-----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, CIsHl8aKToV8ZgxidHrlMEE8T2ZKFjqJHkkDuMpHlmYJB3NhHV2QPP0f/ZrggZDA wFhMF4J+SVQ+QABPO1gw+Q== 0000950130-97-001485.txt : 19970403 0000950130-97-001485.hdr.sgml : 19970403 ACCESSION NUMBER: 0000950130-97-001485 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970402 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROBERTS PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000853022 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 222429994 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19173 FILM NUMBER: 97573371 BUSINESS ADDRESS: STREET 1: MERIDIAN CENTRE II STREET 2: 4 INDUSTRIAL WAY W CITY: EATONTOWN STATE: NJ ZIP: 07724 BUSINESS PHONE: 9083891182 MAIL ADDRESS: STREET 1: MERIDIAN CTR II STREET 2: 4 INDUSTRIAL WAY WEST CITY: EATONTOWN STATE: NJ ZIP: 07724 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-10432 - ------------------------------ ROBERTS PHARMACEUTICAL CORPORATION ---------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-2429994 - --------------------------------- ------------------------ (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) Meridian Center II 4 Industrial Way West Eatontown, New Jersey 07724 - ---------------------------------- ------------------------ (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (908) 389-1182 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------- ------------------------- None Not Applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value per share - -------------------------------------------------------------------------------- (Title of class) Rights - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the common stock, $.01 par value per share (the "Common Stock"), of the Registrant held by non-affiliates of the Registrant, as determined by reference to the last sale price of the Common Stock as reported on the Automated Quotation System of the National Association of Securities Dealers, Inc., National Market System ("NASDAQ National Market System"), as of March 19, 1997, was $271,172,433. As of March 19, 1997, the number of outstanding shares of Common Stock was 27,218,770. Documents incorporated by Part of Form 10-K into which reference into this report document is incorporated -------------------------- ---------------------------- The Prospectus included as Part II part of the Form S-3 Registration Statement which became effective on November 7, 1996. Proxy Statement for the Part III Annual Meeting of Shareholders to be held in May 1997. FORWARD LOOKING STATEMENTS Certain statements included in (i) Item 1(c) Description of Business with respect to the Registrant's development of its proprietary pipeline products and with respect to certain discontinued operations of the Registrant; (ii) Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations; and (iii) certain of the notes to the Registrant's consolidated financial statements included on pages F-7, F-8, F-12, F-14, F-18, F-20, F-22 and F-23 herein, are intended to be, and are hereby identified as, forward looking statements for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The Registrant cautions readers that forward looking statements, including, without limitation, those relating to the Registrant's future business prospects, revenues, cost of sales, intangible dispositions and write-offs, continuing operations and discontinued operations, and liquidity and capital resources, are subject to certain risks and uncertainties, including, without limitation, the ability of the Registrant to secure regulatory approval in the United States and in foreign jurisdictions for the Registrant's developmental pipeline drugs, the efforts of the Registrant's competitors and the introduction of rival pharmaceutical products which may prove to be more effective than the Registrant's products, general market conditions, the availability of capital, and the uncertainty over the future direction of the healthcare industry, that could cause actual results to differ materially from those indicated in the forward looking statements. PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Roberts Pharmaceutical Corporation (the "Company") is an international pharmaceutical company which licenses, acquires, develops and commercializes post-discovery drugs in selected therapeutic categories. The Company was incorporated under the laws of the State of New Jersey in 1982 and commenced operations in 1983. In 1988, its name was changed to Roberts Pharmaceutical Corporation from VRG International, Inc. The Company's executive offices are located at Meridian Center II, 4 Industrial Way West, Eatontown, New Jersey 07724, and its telephone number is (908) 389-1182. As used herein, the term the "Company" refers to Roberts Pharmaceutical Corporation and its subsidiaries unless the context indicates otherwise. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS For the fiscal year ended December 31, 1994, the Company reported, in a note to the Company's consolidated financial statements, selected financial information for the Company's two industry segments: Product Sales and Contract Clinical Research. For the fiscal year ended December 31, 1994, Product Sales and Contract Clinical Research had revenues of $95.1 million and $15.5 million, respectively; operating income of $2.2 million and $42,000, respectively; and identifiable assets of $327.9 million and $8.3 million respectively. In March 1996, the Company announced that, in connection with the ongoing efforts of the Company to achieve a more focused utilization of the Company's resources in its core business of licensing, acquiring, developing and selling prescription pharmaceutical products, it intended to discontinue and divest the business comprising the Contract Clinical Research industry segment. For the fiscal years ended December 31, 1994, 1995 and 1996, the Company has reclassified its consolidated financial statements to report separately the net assets expected to be realized and the operating results of discontinued operations. Accordingly, for the years ended December 31, 1995 and December 31, 1996, the Company has not included separate selected financial information by industry segments in the Company's consolidated financial statements. See "Contract Clinical Research" and "Notes to Consolidated Financial Statements - Note 16." (c) DESCRIPTION OF BUSINESS The Company was founded to take advantage of the large and growing opportunity to license, acquire, develop and commercialize post-discovery drugs in selected therapeutic categories. The Company has organized its drug development, acquisition and marketing activities to focus on late-stage development drugs in Phase II or Phase III clinical trials and currently marketed prescription pharmaceutical products which (i) do not meet the strategic objectives or profit thresholds of larger pharmaceutical companies or (ii) are made available by government agencies and research institutions. The therapeutic categories targeted by the Company are Cardiovascular, Respiratory, Gynecology/Endocrinology, Urology, Oncology, Hematology and Gastroenterology. The Company has a broad product portfolio including PROAMATINE(R), which is the Company's first proprietary drug approved by the U.S. Food and Drug Administration (the "FDA"). The second product to emerge from the Company's pipeline, AGRYLIN(TM), has recently been approved by the FDA, and the Company expects to begin actively promoting -2- and marketing AGRYLIN in the second quarter of 1997. See "Approved Pipeline Products." In addition, the Company has a number of other proprietary late-stage development products in the Company's pipeline. See "Late-Stage Development Products." During 1996, the Company continued the efforts commenced in 1995 which were designed to concentrate the Company's business operations in its core business of licensing, acquiring, developing and selling prescription pharmaceuticals. While sales of nonprescription pharmaceutical products and the operations of certain other nonpharmaceutical businesses, such as providing home and outpatient medical care, marketing and selling medical products, and conducting clinical research for other pharmaceutical companies, played important roles in the initial stages of the Company's growth and development, the Company determined that the continuation of such diverse operations was no longer compatible with its principal objective of licensing, acquiring, developing, marketing and selling prescription pharmaceutical products and moving the Company's late-stage development drugs through the regulatory process. Accordingly, in August 1995, the Company announced its decision to divest and seek purchasers for certain non-core business activities, including certain nonprescription pharmaceuticals, certain prescription pharmaceuticals, and its home care and medical products divisions ("Homecare"). The Company has since completed the sale of the core of its nonprescription pharmaceuticals and has essentially completed the sale of the Homecare operations. See "Nonprescription Pharmaceutical Products," "Prescription Pharmaceutical Products" and "Homecare." Further, in March 1996, the Company announced its decision to discontinue and divest the Company's clinical research business operations. The Company is actively seeking purchasers for its contract clinical research operations. See "Contract Clinical Research." APPROVED PIPELINE PRODUCTS PROAMATINE(R). In 1985, the Company acquired from the predecessor in interest of Nycomed Pharma AG ("Nycomed Pharma") exclusive marketing rights in the United States, Canada, the United Kingdom and Ireland to PROAMATINE (midodrine), formerly AMATINE(R), a drug used for the treatment of orthostatic hypotension and other blood pressure disorders. Orthostatic hypotension is a condition involving the sudden drop in blood pressure upon assuming an upright posture, resulting in dizziness, weakness or unconsciousness. In September 1996, the FDA approved the Company's New Drug Application ("NDA") for PROAMATINE and cleared PROAMATINE for marketing in the United States for the treatment of symptomatic orthostatic hypotension. The Company commenced marketing and sales activities in the U.S. with respect to PROAMATINE in the fourth quarter of 1996. The FDA approved PROAMATINE pursuant to its accelerated approval process for new drugs for serious or life threatening illnesses. There are no other FDA approved treatments available for orthostatic hypotension. Other current therapies used to treat the condition are associated with significant adverse side effects such as potassium reduction, fluid retention and cardiac and central nervous system disorders. The Company is required to conduct post- approval and post-launch (Phase IV) studies of PROAMATINE. PROAMATINE is in Phase II trials for stress urinary incontinence. See "Late Stage Development Products -Therapeutic Category - Urology." -3- PROAMATINE for orthostatic hypotension has been designated by the FDA as an "Orphan Drug" under the Orphan Drug Act of 1983 (the "Orphan Drug Act"), which provides the Company with a seven year period of market exclusivity in the United States from the date of the FDA approval. See "Government Regulation." In 1990, the Company was granted approval by the Irish National Drugs Advisory Board to market PROAMATINE for use in the treatment of orthostatic hypotension in Ireland, where the drug is sold under the name MIDON(R). In 1991, the Company obtained regulatory approval for the sale in Canada of PROAMATINE for use in the treatment of orthostatic hypotension, where the drug is sold under the name AMATINE(R). AMATINE is sold in Canada by the Company's licensee, Knoll Pharma Inc. ("Knoll") (formerly Boots Pharmaceuticals Ltd.). AGRYLIN(TM). In 1991, the Company obtained an exclusive worldwide license from Bristol-Myers Squibb to develop, market and sell AGRYLIN (anagrelide), which has been developed as an oral treatment for thrombocytosis, a blood disorder characterized by high blood platelet counts and an abnormally high incidence of adverse blood clotting events, including heart attack and stroke. There is evidence that some patients with increased platelet counts have thrombosis or hemorrhage which can be treated successfully by lowering the platelet count. AGRYLIN is intended to inhibit excessive platelet production and reduce the morbidity and mortality of heart attack and stroke in thrombocytosis patients. In March 1997, the Company received notification from the FDA that the Company's NDA for AGRYLIN was approved. The Company expects to commence active marketing and sales activities with respect to AGRYLIN in the second quarter of 1997. There is no other FDA approved treatment available for thrombocytosis. Other current therapies used to reduce excessive platelet production have distinct disadvantages, such as suspected leukemogenesis, leukopenia and anemia. Further, AGRYLIN has been designated by the FDA as being eligible for Orphan Drug status. The Company has filed a New Drug Submission ("NDS") with the Health Protection Branch, Canada ("HPB") for the sale of AGRYLIN in the Canadian market, and the Company was recently notified that its NDS has been given priority review status by the HPB. AGRYLIN is currently in pre-registration in Europe. AGRYLIN has been accepted by the European Community regulatory authorities as a "List B" product, which includes those products considered to be major therapeutic advances. The Company plans to file a Product License Application with the European Medicines Evaluation Agency ("EMEA") according to the EMEA harmonization procedures for the approval of new drugs within the European Community. If approved by the EMEA, AGRYLIN would receive simultaneous approval throughout the European Community for sale in member countries. The Company also intends to pursue filing in other geographic locations such as Japan and Australia/Asia for the sale of AGRYLIN. PRESCRIPTION PHARMACEUTICAL PRODUCTS In addition to developing its proprietary pipeline products, the Company's principal objective is to concentrate its operations primarily on licensing, acquiring, developing, marketing and selling prescription pharmaceutical products. To enhance the Company's presence in its targeted therapeutic categories, the Company has acquired marketed prescription pharmaceutical products from various pharmaceutical companies. These product -4- lines generate cash flow, which contributes partial financial support to the Company's drug development activities, and provides enhanced product sales opportunities for the Company's sales force. Further, the sale of prescription pharmaceutical products has enabled the Company to establish marketing channels in its targeted therapeutic categories which the Company expects to use to market PROAMATINE and AGRYLIN as well as its other late-stage development products if such products are approved for sale. Over the last five years, the Company has acquired the United States and/or foreign product rights for many prescription pharmaceutical products from various pharmaceutical manufacturers such as Procter & Gamble Pharmaceuticals, Inc. ("Procter & Gamble"), Bristol-Myers Squibb Company ("Bristol-Myers Squibb"), Glaxo Canada, Inc. ("Glaxo Canada"), Du Pont Merck Pharmaceutical Company ("Du Pont Merck"), Merck and Co., Inc. ("Merck"), G.D. Searle & Co. ("G.D. Searle"), SmithKline Beecham plc ("SmithKline Beecham") and Wyeth Laboratories, U.K. Certain of these products are: NOROXIN(R), an antibiotic used for the treatment of urinary tract infections, TIGAN(R), a drug used to control nausea and vomiting, EMINASE(R), a thrombolytic agent used in the treatment of acute myocardial infarction to dissolve blood clots obstructing coronary arteries, NORETHIN(TM), an oral contraceptive agent, ETHMOZINE(R), NORPACE(R), TRANDATE(R), SALUTENSIN(R), SALURON(R) and NITRODISC(TM), cardiovascular products, FLORINEF(R), for adrenocortical insufficiency, MAXOLON(R), a gastro- intestinal agent used for treatment of nausea and vomiting associated with cancer chemotherapy, MINTEC(R), a gastro-intestinal drug used for symptomatic relief of irritable bowel and spastic colon syndromes in adults, ESTRACE(R), a line of estrogen replacement therapy products used for symptomatic relief of menopausal symptoms and for the prevention of osteoporosis, and MEPTID(R) and LODINE(R), analgesic agents. As part of the Company's divestiture activities, the Company completed the sale of its NUCOFED(R) and QUIBRON(R) lines of prescription respiratory products to Monarch Pharmaceuticals, a division of King Pharmaceuticals, in October 1996. NONPRESCRIPTION PHARMACEUTICAL PRODUCTS In order to facilitate the growth of the Company's business, the Company had always focused a part of its operations on the acquisition, marketing and sale of nonprescription pharmaceutical products. Some of the nonprescription pharmaceutical products acquired from various pharmaceutical companies and which are marketed by the Company are CHERACOL D(R) and CHERACOL PLUS(R), cough/cold products; ENTROTABS(R), ENTEROSAN(R), COLACE(R), PERI-COLACE(R), SQUIBB(R) mineral oil, SQUIBB(R) Glycerin Suppositories and SQUIBB(R) Cod Liver Oil, used in the treatment of gastrointestinal disorders. In August 1995, the Company identified the sale of nonprescription pharmaceuticals as a non-core business activity and made the decision to divest most of the products it had acquired. The Company divested a substantial portion of its nonprescription products during the fourth quarter of 1996. The Company has retained and will continue to sell, and under the right circumstances may acquire, only certain well known, high volume nonprescription pharmaceutical products, such as COLACE and PERI-COLACE, that do not require significant promotional outlays to establish and maintain consumer brand recognition and the demand for which is not susceptible to uncontrollable seasonal factors. -5- LATE-STAGE DEVELOPMENT PRODUCTS The Company has a portfolio of several late-stage development products, including PROAMATINE which, in addition to the treatment of orthostatic hypotension for which it has received FDA approval, is being developed for the treatment of stress urinary incontinence. Rights to these late-stage development products were acquired by the Company after substantial value had been added to the products through research activities conducted by others. The Company's objective is to continue the development of these late-stage products and bring them to market as has been accomplished with PROAMATINE and AGRYLIN. There can be no assurance that regulatory approval of the late-stage developmental products will be obtained in the United States or abroad. Sales of products acquired from other pharmaceutical companies, and sales of the Company's prescription and nonprescription pharmaceutical products, have enabled the Company to develop a marketing and sales infrastructure to facilitate sales of these late-stage products, if approved. In the latter part of 1996, the Company and Eli Lilly and Company ("Lilly") entered into a series of License Agreements pursuant to which the Company acquired from Lilly certain rights to four developmental compounds designated LY246736, LY353433, LY213829 (also known as "Tazofelone") and LY315535 (collectively, the "Compounds"), which could potentially address some of the unmet medical needs with respect to certain gastrointestinal disorders such as inflammatory bowel disease and irritable bowel syndrome. Each of the License Agreements grants the Company an exclusive license to develop, manufacture, market and sell the Compounds anywhere in the world, except with respect to LY315535, for which the Company is licensed only in the United States and its territories, Canada and Mexico. For a description of certain other terms of the Lilly License Agreements, see "License Agreements." Tazofelone is being developed for the treatment of Inflammatory Bowel Diseases ("IBD"), including ulcerative colitis and Crohn's disease. A Phase II efficacy trial has been completed for Tazofelone, and Tazofelone could offer consumers an alternative to existing treatments for IBD which include corticosteroids, 5ASA and azsulfidine. The other three Compounds are being developed to treat Functional Bowel Disorders ("FBD"), including irritable bowel syndrome and non-ulcerative dyspepsia. These Compounds could provide an alternative to current FBD therapies which include dietary changes, over-the-counter laxatives, antidiarrheals, prescription antispasmodics, gastroprokinetics, proton pump inhibitors, 5HT\\3\\ compounds and antacids. In March, 1997, the Company and Pfizer Inc. (Pfizer) entered into a License Agreement pursuant to which the Company acquired from Pfizer certain worldwide rights to a compound in development called Sampatrilat. Sampatrilat, currently in phase II clinical trials, is intended to treat essential hypertension and congestive heart failure. The License Agreement grants the Company exclusive worldwide rights to develop, manufacture, market and sell Sampatrilat anywhere in the world. Sampatrilat incorporates, in a single substance, two different but complimentary modes of activity. It is a potent inhibitor of angiotensin converting enzyme ("ACE") and also inhibits neutral endopeptidase which, in turn, results in an elevation of atrial natriuretic factor ("ANF"), the body's own natural diuretic. This dual mode of activity may offer patients and managed care providers the potential advantages of a treatment regime involving fewer drugs, reduced risks, and lower costs in comparison to currently existing therapies. -6- Today, treatment of uncomplicated essential hypertension follows a step therapy paradigm with the initial treatment often being an ACE inhibitor. However, normalization of blood pressure may require the addition of a second drug, generally a diuretic, in combination with the ACE inhibitor. This type of step therapy, involving two and sometimes three drugs, may produce side effects comprising the additive adverse reactions of the different products employed. Diuretics commonly employed with ACE inhibitors can produce side effects that include potassium depletion, gout, elevated blood lipids, and abnormalities in sugar metabolism. Because ANF is a natural diuretic that does not possess these properties, the use of Sampatrilat in hypertension or congestive heart failure patients may confer, through the administration of a single drug, all the advantages of a pure ACE inhibitor with the addition of greater natruresis thus obviating the separate diuretics. THERAPEUTIC CATEGORY - RESPIRATORY MAXIVENT(R). In 1984, the Company obtained an exclusive license from ABC Laboratories of Italy ("ABC") to develop and market MAXIVENT (doxofylline) in the United States, Canada and Japan and, in 1989, obtained a nonexclusive license to develop and market the drug in the United Kingdom and Ireland. MAXIVENT is an oral bronchodilator intended for use in the treatment of asthma. Common asthma is a condition involving the periodic constriction of the airways resulting in labored and often painful breathing. Treatment is generally provided by means of bronchodilator drugs which relieve the constriction of the airways and, in turn, the distress of an attack. The most commonly used oral bronchodilator is theophylline, a drug with good efficacy but which is capable of producing certain undesirable side effects such as disturbances in heart rhythm, central nervous system irritability, convulsions, gastro-intestinal distress and excess urination. Phase II clinical studies and Phase III clinical trials indicate that MAXIVENT appears to be comparable in efficacy to theophylline; however, unlike theophylline, MAXIVENT does not appear to produce a high incidence of adverse side effects. The Company has completed Phase III trials and anticipates filing an NDA for MAXIVENT in 1997. MAXIVENT has been approved for commercial sale in Italy and is currently being sold in that country under the tradename "ANSIMAR" by the Company's unaffiliated licensor, ABC. THERAPEUTIC CATEGORY - GYNECOLOGY/ENDOCRINOLOGY SOMAGARD(R). In 1988, the Company acquired rights from the Salk Institute to manufacture and market SOMAGARD (deslorelin) in the United States and in certain foreign countries, including the United Kingdom and Canada. SOMAGARD is being developed for the treatment of central precocious puberty in children, an endocrine disorder that results in premature release of hormones, and endometriosis in women. Published reports of long-term studies conducted by the National Institutes of Health have indicated that the administration of SOMAGARD inhibits the release of hormones which cause the abnormal maturation process and causes a return to normal growth rates. The Company has completed Phase III trials for SOMAGARD for use in the treatment of central precocious puberty and is studying various alternatives for the commercialization of this product and may elect to complete its development through a licensing arrangement with a third party. -7- The Company currently markets the product SUPPRELIN(R) (histrelin), an Orphan Drug, for central precocious puberty. See "Government Regulation." The Company believes that SOMAGARD will complement SUPPRELIN. A depot formulation of SOMAGARD is being developed which will require less frequent injections. SOMAGARD, if approved by the FDA, would be marketed to endocrinologists and managed healthcare organizations. SOMAGARD also is being developed as a treatment for endometriosis. A number of Phase II clinical trials for this indication have been conducted. Endometriosis is a gynecologic abnormality which may result in pain, infertility and sexual and bowel dysfunction. Published reports of studies conducted by the National Institutes of Health indicate that SOMAGARD relieves pain and restores normal sexual and bowel function in women with this condition. THERAPEUTIC CATEGORY - HEMATOLOGY STANATE(TM). In 1994, the Company acquired the exclusive worldwide rights from The Rockefeller University to develop, manufacture, market and sell STANATE(TM) (SN-mesoporpyrin), which is being developed for the treatment of hyperbilirubinemia in neonates, a condition caused by an accumulation of excessive levels of bilirubin produced by the liver. Unless treated, hyperbilirubinemia can result in jaundice, brain damage and death. Bilirubin is excreted by the liver pursuant to a metabolic step requiring the presence of an enzyme which, studies have shown, is not fully functional in many early term and full term neonates. STANATE is intended to inhibit the accumulation of excessive levels of bilirubin in neonates and to provide neonate enzyme systems with an opportunity to mature and take over the normal elimination of bilirubin. The most common treatment for hyperbilirubinemia in neonates involves phototherapy which requires exposure to a light source in order to stimulate the temporary excretion of bilirubin by the kidneys. Phototherapy is often not fully effective and requires many hours and sometimes several days of exposure to light with resulting maternal separation, extensive nursing supervision and related time-sensitive costs. In contrast, STANATE is administered by injection and clinical studies have shown that one dose is generally all that is necessary for treatment purposes. STANATE is currently in Phase II/III clinical trials. THERAPEUTIC CATEGORY - UROLOGY PROAMATINE. In addition to its use in the treatment of blood pressure disorders, PROAMATINE is currently sold in several countries by unaffiliated third parties to treat stress urinary incontinence, the involuntary loss of urine from the bladder. There is no approved therapy for stress urinary incontinence in the United States. PROAMATINE is an alpha agonist which increases the tension of the urinary sphincter, thereby preventing the involuntary loss of urine from the bladder. The Company is conducting a Phase II clinical program in the United States for the use of PROAMATINE in the treatment of stress urinary incontinence. -8- THERAPEUTIC CATEGORY - ONCOLOGY RADINYL. In 1985, the Company obtained from the United States government rights to manufacture and sell the product RADINYL (etanidazole), a radiosensitizer being developed to enhance the anticancer effects of radiation therapy and a chemosensitizer being developed to increase the effectiveness of other anticancer drugs. For use in conjunction with radiotherapy, RADINYL is currently in Phase III clinical trials in patients with advanced head and neck cancer. The patients enrolled in these trials in the United States and Europe were randomized to receive either RADINYL in conjunction with radiotherapy or radiotherapy alone. The results of these studies are currently under analysis. Phase I and Phase II clinical studies are being conducted with RADINYL to determine its potential in increasing the effectiveness of other anticancer drugs in the treatment of brain, lung, prostate and bladder cancer and its potential for use with brachytherapy, a technique involving the direct implant of a radioactive source into or adjacent to large tumors. DIRAME(R). In 1992, the Company obtained exclusive worldwide rights from Bayer AG ("Bayer") to develop and market DIRAME (propiram), a potent, centrally acting analgesic with low addiction potential intended for use in the control of moderate to severe acute or chronic pain. See "Government Regulation." DIRAME is in Phase III clinical trials which indicate that the compound appears to be safe and effective in patients with various kinds of acute and chronic pain. A joint venture from which Bayer obtained the rights to DIRAME had initially filed an NDA for DIRAME. Subsequent to such filing, the FDA required additional studies regarding the drug. The Company is now addressing the issues raised by the FDA and, in 1993, commenced long-term carcinogenicity studies on two species of laboratory animals and other clinical studies. The in-life phase of these studies has been completed and the results are currently under analysis. In order to complete its NDA filing, the Company believes it must complete an additional Phase III clinical trial. The Company plans to commence such clinical trial during 1997. SOMAGARD. In addition to the treatment of central precocious puberty and endometriosis, SOMAGARD has been studied as adjunctive treatment for prostate cancer. Other treatments for prostate cancer such as surgery and/or radiotherapy are often precluded because the cancer has spread to the bones. As a result, castration, hormonal therapy or chemotherapy are often the only available treatments. SOMAGARD is being evaluated by the Company as an alternative to these procedures. The Company has filed a Product License Application (NDA equivalent) for SOMAGARD for treatment of prostate cancer in the United Kingdom and has obtained approval from the Irish regulatory authorities to market the product for this indication. Use of SOMAGARD for the treatment of prostate cancer in the United States is in Phase III clinical trials. The Company intends to contract-out the development of several of its late stage development products, utilizing contract clinical research organizations. -9- LICENSE AGREEMENTS The Company has obtained rights to the late-stage drugs currently being developed by it through license agreements with pharmaceutical companies, government agencies and research-based institutions and has sublicensed certain of these rights to pharmaceutical companies through license and/or marketing agreements. A discussion of these agreements is provided below. PROAMATINE Agreements. In 1985, the Company entered into a license ---------------------- agreement with the predecessor in interest of Nycomed Pharma pursuant to which the Company obtained exclusive rights to develop and market the product PROAMATINE in the United States, Canada, the United Kingdom, Ireland and certain other countries. The agreement was amended in January 1994 to, among other things, provide for a reduction in the delivery price of the product to the Company in any territory covered by the agreement for a five year period commencing upon the Company's launch of the product in any such territory and the addition of minimum sales requirements which must be achieved by the Company in the territories covered by the agreement in order to maintain exclusivity. The Company's agreement with Nycomed Pharma, as amended, obligates it to develop PROAMATINE and obtain governmental approval to market the product in the licensed territories. The Company is obliged to pay a royalty to Nycomed Pharma on sales of PROAMATINE by the Company and its distributors and must purchase its requirements of PROAMATINE from Nycomed Pharma. In 1991, the Company entered into a marketing agreement with Knoll which granted Knoll the exclusive right to market and sell PROAMATINE in Canada (under the name AMATINE) for use in the treatment of orthostatic