Company and Executive and the fullest protection and confidential treatment of the financial data, customer information, supplier information, market information, marketing and/or promotional techniques and methods, pricing information, purchase information, sales policies, employee lists, policy and procedure information, records, advertising information, computer records, trade secrets, know how, plans and programs, sources of supply, and other knowledge of the business of the Mylan Companies (all of which are hereinafter jointly termed "Confidential Information") which have or may in whole or in part be conceived, learned or obtained by Executive in the course of Executive's employment with the Company. Accordingly, Executive agrees to keep secret and treat as confidential all Confidential Information whether or not copyrightable or patentable, and agrees not to use or aid others in learning of or using any Confidential Information except in the ordinary course of business and in furtherance of the Company's interests. During the term of this Agreement and at all times thereafter, except insofar as is necessary disclosure consistent with the Company's business interests: (a) Executive will not, directly or indirectly, disclose any Confidential Information to anyone outside the Mylan Companies; (b) Executive will not make copies of or otherwise disclose the contents of documents containing or constituting Confidential Information; (c) As to documents which are delivered to Executive or which are made available to him as a necessary part of the working relationships and duties of Executive within the business of the Company, Executive will treat such documents confidentially and will treat such documents as proprietary and confidential, not to be reproduced, disclosed or used without appropriate authority of the Company; 2 (d) Executive will not advise others that the information and/or know how included in Confidential Information is known to or used by the Company; and (e) Executive will not in any manner disclose or use Confidential Information for Executive's own account and will not aid, assist or abet others in the use of Confidential Information for their account or benefit, or for the account or benefit of any person or entity other than the Company. The obligations set forth in this paragraph are in addition to any other agreements the Executive may have with the Company and any and all rights the Company may have under state or federal statutes or common law. 5. Non-Competition and Non-Solicitation. Executive agrees that during the term of this Agreement and for a period ending two (2) years after termination of Executive's employment with the Company for any reason: (a) Executive shall not, directly or indirectly, whether for himself or for any other person, company, corporation or other entity be or become associated in any way (including but not limited to the association set forth in i-vii of this subsection) with any business or organization which is directly or indirectly engaged in the research, development, manufacture, production, marketing, promotion or sale of any product the same as or similar to those of the Mylan Companies, or which competes or intends to compete in any line of business with the Mylan Companies within North America. Notwithstanding the foregoing, Executive may during the period in which this paragraph is in effect own stock or other interests in corporations or other entities that engage in businesses the same or substantially similar to those engaged in by the Mylan Companies, provided that Executive does not, directly or indirectly (including without limitation as the result of ownership or control of another corporation or other entity), individually or as part of a group (as that term is defined in Section 13 (d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) (i) control or have the ability to control the corporation or other entity, (ii) provide to the corporation or entity, whether as an Executive, consultant or otherwise, advice or consultation, (iii) provide to the corporation or entity any confidential or proprietary information regarding the Mylan Companies or its businesses or regarding the conduct of businesses similar to those of the Mylan Companies, (iv) hold or have the right by contract or arrangement or understanding with other parties to hold a position on the board of directors or other governing body of the corporation or entity or have the right by contract or arrangement or understanding with other parties to elect one or more persons to any such position, (v) hold a position as an officer of the corporation or entity, (vi) have the purpose to change or influence the control of the corporation or entity (other than solely by the voting of his shares or ownership interest) or (vii) have a business or other relationship, by contract or otherwise, with the corporation or entity other than as a passive investor in it; provided, however, that Executive may vote his shares or ownership interest in such manner as he chooses provided that such action does not otherwise violate the prohibitions set forth in this sentence. 4 (b) Executive will not, either directly or indirectly, either for himself or for any other person, partnership, firm, company, corporation or other entity, contact, solicit, divert, or take away any of the customers or suppliers of the Mylan Companies. (c) Executive will not solicit, entice or otherwise induce any employee of the Mylan Companies to leave the employ of the Mylan Companies for any reason whatsoever; nor will Executive directly or indirectly aid, assist or abet any other person or entity in soliciting or hiring any employee of the Mylan Companies, nor will Executive otherwise interfere with any contractual or other business relationships between the Mylan Companies and its employees. 