hypotension. AGRYLIN License Agreement. In 1991, the Company entered into a license -------------------------- agreement with Bristol-Myers Squibb pursuant to which the Company obtained exclusive worldwide rights to develop and market AGRYLIN. The Company is obliged to fund the continued development and registration of AGRYLIN, make an additional payment upon FDA approval and pay royalties on sales of the drug. In 1994, the Company entered into a distribution agreement with Swedish Orphan AB ("Swedish Orphan") for the distribution and sale of AGRYLIN in the Nordic countries of Norway, Sweden, Finland, Denmark and Iceland. AGRYLIN is not yet approved in the Nordic countries and, as part of the distribution agreement, Swedish Orphan is responsible for obtaining regulatory approval. If regulatory approval is obtained, the Company will supply finished goods to Swedish Orphan which will provide physical distribution along with marketing and sales support. MAXIVENT Agreements. In 1984, the Company obtained an exclusive license -------------------- from ABC to develop and market MAXIVENT in the United States, Canada and Japan and, in 1989, obtained a nonexclusive license to develop and market the drug in the United Kingdom and Ireland. The exclusive license agreement requires the Company to develop the product and obtain the requisite FDA and other approvals. Each of the exclusive and nonexclusive license agreements requires the Company to purchase its requirements of the bulk drug substance from ABC. If the Company does not meet certain sales levels to be agreed upon, ABC may terminate the exclusive license agreement, appoint additional licensees in the United States, Canada and Japan or market the product directly or through third parties in the United Kingdom and Ireland. -10- In 1993, the Company entered into an agreement with two Japanese pharmaceutical companies, Sawai Pharmaceutical Co., Ltd. and Grelan Pharmaceutical Co., Ltd., pursuant to which the Company granted such companies exclusive rights to co-develop doxofylline in Japan. The agreement was entered into after the two Japanese pharmaceutical companies exercised an option to acquire such rights previously granted to them by the Company. SOMAGARD License Agreement. In 1988, the Company and the Salk Institute --------------------------- entered into a license agreement pursuant to which the Company obtained certain rights to develop and market the product SOMAGARD in the United States and certain foreign markets, including the United Kingdom and Canada. Under the terms of the license agreement, the Company is required to pay royalties on sales of SOMAGARD in countries in which the Salk Institute has obtained patents. DIRAME License Agreement. In 1992, the Company entered into a license ------------------------- agreement with Bayer with respect to the product DIRAME. Pursuant to this agreement, the Company acquired exclusive worldwide rights from Bayer to develop, manufacture and market the product DIRAME. The Company paid an up- front royalty to Bayer for rights to develop and market DIRAME. The Company must also pay Bayer licensing fees and royalties on sales. RADINYL Agreements. In 1985, the United States government and the Company ------------------- entered into a license agreement pursuant to which the Company obtained certain rights to develop and market the product RADINYL. The license granted to the Company is exclusive for seven years from the date of the first commercial sale of the product and nonexclusive thereafter. The agreement pursuant to which the license has been granted requires the Company to pay certain patent maintenance fees and royalties to the United States government. In 1985, the Company and the predecessor in interest of Nycomed Pharma formed a joint venture company known as Linz-Roberts, Inc. ("Linz-Roberts") to develop RADINYL. The Company and Nycomed Pharma each owns 50% of the common stock of Linz-Roberts. The Company contributed its license to RADINYL to Linz- Roberts and the Company has been granted an exclusive license by the joint venture to manufacture and distribute RADINYL dosage forms in the United States, Canada, the United Kingdom and Ireland. Nycomed Pharma has been licensed on an exclusive basis to manufacture and distribute RADINYL dosage forms in Europe (except the United Kingdom and Ireland), the Middle East and Africa. Both parties have the right to grant sublicenses. Nycomed Pharma has been designated the supplier of bulk RADINYL substance, and the joint venture has contracted to purchase its entire requirements of bulk RADINYL substance from Nycomed Pharma, provided that Nycomed Pharma can meet certain price requirements and supply all required quantities. Linz-Roberts has retained the right to distribute RADINYL in the territories not licensed to the Company or Nycomed Pharma. STANATE License Agreement. In 1994, the Company and The Rockefeller -------------------------- University entered into a license agreement pursuant to which the Company acquired the exclusive worldwide rights to develop, manufacture, market and sell STANATE. The Company paid an up-front license fee to Rockefeller University for the rights to develop, manufacture, market and sell STANATE. The Company must also pay Rockefeller University annual licensing fees and royalties on sales. -11- License Agreements for Tazofelone and other Lilly Compounds. During the ------------------------------------------------------------ fourth quarter of 1996, the Company entered into four License Agreements with Lilly pursuant to which the Company acquired the exclusive rights to develop, manufacture, market and sell Tazofelone and the Compounds LY246736 and LY353433 anywhere in the world and the Compound LY315535 in the United Stated and its territories, Canada and Mexico. The term of each of the License Agreements shall be the later of either (i) the life of the last to expire of the patents covering a Compound or (ii) fifteen years. Under the terms of each of the License Agreements, the Company paid Lilly a signing fee and is obligated to make certain milestone payments to Lilly as well as pay Lilly certain royalties based on the sales of any products resulting from the Compounds licensed to the Company pursuant to these License Agreements. Sampatrilat License Agreement. In March, 1997, the Company entered into a ----------------------------- License Agreement with Pfizer pursuant to which the Company acquired the exclusive rights to develop, manufacture, market and sell Sampatrilat anywhere in the world. The term of the License Agreement shall be the earlier of the expiration of the last to expire of the patents covering Sampatrilat or fifteen years from the date of first commercial sale of a product containing Sampatrilat. Under the terms of the License Agreement, the Company paid Pfizer a signing fee and is obligated to make certain milestone payments as well as pay Pfizer certain royalties based on the sale of products containing Sampatrilat. Pfizer has retained the right under certain circumstances should the Company's sales of Sampatrilat dosage forms equal or exceed a certain percentage of the worldwide sales of pharmaceuticals sold for the treatment of hypertension in humans, to convert the Company's license to a nonexclusive license upon the making of certain payments to the Company. MARKETING The Company markets and sells its products primarily through its own sales force and through a network of brokers and distributors. In 1995, the Company's marketing and sales force increased by more than 50% in order to promote actively the Company's products, mainly in connection with the commencement of the sale of TIGAN, EMINASE and NOROXIN. During 1996, the Company's sales force continued to concentrate on selling TIGAN, EMINASE and NOROXIN, for the most part, and establishing the groundwork for selling PROAMATINE and AGRYLIN. The Company has positioned its sales operation to impact selected physician specialties and major buying and decision making entities, such as managed care organizations and large retail and mass merchandise operations. With the growing trend in the United States of providing health care through some form of managed care program, the Company has stepped-up its selling efforts of prescription products to such managed healthcare organizations. In an effort to increase its sales to managed healthcare organizations, the Company has employed national account managers to focus efforts on this growing market. Various marketing, promotion, sales and training programs have been initiated to improve the Company's penetration of the managed healthcare market and increase product sales to managed healthcare organizations. MANUFACTURING From its inception, the Company's initial strategy was to outsource its manufacturing and packaging functions in order to enable the Company to grow without requiring large capital outlays to produce and package its products. In that regard, the Company has engaged contractors, primarily large pharmaceutical companies, to convert active ingredients -12- into finished drug products. In most instances where the Company has acquired the rights to approved products from other pharmaceutical companies, the seller or licensor has agreed to manufacture the Company's requirements of the products for a specified period of time. The manufacturing activities conducted by third parties for the Company have consisted of the receipt and storage of materials, purification, production, packaging and labeling. The Company has established a manufacturing department which is responsible for (i) monitoring the manufacturing operations of its contractors, (ii) inventory control, and (iii) quality control. The Company's manufacturing department has established a quality control and quality assurance program, including a set of standard operating procedures, designed to assure that the Company's products are manufactured in accordance with Good Manufacturing Practices standards ("GMP") and other applicable domestic and foreign regulations. The Company has determined that it will take control of a major portion of its manufacturing activities and seek to achieve certain cost efficiencies. In October 1996, the Company agreed with Monsanto Canada, Inc. to acquire a 100,000 square foot pharmaceutical manufacturing facility currently operated by Monsanto's Searle Division ("Searle") located in Oakville, Ontario. The facility which is currently operated by Searle is approved by both the FDA and HPB. In addition to manufacturing and processing capabilities, the facility includes laboratory, warehouse and administrative space. The Company expects that by transferring certain product manufacturing from third parties to its own facility, the Company should realize certain benefits, including, without limitation, lower production costs and more flexibility in determining appropriate inventory levels for the Company's products. In addition, the Company plans to utilize the available office space in Oakville by relocating the operations of its subsidiary, Roberts Pharmaceutical Canada, Inc., to the Oakville facility. The Company's ability to transfer the production of certain of its products to the Oakville facility will be, in certain cases, dependent on the duration of its current agreements with suppliers, and the ability to obtain regulatory approvals to transfer the manufacture of these products to Oakville. Upon finalizing the purchase of the facility, which the Company expects to consummate by the middle part of 1997, Searle has agreed in principle to lease back some space in the facility for a period of time as well as to have the Company fulfill certain of Searle's product packaging requirements currently being satisfied at the Oakville facility. In addition, the Company will explore the possibility of using the facility to engage in contract manufacturing for other pharmaceutical companies until the facility is fully utilized by the Company. HOMECARE In August 1995, the Company announced its decision to discontinue and divest certain non-core, nonpharmaceutical business activities, including the operations of Homecare, which were no longer compatible with the Company's objective of growing and developing a pharmaceutical company with a primary focus on the sale of prescription drugs. Through Homecare, the Company distributed high value prescription injectable and biotechnology pharmaceutical products for physician office use and provided medical and other health oriented therapies in home and outpatient settings. While Homecare's businesses had a role in the initial stages of the Company's growth and development, those businesses never represented a significant portion of the Company's consolidated revenue or earnings. The Company has completely divested the Homecare operations located in New Jersey, North Carolina and South Carolina. The entity which purchased the New Jersey operations has also executed an agreement with the Company to purchase Homecare's New York -13- operations. The consummation of such agreement is pending as the parties seek state regulatory approval for the transaction. See "Notes to Consolidated Financial Statements - Note 16." PATENTS AND PROPRIETARY RIGHTS The Company considers the protection of discoveries in connection with its development activities important to its business. To date, the Company has acquired certain patents in connection with the acquisition of certain products and has filed applications for patents covering new processes for manufacturing anagrelide, the active ingredient in AGRYLIN. Additionally, rights to patented technology have been licensed to the Company. The late-stage products being developed by the Company which are afforded patent protection are: AGRYLIN - patents issued 1980 and 1982 and applications filed in 1996; RADINYL - patent issued 1983; STANATE -patents issued 1987, 1988, 1992 and 1993. Also, regarding the Compounds acquired from Lilly, certain patents have been issued in the United States and several other countries with respect to Tazofelone and the Compound designated LY246736. In addition, there are other domestic or foreign patent applications pending for all of the Compounds. Certain of the Company's products may be afforded protection under laws which provide market exclusivity for Orphan Drugs and drugs which include a new active ingredient. See "Government Regulation." CONTRACT CLINICAL RESEARCH Since its inception, the Company, through its subsidiary VRG International, Inc. ("VRG"), has derived a portion of its revenues from contract clinical research. Under these arrangements, the Company is paid a fee to conduct clinical research for pharmaceutical companies that wish to test the safety and efficacy of their products. The Company has primarily conducted studies of investigational new drugs for major multinational pharmaceutical company clients and to a lesser degree performed safety and efficacy tests on a variety of over-the-counter products. The Company has also provided clinical investigation services to pharmaceutical companies to assist them in reducing the time required to introduce new drugs to the market. The Company's integrated clinical research operations have been conducted through twelve research-dedicated outpatient clinics located throughout the U.S.; an in-house patient recruiting system; a custom designed multi-purpose computerized study tracking system; on-site study coordinators; qualified contract investigators; sophisticated data management and multi-level quality control. Consistent with the Company's decision in 1995 to discontinue and divest certain of its non-core, nonpharmaceutical businesses, the Company announced, in March 1996, its intentions to discontinue and divest the business operations of VRG. Contract clinical research generally has proven to have lower profit margins than the sale of prescription pharmaceuticals, and the Company believes that, in the future, contract clinical research has lower growth prospects for it than the sale of prescription pharmaceuticals. Beginning with the 1994 fiscal year, revenue from contract clinical research operations began to decline, and in 1995, VRG's operations produced a loss, net of tax benefit, of $3.5 million. Among other reasons, the Company attributes such decline to the completion of the work under agreements with Yamanouchi U.S.A. Inc., a subsidiary of a major shareholder of the Company, and the fact that such work was not replaced by other significant contracts. The Company is actively seeking a purchaser for VRG's operations. See "Item 7 Management's -14- Discussion and Analysis of Financial Condition and Results of Operations" and "Notes to Consolidated Financial Statements - Note 16." COMPETITION Many companies, including large pharmaceutical, chemical and biotechnology firms with financial and marketing resources and research and development staffs and facilities substantially greater than those of the Company, are engaged in researching, developing, marketing and selling products intended to treat the same conditions and diseases as the products currently sold and under development by the Company. Further, other products now in use or under development by others may be intended to treat the same conditions as the Company's products. The pharmaceutical industry is characterized by rapid technological advances, and competitors may develop products more rapidly than the Company. In addition, competitors may be able to complete the regulatory approval process sooner than the Company, and therefore market their products earlier than the Company can market certain of its products. GOVERNMENT REGULATION The marketing of pharmaceutical products requires the approval of the FDA and comparable agencies in foreign countries. The FDA has established guidelines and safety standards which apply to the preclinical evaluation, clinical testing, manufacture and marketing of pharmaceutical products. The process of obtaining FDA approval for a new drug can take many years and involves the expenditure of substantial resources. The steps required before such a product can be produced and marketed for human use include preclinical studies, the filing of an IND, human clinical trials and the approval of an NDA. Drug marketing exclusivity protection is granted through the Orphan Drug Act of 1983 (the "Orphan Drug Act") and the Drug Price Competition and Patent Term Restoration Act of 1984 (commonly referred to as the "Waxman Hatch Act"). The Orphan Drug Act entitles a company to market exclusivity in the United States for a period of seven years from the date of FDA approval for drugs which, among other criteria, are intended to treat a patient population of less than 200,000. PROAMATINE for idiopathic orthostatic hypotension has been granted Orphan Drug status and the FDA has designated each of SOMAGARD for central precocious puberty and AGRYLIN for thrombocythemia, as being eligible for Orphan Drug status in the United States. Certain provisions of the Waxman- Hatch Act grant market exclusivity in the United States for a period of five years from the date of FDA approval for drugs containing a new active ingredient. Based upon its review of industry and government data, the Company believes that DIRAME may qualify for this protection. The manufacturing processes of the Company's contractors and licensors are subject to regulation, including the need to comply with Good Manufacturing Practices. These same regulations will apply to the Company with respect to the Oakville, Ontario manufacturing facility which it has agreed to purchase from Searle. See "Manufacturing." The Company's business is also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Drug Enforcement Act, the Resource Conservation and Recovery Act, the Pharmaceutical Marketing Act of 1988 and other current and potential future federal, state or local regulations. -15- The Company markets various products containing controlled substances that are subject to the Department of Justice, Drug Enforcement Administration regulations. Distribution of prescription drugs classified as controlled substances or, in some cases, other pharmaceutical products, is subject to licensing or regulation in certain states. Generally, the entity engaged in the actual distribution is subject to such regulation. In addition, state licensing is generally required in the state in which such entity's principal place of business is located. United States Federal and state governments continue to seek means to reduce costs of Medicare and Medicaid programs, including placement of restrictions on reimbursement for, or access to, certain drug products. Major changes were made in the Medicaid program under the Omnibus Budget Reconciliation Act of 1990 (the "Act"). As a result, the Company entered into a Medicaid Rebate Agreement ("Rebate Agreement") with the United States Government, under Section 4401 of the Act. Pursuant to the Rebate Agreement, in order for federal reimbursement to be available for prescription drugs under state Medicaid plans, the Company must pay certain statutorily prescribed rebates on Medicaid purchases. Effective July 1, 1991, the law also denies federal Medicaid reimbursement for drug products of the original NDA-holder if a less expensive generic version of such drug is available from another manufacturer, unless the prescriber indicates on the prescription that the branded product is medically necessary. In most other markets, governments exert controls over pharmaceutical prices either directly or by controlling admission to, or levels for, reimbursement by government health programs. The nature of such controls and their effect on the pharmaceutical industry vary greatly from country to country. EMPLOYEES As of March 19, 1997, the Company had 423 employees, including 5 officers, 66 persons engaged in research and development activities and 218 persons engaged in marketing and sales activities. In addition to its full-time staff, the Company engages medical doctors and other professional personnel on a consultancy basis and, from time to time, consultants and others on a per diem or hourly basis. The Company believes its relations with its employees are satisfactory. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS Financial Information about Foreign and Domestic Operations is presented in Note 14 to the Company's financial statements. See "Notes to Consolidated Financial Statements - Note 14." ITEM 2. PROPERTIES The Company's worldwide headquarters are located at Meridian Center II, 4 Industrial Way West, Eatontown, New Jersey. The building housing the Company's worldwide headquarters, which was purchased by the Company in 1992 and occupied in 1993, consists of an aggregate of 80,000 square feet. The Company owns an office and warehouse building consisting of 30,300 square feet, which is located across the street from the Company's worldwide headquarters. The Company uses this building for the warehousing of Company records, archives, certain offices and facilities. -16- The Company has agreed to purchase from Searle a 100,000 square foot manufacturing facility located in Oakville, Ontario which is currently operated by Searle. The Company anticipates that the purchase of this facility will be completed by the middle part of 1997. See "Item 1 Business -Manufacturing." The Company's United Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., occupies 3,800 square feet of leased office space in the Surrey Research Park in Guildford, Surrey, England, approximately 30 miles south of London. The monthly rental for these offices is approximately 6,500 British pounds. The Company's Canadian subsidiary, Roberts Pharmaceutical Canada, Inc., occupies 4,122 square feet of leased office space in Ontario, Canada. The lease provides for a monthly rental of $4,122, Canadian currency. If the Company completes the purchase of the Oakville manufacturing facility, the Company intends to consolidate its Canadian operations by closing this office and relocating all personnel to the office space available in the manufacturing facility. The Company also leases office space in several other locations in the United States and certain foreign countries. ITEM 3. LEGAL PROCEEDINGS On April 10, 1995, a shareholders' class action suit was instituted in the United States District Court for the District of New Jersey against the Company and certain of its officers and a former officer by Grace Cowitt ("Cowitt") on behalf of all persons who purchased shares of the Company's Common stock between November 7, 1994 and March 22, 1995. The complaint asserts claims against the Company and certain of its officers and a former officer for violations of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder with respect to press releases and filings with the Securities and Exchange Commission and certain public statements allegedly made by the Company and certain of its officers and a former officer relating to the Company's business. The plaintiff seeks to recover damages in an unspecified amount. On June 26, 1995, a similar shareholders' class action suit was instituted in the United States District Court for the District of New Jersey against the Company and certain of its officers and a former officer by Dieter Zander ("Zander") on behalf of all persons who purchased shares of the Company's Common Stock between November 7, 1994 and May 31, 1995. This suit was voluntarily dismissed by Zander in October 1995. In August 1995, a consolidated complaint was filed in which the plaintiff, Cowitt, extended the proposed class period from March 22, 1995 through May 31, 1995. The Company believes that it has complied with all of its obligations under the federal securities laws and considers the plaintiff's allegations to be without merit. The Company is vigorously defending against the allegations in this remaining suit and discovery proceedings have commenced. The Company is not able to predict the outcome of this proceeding at this time, and management is not able to determine the amount of the potential liability, if any. There are no additional material legal, governmental, administrative or other proceedings pending against the Company, any of its subsidiaries or any of their properties, or to which the Company or any such subsidiary is a party, and to the knowledge of management, no such material proceedings are threatened or contemplated. -17- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held a Special Meeting of Shareholders on November 6, 1996, at which time the shareholders of the Company approved (i) a proposal to issue to the holders of the Company's 5% Convertible Preferred Stock, $.10 par value per share (the "5% Preferred Stock"), which had been issued to such holders in a private placement completed in August 1996, the full number of shares of the Company's Common Stock to which such holders are entitled upon conversion of the 5% Preferred Stock, and (ii) a proposal to amend the Company's Amended and Restated Certificate of Incorporation to increase the authorized shares of the Company's Common Stock from 50,000,000 shares to 100,000,000 shares. Each proposal was approved by approximately 95% of the votes cast at the meeting. With respect to the 5% Preferred Stock proposal, 12,686,283 votes were cast for and 805,849 votes were cast against the proposal, and there were 182,774 abstentions and 5,385,968 broker non-votes. With respect to the proposal to increase the number of authorized shares of Common Stock, 18,057,336 votes were cast for and 863,532 votes were cast against the proposal, and there were 140,006 abstentions and no broker non-votes. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company as of March 19, 1997 are listed below, and brief summaries of their business experience and certain other information with respect to each of them is set forth in the following table and in the information which follows the table. The executive officers of the Company are as follows:
NAME AGE POSITION - --------------------------------------------------------------- ROBERT A. VUKOVICH, Ph.D. 53 President and Chief Executive Officer ROBERT W. LOY 59 Executive Vice President JOHN T. SPITZNAGEL 55 Executive Vice President PETER M. ROGALIN 54 Vice President, Treasurer and Chief Financial Officer ANTHONY A. RASCIO, ESQ. 54 Vice President, Secretary and General Counsel
______________________ Robert A. Vukovich, Ph.D., has served as Chairman of the Board and President of the Company since its inception in 1983. From 1979 to 1983, he served as Director of the Division of Developmental Therapeutics for Revlon Health Care Group. From 1970 to 1974, Dr. Vukovich was employed in various capacities by the Squibb Institute and served as Director of Clinical Pharmacology for that organization from 1974 to 1979. Prior to 1970, Dr. Vukovich was a clinical research scientist for The Warner Lambert Research Institute. Dr. Vukovich is a graduate of Jefferson Medical College, Philadelphia, Pennsylvania, with training in pharmacology and pathology. -18- Robert W. Loy has served as Executive Vice President - Operations and New Business Development since March 4, 1996. Mr. Loy served as Chief Operating Officer of the Company from August 1992 to March 1996 and as Vice President of the Company from December 1992 to March 1996. Mr. Loy has served as a Director of the Company since October 1993. From 1963 to 1990, he held various positions at Squibb Corporation, including that of Vice President, Worldwide Operations for the Squibb Derm Division. From 1990 to 1992, Mr. Loy served as Vice President, International Sales and Marketing, with Hollister, Inc. Mr. Loy received his undergraduate degree from Old Dominion University and attended Villanova University Graduate School. John T. Spitznagel has served as Executive Vice President - Worldwide Sales and Marketing since March 1996. In July 1996, the Company's Board of Directors appointed him as an officer of the Company and also as a director to fill a vacancy which existed on the Board. Mr. Spitznagel served as President of Reed and Carnrick Pharmaceuticals from September 1990 through July 1995. In 1989 and 1990, Mr. Spitznagel served as Chief Executive Officer of BioCryst Pharmaceuticals, Inc. From 1979 through 1989, Mr. Spitznagel held various positions with Wyeth-Ayerst Laboratories, advancing from Marketing Director to Senior Vice President of Marketing and Sales. Mr. Spitznagel was employed by Roche Laboratories from 1971 through 1979 and by Warner-Chilcott Laboratories from 1966 through 1971 in various sales, marketing and management positions. Mr. Spitznagel received his undergraduate degree from Rider University and an M.B.A. from Fairleigh Dickinson University. Peter M. Rogalin has served as Vice President, Treasurer, Chief Financial Officer and a Director of the Company since February 5, 1996. From 1978 to 1992, Mr. Rogalin was employed in various executive capacities by Sterling Winthrop, Inc. (formerly Sterling Drug, Inc.), including Assistant Treasurer from 1987 through 1992. From 1993 through July 1994, Mr. Rogalin was a Principal in RK Associates, a consulting firm with specific expertise in financial and business operations and systems for small and medium sized companies. From July 1994 through January 1996, Mr. Rogalin served as Vice President - Finance and Chief Financial Officer of ImClone Systems, Inc., a biopharmaceutical company engaged in research and development of therapeutic products for the treatment of cancer and cancer related disorders. Mr. Rogalin, a Certified Public Accountant, received his undergraduate degree from St. Lawrence University and an M.B.A. from the Graduate School of Business, New York University. Anthony A. Rascio, Esq., has served as Vice President and General Counsel and a Director of the Company since June 1987. In addition, he served as Assistant Secretary of the Company from 1987 to 1992, at which time he assumed the position of Secretary of the Company. From January 1987 to June 1987, Mr. Rascio was Director, Legal Affairs for the Company. During 1986, Mr. Rascio was engaged in the private practice of law. From 1984 through 1985, Mr. Rascio was employed as Director, International Operations by Jeffrey Martin, Inc., a marketer of cosmetics and proprietary medicines. Mr. Rascio served as Legal Director, International Pharmaceutical Products Division for Schering-Plough Corporation from 1980 through 1984 and held various legal positions with that company from 1971 to 1980. Mr. Rascio received undergraduate and law degrees from Fordham University. -19- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS COMMON STOCK The Company's Common Stock is traded in the over-the-counter market on the NASDAQ National Market System and was held by approximately 900 shareholders of record as of March 19, 1997. The following table sets forth, for the periods indicated, the high and low last sale prices for the Company's Common Stock, as reported on the NASDAQ National Market System.
High Low ------- -------- YEAR ENDED DECEMBER 31, 1995 First Quarter $46 1/2 $24 3/4 Second Quarter $28 $15 1/2 Third Quarter $26 1/2 $17 Fourth Quarter $23 3/4 $15 3/4 YEAR ENDED DECEMBER 31, 1996 First Quarter $24 $18 5/8 Second Quarter $21 7/8 $17 7/8 Third Quarter $20 3/4 $15 5/16 Fourth Quarter $18 1/8 $11
The Company has not paid any cash dividends on its Common Stock in the past, and it is unlikely that the Company will pay any dividends on its Common Stock in the foreseeable future. Pursuant to the terms of the several Stock Purchase Agreements, each dated as of July 17, 1996, the Company issued and sold in a private placement to certain investment funds 600,000 shares of the Company's Common Stock at an issue price of $16.65 per share resulting in gross proceeds to the Company of $9,990,000 (the "Common Stock Private Placement"). The identities of such investors in the Common Stock Private Placement are incorporated herein by reference to the section entitled "Selling Shareholders," which is included in the Prospectus for the resale of shares of Common Stock which is part of the Form S-3 Registration Statement which became effective on November 7, 1996 (the "Registration Statement"). Cappello & Laffer Capital Corp. was the Placement Agent (the "Placement Agent") for the Common Stock Private Placement. In consideration for placing such securities, the Placement Agent received aggregate cash consideration in an amount which is equal to 5% of the gross proceeds received by the Company and was reimbursed for certain expenses. Further, the Company issued to certain designees of the Placement Agent, Common Stock Warrants to acquire an aggregate of 15,000 shares of Common Stock for a purchase price of $16.65 per share, which warrants expire in July 1999. -20- The shares of Common Stock sold in the Common Stock Private Placement were not registered at the time such private placement was consummated. The Company relied on the exemption from registration provided by Rule 506 under Regulation D of the Securities Act of 1933, as amended ( the "Securities Act"). However, all such shares of Common Stock have been subsequently registered pursuant to the Registration Statement. 5% PREFERRED STOCK Pursuant to the terms of the several Preferred Stock Investment Agreements, each dated as of August 29, 1996, the Company issued and sold in a private placement to approximately eighty accredited investors for $25 per share an aggregate of 4,200,000 shares of 5% Preferred Stock resulting in gross proceeds of $105 million (the "Preferred Stock Private Placement"). The identities of the purchasers of the 5% Preferred Stock in the Preferred Stock Private Placement are incorporated herein by reference to the section entitled "Selling Shareholders" included in the Registration Statement. The Placement Agent placed the shares of 5% Preferred Stock sold in the Preferred Stock Private Placement. The Placement Agent received aggregate cash consideration of 5% of the gross proceeds received by the Company and was reimbursed for certain expenses. Further, the Company issued to certain assignees of the Placement Agent Convertible Preferred Stock Warrants to acquire 420,000 shares of 5% Preferred Stock for a purchase price of $25.00 per share, which warrants expire in August, 1998. The shares of 5% Preferred Stock were not registered and were sold pursuant to the exemption from registration provided by Rule 506 under Regulation D of the Securities Act. However, a certain number of shares of Common Stock into which the shares of 5% Preferred Stock could be converted have been registered pursuant to the Registration Statement. The Company is not aware of any established public trading market for the shares of 5% Preferred Stock and none is expected to develop. Dividends at the rate of $1.25 per share per annum are payable quarterly on the 5% Preferred Stock. Such dividends may be paid in cash or, at the option of the Company and subject to certain conditions, in shares of 5% Preferred Stock. For the year 1996, the Company paid and accrued dividends on the 5% Preferred Stock in an aggregate amount equal to $1,285,716. The 5% Preferred Stock is also subject to a liquidation preference of $25.00 per share (plus accrued and unpaid dividends thereon) (the "Liquidation Preference"). The 5% Preferred Stock is convertible into a number of shares of Common Stock which depends, in part, upon the conversion price in effect at the time of conversion. The conversion price is equal to 90% of the lowest trade price of the Common Stock as reported by the NASDAQ National Market System during a specified period of trading days (the "Conversion Price") and, accordingly, the number of shares of Common Stock will vary inversely with the market price of the Common Stock. In any event, the Conversion Price shall not be greater than $19.1359 (the "Conversion Cap"). The number of shares of Common Stock which a holder of shares of 5% Preferred Stock may acquire upon the conversion of such shares shall be determined by dividing the Liquidation Preference by the Conversion Price on the date the notice of conversion is given by the holder. At any time on or after August 29, 1997, the Company at its option may cause all outstanding shares of 5% Preferred Stock to be converted into Common Stock at the Conversion Price as of the date specified in the Company's notice; provided, that the -21- Company may not exercise such right of conversion unless (i) the closing price of the Common Stock as reported by the NASDAQ National Market System for the 20 consecutive trading days prior to the date the conversion notice is mailed has not on any day been less than 120% of the Conversion Cap, and (ii) the shares of Common Stock issuable upon conversion are registered for resale by an effective registration statement under the Securities Act and a current prospectus is available for delivery. On August 20, 1998, any outstanding shares of 5% Preferred Stock shall be automatically converted into shares of Common Stock at the Conversion Price on such date. As of March 19, 1997, there were 1,004,622 shares of 5% Preferred Stock outstanding and 27 holders of such 5% Preferred Stock. 3,195,378 shares of 5% Preferred Stock have been converted into 7,962,619 shares of Common Stock. ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data for the Company for each of the five fiscal years in the period ended December 31, 1996 are derived from financial statements that have been audited and reported upon by Coopers & Lybrand L.L.P., independent accountants for the Company. This data should be read in conjunction with "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Company's consolidated financial statements and related notes appearing elsewhere in this report. -22-
OPERATING STATEMENT DATA: Years Ended December 31, - ----------------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 ------- ------- ------- ------- ------- (in thousands, except per share data) Total Revenue $18,407 $57,561 $89,020 $113,427 $ 98,111 Operating (Loss) Income from Continuing Operations (9,986) 7,850 25,802 6,873 (50,195) (1) (Loss) Income from Continuing Operations before Extraordinary Item (8,473) 6,415 20,618 2,703 (34,275) Net (Loss) Income from Continuing Operations (8,473) 6,415 20,618 2,703 (34,275) Net Income (Loss) from Discontinued Operations (327) 813 (1,206) (27,045) 556 Net (Loss) Income (8,800) 7,228 19,412 (24,342) (33,719) (Loss) Earnings Per Share of Common Stock from Continuing Operations before Extraordinary Item (.61) .41 1.10 .15 (2.47) (2) Earnings (Loss) Per Share of Common Stock from Discontinued Operations (.03) .05 (.06) (1.45) .03 (Loss) Earnings Per Share of Common Stock (.64) .46 1.04 (1.30) (2.44) Average Number of Common Shares Outstanding 13,770 15,590 18,708 18,623 19,133
(1) Intangible Dispositions and Write-Offs. During the fourth quarter of 1996, --------------------------------------- the Company completed the sale of the majority of its non-core nonprescription products along with the NUCOFED and QUIBRON brands in two independent sales transactions. These sales, net of proceeds, resulted in a one time, non-cash write off of $11.9 million, which amounted to $7.6 million net of taxes. Also, during the fourth quarter of 1996, in accordance with FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company recorded an impairment loss of long-lived intangible assets in the amount of $25.4 million, which amounted to $17.8 million net of taxes. -23- Operating income and net loss were negatively affected by the sale and write down of the intangible assets in the amounts of $37.3 million for operating income and $25.4 million for net loss. In the event that these transactions had not occurred, operating income would have amounted to a loss of $12.9 million and net loss would have been $8.3 million. (2) Pursuant to a new position taken by the SEC staff (the "Staff"), effective March 13, 1997, on accounting for preferred stock which is convertible at a discount to market, the Company recorded a charge for Earnings Per Share purposes of $.61 per share. This charge to Earnings Per Share is consistent with the Staff's position that the 10% discount available to holders of 5% Preferred Stock should be amortized between the issuance date and the first date that conversion could occur. To clarify the adjustments indicated above, a reconciliation of Earnings Per Share for the twelve months ended December 31, 1996 is composed of the following elements: Net (loss) from continuing operations before the consideration of write-off and the sale of intangible assets, the recognition of the discount upon the issuance of 5% Preferred Stock or preferred dividends $ (.47) Write-off and sale of intangible assets (1.33) 5% Preferred Stock dividends (.06) Issuance of 5% Preferred Stock at a 10% discount to market (.61) (.67) ------ ----- Net (loss) from continuing operations (2.47) Income from discontinued operations .03 ------ (Loss) attributable to Common Stock $(2.44) ======
BALANCE SHEET DATA: As of December 31 ------------------------------------------------------------------------------------------------------ 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (in thousands) Total Assets $185,424 $343,103 $336,192 $340,290 $372,225 Long-Term Debt and Redeemable Preferred Stock 28,999 45,668 22,411 16,183 10,639 Shareholders' Equity 121,594 238,999 259,129 235,467 309,759
-24- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1996 Corporate Revenues. For the year ended December 31, 1996, total revenue ------------------- decreased $15.3 million from $113.4 to $98.1 million. This decrease was the result of a decrease in product sales. Product Sales. For the year ended December 31, 1996, product sales -------------- decreased $15.3 million from $113.4 to $98.1 million. This decrease is the result of the divestiture of certain products during the year, a decline in the sale of certain products due in part to a shift in promotional activity and a change in the timing of special discounts and special offers to the trade, increased generic competition and certain back order situations, offset by fourth quarter sales of PROAMATINE. For the year ended December 31, 1996, sales of the Company's United Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., decreased slightly from $12.1 million to $12.0 million. Sales of the Company's Canadian subsidiary, Roberts Pharmaceutical Canada, Inc., increased $0.6 million from $11.1 million to $11.7 million. This increase is primarily the result of an increase in the demand for products acquired during 1995 along with the launch of Advantage 24, a contraceptive product. Cost of Sales. For the year ended December 31, 1996, cost of sales -------------- amounted to 51% of product sales as compared to 47% in 1995. This increase in cost of sales percentage and corresponding decrease in gross profit percentage is primarily the result of an increase in inventory obsolescence resulting from the decrease in demand for certain products for which inventory production schedules had been previously agreed with third party suppliers. Cost of sales continues to be impacted by sales of NOROXIN, a lower gross profit margin product in the Company's product mix. Research and Development. Research and development expenses decreased from ------------------------- $6.1 million in 1995 to $4.0 million in 1996, a decrease of 34.4%. This decrease results from decreased expenditures in the development of the Company's two recently approved products, AGRYLIN and PROAMATINE. The Company anticipates increased research and development expenses in 1997 relating primarily to the continued development of MAXIVENT, DIRAME, STANATE and the Lilly Compound, LY315535. Marketing and Administrative Expenses. Marketing and administrative -------------------------------------- expenses increased $9.6 million from $47.6 million in 1995 to $57.2 million in 1996. Marketing expenses increased $8.6 million primarily as a result of increased promotional activities for some of the Company's new products including PROAMATINE which was launched during the fourth quarter of 1996 and increased compensation for the sales forces in the United States, United Kingdom, and Canada. Administrative expenses increased $1.0 million during 1996 as compared to 1995 in large part due to expenses related to the shareholders' lawsuit and increased insurance costs. Interest Income and Expense. For the year ended December 31, 1996, ---------------------------- interest income increased $.9 million to $2.9 million as the result of an increased cash balance due to the private placements that were completed during 1996. Interest expense decreased from -25- $3.5 million in 1995 to $1.8 million in 1996 as a result of a decrease in long- term debt related to product acquisitions. Income Taxes. For the year ended December 31, 1996, income taxes from ------------- continuing operations decreased $17.4 million from a provision of $2.8 million to a benefit of $14.6 million, primarily as a result of a decline in net income including the write off and disposition of certain intangible assets. The Company's effective tax benefit of 30% was lower than the normal statutory rate primarily as a result of the Company's inability to recognize the benefit of the Canadian net operating loss carryforwards. The Company has recorded deferred tax assets of approximately $20.3 million. Realization is dependent upon generating sufficient taxable income to utilize such items. Although realization is not assured, management believes it is more likely than not that the deferred tax assets for which a valuation allowance has not been provided will be realized. The amount of the deferred tax assets considered realizable, however, could be reduced at any time if estimates of future taxable income are reduced. Intangible Dispositions and Write-Offs. During the fourth quarter of 1996, --------------------------------------- the Company completed the sale of the majority of its nonprescription products along with the NUCOFED and QUIBRON brands in two independent transactions. These sales, net of proceeds, resulted in a one time, non-cash write off of $11.9 million, which amounted to $7.6 million net of taxes. Also, during the fourth quarter of 1996, in accordance with FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company recorded an impairment loss of long-lived intangible assets in the amount of $25.4 million, which amounted to $17.8 million net of taxes. If the estimate of undiscounted cash flows to be generated by the remaining intangible assets decreases in the future, an additional write-down of those assets may be required. New Accounting Pronouncements. In February 1997, the Financial Accounting ------------------------------ Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS 128 specifies new standards designed to improve the earnings per share ("EPS") information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements, and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify the EPS computations include: (a) eliminating the presentation of primary EPS and replacing it with basic EPS, with the principal difference being that common stock equivalents are not considered in computing basic EPS, (b) eliminating the modified treasury stock method and the three percent materiality provision, and (c) revising the contingent share provisions and the supplemental EPS data requirements. SFAS 128 also makes a number of changes to existing disclosure requirements. SFAS 128 is effective for financial statements issued for periods ending after December 31, 1997, including interim periods. The Company has not yet determined the impact of the implementation of SFAS 128. See "Notes to Consolidated Financial Statements - Note 16" for a discussion of discontinued operations. -26- RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1994 AND 1995 Corporate Revenues. For the year ended December 31, 1995, total revenue ------------------- increased $24.4 million from $89 million to $113.4 million. This increase was the result of a $26 million increase in product revenue offset by a $1.50 million decrease in other revenues. See "Product Sales" and "Other Revenues." Product Sales. For the year ended December 31, 1995, product sales -------------- increased $26 million from $87.4 million to $113.4 million primarily as a result of new product acquisitions in the U.S. and the United Kingdom in 1994 and 1995. Sales in the U.S. increased from $66.2 million to $90.2 million as a result of 1995 product acquisitions and licensing activities. TIGAN and EMINASE, acquired from SmithKline Beecham, and NOROXIN licensed from Merck in 1995, added $48 million. This increase was offset by a $24 million decline in the sales of all other prescription and nonprescription products. Sales of the Company's United Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., increased $2.4 million from $9.7 million to $12.1 million. This increase is primarily the result of the 1994 product acquisition of MAXOLON from SmithKline Beecham. Sales of the Company's Canadian subsidiary, Roberts Pharmaceutical Canada, Inc., decreased slightly to $11.1 million from $11.4 million primarily as a result of a decline in demand for the Company's nonprescription pharmaceutical products. Other Revenues. Other revenues resulted from licensing activities --------------- undertaken by the Company and represented revenues from separate transactions in 1994 and 1995. For the year ended December 31, 1995, other revenues decreased $1.55 million from $1.6 million to $.05 million primarily as a result of a decline in licensing activities. Cost of Sales. For the year ended December 31, 1995, cost of sales -------------- amounted to 47% of product sales, a 25 percentage point increase as compared to the prior year. As a result, gross profit as a percentage of sales decreased from 78% to 53%. This increase in cost of sales as a percentage of product sales and the related decrease in gross profit percentage was primarily the result of the addition of NOROXIN to the Company's product mix as well as a decline in sales of higher margin products in the U.S. NOROXIN, which accounted for 31% of the Company's product sales in 1995, has a significantly lower gross profit margin than the other core pharmaceutical products sold by the Company. In the foreseeable future, the Company expects that NOROXIN will continue to provide a substantial part of the Company's product sales and, accordingly, the Company expects that cost of sales and gross profit as a percentage of sales will be similarly impacted. Research and Development. Research and development expenses decreased by ------------------------- $3.4 million to $6.1 million during the year ended December 31, 1995 as compared to the prior year. The decrease was due to a reduced level of expenditure required to support the Company's development programs for AGRYLIN and PROAMANTINE. Marketing and Administrative Expenses. For the year ended December 31, -------------------------------------- 1995, marketing and administrative expenses increased $13.3 million from $34.3 million to $47.6 million in large part as a function of the significant increases in sales and development programs in connection with the acquisition and commencement of sales of TIGAN, EMINASE and NOROXIN during 1995. Marketing expenses increased $7.4 million as a result of increased promotional and sales activities for new products and the expansion and training of the Company's sales forces in the U.S., Canada and the United Kingdom. -27- Included in administrative expenses is amortization of intangibles relating to product acquisitions. For the year ended December 31, 1995, this expense was $6.6 million, an increase of $.9 million from $5.7 million recorded in 1994. Interest Income and Expense. For the year ended December 31, 1995, ---------------------------- interest income decreased from $2.9 million to $2.1 million as a result of a decrease in invested marketable securities. Interest expense decreased from $3.9 million to $3.5 million primarily as a result of a decrease in long-term debt from 1994. Income Taxes. For the year ended December 31, 1995, income taxes on ------------- continuing operations decreased to $2.8 million from $4.1 million in 1994 primarily as a result of a decline in income. The Company's 1995 effective tax rate of 51% was higher than the normal statutory rate primarily as a result of the Company's inability to recognize the tax benefit of Canadian net operating loss carryforwards. Income from Continuing Operations. For the year ended December 31,1995, ---------------------------------- net income from continuing operations was $2.7 million, which represents a decrease of $17.9 million of income from those same business operations during 1994. The Company believes that the decline in net income from continuing operations from 1994 to 1995 was attributable to a number of factors, including (i) a decline in demand for certain of the Company's existing pharmaceutical products, particularly NORETHIN, NITRODISC, SALUTENSIN and the Company's over- the-counter nonprescription pharmaceutical products; (ii) an unanticipated delay in the closing of the Company's agreement with Merck to distribute NOROXIN and the diversion of the Company's sales force from the promotion of existing products to allow for sales training related to NOROXIN; (iii) revenues from the sale of TIGAN and EMINASE during the first quarter of 1995 prior to their acquisition by the Company, during which time the Company was distributing such products subject to distribution agreements with SmithKline Beecham, were not accounted for as revenues by the Company, but instead as a $5.4 million reduction in the purchase price paid by the Company for these products; (iv) the increase in cost of sales as a result of the higher costs related to the sale of NOROXIN and the growing importance of NOROXIN in the Company's product mix; and (v) the costs associated with increasing the Company's sales force by more than 50% in 1995 in order to promote TIGAN, EMINASE and NOROXIN and the fact that the sale of such products did not commence until the end of the first quarter of 1995. Discontinued Operations. In connection with the Company's decision to ------------------------ divest certain non-core, nonpharmaceutical business operations, the Company announced, in August 1995, its plan to discontinue and divest Homecare. In March 1996, the Company announced its plan to discontinue and divest VRG, a contract research organization. The Company's reported loss on discontinued operations represents the Company's best estimates of the amounts expected to be realized on the sale of its discontinued operations. The amounts the Company will realize could differ materially from those amounts assumed by the Company in estimating the loss on disposal reported in the Company's financial statements. For the year ended December 31, 1995, the Company reserved $9.7 million for anticipated losses relating to the discontinuation of its Homecare business. The sale of Homecare was essentially completed in 1996 resulting in a net charge to the reserve of approximately $1 million. For the fiscal year ended December 31, 1995, the Comapny reserved $12.8 million for anticipated losses relating to the discontinuation of VRG. In 1996, the Company revised its estimate of anticipated losses relating to VRG and reduced its reserve for such losses by $3.1 million. See "Notes to Consolidated Financial Statements--Note 16." -28- LIQUIDITY AND CAPITAL RESOURCES For the year ended December 31, 1996, operating cash inflows amounted to $0.2 million as a result of the Company's net loss offset by non-cash charges, including intangible asset dispositions and write-offs totalling $25.4 million. As of December 31, 1996, the Company had cash, cash equivalents and marketable securities of $94.9 million. These balances are primarily attributable to the Common Stock Private Placement completed in July 1996 which resulted in net proceeds of approximately $9.9 million and the Preferred Stock Private Placement completed in August 1996 which provided approximately $98.8 million in net proceeds. Cash inflows from operations amounted to $22.8 million in 1995 and cash outflows from operations amounted to $0.7 million in 1994. The Company's funding requirements will depend on a number of factors, including the Company's development programs, product acquisitions, the level of resources required for the expansion of marketing capabilities, especially relating to the Company's two recently approved products, PROAMATINE and AGRYLIN, increased investment in accounts receivable and inventory which may arise from increased sales levels, competitive and technological developments, the timing and cost of obtaining required regulatory approvals for new products, relationships with parties to collaborative agreements, the success of acquisition activities, the revenues generated from sales of PROAMATINE and AGRYLIN, and funding required to finalize the purchase of a fully equipped pharmaceutical manufacturing facility from Searle, which is expected to occur in mid 1997. Existing cash and securities balances and cash generated from operations are expected to be sufficient to fund operating activities for the foreseeable future, as well as support near and long term debt obligations, capital expenditures for the manufacturing facility, and development of the existing pipeline compounds. Cash equivalents and marketable securities currently consist of immediately available money market fund balances and investment grade securities. Capital Expenditures. Capital Expenditures in 1994 relate primarily to the --------------------- relocation of the Company's operating facilities in 1993. The Company has agreed to purchase a fully equipped pharmaceutical manufacturing facility from Searle for $6.3 million (Canadian) which is expected to be finalized in mid 1997. The Company anticipates additional capital expenditures in 1997 for the purchase of certain manufacturing and computer equipment associated with manufacturing, distribution and marketing activities. Foreign Currency Fluctuations. The Company has subsidiary operations ------------------------------ outside the United States. As a result, the Company is subject to fluctuations in subsidiary revenues and costs reported in United States dollars as a consequence of currency exchange rate fluctuations. For the year ended December 31, 1996, the Company had a foreign exchange net gain of $0.4 million as a result of translating Monmouth Pharmaceuticals Ltd.'s net assets. Concentration of Credit Risk. Financial instruments that potentially ----------------------------- expose the Company to concentrations of credit risk consist primarily of short term cash investments and trade accounts receivables. The Company places its temporary excess cash investments in short term money market instruments. At times, such investments may be in excess of the FDIC insurance limit. The Company markets its products primarily to wholesale drug distributors, retail pharmacies and physicians in the United Stated and abroad. The Company performs certain credit evaluation procedures and does not require collateral. Reserves are maintained for estimated credit losses. -29- Inflation. Although at reduced levels in recent years, inflation continues ---------- to apply upward pressure on the cost of goods and services used by the Company. However, the Company believes that the net effect of inflation on its operations has been minimal during the past three years. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary data of the Company called for by this item are submitted as a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. -30- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information relating to directors of the Company required to be furnished pursuant to this item is incorporated herein by reference to the sections entitled "Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act" from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in May 1997. Certain information relating to executive officers of the Company is set forth in Item 4A of Part I of this Form 10-K under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information pertaining to executive compensation is incorporated herein by reference to the section entitled "Election of Directors - Executive Compensation" from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in May 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information pertaining to security ownership of certain beneficial owners and management is incorporated herein by reference to the sections entitled "Principal Shareholders" and "Security Ownership of Management" from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in May 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Any information relating to this item is incorporated herein by reference from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in May 1997. -31- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. Reference is made to the Index of Financial Statements and Financial Statement Schedules hereinafter contained................................ F-1 3. EXHIBITS Reference is made to the Index of Exhibits hereinafter contained................................ E-1 (b) REPORTS ON FORM 8-K During the fourth quarter ended December 31, 1996, the following reports on Form 8-K were filed by the Company with the Securities and Exchange Commission: Form 8-K (Item 5. Other Events), date of earliest event reported October 3, 1996 with respect to the sale by the Company of the NUCOFED and QUIBRON lines of respiratory drugs to Monarch Pharmaceuticals, a division of King Pharmaceuticals of Bristol, Tennessee. Form 8-K (Item 5. Other Events), date of earliest event reported October 7, 1996 with respect to the appointment of Dr. Zola P. Horovitz to the Board of Directors to fill the vacancy created by the death of Dr. W. Robert Fowler. Form 8-K (Item 5. Other Events), date of earliest event reported October 15, 1996 with respect to the agreement by and between the Company and Searle pursuant to which the Company intends to acquire the pharmaceutical manufacturing facility located in Oakville, Ontario which is currently operated by Searle. Form 8-K (Item 5. Other Events), date of earliest event reported November 6, 1996 with respect to the Company's acquisition from Lilly of the exclusive worldwide rights to Tazofelone and two other developmental compounds designated as LY246736 and LY353433. Form 8-K (Item 5. Other Events), date of earliest event reported November 8, 1996 with respect to the Special Meeting of Shareholders held on November 6, 1996 at which the Company's shareholders approved (i) a proposal for the issuance to the holders of the Company's 5% Preferred Stock, the full number of shares of the Company's Common Stock to which such holders are entitled upon conversion of the 5% Preferred Stock, and (ii) an amendment to the Company's Amended and Restated Certificate of Incorporation to increase the authorized shares of the Company's Common Stock from 50,000,000 shares to 100,000,000 shares. Form 8-K (Item 5. Other Events), date of earliest event reported December 5, 1996 with respect to the Company's acquisition from Lilly of the exclusive rights in the United States and its territories, Canada and Mexico for a fourth developmental compound designated as LY315535. -32- Form 8-K (Item 5. Other Events), date of earliest event reported December 16, 1996 with respect to the declaration by the Board of Directors of a dividend distribution of one Right for each outstanding share of the Company's Common Stock to shareholders of record at the close of business on February 6, 1997, pursuant to which each right will entitle the registered holder to purchase from the Company for $80.00, one one- hundredth of a share of Class B - Series A Junior Participating Preferred Stock, par value $.10 per share. -33- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROBERTS PHARMACEUTICAL CORPORATION ---------------------------------- (Registrant) Date: March 31, 1997 By:/s/ Robert A. Vukovich ---------------------------------------- ROBERT A. VUKOVICH, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date - -------------------------------------------------- ------------------------- --------------- /s/ Robert A. Vukovich President & Director March 31, 1997 - -------------------------------------------------- (Principal Executive ROBERT A. VUKOVICH Officer) /s/ Peter M. Rogalin Vice President, Treasurer March 31, 1997 - -------------------------------------------------- & Director (Principal PETER M. ROGALIN Financial and Accounting Officer) /s/ Robert W. Loy Director March 31, 1997 - -------------------------------------------------- ROBERT W. LOY /s/ Anthony A. Rascio Director March 31, 1997 - -------------------------------------------------- ANTHONY A. RASCIO /s/ John T. Spitznagel Director March 31, 1997 - -------------------------------------------------- JOHN T. SPITZNAGEL /s/ Takao Miyamoto Director March 31, 1997 - -------------------------------------------------- TAKAO MIYAMOTO /s/ Akihiko Matsubara Director March 31, 1997 - -------------------------------------------------- AKIHIKO MATSUBARA /s/ Digby W. Barrios Director March 31, 1997 - -------------------------------------------------- DIGBY W. BARRIOS /s/ Zola P. Horovitz Director March 31, 1997 - -------------------------------------------------- ZOLA P. HOROVITZ