6. Severability. Should a court of competent jurisdiction determine that any section or sub-section of this Agreement is unenforceable because one or all of them are vague or overly broad, the parties agree that this Agreement may and shall be enforced to the maximum extent permitted by law. It is the intent of the parties that each section and sub-section of this Agreement be a separate and distinct promise and that unenforceability of any one subsection shall have no effect on the enforceability of another. 7. Injunctive Relief. The parties agree that in the event of Executive's violation of sections 4 and/or 5 of this Agreement or any subsection thereunder, that the damage to the Company will be irreparable and that money damages will be difficult or impossible to ascertain. Accordingly, in addition to whatever other remedies the Company may have at law or in equity, Executive recognizes and agrees that the Company shall be entitled to a temporary restraining order and a temporary and permanent injunction enjoining and prohibiting any acts not permissible pursuant to this Agreement. Executive agrees that should either party seek to enforce or determine its rights because of an act of Executive which the Company believes to be in contravention of sections 4 and/or 5 of this Agreement or any subsection thereunder, the duration of the restrictions imposed thereby shall be extended for a time period equal to the period necessary to obtain judicial enforcement of the Company's rights. 8. Termination of Employment. (a) Resignation. Executive may resign from employment at any time upon ninety (90) days written notice to the Company. During the ninety (90) days notice period Executive will continue to perform duties and abide by all other terms and conditions of this Agreement. Additionally, Executive will use his best efforts to effect a smooth and effective transition to whomever will replace Executive. The Company reserves the right to accelerate the effective date of Executive's resignation. Except as provided in section 8(c), the Company shall have no liability to Executive under this subsection other than that the Company shall pay Executive's wages and benefits through the effective date of Executive's resignation. Executive, however, will continue to be bound by all provisions of this Agreement that survive termination of employment. (b) Termination for Cause. If the Company desires to terminate the Executive's employment for Cause, as defined herein, it shall give Executive written notice of its belief that acts or events constituting Cause exist. Executive shall have the right within ninety (90) days of the Company's giving of such notice, (i) to cure the acts, events or conditions which 4 led to such notice being given, or (ii) to resign. If the Executive elects to resign, such resignation shall be deemed to be a Resignation With Good Reason (as defined below). "Cause" shall mean: (i) Executive's willful and substantial misconduct with respect to the Company's business or affairs; (ii) Executive's gross neglect of duties, (iii) Executive's conviction of a crime involving moral turpitude or (iv) Executive's conviction of any felony. (c) Resignation With Good Reason or Termination Without Cause. If Executive provides ninety (90) days notice and resigns with Good Reason, as defined herein, and complies in all respects with his obligations hereunder, or if the Company terminates Executive without Cause, then Executive shall be paid (i) his then-current Minimum Base Salary plus the Annual Bonus applicable for that year for such ninety (90) day notice period, plus (ii) his Minimum Base Salary plus the Annual Bonus determined under this Agreement for twelve (12) months in accordance with the Company's payroll practices. If the Executive resigns with Good Reason that is a Disability and complies in all respects with his obligations hereunder, the Company will continue to pay Executive his Minimum Base Salary plus Annual Bonus under this Agreement for twelve (12) months in accordance with the Company's payroll practices. In either case, Employee Benefits shall be continued during the remainder of the payment period provided, however, that in the case of health insurance continuation, the Company's obligation to provide health insurance benefits shall end at such time as Executive, at his option, voluntarily obtains health insurance benefits through another employer or otherwise in connection with rendering services for a third party. Executive shall also be entitled to exercise immediately one hundred percent (100%) of all stock options described in this Agreement in the event of a Resignation With Good Reason or Termination Without Cause. Executive will continue to be bound by all provisions of this Agreement that survive termination of employment. "Good Reason" shall mean a reduction of Executive's Compensation unless all other similarly situated senior executives of the Company are required to accept a similar reduction, a relocation of Executive's principal place of work to a location more than thirty (30) miles from Morgantown, WV, the Executive's Disability (as defined herein) or a resignation pursuant to section 8 (b). "Disability" means the inability to perform normal functions of the positions due to mental, physical or emotional disability which is expected to last more than one year. (d) Extension or Renewal. The Term of Employment may be extended or renewed upon mutual agreement of Executive and the Company. If the Term of Employment is not extended or renewed on terms mutually acceptable to Executive and the Company, and if this Agreement has not been already terminated for reasons