-34- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ROBERTS PHARMACEUTICAL CORPORATION Page ---- Report of Independent Accountants F-2 Consolidated Balance Sheets as of December 31, 1996, 1995 and 1994 F-3 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 F-5 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 F-6 Notes to Consolidated Financial Statements F-7 Schedules:* F-26 Schedule II, Valuation and Qualifying Accounts __________ * Schedule I under Article 12 of Regulation S-X has been omitted because of the absence of the conditions under which certain information is required and because certain information required is presented in the financial statements and the notes thereto. F-1 COOPERS Coopers & Lybrand L.L.P. &LYBRAND a professional services firm Report of Independent Accountants --------------------------------- To the Board of Directors and Shareholders of Roberts Pharmaceutical Corporation: We have audited the accompanying consolidated balance sheets of Roberts Pharmaceutical Corporation and Subsidiaries as of December 31, 1996, 1995 and 1994, and the related consolidated statements of operations, cash flows, changes in shareholders' equity for each of the three years in the period ended December 31, 1996 and the financial statement schedules on pages F-26 to F-28 on this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Roberts Pharmaceutical Corporation and Subsidiaries as of December 31, 1996, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Princeton, New Jersey February 14, 1997 F-2 Coopers & Lybrand L.L.P., a registered limited liability partnership, is a member firm of Coopers & Lybrand (International) ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
DECEMBER 31, DECEMBER 31, DECEMBER 31, ASSETS 1994 1995 1996 - ------ ----------- ---------- ---------- Current assets: Cash and cash equivalents $ 9,819 $ 16,357 $ 87,125 Marketable securities 26,663 13,649 7,793 Accounts and Notes Receivable: Trade, net 28,882 26,318 30,791 Shareholder 7,256 600 - - - Other - - - - - - 2,889 Inventory 19,797 20,785 16,665 Deferred tax assets - - - 10,419 9,040 Net assets held for sale - - - 4,300 500 Other current assets 3,784 1,342 2,124 ---------- ----------- ----------- Total current assets 96,201 93,770 156,927 Fixed assets, net 16,800 15,681 14,945 Intangible assets 222,534 230,681 183,579 Notes receivable - - - - - - 5,304 Deferred non-current tax asset - - - - - - 11,216 Other assets 657 158 254 ---------- ----------- ----------- Total assets $ 336,192 $ 340,290 $ 372,225 =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Current installments of long-term debt $ 34,277 $ 34,809 $ 6,376 Accounts payable 6,735 14,737 15,848 Other current liabilities 12,922 32,236 29,258 --------- ---------- ---------- Total current liabilities 53,934 81,782 51,482 Long-term debt, excluding current installments 22,411 16,183 10,639 Deferred taxes payable - - - 6,311 - - - Other liabilities 718 547 345 Committments and contingent liabilities - - - - - - - - - Shareholders' equity: Class B preferred stock, $.10 par value, 10,000,000 shares authorized, 2,721,030 outstanding - - - - - - 272 Common stock, $.01 par value, 100,000,000 shares authorized, 18,420,200, 18,536,590 and 22,961,707 outstanding 188 189 233 Additional paid-in capital 255,994 256,296 365,150 Cumulative translation adjustments (674) (297) (301) Retained earnings (deficit) 3,858 (20,484) (55,358) Treasury Stock, 387,594 shares of common stock, at cost (237) (237) (237) ----------- ------------ ------------ Total shareholders' equity 259,129 235,467 309,759 ----------- ------------ ------------ Total liabilities and shareholders' equity $ 336,192 $ 340,290 $ 372,225 =========== ============ ============
The accompanying notes are an integral part of these financial statements. F-3 ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
YEARS ENDED DECEMBER 31, ------------------------------------------------ 1994 1995 1996 --------------- ------------- -------------- Sales and revenue: Sales $ 87,437 $ 113,380 $ 98,075 Other revenue 1,583 47 36 --------------- ------------- -------------- Total sales and revenue 89,020 113,427 98,111 Operating costs and expenses: Cost of sales 19,418 52,870 49,753 Research & development 9,546 6,108 4,008 Marketing & administration 34,254 47,576 57,239 Intangible write-offs and dispositions - - - - - - 37,306(2) --------------- ------------- -------------- Total operating costs & expenses 63,218 106,554 148,306 --------------- ------------- -------------- Operating income (loss) 25,802 6,873 (50,195) --------------- ------------- -------------- Other income (expense): Interest income 2,891 2,050 2,907 Interest expense (3,960) (3,453) (1,750) Other income (expense), net - - - 49 188 --------------- ------------- -------------- Total other income (expense) (1,069) (1,354) 1,345 --------------- ------------- -------------- Income (loss) from continuing operations before income taxes 24,733 5,519 (48,850) Benefit (Provision) for income taxes (4,115) (2,816) 14,575 --------------- ------------- -------------- Income from continuing operations 20,618 2,703 (34,275) --------------- ------------- -------------- Discontinued operations: (Loss) from operations of discontinued divisions, net of tax benefits of $238, $2,474 and $0, respectively (1,206) (4,547) - - - Estimated (loss) income on disposal of divisions, net of tax benefits (provision) of $0, $2,555 and ($1,581), respectively - - - (22,498) 556 --------------- ------------- -------------- (Loss) income from discontinued operations (1,206) (27,045) 556 --------------- ------------- -------------- Net (loss) income $ 19,412 $ (24,342) $ (33,719) =============== ============= ============== Per share of common stock, primary and fully diluted: Net (loss) income from continuing operations $ 1.10 $ .15 $ (2.47)(1)(2) Net income (loss) from discontinued operations (.06) (1.45) .03 --------------- ------------- -------------- Net (loss) income $ 1.04 $ (1.30) $ (2.44)(1)(2) =============== ============= ============== Weighted average number of common shares outstanding, primary and fully diluted: 18,708,000 18,622,744 19,132,863
- ------------------------ (1) Includes a $.61 per share charge pursuant to a new position taken by the SEC staff, effective March 13, 1997, on accounting for preferred stock which is convertible at a discount to market. See Note 1. (2) Includes a $1.33 per share charge for the sale and write-off of certain intangible assets. See Note 5. The accompanying notes are an integral part of these financial statements. F-4 ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------- 1994 1995 1996 - ------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ 19,412 $ (24,342) $ (33,719) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and amortization 6,174 7,164 7,531 Provision for losses on receivables 622 130 - - - Provision for product sales returns 4,253 7,669 6,041 Provision for inventory obsolescence - - - - - - 4,611 Write down of intangible assets - - - - - - 17,764 Loss on sale of intangible assets - - - - - - 7,621 Loss on abandonment of leasehold improvements - - - - - - 71 Loss on (income from) discontinued operations - - - 22,498 (556) Foreign currency (losses) gains 115 (31) 387 Change in accounts receivable, unbilled revenue and advance billings (9,823) 1,187 (2,544) Change in other assets 309 1,144 (483) Change in inventory (6,651) (1,819) (627) Change in accounts payable and other liabilities (3,158) 12,460 (3,337) Impact of discontinued operations (11,906) (3,298) (2,582) - ------------------------------------------------------------------------------------------------------------------- Total adjustments (20,065) 47,104 33,897 - ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities (653) 22,762 178 - ------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Redemption of marketable securities 58,902 13,013 5,856 Purchases of intangible assets (14,272) (1,552) (8,162) Proceeds from sale of intangible assets - - - - - - 1,600 Purchases of fixed assets (700) (226) (168) Impact of discontinued operations (1,406) (243) - - - - ------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities 42,524 10,992 (874) - ------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Payments on notes payable and long term debt (38,729) (28,061) (36,773) Net proceeds from issuance of common stock 656 803 9,923 Net proceeds from issuance of preferred stock - - - - - - 99,247 Cash dividends paid - - - - - - (476) Impact of discontinued operations (16) (7) (397) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (38,089) (27,265) 71,524 - ------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (34) 49 (60) - ------------------------------------------------------------------------------------------------------------------- Change in cash and cash equivalents 3,748 6,538 70,768 Beginning cash and cash equivalents 6,071 9,819 16,357 - ------------------------------------------------------------------------------------------------------------------- Ending cash and cash equivalents $ 9,819 $ 16,357 $ 87,125 - ------------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 3,726 $ 2,979 $ 2,396 Income taxes paid 1,970 268 233 Non cash activities: Present value of notes issued in connection with product acquisitions $ 7,727 $ 18,279 $ - - - Notes received for sale of Pronetics subsidiaries and product rights $ - - - $ - - - $ 8,193
The accompanying notes are an integral part of these financial statements. F-5 ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands)
5% PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED CUMULATIVE TOTAL -------------------- -------------------- PAID-IN EARNINGS TRANSLATION TREASURY SHAREHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT STOCK EQUITY ----------- ------- ----------- ------- -------- --------- --------- -------- ------------ Balance, December 31, 1993 18,715,530 $ 187 $ 254,803 $(15,554) $ (200) $ (237) $ 238, 999 Issuance of common stock 92,264 1 1,191 - - - - - - - - - 1,192 Cumulative translation adjustment - - - - - - - - - - - - (474) - - - (474) Year ended December 31, 1994 net income - - - - - - - - - 19,412 - - - - - - 19,412 ----------- ------- --------- -------- --------- ------- ---------- Balance, December 31, 1994 18,807,794 188 255,994 3,858 (674) (237) 259,129 Issuance of common stock 116,390 1 302 - - - - - - - - - 303 Cumulative translation adjustment - - - - - - - - - - - - 377 - - - 377 Year ended December 31, 1995 net loss - - - - - - - - - (24,342) - - - - - - (24,342) ----------- ------- -------- --------- --------- -------- -------- Balance, December 31, 1995 18,924,184 189 256,296 (20,484) (297) (237) 235,467 Issuance of preferred shares 4,200,000 $ 420 - - - - - - 98,827 - - - - - - - - - 99,247 Issuance of common stock - - - - - - 651,058 7 9,916 - - - - - - - - - 9,923 Cumulative translation adjustment - - - - - - - - - - - - - - - - - - (4) - - - (4) Year ended December 31 1996 net loss - - - - - - - - - - - - - - - (33,719) - - - - - - (33,719) 5% Preferred dividends - - - - - - - - - - - - - - - (1,155) - - - - - - (1,155) 5% Preferred stock converted to common stock (1,478,970) (148) 3,774,059 37 111 - - - - - - - - - 0 ---------- ------- ----------- ------- ------- --------- -------- -------- -------- Balance, December 31, 1996 2,721,030 $ 272 23,349,301 $ 233 $365,150 $ (55,358) $ (301) $ (237) $309,759 ========== ======= =========== ======= ======== ========= ========= ======== ========
The accompanying notes are an integral part of these financial statements. F-6 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Basis of Presentation --------------------- Roberts Pharmaceutical Corporation is an international pharmaceutical company which licenses, acquires, develops and commercializes post- discovery drugs in selected therapeutic categories. The Company currently markets approved pharmaceutical products in the United States, Canada, the United Kingdom and several other European countries. The consolidated financial statements include the accounts of Roberts Pharmaceutical Corporation and its majority-owned subsidiaries. All significant intercompany transactions are eliminated. All dollar amounts are presented in thousands, except for earnings per share. Revenue Recognition ------------------- Product sales, net of estimated future returns, are recorded as the products are shipped against customer orders. Licensing revenues are recorded as earned under the terms of each underlying agreement and are included in other revenue. Cash Equivalents and Marketable Securities ------------------------------------------ Cash equivalents include all money market investments with original maturities of three months or less. Marketable securities consist primarily of debt instruments with maturities of more than three months and are stated at amortized cost plus accrued interest, which approximates market. Inventories ----------- Inventories, consisting primarily of finished goods, are stated at the lower of first-in, first-out cost or market. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of F-7 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates include accounting for allowance for doubtful accounts, inventory obsolescence, future product returns, depreciation and amortization, value of intangibles, employee benefit plans, taxes, discontinued operations and contingencies. Fixed Assets and Depreciation ----------------------------- Fixed assets are stated at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the related assets ranging from five to fifty years. Gains and losses on disposals are recognized in the year of the disposal. Expenditures for maintenance and repairs are expensed as incurred; significant renewals and betterments are capitalized. Intangible Assets ----------------- Intangible assets are stated at cost less accumulated amortization. Amortization is determined using the straight-line method over the estimated useful lives of the related assets which are estimated to range from ten to forty years. It is the Company's policy to review periodically and evaluate whether there has been a permanent impairment in the value of intangibles. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," effective first quarter 1996. Upon adoption of SFAS No. 121, there was no material impact on the Company. SFAS No. 121 requires impairment losses to be recognized for long-lived assets and certain identifiable intangible assets used in operations when indicators of impairment are present and the undiscounted future cash flows are not expected to be sufficient to recover the assets' carrying amount. In the fourth quarter of 1996, after the Company had reassessed the effect of SFAS No. 121, the Company recorded a charge to earnings of $25.4 million for an impairment of intangible assets. Foreign Currency Translation ---------------------------- The functional currency of the Company's European subsidiary is the U.S. dollar. Accordingly, its accounts are F-8 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS remeasured in dollars and translation gains and losses are included in income currently. The functional currency of the Company's Canadian subsidiary is the Canadian dollar. Translation gains and losses of the Company's Canadian subsidiary are accumulated as a separate component of Shareholders' Equity. Included in the balance sheet at December 31, 1994, 1995 and 1996 is debt of $4,673, $1,849 and $832, respectively, denominated in British pounds. Concentration of Credit Risk ---------------------------- The Company markets prescription and nonprescription pharmaceuticals primarily to wholesale drug distributors, retail pharmacies and physicians in the United States and abroad. The Company performs certain credit evaluation procedures and does not require collateral. The Company maintains reserves for estimated credit losses; at December 31, 1994, 1995 and 1996, the reserve for uncollectible accounts amounted to $2,195, $1,754 and $1,440, respectively. At December 31, 1996, cash equivalents and marketable securities consisted of immediately available money market fund balances and investment grade debt and preferred stock securities with maturities of less than one year. The fair value of investment securities classified as available for sale, totaled $7,672 at December 31, 1996. These investment securities mature within one year. Income (loss) per share ----------------------- Income (loss) per share was computed based on the weighted average number of shares of Common Stock actually outstanding plus the number of shares of Common Stock that lowercase would be outstanding assuming the exercise of dilutive stock options. In 1996, the 5% Preferred Stock dividends and the 10% discount to market upon conversion of the 5% Preferred Stock into Common Stock were included in the calculation. Pursuant to a new position taken by the SEC staff (the "Staff"), effective March 13, 1997, on accounting for preferred stock which is convertible at a discount to market, the Company adjusted its calculation of Earnings Per Share by $.61 per share. This reflects the Staff's position that the 10% discount available to holders of the Company's F-9 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5% Preferred Stock should be incorporated in the calculation of Earnings Per Share. To clarify the adjustments indicated above, a reconciliation of Earnings Per Share for the twelve months ended December 31, 1996 is composed of the following elements: Net (Loss) from continuing operations before the consideration of write-off and the sale of intangible assets, the recognition of the discount upon the issuance of 5% Preferred Stock or preferred dividends $ (.47) Write-off and sale of intangible assets (1.33) 5% Preferred Stock dividends (.06) Issuance of 5% Preferred Stock at a 10% discount to market (.61) (.67) ------ ------- Net (Loss) from Continuing Operations (2.47) Income from Discontinued Operations .03 ------- (Loss) attributable to Common Stock $ (2.44) ======= New Accounting Pronouncements. ------------------------------ In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS 128 specifies new standards designed to improve the earnings per share ("EPS") information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements, and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify the EPS computations include: (a) eliminating the presentation of primary EPS and replacing it with basic EPS, with the principal difference being that common stock equivalents are not considered in computing basic EPS, (b) eliminating the modified treasury stock method and the three percent materiality provision, and (c) revising the contingent share provisions and the supplemental EPS data requirements. SFAS 128 also makes a number of changes to existing disclosure requirements. SFAS 128 is effective for financial statements issued for periods ending after December 31, 1997, including interim periods. The Company has not yet determined the impact of the implementation of SFAS 128. F-10 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. REVENUES AND EXPENSES --------------------- For the year ended December 31, 1994, license revenues amounted to $1.5 million. Development expenses of the Company's products, including those funded under license agreements, are included in research and development. 3. INVENTORY --------- Inventory consists of: December 31, -------------------------- 1994 1995 1996 ------- ------- -------- Raw materials $ 3,269 $ 3,539 $ 2,393 Finished goods 16,528 17,246 14,272 ------- ------- ------- $19,797 $20,785 $16,665 ======= ======= ======= 4. FIXED ASSETS, NET ----------------- Fixed assets consist of: December 31, --------------------------- 1994 1995 1996 ------ ------ ------ Land and buildings $15,140 $14,823 $14,925 Office furniture and equipment 3,786 2,588 2,616 Leasehold improvements 139 109 --- ------- ------- ------- $19,065 $17,520 $17,541 Less: Accumulated depreciation and amortization 2,265 $ 1,839 $ 2,596 ------- ------- ------- $16,800 $15,681 $14,945 ======= ======= ======= F-11 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. INTANGIBLE ASSETS ----------------- Intangible assets consist of: December 31, ---------------------------- 1994 1995 1996 -------- -------- -------- Product rights acquired $216,879 $245,287 $204,611 Goodwill 18,815 3,812 --- -------- -------- -------- 235,694 249,099 204,611 Less: Accumulated amortization 13,160 18,418 21,032 -------- -------- -------- $222,534 $230,681 $183,579 ======== ======== ======== Intangible Dispositions and Write-Offs. -------------------------------------- During the fourth quarter of 1996, the Company completed the sale of the majority of its non-core nonprescription brands along with the NUCOFED and QUIBRON brands in two independent sales agreements. These sales, net of proceeds, resulted in a one time, non-cash write off of $11.9 million, which amounted to $7.6 million net of taxes. Also, during the fourth quarter of 1996, in accordance with FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company recorded an impairment loss of long-lived intangible assets in the amount of $25.4 million, which amounted to $17.8 million net of taxes. If the estimate of undiscounted cash flows to be generated by the remaining intangible assets decreases in the future, an additional write- down of those assets may be required. Operating income and net loss were negatively affected by the sale and write down of the intangible assets in the amounts of $37.3 million for operating income and $25.4 million for net loss. The operating loss would have amounted to $12.9 million and net loss would have been $8.3 million if such sale and write down had not occurred. F-12 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. OTHER CURRENT LIABILITIES ------------------------- Other current liabilities consist of: December 31, ---------------------------- 1994 1995 1996 -------- -------- -------- Accrued estimated loss on discontinuation of VRG and Homecare --- $ 8,848 $ 448 Accrued estimated future product returns $ 7,672 15,444 15,570 Accrued estimated Medicaid rebates 294 1,734 1,169 Income taxes payable 2,967 3,707 7,019 Other accrued liabilities 1,989 2,503 5,052 ------- ------- ------- $12,922 $32,236 $29,258 ======= ======= ======= Product return reserves of $1,279, $2,336 and $728 have been netted against accounts receivable for 1994, 1995 and 1996, respectively. 7. LONG-TERM DEBT -------------- Long-term debt consists of: December 31, ---------------------------- 1994 1995 1996 -------- -------- -------- Notes payable on product acquisitions at an imputed weighted average interest rate of 5.2%, 5.75% and 6.0% $56,592 $50,846 $16,960 Other notes payable 96 146 55 ------- ------- ------- 56,688 50,992 17,015 Less: Current installments 34,277 34,809 6,376 ------- ------- ------- $22,411 $16,183 $10,639 ======= ======= ======= Principal payments in each of the next five years on long-term debt outstanding at December 31, 1996 amount to: 1997...........................................$ 6,376 1998........................................... 3,562 1999........................................... 3,775 2000........................................... 3,302 2001........................................... --- ------- $17,015 ======= Notes payable are collateralized by acquired product rights. F-13 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. SHAREHOLDERS' EQUITY -------------------- The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. If the Company had elected to recognize compensation cost based on the fair value at the grant dates for awards in 1995 and 1996, consistent with the provisions of SFAS No. 123, the Company's net loss and per share data would have been changed to the pro forma amounts indicated below: Years Ended December 31, -------------------------- 1995 1996 -------- -------- Net Loss As reported $ (24,342) $ (33,719) Pro forma $ (24,361) $ (36,925) --------- Loss per share As reported $ (1.30) $ (2.44) Pro forma $ (1.30) $ (2.61) --------- The fair value of stock options used to compute pro forma net loss and per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 0%; expected volatility of 57%; a risk free interest rate of 6%; and a general expectation that employees will exercise options when they become vested. The weighted average fair value of stock options, calculated using the Black-Scholes option-pricing model, granted during the years ended December 31, 1995 and 1996 was $5.31 and $ 7.17, respectively. On July 17, 1996, the Company issued and sold in a private placement to certain investment funds 600,000 shares of the Company's Common Stock at an issue price of $16.65 per share resulting in gross proceeds to the Company of $9,900. In addition to receiving cash consideration equal to 5% of the gross proceeds and the reimbursement of certain expenses the Placement Agent received Common Stock Warrants to acquire an aggregate of 15,000 shares of Common Stock for a purchase price of $16.65 per share. These warrants expire in July of 1999. On August 29, 1996, the Company issued and sold in a private placement to approximately eighty accredited investors for $25 per share an aggregate of 4,200,000 shares of 5% Preferred F-14 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock resulting in gross proceeds of $105,000. In addition to receiving cash consideration equal to 5% of the gross proceeds and the reimbursement of certain expenses the Placement Agent received Preferred Stock Warrants to acquire 420,000 shares of 5% Preferred Stock for a purchase price of $25 per share. These warrants expire in August 1998. The 5% Preferred Stock is convertible into a number of shares of Common Stock which depends, in part, upon the conversion price in effect at the time of the conversion. The 5% Preferred Stock is convertible into Common Stock at a 10% discount to market. Stock Compensation Plans ------------------------ During 1996, 1995 and in prior years, executives and key employees of the Company were granted stock option awards under the Incentive Stock Option Plan. In May of 1996, the Company's shareholders approved the Equity Incentive Plan which became effective May 22, 1996. The Company's Incentive Stock Option Plan was discontinued on the same date. The Equity Incentive Plan provides for the grant of incentive and nonqualified stock options, stock appreciation rights, deferred stock awards, restricted stock grants and other stock based awards to executives and key employees. The total number of shares of Common Stock authorized for grant under the Equity Incentive Plan is 1,500,000. Options to purchase Common Stock may be granted either alone or in addition to other awards. The term of each option will be fixed by the Compensation Committee of the Company's Board of Directors, provided that no incentive stock options, as defined in the Internal Revenue Code, will be exercisable after the expiration of ten years from the date the option is granted. Options will be exercisable at such time or times as determined by the Committee at or subsequent to grant. Stock Appreciation Rights ("SARS") may be granted to participants either alone or in addition to stock options and may, but need not be, related to a specific option. The provisions of SARs need not be the same with respect to each recipient. F-15 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Performance awards, restricted stock awards and other stock unit awards may also be granted. Presented below is the total number of Roberts shares represented by awards granted to Roberts employees for the years ended December 31, 1995 and December 31, 1996. Weighted Average 1995 Market Value 1996 ------ ------------ ------ Stock Awards --- $11.25 16,500 Stock appreciation rights granted --- $11.50 258,000 On December 3, 1996, out-of-the-money options were cancelled and reissued with a revalued exercise price of $11.375. All other terms and conditions remained in effect. F-16 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the status of the Company's stock options, outstanding and exercisable at January, 1997. Stock Options Stock Options Outstanding Exercisable ---------------------- ------------------ Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Contractual Exercise Exercise Prices Shares Life Price Shares Price - ------------------- ---------- ------------ -------- -------- -------- $7.00 1,000 2 months $ 7.00 1,000 $ 7.00 $11.375 to $11.50 1,992,375 4 yrs, 6 mos $11.433 573,225 $11.375 $18.25 to $21.75 115,040 4 yrs, 6 mos $18.253 104,550 $18.254 Presented below is a summary of the status of the Company's stock options held by employees, and the related transactions for the years ended December 31, 1995 and December 31, 1996. Year Ended Year Ended December 31, December 31, 1995 1996 ------------------------------------- Weighted Average Exercise Stock Options Shares Price Shares - ----------------------------- ----------- -------- ----------- Options outstanding 1,031,854 $ 19.060 1,175,710 January 1 Granted 392,000 $ 11.480 1,113,250 Exercised (135,944) $ 11.910 (51,058) Forfeited/Expired (112,200) $ 18.553 (129,487) Options outstanding 1,175,710 $ 11.803 2,108,415 December 31 Options available for grant - Equity Incentive Plan --- 524,110 - Incentive Stock Option Plan 732,124 --- F-17 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAXES ------------ The Company utilizes the asset and liability method for taxes, which requires that deferred income taxes be provided for the cumulative temporary differences between the financial and tax bases of the Company's assets and liabilities. The (provision) benefit for income taxes consists of: Years Ended December 31, ------------------------------ 1994 1995 1996 --------- ----------- ------ Current Federal $(4,883) $(3,641) $ --- State and foreign (82) (57) --- ------- ------- ------ Total current $(4,965) $(3,698) $ --- ======= ====== ====== Deferred Federal (462) 728 $14,487 State and foreign 1,312 154 88 ------- ------ ------ Total deferred $ 850 882 $14,575 ======== ===== ========= A comparison of the provision for income taxes as reported, to a provision based on federal statutory rates and consolidated income before income taxes is as follows: Years Ended December 31, ---------------------------- 1994 1995 1996 -------- ------- --------- (Provision) benefit at federal statutory rates $(8,390) $(1,876) $16,609 Non-deductible expense (599) (404) (530) State taxes net of federal effect (287) (3) --- Research and development credits 744 --- (266) Foreign net operating losses-valuation allowance --- (405) (809) Other 641 (128) (429) Reduction in federal valuation allowance 2,731 --- --- Reduction in state valuation allowance net of federal effect 1,045 --- --- ------- ------ ------- (Provision) benefit for income taxes $ (4,115) $ (2,816) $14,575 ======== ======== ======= F-18 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1995 and December 31, 1996 are presented below: December 31, 1995 December 31, 1996 ------------------ ----------------- Federal Debits Credits Debits Credits - ------------------------------------- -------- -------- -------- ------- Inventory $ 767 $ 718 Allowance for bad debts 572 855 Accrued liabilities 5,269 7,139 Depreciation $ 424 $ 409 Foreign items 1,648 2,533 Amortizable intangibles 6,668 314 Loss on Discontinuance 3,112 152 Other 16 158 Net Operating Losses --- --- 10,104 State taxes 1,075 742 4,799 290 ------- ------- ------- ------- Total 12,459 7,834 26,458 1,013 Valuation allowance - foreign (517) --- (5,197) --- ------- ------- ------- ------- $11,942 $ 7,834 $21,261 $ 1,013 ======= ======= ======= ======= At December 31, 1996, the Company has federal net operating loss carryforwards of approximately $26,400 which expire in the year 2011, foreign net operating loss carryforwards of approximately $7,500 and net operating loss carryforwards for state tax purposes of approximately $62,282 which expire at various dates through 2003. A full valuation allowance was provided for certain foreign net operating losses and certain state deferred tax assets due to the uncertainty of realization of these assets. The Company has recorded deferred tax assets of approximately $20.3 million. Realization is dependent upon generating sufficient taxable income to utilize such items. Although realization is not assured, management believes it is more likely than not that the deferred tax assets for which a valuation allowance has not been provided, will be realized. The amount of the deferred tax assets considered realizable, however, could be reduced at any time if estimates of future taxable income are reduced. 