stated in Section 8 (a), (b), or (c) of this Agreement, Executive shall be paid severance in an amount equal to his then-current Minimum Base Salary plus the Annual Bonus applicable for that year in a lump sum, less applicable withholding, within thirty days of termination and Executive's health insurance benefits shall be continued for twelve (12) months at the Company's cost; provided, however, that in the case of health insurance continuation, the Company's obligation to provide health insurance benefits shall end at such time as Executive, at his option, voluntarily obtains health insurance benefits 5 through another employer or otherwise in connection with rendering services for a third party. Executive, however, will continue to be bound by all provisions of this Agreement that survive termination of employment. (e) Return of Company Property. Upon the termination of Executive's employment for any reason, Executive shall immediately return to the Company all records, memoranda, files, notes, papers, correspondence, reports, documents, books, diskettes, hard drives, electronic files, and all copies or abstracts thereof that Executive has concerning the Company's business. Executive shall also immediately return all keys, identification cards or badges and other Company property. (f) No Duty to Mitigate. There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is otherwise entitled under the contract, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by Executive from other employment. 9. Indemnification. The Company shall maintain D&O liability coverage pursuant to which Executive shall be a covered insured. Executive shall receive indemnification in accordance with the Company's Bylaws in effect as of the date of this Agreement. Such indemnification shall be contractual in nature and shall remain in effect notwithstanding any future change to the Company's Bylaws. To the extent not otherwise limited by the Company's Bylaws in effect as of the date of this Agreement, in the event that Executive is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, (including those brought by or in the right of the Company) whether civil, criminal, administrative or investigative ("proceeding"), by reason of the fact that he is or was an officer, employee or agent of or is or was serving the Company or any subsidiary of the Company, or is or was serving at the request of the Company or another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, Executive shall be indemnified and held harmless by the Company to the fullest extent authorized by law against all expenses, liabilities and losses (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Executive in connection therewith. Such right shall be a contract right and shall include the right to be paid by the Company expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by Executive in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by Executive while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding will be made only upon delivery to the Company of an undertaking, by or on behalf of Executive, to repay all amounts to Company so advanced if it should be determined ultimately that Executive is not entitled to be indemnified under this section or otherwise. 6 Promptly after receipt by Executive of notice of the commencement of any action, suit or proceeding for which Executive may be entitled to be indemnified, Executive shall notify the Company in writing of the commencement thereof (but the failure to notify the Company shall not relieve it from any liability which it may have under this Section 9 unless and to the extent that it has been prejudiced in a material respect by such failure or from the forfeiture of substantial rights and defenses). If any such action, suit or proceeding is brought against Executive and he notifies the Company of the commencement thereof, the Company will be entitled to participate therein, and, to the extent it may elect by written notice delivered to Executive promptly after receiving the aforesaid notice from Executive, to assume the defense thereof with counsel reasonably satisfactory to Executive, which may be the same counsel as counsel to the Company. Notwithstanding the foregoing, Executive shall have the right to employ his own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of Executive unless (i) the employment of such counsel shall have been authorized in writing by the Company, (ii) the Company shall not have employed counsel reasonably satisfactory to Executive to take charge of the defense of such action within a reasonable time after notice of commencement of the action or (iii) Executive shall have reasonably concluded, after consultation with counsel to Executive, that a conflict of interest exists which makes representation by counsel chosen by the Company not advisable (in which case the Company shall not have the right to direct the defense of such action on behalf of Executive), in any of which events such fees and expenses of one additional counsel shall be borne by the Company. Anything in this Section 9 to the contrary notwithstanding, the Company shall not be liable for any settlement of any claim or action effected without its written consent. 10. Efforts. During the Term of Employment, Executive shall: (i) devote his full working time and attention to the business and affairs of the Company and to the performance of his duties hereunder; (ii) serve the Company faithfully and to the best of his ability, and use his best efforts to promote the interests of the Company; and (iii) follow and implement the policies and directions of the Chief Executive Officer and Board of Directors. 