10. LEASES AND OTHER COMMITMENTS ---------------------------- The Company leases office space and certain office equipment under operating leases. Minimum rental payments in each of the next five fiscal years required under leases which have F-19 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS initial or remaining lease terms in excess of one year are as follows: December 31, 1996 ----------------- 1997.............................. $1,691 1998.............................. 1,183 1999.............................. 730 2000.............................. 388 2001.............................. 152 Rent expense for the years ended December 31, 1994, 1995, and 1996 was $2,184, $1,321 and $177, respectively. In accordance with several product acquisitions and licensing agreements and subject to certain cancellation rights reserved by the Company, the Company may be required to purchase inventory or make minimum payments totalling $34,800 through 2001 and make royalty payments totalling $1,878 through 1998. The Company has agreed to purchase a fully equipped pharmaceutical manufacturing facility from Searle for $6.3 million (Canadian) which is expected to be finalized in mid 1997. 11. EMPLOYEE BENEFITS ----------------- The Company has employment agreements with certain of its employees which provide them with continued compensation for a period of two to five years in the event of their termination by the Company and provide certain of them with additional payments on termination by the Company equal to three to five times a portion of their average bonus and incentive compensation from July 1, 1988 to their termination date. The Company maintains an employee savings plan available to all employees who meet certain age and service requirements and may make discretionary contributions to the plan based on employee compensation or employee contributions. In the years ended December 31, 1994, 1995 and 1996, the Company contributions amounted to $220, $231 and $197, respectively. The Company has a money purchase pension plan available to all employees who meet certain age and service requirements. The Company makes discretionary contributions to the plan based on employee compensation, and the Company can choose to terminate the plan at any time. In 1994, 1995 and 1996, the Company recorded contributions amounting to $0, $217 and $206, respectively. F-20 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Employee Stock Purchase Plan ---------------------------- The Company's Board of Directors approved the Employee Stock Purchase Plan (the "Plan"), which gives employees of the Company the opportunity to purchase shares of the Company's common stock through payroll deductions beginning on April 1, 1997. Employees can elect to participate in the Plan by designating from 1% to 10% of eligible compensation to be deducted from pay. On the date of exercise, which is the Friday before the 15th of the month following each quarter end, the per share purchase price will be 85% of the average high and low per-share trading price of Roberts common stock on the NASDAQ Stock Market on that date. 500,000 shares of the Company's Common Stock have been reserved for issuance under the Employee Stock Purchase Plan. 12. CONTINGENCY ----------- A shareholder class action suit has been instituted in the United States District Court for the District of New Jersey against the Company and certain of its officers for alleged violations of certain federal securities laws. The Company is not able to predict the outcome of this proceeding at this time, and management is not able to determine the amount of the potential liability, if any. The Company believes that it has complied with all of its obligations under the federal securities laws. The Company intends to defend vigorously against the plaintiff's allegations and considers such allegations to be without merit. 13. ACQUISITIONS ------------ In 1994, 1995 and 1996, the Company acquired inventory, trademarks and other rights to several products from various pharmaceutical companies. The aggregate price of these acquisitions was $21,996, $22,254 and $8,052, respectively, consisting of cash and notes payable. The intangibles related to acquisitions are being amortized on the straight-line basis over periods ranging from twenty-five to forty years. F-21 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. SEGMENT REPORTING ----------------- Selected financial information of the Company's geographic segments for the years ended December 31, 1994, 1995 and 1996 are as follows: Years Ended December 31, ------------------------------- Geographic segments 1994 1995 1996 --------- --------- --------- Revenues - nonaffiliates Domestic $ 67,776 $ 90,177 $ 74,422 Foreign 21,244 23,250 23,689 -------- -------- -------- $ 89,020 $113,427 $ 98,111 ======== ======== ======== Revenues - affiliates Domestic $ 663 $ 483 $ 174 ======== ======== ======== Operating income (loss) Domestic $ 27,261 $ 10,795 $(46,501) Foreign 2,026 (1,424) (1,513) Adjustments and eliminations (3,485) (2,498) (2,181) -------- -------- -------- $ 25,802 $ 6,873 $(50,195) ======== ======== ======== Identifiable assets at end of period Domestic $289,395 $294,247 $321,809 Foreign 50,282 48,541 52,597 Adjustments and eliminations (3,485) (2,498) (2,181) -------- -------- -------- $336,192 $340,290 $372,225 ======== ======== ======== Intercompany revenues are based on market conditions at the time of sale. Foreign operations primarily include the results of operations in the United Kingdom, Canada and the Organization for Economic Cooperation and Development countries which include the Republic of Ireland, certain other Western European countries and Japan. F-22 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. RELATED PARTY TRANSACTIONS -------------------------- In 1992 and 1993, the Company entered into contracts with Yamanouchi U.K. Limited, a subsidiary of Yamanouchi Pharmaceutical Co., Ltd. of Japan, for clinical trials research. These contracts have subsequently been assigned to Yamanouchi U.S.A. Inc., a subsidiary of Yamanouchi. As of December 31, 1994, 1995, and 1996, Yamanouchi owned 27.5, 27.2 and 22.0 percent of the Company's outstanding Common Stock, respectively. At December 31, 1994 and 1995, accounts receivable and unbilled revenues from these contracts totalled $7.3 million, and $.6 million, respectively. Related revenues in the years 1994 and 1995 amounted to $10.2 million and $.5 million, respectively. With the Company's decision to dispose of the contract research division, these revenues have been reclassified and reported in results from discontinued operations. In March 1995, the Company resolved a contract interpretation issue with Yamanouchi concerning billings for costs incurred by the Company under the clinical research contracts. As a result, 1994 contract research revenue and operating income were reduced by approximately $2.4 million. Net income for 1994 was reduced by approximately $1.5 million. 16. DISCONTINUED OPERATIONS ----------------------- In August 1995, the Company decided to seek a buyer for the assets of its Pronetics (Homecare) subsidiaries which were located in New York, New Jersey, North Carolina, and South Carolina. The sale of the Homecare division was expected to result in a loss at closing. Accordingly, the Company charged 1995 operations with the estimated loss on discontinuing Homecare of $9.7 million, including a provision of $1.9 million for operating losses until disposal of which $1.3 million was used in the third and fourth quarters of 1995. At December 31, 1995, net assets expected to be realized, consisting primarily of inventory, receivables, plant and equipment, totaled $3.8 million. Sales of the Homecare subsidiaries were essentially completed in December 1996. The total realized from the sales was $2.7 million. The additional loss on sale was offset by a decrease in the assets held for sale and lower than expected losses from operations in 1996. There was no income statement effect from the final disposition of the Homecare division. F-23 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS An additional loss of $2.5 million on disposal of the Hauck division was recognized in 1996. This expense was due to impairment of the division's product intangibles. In March 1996, the Company announced its plan to discontinue and divest VRG, a contract clinical research organization. The Company expected the sale of VRG to result in a loss at closing. Accordingly, the Company charged 1995 operations with the estimated loss on discontinuing VRG of $12.8 million, including a provision of $5.0 million for operating losses until disposal. At December 31, 1995, net assets expected to be realized, consisting primarily of receivables and plant and equipment, totaled $0.5 million. In 1996, the Company reassessed the estimated operating loss which resulted in an income statement impact of a $3.1 million gain. As of December 31, 1996 the Company is still seeking a buyer for the VRG division. Revenues from VRG and Homecare for the years ended December 31, 1994 and 1995 were $23.2 million and $12.5 million, respectively. 17. FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturities of these instruments. The fair value of marketable securities was estimated based on quotes obtained from brokers. The fair value of long-term debt is estimated based on the discounted future cash flows using currently available interest rates. December 31, 1996 --------------------------- Carrying Amount Fair Value --------------- ---------- Cash and cash equivalents $87,125 $87,125 Marketable securities 7,793 7,672 Long-term debt 17,015 16,382 The carrying amounts in the table are included in the consolidated balance sheet under the indicated captions. F-24 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. QUARTERLY RESULTS OF OPERATIONS ------------------------------- The following table presents summarized quarterly results for 1996 (in thousands, except per share data).
(Unaudited) First Second Third Fourth --------- --------- ------- --------- Revenues $ 17,228 $26,803 $ 21,688 $32,392 Gross profit 8,288(1) 13,325 11,331 15,378 Net earnings (4,212) 2,215(2) (3,133)(2) (28,589)(3) Net earnings per share $ (.22) $ .12 $ (.40)(4) $ (1.83)(4)
The following table presents summarized quarterly results for 1995 (in thousands, except per share data).
(Unaudited) First Second Third Fourth --------- --------- ------- --------- Revenues $16,174 $30,364 $ 34,321 $32,568 Gross profit 10,444 17,132 15,911 17,023 Net earnings (1,194) (10,633)(5) 331 (12,846)(6) Net earnings per share $ (.06) $ (.57) $ .02 $ (.69)
(1) Subsequent to the filing of the Company's quarterly report on Form 10-Q for the three months ended March 31, 1996, the Company reclassified as cost of sales, certain marketing and administration expenses in an aggregate amount of $180,000, thereby reducing the previously reported gross profit by the same amount. (2) Includes a $3.969 million credit for the reassessment of the reserve for discontinued operations, established in 1995. (3) Includes a $25.4 million charge for the loss on intangible assets resulting from the sale of certain product rights and adoption of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." (See Note 5.) (4) Includes $.21 and $.40 per share charge for the third and fourth quarter, respectively, pursuant to the 10% discount to market upon conversion of the 5% Preferred Stock into Common Stock. Such amount was not included in the Company's third quarter 1996 10-Q. The amount is included based on the SEC position effective March 13, 1997 on such discounts. In addition, includes $.02 and $.04 per share charge for the third and fourth quarter, respectively, pursuant to dividends paid and accrued on 5% Preferred Stock. (5) Includes a $10.992 million charge for disposal of Homecare division. (6) Includes a $11.506 million charge for disposal of VRG division. F-25 SCHEDULE II ROBERTS PHARMACEUTICAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1996
Additions Balance ----------------------------------- Balance Beginning of Charged to Charged to End of Period Costs and Expenses Other Accounts Deductions Period -------------- ------------------ --------------- ---------- ------- Allowance for uncollectibles $ 1,754 --- --- $ 314 $ 1,440 Allowance for return goods $17,780 $ 6,041 --- $ 7,523 $16,298
F-26 SCHEDULE II ROBERTS PHARMACEUTICAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1995
Additions Balance ----------------------------------- Balance Beginning of Charged to Charged to End of Period Costs and Expenses Other Accounts Deductions Period -------------- ------------------ --------------- ---------- ------- Allowance for uncollectibles $2,195 $ 130 --- $ (571) $ 1,754 Allowance for return goods $8,951 $7,669 $6,154(1) $(4,994) $17,780
(1) Allowance established in connection with product acquisitions. F-27 SCHEDULE II ROBERTS PHARMACEUTICAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1994
Additions Balance ----------------------------------- Balance Beginning of Charged to Charged to End of Period Costs and Expenses Other Accounts Deductions Period -------------- ------------------ --------------- ---------- ------- Allowance for uncollectibles $2,199 $ 622 $ 270 $ (896) $2,195 Allowance for return goods $7,240 $4,253 $4,485(1) $(7,027) $8,951
(1) Allowance established in connection with product acquisitions. F-28 Exhibit Index Exhibit No. - ----------- zz 2.2.03 Agreement and Plan of Merger, dated March 1992, among the Company, NCRC of New Jersey, Inc., a wholly owned subsidiary of the Company, and National Clinical Research Center, Inc. ("NCRC"). Upon the request of the Securities and Exchange Commission, the Company agrees to furnish a copy of schedules 3.A.1 through 3.A.30 to the Agreement and Plan of Merger described as follows: 3.A.1-Good Standing of NCRC; 3.A.2-List of NCRC Subsidiaries; 3.A.3-Authorized Capitalization of NCRC; 3.A.4-Financial Statements of NCRC; 3.A.5-Records and Books of Account of NCRC; 3.A.6-Organization Documents with respect to NCRC; 3.A.7-Liabilities of NCRC; 3.A.8-Tax Claims Against NCRC; 3.A.9-Liens and Encumbrances Against NCRC Assets; 3.A.10- List of NCRC Assets; 3.A.11-Intellectual Property Rights of NCRC; 3.A.12- List of NCRC Insurance Policies; 3.A.13-Contracts and Commitments Involving NCRC; 3.A.14-Customers and Suppliers of NCRC; 3.A.15- Legal Proceedings Involving NCRC; 3.A.17-NCRC Licenses; 3.A.21- Actions by NCRC not in the Ordinary Course; 3.A.23-List of Capital Projects and Expenditures by NCRC; 3.A.24-List of Employees of NCRC and Past and Future Compensation; 3.A.28-ERISA Plans of NCRC; 3.A.29-Environmental Claims Involving NCRC; 3.A.30-Aging Schedule of Accounts Receivable of NCRC. zz 2.2.04 Form of Escrow Agreement to be used in connection with the Agreement and Plan of Merger, dated March 1992, among the Company, NCRC of New Jersey, Inc., a wholly owned subsidiary of the Company, and NCRC. o 3.1.1 Amended and Restated Certificate of Incorporation of Registrant filed with the Secretary of State of the State of New Jersey on February 1, 1988 and Certificates of Amendment thereto dated February 2, 1988 and October 31, 1989, respectively. 3.1.2 Certificate of Amendment, dated August 26, 1996, to the Amended and Restated Certificate of Incorporation of Roberts Pharmaceutical Corporation. ee 3.1.3 Certificate of Amendment, dated August 29, 1996, to the Amended and Restated Certificate of Incorporation of Roberts Pharmaceutical Corporation. 3.1.4 Certificate of Amendment, dated November 25, 1996, to the Amended and Restated Certificate of Incorporation of Roberts Pharmaceutical Corporation. y 3.2 By-laws of the Registrant, as amended. E-1 + 4.1 Form of Specimen Certificate, Roberts Pharmaceutical Corporation Common Stock. dd 4.2 Form of Specimen Certificate, Roberts Pharmaceutical Corporation 5% Convertible Preferred Stock. dd 4.4 Form of Stock Purchase Agreement, dated July 17, 1996, executed by and between Roberts and the purchasers of the Common Stock in the Common Stock Private Placement. dd 4.5 Form of Preferred Stock Investment Agreement, dated August 29, 1996, executed by and between Roberts and the purchasers of the 5% Convertible Preferred Stock in the Preferred Stock Private Placement. dd 4.6 Form of Stock Purchase Warrant used in connection with the Common Stock Private Placement. dd 4.7 Form of Stock Purchase Warrant used in connection with the Preferred Stock Private Placement. ff 4.8 Rights Agreement, dated as of December 16, 1996, between Roberts and Continental Stock Transfer & Trust Company and the Summary of Rights to purchase Roberts Preferred Stock. ff 4.9 Form of Specimen Rights Certificate to be used upon the occurrence of a "Distribution Date" as defined in the Rights Agreement. + 10.1 License Agreement (United States), dated November 6, 1989, between Roberts and Istituto Biologico Chemioterapico (ABC) S.p.A. + 10.2 License Agreement (United Kingdom), dated November 6, 1989, between Roberts and Istituto Biologico Chemioterapico (ABC) S.p.A. o 10.3 License Agreement, dated January 1, 1985, between the National Technical Information Service and Roberts. o 10.4 Agreement, dated October 1, 1985, between Hafslund Nycomed Pharma AG (formerly CL Pharma AG) and Roberts Laboratories, Inc., a wholly owned subsidiary of Roberts. aa 10.4.1 Amendment, dated January 19, 1994, to Agreement, dated October 1, 1985, between Hafslund Nycomed Pharma AG and Roberts Laboratories, Inc., a wholly owned subsidiary of Roberts. E-2 o 10.16 Agreements and other documents of Roberts, Hafslund Nycomed AG and Linz-Roberts, Inc. including the following exhibits thereto: (a) Subscription and Shareholders Agreement, dated December 1, 1985, between Roberts, Hafslund Nycomed Pharma AG and Linz- Roberts, Inc., including the following exhibits thereto: (i) Certificate of Incorporation of Linz-Roberts, Inc. (ii) By-Laws of Linz-Roberts, Inc. (iii) License Agreement, dated January 1, 1985, between the National Technical Information Service and Roberts. (See Exhibit 10.3) (iv) Agreement of Assignment, dated December 1, 1985, between Roberts and Linz-Roberts, Inc. (v) Research and Development Agreement, dated as of December 1, 1985, between Vukovich Research Group, Inc. and Roberts (b) License and Distribution Agreement, dated December 1, 1985, between Roberts and Hafslund Nycomed Pharma AG. o 10.17 License Agreement, dated October 31, 1988, between the Salk Institute for Biological Studies and Roberts. (*) 10.20.1 Employment Agreement, dated as of November 19, 1996, between Roberts and John T. Spitznagel. (*) 10.20.2 Employment Agreement, dated as of November 19, 1996, between Roberts and Peter M. Rogalin. (*) bb 10.21 Employment Agreement, dated as of December 20, 1994, between Roberts and Robert A. Vukovich. (*) bb 10.23 Employment Agreement, dated as of December 20, 1994, between Roberts and Robert W. Loy. (*) bb 10.24 Employment Agreement, dated as of December 20, 1994, between Roberts and Anthony A. Rascio. o 10.26 Rental Deposit Deed, dated September 28, 1988, between the University of Surrey and Roberts relating to the leased office space in Guildford, England. E-3 o 10.27 Underlease, dated September 28, 1988, between the University of Surrey and Roberts relating to the leased office space in Guildford, England. xx 10.42 Distribution Agreement, dated February 15, 1991, between Roberts and Flint Laboratories (Canada) Ltd. ++ 10.43 Agreement for Products and Sale of Assets, dated March 6, 1991, between Norwich Eaton Pharmaceuticals, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. y 10.48 License Agreement, dated as of August 1, 1991, between Bristol- Myers Squibb Co. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. y 10.51 Agreements of Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, Boehringer Ingelheim Limited, Windsor Healthcare Limited and Altam Pharmaceuticals Limited: (a) Agreement, dated December 5, 1991, by and among Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, Boehringer Ingelheim Limited and Windsor Healthcare Limited. (b) Supplemental Agreement, dated December 5, 1991, by and among Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, Boehringer Ingelheim Limited and Windsor Healthcare Limited. y 10.52 Dopar Agreement for Purchase and Sale of Assets, dated December 6, 1991, between Norwich Eaton Pharmaceuticals, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. k 10.53 Agreements of Roberts, Roberts Laboratories Inc. and Monmouth Pharmaceuticals Ltd., wholly owned subsidiaries of Roberts, American Home Products Corporation, John Wyeth & Brother Limited and Ayerst, McKenna & Harrison Inc. (a) Agreement, dated December 20, 1991, by and among Roberts, Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, American Home Products Corporation, John Wyeth & Brother Limited and Ayerst, McKenna & Harrison, Inc. (b) Manufacturing Agreement, dated December 24, 1991, between John Wyeth & Brother Limited and Monmouth Pharmaceuticals Ltd., a wholly owned subsidiary of Roberts. E-4 (c) AHPC License Agreement, dated December 24, 1991, between American Home Products Corporation and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (d) The Ayerst License Agreement, dated December 24, 1991, between Ayerst, McKenna & Harrison Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (e) The Wyeth License Agreement, dated December 24, 1991, between John Wyeth & Brother Limited and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (f) Distribution Agreement, dated December 24, 1991, between John Wyeth & Brother Limited and Monmouth Pharmaceuticals Ltd., a wholly owned subsidiary of Roberts. (g) Assignments, each dated December 24, 1991, between American Home Products Corporation and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (h) Assignment, dated December 24, 1991, between John Wyeth & Brother Limited and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. k 10.55 Stock Purchase Agreement, dated as of January 22, 1992, between Roberts and Yamanouchi Pharmaceutical Co., Ltd., including Shareholder Agreement dated as of January 22, 1992 between Dr. Robert A. Vukovich and Yamanouchi Pharmaceutical Co., Ltd. which comprises Annex A to such agreement. j 10.56 Distribution Agreement, dated March 31, 1992, between Research Industries Corporation and Roberts Pharmaceutical of Canada Inc., a wholly owned subsidiary of Roberts. j 10.57 License Agreement, dated April 2, 1992, between Bayer AG and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. j 10.58 License Agreement, dated April 10, 1992, between Ortho Pharmaceutical Corporation and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. j 10.59 Purchase Agreement, dated July 6, 1992, between Galen Limited and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. E-5 kk 10.60 Asset Purchase Agreement, dated September 29, 1992, between Smith- Kline Beecham Pharmaceuticals, an unincorporated division of Smith-Kline Beecham Corporation, and Roberts Laboratories Inc, a wholly owned subsidiary of Roberts. j 10.61 Agreement for Purchase and Sale of COMHIST Assets, dated November 24, 1992, between Procter & Gamble Pharmaceuticals, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Schedules 1.1(a) through 6.11 and Exhibits A through C to the Agreement for Purchase and Sale of COMHIST Assets as follows: 1.1(a) - Schedule of Trademarks; 1.1(b) -Schedule of Know-How; 1.1(d) - Tooling Schedule; 1.4 -Allocation of Purchase Price Schedule; 6.6(4) - Intellectual Property Claims Schedule; 6.10 - Schedule of Customers; 6.11 - Financial Information Schedule; A - Form of Trademark Assignment; B - Form of Bill of Sale; C -Contract Manufacturing Agreement. j 10.63 Purchase and Sale Agreement, dated December 21, 1992, between The Du Pont Merck Pharmaceutical Company and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. j 10.64 Asset Purchase Agreement, dated December 28, 1992, between G.D. Searle & Co. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibits A and B, Schedules 1.12 through 4.2(d), and various miscellaneous assignments of copyrights and trademarks to the Asset Purchase Agreement as follows: A - Security Agreement; B - Supply Agreement; 1.12 -Product Registrations, 2.3 - Purchase Price Allocations; 4.1(c) - Contracts Requiring Consents; 4.1(f) - Pending Suits and Claims; 4.1(g) - Compliance; 4.1(h) - Material Contracts; 4.1(i) - Exceptions to Ownership of Intellectual Property; 4.1(j) - Financial Information; 4.1(l) - Customer List; 4.1(m) - Material Adverse Changes; 4.2(d) - Buyer's Financial Statements; assignments of copyrights; assignments of trademarks. j 10.65 Asset Purchase Agreement, dated March 23, 1993, by and between Searle Canada, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of the Company. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibit A and Schedules 1.5(a) through 5.19 to the Asset Purchase Agreement as follows: A -Supply Agreement; 1.5(a) - Sales Retained by Seller; 1.5(b) -Pricing Prior to Closing; 1.10- Product Registrations; 4.1(c) -Contracts Requiring Consents; 4.1(f) - Pending Suits and Claims; 4.1(g) -Compliance; 4.1(h) - Material Contracts; 4.1(i) - Exceptions to Ownership of Intellectual Property; 4.1(j) - Financial E-6 Information; 4.1(l) - Customer List; 4.1(m) - Material Adverse Changes; 5.19 - Packaging Charges. # 10.67 Copy of form of Option Agreement used in connection with options granted under the Roberts Pharmaceutical Corporation Restricted Stock Option Plan. # 10.68 Copy of form of Option Agreement used in connection with options granted under the Roberts Pharmaceutical Corporation Incentive Stock Option Plan. j 10.69 Rebate Agreement, dated November 11, 1992, between the Secretary of Health and Human Services and Roberts Laboratories, Inc., a wholly owned subsidiary of Roberts. (**)b10.70 Roberts Pharmaceutical Corporation Incentive Stock Option Plan. (**)b10.71 Roberts Pharmaceutical Corporation Restricted Stock Option Plan. a 10.72 License Agreement, dated as of March 27, 1993, by and among Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, Sawai Pharmaceutical Co., Ltd. and Grelan Pharmaceutical Co., Ltd. a 10.73 Agreements, dated as of May 5, 1993, between Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, and Glaxo Canada Inc., dated as of May 5, 1993. (a) First Asset Purchase Agreement. (b) Promotion Agreement. (c) Supply Agreement. (d) Distribution Agreement. (e) License Agreement. (f) Registered User Agreement. (g) Assignment of Trademarks. (h) Second Asset Purchase Agreement. a 10.74 Stock Purchase Agreement, dated August 30, 1993, by and among Roberts, Yamanouchi Pharmaceutical Co., Ltd. and Yamanouchi U.S.A. Inc. aa 10.75 Amendment to Stock Purchase Agreement, dated August 30, 1993, by and among Roberts, Yamanouchi Pharmaceutical Co., Ltd. and Yamanouchi U.S.A. Inc. aa 10.76 Agreements, dated as of September 14, 1993, among Bristol-Myers Squibb Company, Bristol-Myers Squibb Company Canada Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. E-7 (a) COLACE Et Al. Sale Agreement. (b) COLACE Et Al. Supply Agreement. (c) Security Agreement. (d) Notice of Security Interest in Trademark. (e) Assignment of Collateral. (f) Guaranty. aa 10.77 Underwriting Agreement, dated September 27, 1993, by and among Roberts, Morgan Stanley & Co., Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and the several underwriters. bb 10.78 License Agreement, dated as of July 6, 1994, between The Rockefeller University and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. bb 10.79 Agreements between Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, and SmithKline Beecham Pharmaceuticals, an unincorporated division of SmithKline Beecham Corporation: (a) TIGAN Asset Purchase Agreement dated as of March 27, 1995. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibits A through D and Schedules 5.4 through 5.11 and Appendix I as follows: A - List of Products; B -Assignment and Assumption Agreement; C - Promissory Note; D -Transitional Services Agreement; 5-4 - Financial Information; 5.5 -Litigation; 5.6 - Inventory; 5.7 - Product Formulas; 5.8 - Regulatory Issues; 5.9 - FDA and Other Administrative Approvals, Registrations and Permits; 5.11 - Intellectual Property Rights; I - Purchase Price Adjustments. (b) EMINASE Asset Purchase Agreement dated as of March 27, 1995. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibits A through D, Schedules 2.1(a)(1) through 5.11 and Appendices I and II as follows: A - List of Products; B -Manufacturing Agreement; C - Promissory Note; D - Transitional Services Agreement; 2.1(a)(1) - Transferable Product Rights; 2.1(a)(2) -Non- Transferable Product Rights; 2.1(b) - Transferred Contracts; 5.4 -Financial Information; 5.5 - Litigation; 5.6 - Inventory; 5.7 - Product Formulas; 5.8 - Regulatory Issues; 5.9 - FDA and Other Administrative Approvals, Registrations and Permits; 5.11 - Intellectual Property Rights; I - Territories; II - Purchase Price Adjustments. gg 10.80 Distribution Agreement, dated February 23, 1995, between Roberts Laboratories, Inc., a wholly owned subsidiary of the Company, and Merck and Co., Inc. with respect to NOROXIN. E-8 10.81 License Agreements between Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, and Eli Lilly and Company: (a) Tazofelone License Agreement dated November 5, 1996. (b) Compound LY246736 License Agreement dated November 5, 1996. (c) Compound LY353433 License Agreement dated November 5, 1996. (d) Compound LY315535 License Agreement dated December 4, 1996. 10.82 License Agreement between Roberts Laboratories Inc., a wholly owned subsidiary of the Company, and Pfizer Inc. with respect to Sampatrilat. Upon request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibits 1.7(a) and 3.1(b). 10.83 Agreement, dated December 31, 1996, by and between Roberts and Monsanto Canada, Inc. with respect to Oakville manufacturing facility. 10.84 Divestiture Agreement, dated December 1, 1996, by and among Roberts, Pronetics Health Care Group, Inc. (New Jersey), Pronetics Health Care Group, Inc. (New York), PHCG, Inc. and MJGC Corp. pertaining to the divestiture of certain Homecare operations. 10.85 Stock Purchase Agreement, dated January 31, 1997, by and among Roberts, Pronetics Health Care Group, Inc. (North Carolina) and American Homepatient, Inc. pertaining to the divestiture of certain Homecare operations. 11. Statement re computation of per share earnings. 21. Subsidiaries of the Registrant. 23. Consent of Coopers & Lybrand L.L.P. cc 27. Financial Data Schedules. 99.01 List of Investors in Private Placements which has been incorporated by reference into Part II of the Form 10-K from the Prospectus included as part of the Form S-3 Registration Statement which became effective on November 7, 1996. E-9 (*) Constitutes a management contract required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (**) Constitutes a compensatory plan required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. y Incorporated by reference to the identically numbered exhibit to the Registrant's Registration Statement on Form S-4 (Registration No. 33-44441). o Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-1 (Registration No. 33-31876). + Incorporated by reference to the identically numbered exhibit to Amendment No. 1 to Registrant's Registration Statement on Form S-1 (Registration No. 33-31876). x Incorporated by reference to the identically numbered exhibit to Amendment No. 2 to Registrant's Registration Statement on Form S-1 (Registration No. 33-31876). z Incorporated by reference pursuant to the identically numbered exhibit to Amendment No. 1 to Registrant's Registration Statement on Form S-1 (Registration No. 33-40636). k Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-1 (Registration No. 33-45069). # Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-8 (Registration No. 33-34767). a Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-3 (Registration No. 33-68080). b Incorporated by reference to Registrant's Registration Statement on Form S-8 (Registration No. 33-51198). @ Incorporated by reference to Registrant's Annual Report on Form 10- K for the fiscal year ended June 30, 1990. zz Incorporated by reference to Registrant's Annual Report on Form 10- K for the fiscal year ended December 31, 1991. j Incorporated by reference to Registrant's Annual Report on Form 10- K for the fiscal year ended December 31, 1992. E-10 aa Incorporated by reference to Registrant's Annual Report on Form 10- K for the fiscal year ended December 31, 1993. bb Incorporated by reference to Registrant's Annual Report on Form 10- K for the fiscal year ended December 31, 1994. cc Financial Data Schedules are submitted in electronic format only. dd Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-3 (Registration No. 333-13729). ee Incorporated by reference to Exhibit No. 4.3 to Registrant's Registration Statement on Form S-3 (Registration No. 333-13729). ff Incorporated by reference to Exhibit No. 1 to Registrant's Registration Statement on Form 8-A. gg Incorporated by reference to Registrant's Annual Report on Form 10- K for the fiscal year ended December 31, 1995. xx Incorporated by reference to Registrant's Current Report on Form 8- K, dated February 15, 1991. ++ Incorporated by reference to Registrant's Current Report on Form 8- K, dated March 6, 1991. vv Incorporated by reference to Registrant's Current Report on Form 8- K, dated November 5, 1991. kk Incorporated by reference to Registrant's Current Report on Form 8- K, dated September 29, 1992. E-11 EX-3.1.2 2 CERTIFICATE OF AMENDMENT, DATED AUGUST 26, 1996 EXHIBIT 3.1.2 CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ROBERTS PHARMACEUTICAL CORPORATION Pursuant to Section 14A:7-2(4) of the New Jersey Business Corporation Act, the undersigned certifies as follows: 1. The name of the corporation is Roberts Pharmaceutical Corporation (the "Corporation"). 2. By Unanimous Written Consent dated as of August 26, 1996, a duly appointed committee of the Board of Directors of the Corporation duly adopted the following resolution: RESOLVED, that there shall be a series of shares of the Class B Preferred Stock of the Corporation designated "5% Convertible Preferred Stock"; that the number of shares of such series shall be 5,500,000 and that the rights and preferences of such series (the "5% Preferred") and the limitations and restrictions thereon shall be as follows: 1. Dividends. ---------- a) The holders of the 5% Preferred shall be entitled to receive out of any assets legally available therefor cumulative dividends at the rate of $1.25 per share per annum, payable quarterly on March 31, June 30, September 30 and December 31 of each year, when and as declared by the Board of Directors, in preference and priority to any payment of any dividend on the Common Stock or any other class or series of stock of the Corporation. Such dividends shall accrue on any given share from the day of original issuance of such share and shall accrue from day to day whether or not earned or declared. If at any time dividends on the outstanding 5% Preferred at the rate set forth above shall not have been paid or declared and set apart for payment with respect to all preceding periods, the amount of the deficiency shall be fully paid or declared and set apart for payment, but without interest, before any distribution, whether by way of dividend or otherwise, shall be declared or paid upon or set apart for the shares of any other class or series of stock of the Corporation. b) Any dividend payable on a dividend payment date more than 90 days after the date of issuance may be paid, at the -1- option of the Corporation, either (i) in cash or (ii) in shares of 5% Preferred value at $25 per share if the Common Stock issuable upon conversion of such shares has been registered for resale under the Securities Act of 1933, as amended (the "Act"), and the registration statement including a current prospectus with respect thereto remains in effect at the date of delivery of such shares, and if the Corporation shall have given written notice of its intention to pay such dividend in stock to all holders of the 5% Preferred at least 10 days before the record date for such dividend. No holder that is a bank holding company or subsidiary thereof shall be required to accept 5% Preferred in lieu of cash in payment of a dividend unless after giving effect thereto the provisions of Section 10 hereof would permit one share of 5% Preferred to be converted by such holder. 2. Liquidation Preference. ----------------------- a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the 5% Preferred shall be entitled to receive, prior and in preference to any distribution of any assets of the Corporation to the holders of any other class or series of shares, the amount of $25 per share plus any accrued but unpaid dividends (the "Liquidation Preference"). b) A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Corporation, shall, at the option of the holders of the 5% Preferred, be deemed a liquidation, dissolution or winding up within the meaning of this Section 2 if the shares of stock of the Corporation outstanding immediately prior to such transaction represent immediately after such transaction less than a majority of the voting power of the surviving corporation (or of the acquiror of the Corporation's assets in the case of a sale of assets). Such option may be exercised by the vote or written consent of holders of a majority of the 5% Preferred at any time within thirty calendar days after written notice (which shall be given promptly) of the essential terms of such transaction shall have been given to the holders of the 5% Preferred in the manner provided by law for the giving of notice of meetings of shareholders. -2- 3. Forced Conversion. ------------------ a) The Company at its option may cause all outstanding shares of the 5% Preferred to be converted into Common Stock at any time beginning twelve months after the date of issuance, on at least 20 days' notice, at a conversion price determined as set forth in Section 4 hereof (the "Conversion Price") as of the date specified in such notice (the "Conversion Date") and otherwise on the terms set forth in said Section 4; provided, that the Corporation may not exercise such right of conversion unless (i) the Closing Price (last trade price) of the Common Stock as reported by NASDAQ for the 20 consecutive trading days prior to the date the Conversion Notice is mailed has not on any day been less than 120% of the Conversion Cap (as defined in Section 4(c)(ii) hereof)(subject to adjustment for stock dividends, stock splits and reverse stock splits), and (ii) the shares issuable upon conversion of the 5% Preferred are registered for resale by an effective registration statement ("Registration Statement") under the Act which became effective not more than 90 days after the date of issuance of the 5% Preferred, and a current prospectus meeting the requirements of Section 10 of the Act is available for delivery at the Conversion Date. b) At least 20 days prior to the Conversion Date, written notice (the "Conversion Notice") shall be mailed, first class postage prepaid, by the Corporation to each holder of record of the 5% Preferred, at the address last shown on the records of the Corporation for such holder, notifying such holder of the conversion which is to be effected, specifying the Conversion Date and calling upon each such holder to surrender to the Corporation, in the manner and at the place designated, a certificate or certificates representing the number of shares of 5% Preferred held by such holder. Subject to the provisions of the following subsection (c), on or after the Conversion Date, each holder of 5% Preferred shall surrender to the Corporation the certificate or certificates representing the shares of 5% Preferred owned by such holder as of the Conversion Date, in the manner and at the place designated in the Conversion Notice, and thereupon the shares issuable upon such conversion shall be delivered as provided in Section 4(b) hereof. -3- c) If at the Conversion Date the registration condition specified in clause (ii) of subsection (a) shall not be satisfied, then no shares shall be converted and the Conversion Notice shall be deemed to be withdrawn. In such event, any certificates for 5% Preferred which have been surrendered for conversion shall be returned to the persons surrendering the same; provided, however, that if a holder shall have received shares of Common Stock upon conversion of 5% Preferred after the Conversion Notice was given but before the Conversion Date, such holder may elect either to retain such Common Stock or rescind such conversion by tendering such shares of Common Stock to the Corporation. d) On the second anniversary of the Closing Date, all then outstanding shares of 5% Preferred shall be automatically converted into Common Stock at the Conversion Price and otherwise pursuant to the applicable provisions set forth in Section 4 hereof. 4. Optional Conversion. The holders of the 5% Preferred shall have optional -------------------- conversion rights as follows: a) Right to Convert. At any time after the earlier of (i) the date at ----------------- which a Registration Statement is declared effective, or (ii) the 90th day following the Closing Date, each share of 5% Preferred shall be convertible, at the option of the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (x) the Liquidation Preference of the 5% Preferred determined pursuant to Section 2 hereof on the date the notice of conversion is given, by (y) the Conversion Price determined as hereinafter provided in effect on said date. b) Mechanics of Conversion. To convert shares of 5% Preferred into ------------------------ shares of Common Stock, the holder shall give written notice to the Corporation (which notice may be given by facsimile transmission) that such holder elects to convert the same and shall state therein the number of shares to be converted and the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. Promptly thereafter the holder shall surrender the certificate or certificates representing the shares to be converted, duly endorsed, at the office of the Corporation or of any transfer agent for such shares, or at such other place designated by the Corporation. The Corporation shall, -4- immediately upon receipt of such notice, issue and deliver to or upon the order of such holder, against delivery of the certificates representing the shares which have been converted, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled. The Corporation shall effect such issuance within two (2) business days and shall transmit the certificates by messenger or overnight delivery service to reach the address designated by such holder within two (2) business days after the receipt of such notice. Notice of conversion may be given by a holder at any time during the day up to midnight New York time and such conversion shall be deemed to have been made immediately prior to the close of business on the date such notice of conversion is given. The person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock at the close of business on such date. c) Determination of Conversion Price. ---------------------------------- i) At any date following the earlier of (x) the date at which a Registration Statement is declared effective, or (ii) the 90th day following the Closing Date subject to the provisions of subparagraph (ii) below, the Conversion Price shall be 90% of the lowest trade price of the Common Stock as reported by NASDAQ during a specified period of consecutive trading days immediately preceding such date, which periods are set forth in the table below: Period during which such Period of consecutive trading date occurs: days preceding such date: Through the 120th day after Closing 5 days 121st to 150th day after Closing 6 days 151st to 180th day after Closing 7 days 181th to 210th day after Closing 8 days 211th to 240th day after Closing 9 days 241st to 270th day after Closing 10 days 271st to 300th day after Closing 11 days 301st to 330th day after Closing 12 days 331st day after Closing or later 13 days ii) The Conversion Price shall not be greater than the Conversion Cap. The Conversion Cap shall be calculated as follows: the mean between the closing bid price and closing ask price -5- (as reported on NASDAQ) for each trading day during the 90-day period following the Closing Date (not including the Closing Date) shall be averaged; the Conversion Cap shall be equal to 115% of the resulting average. iii) The "lowest trade price" of the Common Stock on any day shall be the lowest reported sale price of the Common Stock on NASDAQ or any other principal securities price quotation system or market on which prices of the Common Stock are reported. The term "trading day" means a day on which trading is reported on the principal quotation system or market on which prices of the Common Stock are reported. iv) If during any period of consecutive trading days provided for above, the Corporation shall declare or pay any dividend on the Common Stock payable in Common Stock or in rights to acquire Common Stock, or shall effect a stock split or reverse stock split, or a combination, consolidation or reclassification of the Common Stock, then the Conversion Price shall be proportionately decreased or increased, as appropriate, to give effect to such event. If any such event occurs after the Conversion Cap has been determined, the Conversion Cap shall be proportionately decreased or increased, as appropriate, to give effect to such event. d) Distributions. If the Corporation shall at any time or from time to -------------- time make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation or any of its subsidiaries other than additional shares of Common Stock, then in each such event provision shall be made so that the holders of 5% Preferred shall receive, upon the conversion thereof, the securities of the Corporation which they would have received had they been the owners on the date of such event of the number of shares of Common Stock issuable to them upon conversion. e) Certificates as to Adjustments. Upon the occurrence of any adjustment ------------------------------- or readjustment of the Conversion Price or the Conversion Cap pursuant to this Section 4, the Corporation at its expense shall promptly compute such -6- adjustment or readjustment in accordance with the terms hereof and cause the independent public accountants regularly employed to audit the financial statements of the Corporation to verify such computation and prepare and furnish to each holder of 5% Preferred a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of 5% Preferred, furnish or cause to be furnished to such holder a like certificate prepared by the Corporation setting forth (i) such adjustments and readjustments, and (ii) the number of other securities and the amount, if any, of other property which at the time would be received upon the conversion of 5% Preferred with respect to each shares of Common Stock received upon such conversion. f) Notice of Record Date. In the event of any taking by the Corporation ---------------------- of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any security or right convertible into or entitling the holder thereof to receive additional shares of Common Stock, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of 5% Preferred at least 10 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution, security or right and the amount and character of such dividend, distribution, security or right. g) Issue Taxes. The Corporation shall pay any and all issue and other ------------ taxes, excluding any income, franchise or similar taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of 5% Preferred pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. h) Reservation of Stock Issuable Upon Conversion. The Corporation shall ---------------------------------------------- at all times reserve and keep available out of its authorized but unissued shares of Common -7- Stock, solely for the purpose of effecting the conversion of the shares of the 5% Preferred, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the 5% Preferred, subject to the limitation set forth in subsection (l) below, and if at any time the number of authorized but unissued shares of Common stock shall not be sufficient to effect the conversion of all then outstanding shares of the 5% Preferred, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval. i) Fractional Shares. No fractional shares shall be issued upon the ------------------ conversion of any share or shares of 5% Preferred. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of 5% Preferred by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors of the Corporation). j) Notices. Any notice required by the provisions of this Section to be -------- given to the holders of shares of 5% Preferred shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at its address appearing on the books of the Corporation. k) Reorganization or Merger. In case of any reorganization or any ------------------------- reclassification of the capital stock of the Corporation or any consolidation or merger of the Corporation with or into any other corporation or corporations or a sale of all or substantially all of the assets of the Corporation to any other person, and the holders of 5% Preferred do not elect to treat such transaction as a liquidation, dissolution or winding up as provided in Section 2, then, as part of such -8- reorganization, consolidation, merger or sale, provision shall be made so that each share of 5% Preferred shall thereafter be convertible into the number of shares of stock or other securities or property (including cash) to which a holder of the number of shares of Common Stock deliverable upon conversion of such share of 5% Preferred would have been entitled upon the record date of (or date of, if no record date is fixed) such event and, in any case, appropriate adjustment (as determined by the Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of the 5% Preferred, to the end that the provisions set forth herein shall thereafter be applicable, as nearly as equivalent as is practicable, in relation to any shares of stock or the securities or property (including cash) thereafter deliverable upon the conversion of the shares of 5% Preferred. l) Limitation on Number of Conversion Shares. The Corporation shall not ------------------------------------------ be obligated to issue, in the aggregate, more than 3,717,529 shares of Common Stock as presently constituted (the "NASDAQ Cap") upon (1) conversion of the 5% Preferred, (2) exercise of the warrants issued to Cappello & Laffer Capital Corp. or its designees in connection with the sale of the 5% Preferred and the sale of stock to entities advised by Dimensional Fund Advisors, and (3) the issuance of 600,000 shares on or about July 17, 1996 to entities advised by Dimensional Fund Advisors, if issuance of a larger number of shares would constitute a breach of the Corporation's obligations under its agreements with the NASD or NASDAQ or the rules of such organizations. Subject to the obligation to effect certain redemptions pursuant to the last three sentences of this subsection (l), if further issuances of shares of Common Stock pursuant to clauses (1) through (3) would constitute a breach of the Corporation's obligations under any applicable agreements with the NASD or NASDAQ or the rules of such organizations (i.e., all of the shares permitted to be issued under the NASDAQ Cap shall have been so issued), then so long thereafter as such limitation shall continue to be applicable and any shares of 5% Preferred are submitted for conversion, if such submision is prior to 136 days after the Closing Date, such shares shall receive in cash an amount equal to 111.11% of the Liquidation Preference of such shares, or if such submission is subsequent to 135 days after the Closing -9- Date, such shares shall receive in cash an amount equal to the the greater of (i) 111.11% of the Liquidation Preference of such shares or (ii) the current value of the Common Stock which such shares would otherwise be entitled to receive upon conversion (such value per share to be the closing price of such shares as reported by NASDAQ on the Conversion Date), in lieu of the Common Stock which such shares would otherwise be entitled to receive upon conversion, and such shares will be deemed cancelled. Payment of said cash amount shall be made no later than one business day after the time specified in Section 4(b) for the delivery o Common Stock upon conversion, and shall bear daily interest thereafter at the rate of one-tenth of one percent per day until paid. Such maximum number of shares of Common Stock shall be proportionately and equitably adjusted in the event of stock splits, stock dividends, reverse stock splits, reclassifications or other such events, in such manner as the Board of Directors of the Corporation shall reasonably determine. If the Corporation is unable to obtain the requisite shareholder approval concerning the issuance of shares of Common Stock in connection with the events specified in clauses (1) through (3) above to satisfy all NASD and NASDAQ requirements prior to 120 days after the date of issuance, the Corporation shall then redeem, at a "Special Redemption Price" equal to 111.11% of the Liquidation Preference of such shares, a number of shares equal to $75,000,000 (plus any earnings accumulated thereon from the Closing Date until the Redemption Date) divided by the Special Redemption Price. Any redemption effected pursuant to the preceding sentence shall require no more than 10 days' notice and the Redemption Date shall be not more than 135 days after the date of issuance. Such redemption shall be made pro rata based on the number of shares of the 5% Preferred outstanding at 11:59 p.m. on the day prior to the Redemption Date, and as early as practicable on the Redemption Date the Corporation shall notify each holder of 5% Preferred by the most rapid means of communication available to the Corporation, which may be facsimilie transmission, of the pro rata number of shares to be redeemed from each holder. Such notice shall be binding upon holders who have submitted their stock certificates for redemption prior to the receipt of such notice, as well as on holders who submit their stock certificates thereafter. If there shall be a default in payment of the Special Redemption Price, the amount so payable shall bear daily interest from and after the Redemption Date at -10- the rate of one-tenth of one percent per day until paid. Shares so redeemed shall be deemed to have been redeemed at the opening of business on the Redemption Date and shall no longer be treated as outstanding shares except for purposes of receiving the Special Redemption Price. m) Reissuance of Certificates. In the event of an optional conversion of --------------------------- 5% Preferred pursuant to Section 4(a) hereof or a redemption of 5% Preferred pursuant to Section 4(1) hereof in which less than all of the shares of 5% Preferred of a particular certificate are converted or redeemed, as the case may be, the Corporation shall promptly cause to be issued and delivered to the holder of such certificate, a certificate representing the remaining shares of 5% Preferred which have not been so converted or redeemed. 5. Other Provisions. For all purposes of this Resolution, the term "date of ----------------- issuance" and the terms "Closing" or "Closing Date" shall mean the day on which shares of the 5% Preferred are first issued by the Corporation. Any provision herein which conflicts with or violates any applicable usury law shall be deemed modified to the extent necessary to avoid such conflict or violation. The term "NASDAQ" herein refers to the principal market on which the Common Stock of the Company is traded. If the Common Stock is listed on a securities exchange, or if another market becomes the principal market on which the Common Stock is traded or through which price quotations for the Common Stock are reported, the term "NASDAQ" shall be deemed to refer to such exchange or other principal market. 6. Restrictions and Limitations. The Corporation shall not undertake the ----------------------------- following actions without the consent of the holders of a majority of the 5% Preferred: (i) modify its Certificate of Incorporation or Bylaws so as to amend or change any of the rights, preferences or privileges of the 5% Preferred, (ii) authorize or issue any other preferred equity security senior to or on a parity with the 5% Preferred, as to dividends, liquidation, preferences, conversion rights, redemption rights or other rights, preferences or privileges, or (iii) purchase or otherwise acquire for value any Common Stock or other equity security of the Corporation either junior or senior to or on a parity with the 5% Preferred while there exists any arrearage in the payment of cumulative dividends hereunder. 7. Voting Rights. Except as provided herein or as provided by -------------- -11- law, the 5% Preferred shall have no voting rights. 8. Attorneys' Fees. Any holder of 5% Preferred shall be entitled to recover ---------------- from the Corporation the reasonable attorneys' fees and expenses incurred by such holder in connection with enforcement by such holder of any obligation of the Corporation hereunder. 9. No Adverse Actions. The Corporation shall not in any manner, whether by ------------------- amendment of the Certificate of Incorporation (including, without limitation, any Certificate of Designation), merger, reorganization, recapitalization, consolidation, sales of assets, sale of stock, tender offer, dissolution or otherwise, take any action, or permit any action to be taken, solely or primarily for the purpose of increasing the value of any class of stock of the Corporation if the effect of such action is to reduce the value or security of the Preferred Stock. 10. Limits on Conversion of 5% Preferred Stock. Notwithstanding any right of ------------------------------------------- conversion of 5% Preferred Stock provided for above, no such shares of 5% Preferred Stock originally issued by the Corporation to a bank holding company or an affiliate of a bank holding company shall be converted into shares of Common Stock or any other class or series of voting stock by the original holder or any direct or indirect transferee thereof such that immediately after such conversion such person and its affiliates (which term, for avoidance of doubt, includes such bank holding company, any such transferee and their respective affiliates) would own more than 4.9% of any class of voting securities of the Corporation, unless such shares are being distributed, disposed of or sold in any one of the following transactions (each a "Conversion Event"): a) an initial public offering or other widely-dispersed public distribution of the shares of the Company; b) transfers in small amounts pursuant to Rule 144 under the Securities Act of 1933; c) a transfer to a single purchaser (or a group acting in concert) which controls or which has negotiated the purchase of at least a majority of the Company's voting stock held by persons other than the bank holding company investor; d) a private sale of such equity so long as no purchaser acquires more than 2% of the total equity outstanding -12- upon conversion; or e) such shares are being sold in any other manner permitted by the Federal Reserve Board. For purposes of this Section 10, "persons" shall include any natural person ------- and any corporation, partnership, joint venture, trust, unincorporated organization and any other entity or organization and percentages of the Corporation's outstanding voting securities shall include shares issuable upon exercise or conversion of 5% Preferred Stock and other convertible securities, options, warrants or other similar instruments owned by such bank holding company, its transferees and their respective affiliates, but shall not include shares issuable upon exercise or conversion of convertible securities, options, warrants or other similar instruments owned by any other person. The provisions of this Section 10 shall not limit or affect the right of the Corporation to force conversion pursuant to Section 3(a) hereof nor the automatic conversion provided for in Section 3(d) hereof. The Corporation shall have no obligation to monitor compliance with the limits set forth in this Section 10 or the holdings of any shareholder, and shall have no liability for the failure of any person to comply with such limits. 