11. Amended Transition and Succession Agreement. An Amended Transition and Succession Agreement that contemplates this Agreement shall be executed by the Executive and the Company and replace, in its entirety, the existing Transition and Succession Agreement. It is the intent of the Executive and the Company that the benefits and compensation paid under this Agreement and the Amended Transition and Succession Agreement shall not be duplicated and that the Executive shall be entitled to the higher of the benefits and compensation payable under this Agreement or under the Amended Transition and Succession Agreement. 12. Other Agreements. The rights and obligations contained in this Agreement are in addition to and not in place of any rights or obligations contained in any other agreements between the Executive and the Company. 7 13. Notices. All notices hereunder to the parties hereto shall be in writing sent by certified mail, return receipt requested, postage prepaid, and by fax, addressed to the respective parties at the following addresses: MYLAN: Mylan Laboratories Inc. 781 Chestnut Ridge Road Morgantown, West Virginia 26504-4310 Attention: Chairman of the Board With a copy to: Mylan Laboratories Inc. 781 Chestnut Ridge Road Morgantown, West Virginia 26504-4310 Attention: Chief Legal Officer EXECUTIVE: Louis J. DeBone 917 Suncrest Place Morgantown, WV 26505 Either party may, by written notice complying with the requirements of this section, specify another or different person or address for the purpose of notification hereunder. All notices shall be deemed to have been given and received on the day a fax is sent or, if mailed only, on the third business day following such mailing. 14. Withholding. All payments required to be made by the Company hereunder to Executive or hi dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law. 15. Modification and Waiver. This Agreement may not be changed or terminated orally, nor shall any change, termination or attempted waiver of any of the provisions contained in this Agreement be binding unless in writing and signed by the party against whom the same is sought to be enforced, nor shall this section itself by waived verbally. This Agreement may be amended only by a written instrument duly executed by or on behalf of the parties hereto. 16. Construction of Agreement. This Agreement and all of its provisions were subject to negotiation and shall not be construed more strictly against one party than against another party regardless of which party drafted any particular provision. 17. Successors and Assigns. This Agreement and all of its provisions, rights and obligations shall be binding upon and inure to the benefit of the parties hereto and the Company's successors and assigns. This Agreement may be assigned by the Company to any person, firm or corporation which shall become the owner of substantially all of the assets of the Company or which shall succeed to the business of the Company; provided, however, that in the event of any such assignment the Company shall obtain an instrument in writing from the 8 assignee in which such assignee assumes the obligations of the Company hereunder and shall deliver an executed copy thereof to Executive. No right or interest to or in any payments or benefits hereunder shall be assignable by Executive; provided, however, that this provision shall not preclude him from designating one or more beneficiaries to receive any amount that may be payable after his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term "beneficiaries" as used in this Agreement shall mean a beneficiary or beneficiary or beneficiaries so designated to receive any such amount, or if no beneficiary has been so designated, the legal representative of the Executive's estate. No right, benefit, or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect. 18. Choice of Law and Forum. This Agreement shall be construed and enforced according to, and the rights and obligations of the parties shall be governed in all respects by, the laws of the Commonwealth of Pennsylvania. Any controversy, dispute or claim arising out of or relating to this Agreement, or the breach hereof, including a claim for injunctive relief, or any claim which, in any way arises out of or relates to, Executive's employment with the Company or the termination of said employment, including but not limited to statutory claims for discrimination, shall be resolved by arbitration in accordance with the then current rules of the American Arbitration Association respecting employment disputes except that the parties shall be entitled to engage in all forms of discovery permitted under the Pennsylvania Rules of Civil Procedure (as such rules may be in effect from time to time). The hearing of any such dispute will be held in Pittsburgh, Pennsylvania, and the losing party shall bear the costs, expenses and counsel fees of such proceeding. Executive and Company agree for themselves, their, employees, successors and assigns and their accountants, attorneys and experts that any arbitration hereunder will be held in complete confidence and, without the other party's prior written consent, will not be disclosed, in whole or in part, to any other person or entity except as may be required by law. The decision of the arbitrator(s) will be final and binding on all parties. Executive and the Company expressly consent to the jurisdiction of any such arbitrator over them. 19. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall in no way affect the interpretation of any of the terms or conditions of this Agreement. 20. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above mentioned. MYLAN LABORATORIES INC. EXECUTIVE: By: ------------------------------- ------------------------- Louis J. DeBone Its: ------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----