3. The Amended and Restated Certificate of Incorporation is amended so that the relative rights, preferences and limitations of the 5% Preferred are as stated in the resolution set forth in Paragraph 2 above. IN WITNESS WHEREOF, Roberts Pharmaceutical Corporation has caused its duly authorized officer to execute this Certificate of Amendment on August 26, 1996. ROBERTS PHARMACEUTICAL CORPORATION By:/s/Anthony A. Rascio ---------------------------------- ANTHONY A. RASCIO, Vice President -13- EX-3.1.4 3 CERTIFICATE OF AMENDMENT, DATED NOVEMBER 25, 1996 EXHIBIT 3.1.4 CERTIFICATE OF AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ROBERTS PHARMACEUTICAL CORPORATION TO: The Secretary of State State of New Jersey Pursuant to the provisions of Section 14A:9-2(4), Section 14A:9-2(3) and 14A:7-18(2) of the New Jersey Business Corporation Act, the undersigned corporation executes the following Certificate of Amendment to its Amended and Restated Certificate of Incorporation: 1. The name of the corporation is "Roberts Pharmaceutical Corporation". 2. By resolution adopted December 19, 1990, the Corporation's Board of Directors approved the cancellation of 2,000,000 shares of Class A Preferred Stock, $.10 par value (the "Class A Shares"), which were reacquired by the Corporation. In accordance with Section 4.02(C)(7) of the Corporation's Amended and Restated Certificate of Incorporation, upon the reacquisition of the Class A Shares, the Class A Shares ceased to be authorized shares of the Corporation. 3. After giving effect to the cancellation of the Class A Shares, the number of shares of stock which the Corporation was authorized to issue was: 50,000,000 shares of Common Stock, $.01 par value per share, and 10,000,000 shares of Class B Preferred Stock, $.10 par value per share. 4. The Corporation's Amended and Restated Certificate of Incorporation provides that the Class A Shares shall not be reissued. 5. The Corporation's Amended and Restated Certificate of Incorporation is amended by decreasing the aggregate number of Class A Shares which the Corporation is authorized to issue by the 2,000,000 Class A Shares cancelled by the Corporation. 6. The following amendment to the Amended and Restated Certificate of Incorporation (the "Amendment") was approved by the directors and thereafter duly adopted by the shareholders of the Corporation on the 6th day of November 1996: Section 4.01 of Article Four of the Amended and Restated Certificate of Incorporation is amended to read in its entirety as follows: "The total number of shares of stock which the Corporation shall have authority to issue is One Hundred and Ten Million (110,000,000) shares. Of these shares, One Hundred Million (100,000,000) shares are classified as Common Stock, par value $.01 per share, and Ten Million (10,000,000) shares are classified as Class B Preferred Stock, par value $.10 per share." 7. The total number of shares entitled to vote on the adoption of the Amendment was 19,207,402 shares of Common Stock, $.01 par value per share (the "Common Stock"). 8. The number of shares of Common Stock voted in favor of the Amendment was 18,057,336 shares. There were 863,532 shares of Common Stock voted against the Amendment, and 140,006 shares of Common Stock abstained from voting on the Amendment. DATED: November 22, 1996 ROBERTS PHARMACEUTICAL CORPORATION By:/s/Anthony A. Rascio ---------------------------------- Anthony A. Rascio Vice President and Secretary EX-10.20.1 4 EMPLOYMENT AGREEMENT - JOHN SPITZNAGEL EXHIBIT 10.20.2 EMPLOYMENT AGREEMENT This Employment Agreement made as of the 19th day of November, 1996 BY AND BETWEEN: ROBERTS PHARMACEUTICAL CORPORATION, a New Jersey Corporation with offices located at Meridian Center II, 4 Industrial Way West, Eatontown, New Jersey (hereinafter referred to as "Employer") AND Peter M. Rogalin, residing at 75 Belmont Road, Glen Rock, New Jersey 07452 (hereinafter referred to as "Employee"): W I T N E S S E T H: WHEREAS, Employee has been employed as Vice President, by Employer and has made and is expected to continue to make material contributions to the growth and development of Employer; and WHEREAS, Employer deems it to be in Employer's best interest to assure Employee continuous employment by Employer; and -2- WHEREAS, it is in the best interest of the Employer that Employee remain focused on the business of the Company in the event of a change of control of Employer; and WHEREAS, Employer deems it to be in Employer's best interests to encourage Employee to remain employed by Employer during a period of uncertainty concerning ownership of Employer; and WHEREAS, Employee is willing to continue, and is desirous of continuing, in the employment of Employer; NOW THEREFORE, in consideration of the mutual agreements contained herein and intending to be legally bound, the parties hereto hereby agree as follows: ARTICLE 1. CAPACITY AND DUTIES - ---------- -------------------- 1.01 EMPLOYMENT, ACCEPTANCE OF EMPLOYMENT. ------------------------------------- Employer hereby employs Employee and Employee hereby accepts employment by Employer subject to all the terms and conditions hereafter set forth. 1.02 CAPACITY. --------- Employee shall serve as Vice President and Treasurer. -3- 1.03 DUTIES. ------- During the term of this Agreement, Employee shall devote his full attention and his best efforts to the performance of the customary duties of Vice President and Treasurer. ARTICLE 2. TERM OF EMPLOYMENT; TERMINATION - ---------- ------------------------------- 2.01 TERM. ----- Unless earlier terminated as hereafter provided, the term of this Agreement shall commence on the date first above written (the "Effective Date") and shall continue through November 19, 1998, and thereafter may be automatically renewed for successive one (1) year periods on each anniversary of the Effective Date only upon the mutual agreement of Employer and Employee. 2.02 TERMINATION AFTER CHANGE OF CONTROL. ------------------------------------ In the event of a Change in Control (as hereinafter defined) of Employer, Employer shall have the right to terminate this Agreement by giving written notice to Employee specifying the intention to terminate this Agreement and the effective date for such termination. For purposes of this Article 2, "Change of Control" shall mean either (i) a merger or consolidation of Employer into another corporation or a merger of another corporation with or into the Employer; or (ii) a sale by Employer of substantially all of its assets, which, in the case of either (i) or (ii) above, results in the shareholders of Employer (as they existed immediately prior to the effectiveness of the merger, -4- consolidation or sale) owning less than fifty percent (50%) of the surviving entity or new corporation or entity that has acquired substantially all of the Employer's assets after the effectiveness thereof; or (iii) a reorganization of Employer which results in either Employer becoming a subsidiary of another corporation or employer not being the surviving entity (other than a merger or consolidation (a) with a wholly-owned subsidiary of the Employer; (b) to effect a change in domicile; or (c) of the Employer into another corporation that does not result in the shareholders of Employer, as they existed immediately prior to the effectiveness of such merger or consolidation, owning less than fifty percent (50%) of the surviving corporation); or (iv) the acquisition by any person, entity or group of persons or entities acting in concert, of fifty percent (50%) or more of Employer's then issued and outstanding voting securities, whether acquired in one transaction or a series of transactions. 2.03 COMPENSATION ON TERMINATION AFTER CHANGE OF CONTROL. ---------------------------------------------------- In the event of any termination of this Agreement by Employer pursuant to Section 2.02 hereof, Employee shall be entitled to receive, and Employer shall be obligated to pay, the compensation set forth in Section 3.01 (a) at the annual rate which Employee is receiving on the date of termination of this Agreement for a period of two (2) years following the termination date. -5- ARTICLE 3. COMPENSATION - ---------- ------------ 3.01(A) COMPENSATION. ------------- During the term of this Agreement or any extension thereof, and after termination of this Agreement as provided in Section 2.02, as compensation for services to the Employer pursuant to this Agreement, the Employer shall pay to Employee a minimum base salary of One Hundred Seventy Five Thousand ($175,000) per year and the Board of Directors of Employer may, in its sole discretion from time to time, increase said base salary to be paid to Employee as provided in this Article 3 or provide additional compensation to Employee, including but not limited to incentive compensation based upon the earnings or performance of Employer or otherwise, in order to recognize and fairly compensate Employee for the value of his services to Employer. In addition, Employee shall be entitled to receive all vacation and other fringe benefits provided by Employer to its employees and officers, including insurance benefits, which may be established by the Board of Directors of Employer from time to time. In addition, Employer may provide such other additional or incentive compensation, benefits or perquisites as its Board of Directors may from time to time authorize. 3.01(B) INCENTIVE COMPENSATION ---------------------- Employer may adopt and maintain a "Management Incentive Compensation Plan." Should such a plan be adopted by Employer, at all times during the term of this Agreement, Employee shall be -6- designated by Employer as a participant in such plan. In the event that, at any time during the term of this Agreement, Employer shall rescind, discontinue, amend or revise such plan, then Employer shall include Employee in any revised or amended Incentive Plan or substituted plan and Employee shall be entitled to receive incentive compensation comparable to that offered to other members of Employer's senior level management thereunder. 3.02 STOCK OPTION PLANS. ------------------- If during the term of this Agreement, Employee's employment is terminated and such election by Employee is permitted under any stock option plan(s) applicable to Employee, Employee, or his personal representatives or heirs, shall have the right during a period of seven (7) months following the Termination Date to exercise all options previously granted to Employee under all Stock Option Plans adopted and maintained by Employer as to all or any part of the shares covered thereby, including shares as to which such options would not otherwise then be exercisable. ARTICLE 4 CERTAIN COVENANTS - --------- ----------------- 4.01 NON-COMPETITION. ---------------- During the term of employment hereunder and, in the event of termination of this Agreement, for two (2) years thereafter, Employee shall not accept employment with any employer in direct competition with, nor engage in any activities in direct competition with, the business of Employer. This Section 4.01 -7- shall not be applicable to any period after a termination of employment if such termination was effected by Employer. In addition, this Section 4.01 shall not prevent Employee from acquiring, as a passive investor, up to 5% of the equity of a competing enterprise. ARTICLE 5. MISCELLANEOUS - ---------- ------------- 5.01 ASSIGNMENT. ----------- This Agreement shall not be assignable by Employee and shall be assignable and required to be assigned, by Employer, only to a person, firm or corporation which may become a successor in interest (by purchase of all or substantially all of the assets of Employer, merger or otherwise) to Employer ("Successor") and this Agreement shall be fully binding upon, and the assumed obligation of, such Successor. 5.02 EMPLOYEE'S ATTORNEY FEES. ------------------------- In the event that Employee is required to institute legal proceedings against Employer to enforce this Agreement or any term or provision thereof ("Employee's Suit") and the Employee's Suit results in a judgment in favor of Employee against Employer, then Employer hereby agrees that Employer shall pay, either directly or by reimbursement to Employee, all legal fees and costs incurred by Employee in the prosecution of Employee's Suit. -8- 5.03 ENTIRE AGREEMENT. ----------------- This writing represents the entire understanding of the parties and supersedes any and all other understandings between the parties regarding the subject matter hereof whether oral or written. This Agreement may not be altered nor amended in any way except by an agreement in writing signed by both Employer and Employee. 5.04 BINDING EFFECT. --------------- Subject to Section 5.01, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs, executors and administrators. Any paragraph, sentence, phrase or other provision of this Agreement which is or becomes in conflict with any applicable statute, rule or other law shall be deemed, if possible, to be modified or altered to conform thereto or, if not possible, to be omitted herefrom. If any provision of this Agreement shall be or become illegal or unenforceable in whole or in part for any reason whatsoever, the remaining provisions shall nevertheless be deemed valid, binding and subsisting. 5.05 GOVERNING LAW. -------------- This Agreement has been negotiated and executed within the State of New Jersey, and the validity, interpretation and enforcement of this Agreement shall be governed by the laws of the State of New Jersey. -9- 5.06 HEADINGS. --------- The headings of Sections in this Agreement are for convenience only and form no part of this Agreement and shall not affect its interpretation. 5.07 NOTICE. ------- Notices authorized or required to be sent pursuant to this Agreement shall be in writing and sent postage prepaid, by United States Certified or Registered Mail, return receipt requested, directed to the other party at its address as may be designated by notice from time to time. Notice shall be deemed given on the date the envelope in which such notice is enclosed, as provided above, is deposited for mailing in a United States mailbox or post office. 5.08 PAYMENT OF TAXES. ----------------- To the extent that any excise taxes become payable by Employee by virtue of any payments made or benefits conferred by Employer hereunder, Employer shall be liable to pay or reimburse Employee for any such taxes or to make any adjustments hereunder. 5.09 WAIVER OF BREACH. ----------------- The waiver of either party of a breach of any provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach thereof or of any other provision of this Agreement. -10- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ROBERTS PHARMACEUTICAL CORPORATION By:/s/Robert A. Vukovich --------------------- Robert A. Vukovich Chairman /s/Peter M. Rogalin ------------------- Peter M. Rogalin Employee EX-10.20.2 5 EMPLOYMENT AGREEMENT - PETER M. ROGALIN EXHIBIT 10.20.1 EMPLOYMENT AGREEMENT This Employment Agreement made as of the 19th day of November, 1996 BY AND BETWEEN: ROBERTS PHARMACEUTICAL CORPORATION, a New Jersey Corporation with offices located at Meridian Center II, 4 Industrial Way West, Eatontown, New Jersey (hereinafter referred to as "Employer") AND John T. Spitznagel, residing at 25 Bedford Road, Summit, New Jersey 07901 (hereinafter referred to as "Employee"): W I T N E S S E T H: WHEREAS, Employee has been employed as Executive Vice President, by Employer and has made and is expected to continue to make material contributions to the growth and development of Employer; and WHEREAS, Employer deems it to be in Employer's best interest to assure Employee continuous employment by Employer; and -2- WHEREAS, it is in the best interest of the Employer that Employee remain focused on the business of the Company in the event of a change of control of Employer; and WHEREAS, Employer deems it to be in Employer's best interests to encourage Employee to remain employed by Employer during a period of uncertainty concerning ownership of Employer; and WHEREAS, Employee is willing to continue, and is desirous of continuing, in the employment of Employer; NOW THEREFORE, in consideration of the mutual agreements contained herein and intending to be legally bound, the parties hereto hereby agree as follows: ARTICLE 1. CAPACITY AND DUTIES - ---------- -------------------- 1.01 EMPLOYMENT, ACCEPTANCE OF EMPLOYMENT. ------------------------------------- Employer hereby employs Employee and Employee hereby accepts employment by Employer subject to all the terms and conditions hereafter set forth. 1.02 CAPACITY. --------- Employee shall serve as Executive Vice President, Worldwide Sales and Marketing. -3- 1.03 DUTIES. ------- During the term of this Agreement, Employee shall devote his full attention and his best efforts to the performance of the customary duties of Vice President, Worldwide Sales and Marketing. ARTICLE 2. TERM OF EMPLOYMENT; TERMINATION - ---------- ------------------------------- 2.01 TERM. ----- Unless earlier terminated as hereafter provided, the term of this Agreement shall commence on the date first above written (the "Effective Date") and shall continue through November 19, 1998, and thereafter may be automatically renewed for successive one (1) year periods on each anniversary of the Effective Date only upon the mutual agreement of Employer and Employee. 2.02 TERMINATION AFTER CHANGE OF CONTROL. ------------------------------------ In the event of a Change in Control (as hereinafter defined) of Employer, Employer shall have the right to terminate this Agreement by giving written notice to Employee specifying the intention to terminate this Agreement and the effective date for such termination. For purposes of this Article 2, "Change of Control" shall mean either (i) a merger or consolidation of Employer into another corporation or a merger of another corporation with or into the Employer; or (ii) a sale by Employer of substantially all of its assets, which, in the case of either (i) or (ii) above, results in the shareholders of Employer (as they existed immediately prior to the effectiveness of the merger, -4- consolidation or sale) owning less than fifty percent (50%) of the surviving entity or new corporation or entity that has acquired substantially all of the Employer's assets after the effectiveness thereof; or (iii) a reorganization of Employer which results in either Employer becoming a subsidiary of another corporation or employer not being the surviving entity (other than a merger or consolidation (a) with a wholly-owned subsidiary of the Employer; (b) to effect a change in domicile; or (c) of the Employer into another corporation that does not result in the shareholders of Employer, as they existed immediately prior to the effectiveness of such merger or consolidation, owning less than fifty percent (50%) of the surviving corporation); or (iv) the acquisition by any person, entity or group of persons or entities acting in concert, of fifty percent (50%) or more of Employer's then issued and outstanding voting securities, whether acquired in one transaction or a series of transactions. 2.03 COMPENSATION ON TERMINATION AFTER CHANGE OF CONTROL. ---------------------------------------------------- In the event of any termination of this Agreement by Employer pursuant to Section 2.02 hereof, Employee shall be entitled to receive, and Employer shall be obligated to pay, the compensation set forth in Section 3.01 (a) at the annual rate which Employee is receiving on the date of termination of this Agreement for a period of two (2) years following the termination date. -5- ARTICLE 3. COMPENSATION - ---------- ------------ 3.01(A) COMPENSATION. ------------- During the term of this Agreement or any extension thereof, and after termination of this Agreement as provided in Section 2.02, as compensation for services to the Employer pursuant to this Agreement, the Employer shall pay to Employee a minimum base salary of One Hundred Eighty Five Thousand ($185,000) per year and the Board of Directors of Employer may, in its sole discretion from time to time, increase said base salary to be paid to Employee as provided in this Article 3 or provide additional compensation to Employee, including but not limited to incentive compensation based upon the earnings or performance of Employer or otherwise, in order to recognize and fairly compensate Employee for the value of his services to Employer. In addition, Employee shall be entitled to receive all vacation and other fringe benefits provided by Employer to its employees and officers, including insurance benefits, which may be established by the Board of Directors of Employer from time to time. In addition, Employer may provide such other additional or incentive compensation, benefits or perquisites as its Board of Directors may from time to time authorize. 3.01(B) INCENTIVE COMPENSATION. ----------------------- Employer may adopt and maintain a "Management Incentive Compensation Plan." Should such a plan be adopted by Employer, at all times during the term of this Agreement, Employee shall be -6- designated by Employer as a participant in such plan. In the event that, at any time during the term of this Agreement, Employer shall rescind, discontinue, amend or revise such plan, then Employer shall include Employee in any revised or amended Incentive Plan or substituted plan and Employee shall be entitled to receive incentive compensation comparable to that offered to other members of Employer's senior level management thereunder. 3.02 STOCK OPTION PLANS. ------------------- If during the term of this Agreement, Employee's employment is terminated and such election by Employee is permitted under any stock option plan(s) applicable to Employee, Employee, or his personal representatives or heirs, shall have the right during a period of seven (7) months following the Termination Date to exercise all options previously granted to Employee under all Stock Option Plans adopted and maintained by Employer as to all or any part of the shares covered thereby, including shares as to which such options would not otherwise then be exercisable. ARTICLE 4 CERTAIN COVENANTS - --------- ----------------- 4.01 NON-COMPETITION. ---------------- During the term of employment hereunder and, in the event of termination of this Agreement, for two (2) years thereafter, Employee shall not accept employment with any employer in direct competition with, nor engage in any activities in direct competition with, the business of Employer. This Section 4.01 shall not be applicable to any period after a termination of employment if such termination was effected by Employer. In addition, this Section 4.01 -7- shall not prevent Employee from acquiring, as a passive investor, up to 5% of the equity of a competing enterprise. ARTICLE 5. MISCELLANEOUS - ---------- ------------- 5.01 ASSIGNMENT. ----------- This Agreement shall not be assignable by Employee and shall be assignable and required to be assigned, by Employer, only to a person, firm or corporation which may become a successor in interest (by purchase of all or substantially all of the assets of Employer, merger or otherwise) to Employer ("Successor") and this Agreement shall be fully binding upon, and the assumed obligation of, such Successor. 5.02 EMPLOYEE'S ATTORNEY FEES. ------------------------- In the event that Employee is required to institute legal proceedings against Employer to enforce this Agreement or any term or provision thereof ("Employee's Suit") and the Employee's Suit results in a judgment in favor of Employee against Employer, then Employer hereby agrees that Employer shall pay, either directly or by reimbursement to Employee, all legal fees and costs incurred by Employee in the prosecution of Employee's Suit. 5.03 ENTIRE AGREEMENT. ----------------- This writing represents the entire understanding of the -8- parties and supersedes any and all other understandings between the parties regarding the subject matter hereof whether oral or written. This Agreement may not be altered nor amended in any way except by an agreement in writing signed by both Employer and Employee. 5.04 BINDING EFFECT. --------------- Subject to Section 5.01, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs, executors and administrators. Any paragraph, sentence, phrase or other provision of this Agreement which is or becomes in conflict with any applicable statute, rule or other law shall be deemed, if possible, to be modified or altered to conform thereto or, if not possible, to be omitted herefrom. If any provision of this Agreement shall be or become illegal or unenforceable in whole or in part for any reason whatsoever, the remaining provisions shall nevertheless be deemed valid, binding and subsisting. 5.05 GOVERNING LAW. -------------- This Agreement has been negotiated and executed within the State of New Jersey, and the validity, interpretation and enforcement of this Agreement shall be governed by the laws of the State of New Jersey. -9- 5.06 HEADINGS. --------- The headings of Sections in this Agreement are for convenience only and form no part of this Agreement and shall not affect its interpretation. 5.07 NOTICE. ------- Notices authorized or required to be sent pursuant to this Agreement shall be in writing and sent postage prepaid, by United States Certified or Registered Mail, return receipt requested, directed to the other party at its address as may be designated by notice from time to time. Notice shall be deemed given on the date the envelope in which such notice is enclosed, as provided above, is deposited for mailing in a United States mailbox or post office. 5.08 PAYMENT OF TAXES. ----------------- To the extent that any excise taxes become payable by Employee by virtue of any payments made or benefits conferred by Employer hereunder, Employer shall be liable to pay or reimburse Employee for any such taxes or to make any adjustments hereunder. 5.09 WAIVER OF BREACH. ----------------- The waiver of either party of a breach of any provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach thereof or of any other provision of this Agreement. -10- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ROBERTS PHARMACEUTICAL CORPORATION By:/s/Robert A. Vukovich --------------------- Robert A. Vukovich Chairman /s/John T. Spitznagel --------------------- John T. Spitznagel Employee EX-10.81 6 LICENSE AGREEMENT EXHIBIT 10.81 LICENSE AGREEMENT [LY213829] This License Agreement ("Agreement") is made as of the 5th day of November, 1996 by and between Eli Lilly and Company, an Indiana corporation ("Lilly") and Roberts Laboratories Inc., a New Jersey corporation ("Roberts"). RECITALS -------- 1. Lilly and Roberts are in the business of discovering, developing and marketing pharmaceutical products. 2. Lilly has discovered a compound internally designated as LY213829, Tazofelone, (as defined in Section 1.02 below, the "Compound") which may be useful in the treatment of functional gastrointestinal disorders and other indications. Lilly has previously engaged in certain research and development efforts including limited clinical trials with respect to the Compound, but has concluded that future development efforts could best be conducted by a company with a focus on gastrointestinal products. 3. Roberts desires to license from Lilly certain rights of Lilly to the Compound and to pursue development and commercialization of the Compound within the Territory (as defined below), and Lilly is willing to grant such license, all upon the terms and conditions set forth in this License Agreement. AGREEMENT --------- In consideration of the Recitals and the mutual covenants and agreements set forth below, the parties agree as follows: ARTICLE 1 --------- DEFINITIONS ----------- When used in this Agreement, each of the following terms shall have the meanings set forth below. Section 1.01. "Affiliate" of a party hereto means any corporation or ------------ business entity which at the time in question controls, is under common control with, or is controlled by such party. As used herein, control shall mean the ownership, directly or indirectly, of more than fifty percent (50%) of the voting stock or similar interests of the corporation or business entity or the ability to otherwise control the management of the corporation or business entity. -2- Section 1.02. "Compound" means (+/-)-5-[[3,5-bis(1,1-dimethylethyl)-4- ------------ hydroxyphenyl]methyl]-4-thiazolidinone and all pharmaceutically acceptable salts and solvates thereof. Section 1.03. "End User" means a wholesaler, distributor, pharmacy, ------------ hospital, health care organization or patient. Section 1.04. "Know-How" means the items listed on the attached Appendix A ------------ which are owned by or licensed to Lilly and reasonably useful to Roberts in developing and manufacturing the Compound and Product. Section 1.05. "Lilly Intellectual Property Rights" means all patent ------------ rights, trade secret rights, and Know-How rights owned, licensed or otherwise controlled by Lilly as of the date hereof which encompass Compound and Product or are useful in preparing Compound and are effective in the Territory, including all divisions, continuations, continuations-in-part, reissuances, reexaminations, extensions, Supplementary Protection Certificates, and any similar intellectual property rights, and all counterparts thereof in the Territory. A list of all patent rights owned, licensed or otherwise controlled by Lilly as of the date hereof and which are encompassed hereunder is attached as Appendix B. Section 1.06. "Net Sales" means with respect to a Product, the gross ------------ amount invoiced by Roberts, or any sublicensee, to an End User less the following deductions: 1. Trade, quantity and cash discounts actually given or allowed; 2. Rebates, allowances, Medicaid and Medicare reimbursements, chargebacks and similar deductions; 3. Any tax imposed on the sale, delivery or use of the product; and 4. Allowances or credits for returned goods or rejections of any Product which is unsalable. All amounts of Net Sales shall be determined from the books and records of Roberts maintained in accordance with United States generally accepted accounting principles, consistently applied. Section 1.07. "Phase I Clinical Trial" means a small scale clinical study ------------ conducted in normal volunteers to establish Product safety. Section 1.08. "Phase III Clinical Trial" means a large scale clinical ------------ study conducted in patients to establish Product efficacy and to support Product Registration. -3- Section 1.09. "Product" means any pharmaceutical compositon for use as a ------------ therapeutic or diagnostic product that incorporates the Compound. Section 1.10. "Territory" means the entire world. ------------ ARTICLE II ---------- LICENSE ------- Lilly grants to Roberts an exclusive license to make, have made, use or sell within the Territory the Compound and Product pursuant to all Lilly Intellectual Property Rights. With respect to any patent rights licensed hereunder, such license shall be limited solely to those patent claims necessary to provide Roberts with the ability to make, have made, use or sell Product within the Territory and shall, further, be limited solely to the right to make, have made, use or sell Product within the Territory. Such license shall include the right of Roberts to sublicense, consistent with the terms of this Agreement. All terms and provisions of this Agreement shall apply to each sublicense to the same extent as they apply to Roberts, and Roberts shall guarantee performance by its sublicensee of all obligations imposed under the terms of this Agreement. ARTICLE III ----------- PAYMENTS AND ROYALTIES ---------------------- Section 3.01. Signing and Milestone Payments. --------------------------------------------- (a) As consideration for the licenses granted hereunder, Roberts shall pay Lilly by wire transfer to an account designated by Lilly the following amounts at the following times: (i) Upon execution of this Agreement $1 million (ii) Upon completion of transfer of the $2 million Know-How described in Section 1.04 of this Agreement (iii) Upon approval of the first clinical $1 million trial exemption or equivalent for a Product in the United States, Canada Japan or the European Community (i.e., a filing such as an IND that permits the commencement of Phase I Clinical Trials): -4- (iv) Upon commencement of the first $2 million Phase III Clinical Trial of a Product: (v) Upon acceptance of the first New $2 million Drug Application or similar filing in the United States, Canada, Japan or the European Community that seeks permission to market a Product: (vi) Upon approval of the first marketing $2 million approval of a Product in the United States, Canada, Japan or the European Community (e.g. approval by the FDA or similar governmental entity of an NDA or similar filing for a Product): (b) All payments described above shall be made within thirty (30) days of the relevant event, except for the payment described in (a)(i), which shall be made upon signing of this Agreement. Any payment not made when due shall bear interest at the United States prime rate on the due date as published in the Wall Street Journal, plus six percent (6%). - ------------------- Section 3.02. Royalty. As additional consideration for the licenses ---------------------- granted hereunder, Roberts shall pay to Lilly a royalty equal to 7% of Net Sales of Product the Territory. Royalties shall be reported and paid quarterly in accordance with Article VII of this Agreement. ARTICLE IV ---------- PROSECUTION AND INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS ------------------------------------------------------------ Section 4.01. Patent Term Extension and Supplementary Protection ----------------------------------------------------------------- Certificates. Lilly upon request of Roberts shall apply for (and grant Roberts - ------------ a license under) patent term extensions, Supplementary Protection Certificates or functional equivalents thereof, in any jurisdication within the Territory where usch items are permissable, for any Lilly Intellectual Property Rights licensed to Roberts hereunder. Roberts will provide Lilly with all material and information as may be necessary to obtain any of the aforesaid rights. Section 4.02. Prosecution and Maintenance of Licensed Patents. -------------------------------------------------------------- (a) Appendix B attached hereto identifies all pending patents worldwide which are encompassed in the applications and Lilly Intellectual Property Rights. -5- (b) Lilly shall prosecute any pending applications of which it is the owner that are emcompassed in the Lilly Intellectual Property Rights and maintain any patents that have issued or will issue thereon in full force and effect for the term of such patent. Should, during the course of prosecution of any pending claims, an official action rejecting the claims require that an amendment be made or action be taken which would limit or substantially change the scope of any license hereunder, Lilly will timely inform Roberts in writing. Lilly shall consult Roberts before responding to any such official action, and allow Roberts to assist in the prosecution of such claims or, at Lilly's option, allow Roberts to assist in the prosecution of such claims or, at Lilly's option, allow Roberts the opportunity at its time and expense to prosecute such claims to Roberts satisfaction. Section 4.03. Costs of Prosecution and Maintenance of Patents. Lilly -------------------------------------------------------------- shall bear all costs incurred in filing, prosecuting and maintaining all patents and patent applications encompassed within he Intellectual Property Rights, provided, however, that Roberts shall pay one-half (1/2) of all reasonable external expenses incurred by Lilly while prosecuting and maintaining such patents and patent applications. External expenses will include patent office fees and taxes in connection with the prosecution and maintenance of any patent or patent application and the fees of any patent attorneys or agents, external of Lilly, in connection with the ex parte prosecution and maintenance thereof. -- ----- The allocation of such expenses will occur on an annual basis at the end of the last quarter of each calendar year, at which time Lilly will provide Roberts with an itemized list of external expenses denominated in United States dollars incurred during the previous annual period. Roberts will then reimburse Lilly's expenses within sixty (60) days of the date of receipt of this itemized list. Notwithstanding the foregoing, Lilly may, at its sole discretion, choose not to prosecute or cease to maintain a patent or patent application in any country as it so desires and to the extent that Lilly chooses not to prosecute or ceases to maintain such patent or patent application Lilly shall not be responsible for any patent costs associated with prosecuting and/or maintaining the patent or patent application in such country. If Roberts to prosecute or maintain such patent or patent application Roberts may do so at its own expense; however, under these circumstances, Lilly would grant Roberts all of its patent rights associated with such patent in such country. Similarly, upon written notice to Lilly, Roberts may elect not to share in the prosecution or maintenance costs as described in this Section 4.03 related to a patent or patent application in a particular country; however, upon such election any rights that Roberts has in such patent in such country would be granted to Lilly. Section 4.04 Option by Roberts to Discontinue License. Roberts, at its ------------------------------------------------------ option, may elect to discontinue the license granted and surrender all rights hereunder as to any patent on a country-by-country basis. Such election must be made by thirty (30) days written notice by simultaneous facsimile transmission and certified mailing, -6- and, with respect to the surrender of Roberts' rights, will be effective as of the date of mailing. In the event such an election is made, Lilly's obligations under Sections 4.01 and 4.02 and Roberts' obligations under Section 4.03 will terminate thirty (30) days from the date of mailing with respect to the specific patent on which the election is made. Section 4.05. Infringement. Each party shall give prompt notice to the --------------------------- other of any infringement, potential infringement or suspected infringement of Lilly Intellectual Property Rights that may come to such party's attention. Promptly thereafter, the parties shall consult and cooperate fully to determine a course of action, including, but not limited to, the commencement of legal action by one or both parties, to cause such infringement, potential infringement or suspected infringement to be terminated. Each party, at its option, may elect to participate in or commence such legal action. In the event of a joint action in which both parties agree to participate, the parties will share in the costs and the recovery of the agreed upon course of action in a manner to be agreed upon. Failing agreement on a course of action to abate infringement, potential infringement or suspected infringement within sixty (60) days of the time such infringement, potential infringement or suspected infringement becomes known to both parties, either party shall have the right, at its own expense, to initiate and prosecute an action against the infringer and shall retain whatever damages are recovered. In the event Roberts is unable to initiate and prosecute such action solely in its own name, Lilly will execute (and cause its Affiliates to execute) all documents necessary for Roberts to initiate and prosecute such action. Neither party will enter into any settlement of any action referred to in this Section without the other party's prior consent, which consent shall not be unreasonably withheld. Section 4.06. Reexamination and Reissue. Lilly shall defend in a ---------------------------------------- reasonable manner any patent encompassed within the Lilly Intellectual Property Rights in any reexamination or reissue proceeding in the United States Patent and Trademark Office and the applicable foreign equivalent. Before Lilly initiates a reissue proceeding, or before either party initiates a reexamination proceeding, the parties shall consult as to the desirability or necessity of such a proceeding. Such proceedings will not be abandoned prior to a final decision of the Patent Office Board of Appeals or Patent Office Board of Interferences and the applicable foreign equivalent without the consent of Roberts, which consent will not be unreasonably withheld taking into consideration, inter alia, the merits of the action of the Patent and Trademark Office and the applicable foreign equivalent, priority dates provable by any interference party (should an interference be involved), and the technological and commercial importance of the subject matter of the claims of the application or patent involved expenses shall be borne as provided in Section 4.03. -7- ARTICLE V --------- DISCLOSURE OF AGREEMENT ----------------------- Section 5.01. Disclosure of Agreement. Except as provided below, neither -------------------------------------- Roberts nor Lilly shall release any information to any third party with respect to the existence and terms of this Agreement without the prior written consent of the other party to this Agreement. This prohibition includes, but is not limited to, press releases, educational and scientific conferences, promotional materials, governmental filings, and discussions with lenders, investment bankers, public officials, and the media. Section 5.02. Releases Required by Law. If either party determines a --------------------------------------- release of information is required by law or governmental regulation, it shall notify the other in writing at least ten (10) days (or such shorter period where legally required) before the time of the proposed release. The notice shall include the exact text of the proposed release, the time and manner of the release, and the basis for such party's belief that disclosure is required. At the other party's request and before the release, the party desiring to release information shall consult with the other party on the necessity for the disclosure and the text of the proposed release. In no event shall a release include information regarding the existence or terms of this Agreement that is not required by law or governmental regulation without the consent of the other party. Notwithstanding any other terms of this Agreement, either party shall be permitted and allowed to provide a copy of this Agreement or any terms hereof or otherwise provide any information with respect to the existence and terms of this Agreement to appropriate governmental taxing or drug regulatory authorities requested, without advance written notice or approval of the other party. ARTICLE VI ---------- CERTAIN UNDERTAKINGS -------------------- Section 6.01. Lilly Warranties. Lilly hereby warrants that it, to the ------------------------------- best of its knowledge, is the sole owner of or is duly licensed under the Lilly Intellectual Property Rights licensed to Roberts hereunder and has a lawful right to grant the rights and licenses granted to Roberts hereunder. Section 6.02. Roberts Efforts. Roberts hereby agrees to use its best ------------------------------- efforts to develop and commercialize Products throughout the Territory. Roberts may abandon development efforts for the Compound at any time if in the reasonable judgment of Roberts further development efforts are not justified. If Roberts so abandons development, if shall upon request assign to Lilly or Lilly's designee all intellectual property, records, data, clinical trial results and other information relating to the Compound in return for which Lilly or its designee shall pay to Roberts an amount equal to Roberts' total development costs (including all out of pocket costs -8- and reasonable internal costs). Furthermore, upon execution of this Agreement, Roberts shall assume all responsibilities for all adverse event reporting, annual reporting and any other reporting responsibilities to regulatory agencies in the Territory. Section 6.03. Technical Assistance. For a period of one hundred eighty ----------------------------------- (180) days from the date hereof, Lilly will, through certain designated personnel, provide Roberts with such technical assistance, information and advice regarding the use of Lilly Intellectual Property Rights and the Know-How that may be reasonably necessary in connection with the manufacturing and testing of the Compound and Product. Lilly, at its expense, also agrees that such assistance may include one (1) visit to the Roberts facilities (not to exceed twenty-four (24) hours) located in New Jersey by at least one (1) qualified member of Lilly's personnel to render on-site technical assistance. Except for the on-site visit described in this Section 6.03, all costs external to Lilly and associated with technical assistance shall be borne entirely by Roberts. Furthermore, Lilly shall not be required to engage extra personnel or to provide facilities in connection with providing technical assistance. ARTICLE VII ----------- ACCOUNTING ---------- Section 7.01. Sales and Royalty Reports. Roberts shall deliver to Lilly ---------------------------------------- within sixty (60) days after the end of each calendar quarter a written accounting of Roberts' Net Sales and the royalty payment due to Lilly for such quarter. Such quarterly reports shall be in English and include Net Sales of products on a country-by-country basis (expressed in United States dollars or computed under the provisions of Section 7.04 hereof), a sales forecast for each quarter of the current calendar year, and contain such information as Lilly may from time to time reasonably request. Annually, October 1, Roberts shall deliver to Lilly a sales forecast, by quarter, for the subsequent calendar year. All sales and royalty reports shall be directed to Eli Lilly and Company, Attn: Royalty Administration, D.C. 2211, Lilly Corporate Center, Indianapolis, Indiana 46285. In the event Roberts makes Sales of Product(s) to persons other than End Users, Roberts shall require such persons to provide Roberts with such information as Lilly may reasonably request to permit Lilly to calculate and verify Net Sales and Royalties due. Section 7.02. Delivery of Royalty. When Roberts delivers the accounting ---------------------------------- to Lilly, Roberts shall also pay by wire transfer or other method acceptable to Lilly royalty payments due to Lilly for the preceding calendar quarter. Any payment not made when due shall bear interest at the United States prime rate on due date as published in the Wall Street Journal, plus six percent (6%). ------------------- Section 7.03. Audits. Roberts shall keep accurate records in sufficient --------------------- detail to enable the amounts due to Lilly hereunder to be determined. During the term of -9- this Agreement and for two (2) years after its termination Lilly shall, not more than once each year and upon written notice, have the right, at its expense, to audit the books and records of Roberts has underpaid a royalty amount due under this Agreement and for two (2) years after its termination Lilly shall, not more than once each year and upon written notice, have the right, at its expense, to audit the books and records of Roberts for the purpose of determining the accuracy of royalty payments. If Roberts has underpaid a royalty amount due under this Agreement by more than five percent (5%), Roberts shall, in addition to paying any royalties due, also reimburse Lilly for the cost of such audit. Section 7.04. Exchange Rates and Currency Translation. All payments to be ----------------------------------------------------- made by Roberts to Lilly under this Agreement shall be made and reported in United States dollars. The rate of exchange to be used in computing the amount of Net Sales and the United States dollars due Lilly shall be calculated using Roberts' then current standard exchange rate methodology, which methodology is used by Roberts in the translation of its foreign currency operating results for external reporting, is consistent with United States generally accepted accounting principles and generally reviewed and approved by Roberts' independent certified public accountants. Section 7.05. Withholding Taxes. Roberts shall have no liability for any -------------------------------- income taxes levied against Lilly on account of royalties paid hereunder. If a laws or regulations require that any such taxes be withheld by Roberts, Roberts shall deduct such taxes from the payment due Lilly, pay the taxes so withheld to the proper taxing authority, and send proof of payment to Lilly annually within ninety (90) days of the first day of the year following such payment. If Lilly desires to obtain a refund of any taxes so withheld and paid to a taxing authority, Roberts shall cooperate in the pursuit of such refund. ARTICLE VIII - ------------ TERM AND TERMINATION -------------------- Section 8.01. Term. This Agreement shall become effective on the date ------------------- hereof, and shall remain in effect until the later of either: (i) the life of the last to expire of the patents encompassed in the Lilly Intellectual Property, or (ii) fifteen (15) years from the date hereof. Upon termination of this Agreement set forth in this Section 8.01, the licenses granted to Roberts hereunder shall be deemed to be paid up in full. Section 8.02. Termination by Default. If either party is in default of ------------------------------------- any of its material obligations under this Agreement, or fails to remedy such a default within sixty (60) days after the other party sends written notice detailing the substance of the default to the defaulting party, the injured party may terminate this Agreement by written notice. In the event Lilly elects to terminate this Agreement by reason of any default by Roberts, the licenses granted hereunder shall terminate. -10- Section 8.03. Residual Obligation Upon Termination. Termination of this --------------------------------------------------- Agreement for any reason whatsoever will not release or discharge Lilly or Roberts from the performance of any obligation or the payment of any debt which may have previously accrued and remains to be performed, paid or discharged, at the date of such termination. However, upon termination no further obligations under this Agreement shall be incurred by Lilly or Roberts. ARTICLE IX ---------- MISCELLANEOUS PROVISIONS ------------------------ Section 9.01. Amendment. This Agreement may not be amended, supplemented ------------------------ or otherwise modified except by an instrument in writing signed by an authorized representative of both parties. Section 9.02. Entire Agreement. This Agreement constitutes the complete ------------------------------- and definitive agreement of the parties on the subject matter hereof and supersedes, cancels and annuls all prior or subsequent agreements, understandings and undertakings relating to the subject matter hereof including, but without limiting the generality of the foregoing, any documents used by the parties in making or accepting any offer. There are no verbal agreements, warranties, representations or understandings affecting this Agreement, and all previous or other negotiations, representations and understandings between Lilly and Roberts are merged herein. Section 9.03. Severability. Each party agrees that, should any provision --------------------------- of this Agreement be determined by a court of competent jurisdiction to violate or contravene any applicable law or policy, such provision will be severed or modified by the court to the extent necessary to comply with the applicable law or policy, and such modified provision and the remainder of the provisions hereof will continue in full force and effect. The parties specifically agree that nothing in this Agreement is intended to require either party to take, or not take, any action which would constitute a violation of any applicable law or regulation, including but not limited to those regarding trade. Section 9.04. Notices. Any notice required or permitted to be given under ---------------------- this Agreement shall be in writing and shall be deemed to have been sufficiently given for all purposes if mailed by first class certified or registered mail, postage prepaid, or sent by national overnight delivery service, or by acknowledged facsimile. Unless otherwise specified in writing, the mailing addresses of the parties shall be as follows: -11- For Roberts: Roberts Laboratories Inc. 4 Industrial Way West Eatontown, New Jersey 07724 Attention: A.A. Rascio, Vice President For Lilly: Eli Lilly and Company Lilly Corporate Center Indianapolis, IN 46285 Attention: General Counsel Section 9.05. Governing Law. This Agreement shall be governed by, and ---------------------------- construed in accordance with, the laws of Indiana, excluding any choice of law rules which may direct the application of the law of any other jurisdiction. Section 9.06. Assignment. Except as expressly provided herein, neither ------------------------- party may assign its rights and obligations under this Agreement except to an Affiliate without prior written consent of the other, except a party may make such an assignment without the other party's consent in connection with any merger or sale of all or substantially all of its assets to which this Agreement relates. This Agreement shall be binding upon the inure to the benefit of the successors permitted assignees of the parties hereto. Section 9.7. Consents Not Unreasonably Withheld. Whenever provision is ------------------------------------------------ made in this Agreement for either party to secure the consent or approval of the other, that consent or approval shall not unreasonably be withheld, and whenever in this Agreement provisions are made for one party to object to or disapprove a matter, such objection or disapproval shall not unreasonably be exercised. Section 9.8. No Strict Construction. This Agreement has been prepared ------------------------------------ jointly and shall not be strictly construed against either party. Section 9.9. Captions. The captions or headings of the Sections or other ---------------------- subdivisions hereof are inserted only as a matter of convenience or for reference and shall have no effect on the meaning of the provisions hereof. Section 9.10. Force Majeure. Any delay or failure in the performance of ---------------------------- any of the duties or obligations of any party hereto caused by an event outside the affected party's reasonable control shall not be considered a breach of this Agreement, and the time required for such party's performance shall be extended for a period equal to the period of such delay. Such events shall include, without limitation, any labor strike -12- or lockout, act of God, war, fire, flood, embargo, act of any governmental authority, riot, or any other unforeseeable cause or causes beyond the reasonable control and without the fault or negligence of the party so affected. The party so affected shall give prompt notice to the other party of such cause, and shall take whatever reasonable steps are appropriate in the party's discretion to relieve the effect of such cause as rapidly as possible. Section 9.11. Currency. All references to "$" or "dollars" in this ---------------------- agreement shall refer to United States dollars. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their respective officers thereunto duly authorized. ROBERTS LABORATORIES INC. ELI LILLY AND COMPANY By: /s/ Peter M. Rogalin By: /s/ Charles E. Golden ---------------------- ------------------------ Title: Vice President Title: Executive Vice President ---------------------- and Chief Financial Officer In order to induce Lilly to execute this Agreement, Roberts Pharmaceutical Corporation, the parent company of Roberts Laboratories Inc., hereby unconditionally guarantees the due payment and performance of all obligations of Roberts Laboratories Inc. contained in this Agreement. By: /s/ Anthony A. Rascio ------------------------ Title: Vice President APPENDIX A Know-How shall mean all written information in the possession of Lilly regarding the Compound of the types listed below reasonably useful to Roberts in developing and manufacturing the compound. Lilly shall use its reasonable efforts to locate and furnish to Roberts all material documents representing Know-How. Roberts acknowledges that certain records may have been lost or destroyed or otherwise be unavailable. Provided that Lilly has used its reasonable efforts to locate such documents, Lilly shall have no further obligation to Roberts with respect to such documents. Marketing . Market research on GI markets prepared with respect to the Compound. . Initial forecasts of market potential for the Compound Toxicology . Written summary reports for the Compound Project Management . For the Compound for the 2 years prior to Status Reports discontinuation of Lilly's development effort. Regulatory . CTX for the Compound . All other material regulatory documents relating to the Compound, including any and all clinical data APPENDIX B LY213829 (TAZOFELONE) PATENT SUMMARY ------------------------------------ Lilly Docket No. Subject Matter ---------------- -------------- X-6428 Compound (racemate) X-7812 Method of Treating IBD: Process for Preparing Enantiomers X-8830 Process for Preparing Enantiomers P-9667 Crystal Form of Racemate EXHIBIT 10.81 LICENSE AGREEMENT [LY246736] This License Agreement ("Agreement") is made as of the 5th day of November, 1996 by and between Eli Lilly and Company, an Indiana corporation ("Lilly") and Roberts Laboratories Inc., a New Jersey corporation ("Roberts"). RECITALS -------- 1. Lilly and Roberts are in the business of discovering, developing and marketing pharmaceutical products. 2. Lilly has discovered a compound internally designated as LY246736 (as defined in Section 1.02 below, the "Compound") which may be useful in the treatment of functional gastrointestinal disorders and other indications. Lilly has previously engaged in certain research and development efforts with respect to the Compound, but has concluded that future development efforts could best be conducted by a company with a focus on gastrointestinal products. 3. Roberts desires to license from Lilly certain rights of Lilly to the Compound and to pursue development and commercialization of the Compound within the Territory (as defined below), and Lilly is willing to grant such license, all upon the terms and conditions set forth in this License Agreement. AGREEMENT --------- In consideration of the Recitals and the mutual covenants and agreements set forth below, the parties agree as follows: ARTICLE I --------- DEFINITIONS ----------- When used in this Agreement, each of the following terms shall have the meanings set forth below. Section 1.01. "Affiliate" of a party hereto means any corporation or ------------ business entity which at the time in question controls, is under common control with, or is controlled by such party. As used herein, control shall mean the ownership, directly or indirectly, of more than fifty percent (50%) of the voting stock or similar interests of the corporation or business entity or the ability to otherwise control the management of the corporation or business entity. Section 1.02. "Compound" means (+)-[[2(S)-[[4(R)-(3-hydroxyphenyl)-3(R),4- ------------ dimethyl-1-piperidinyl]methyl]-1-oxo-3-phenylpropyl]amino]-acetic acid and all pharmaceutically acceptable salts and solvates thereof. -2- Section 1.03. "End User" means a wholesaler, distributor, pharmacy, ------------ hospital, health care organization or patient. Section 1.04. "Know-How" means the items listed on the attached Appendix A ------------ which are owned by or licensed to Lilly and reasonably useful to Roberts in developing and manufacturing the Compound and Product. Section 1.05. "Lilly Intellectual Property Rights" means all patent ------------ rights, trade secret rights, and Know-How rights owned, licensed or otherwise controlled by Lilly as of the date hereof which encompass Compound and Product or are useful in preparing Compound and are effective in the Territory, including all divisions, continuations, continuations-in-part, reissuances, reexaminations, extensions, Supplementary Protection Certificates, and any similar intellectual property rights, and all counterparts thereof in the Territory. A list of all patent rights owned, licensed or otherwise controlled by Lilly as of the date hereof and which are encompassed hereunder is attached as Appendix B. Section 1.06. "Net Sales" means with respect to a Product, the gross ------------ amount invoiced by Roberts, or any sublicensee, to an End User less the following deductions: 1. Trade, quantity and cash discounts actually given or allowed; 2. Rebates, allowances, Medicaid and Medicaid reimbursements, chargebacks and similar deductions; 3. Any tax imposed on the sale, delivery or use of the product, and 4. Allowances or credits for returned goods or rejections of any Product which in unsalable. All amounts of Net Sales shall be determined from the books and records of Roberts maintained in accordance with United States generally accepted accounting principles, consistently applied. Section 1.07. "Product" means any pharmaceutical composition for use as a ------------ therapeutic or diagnostic product that incorporates the Compound. Section 1.08. "Territory" means the entire world. ------------ ARTICLE II ---------- LICENSE ------- Lilly grants to Roberts an exclusive license to make, have made, use or sell within the Territory the Compound and Product pursuant to all Lilly Intellectual Property Rights. With respect to any patent rights licensed hereunder, such license shall be limited solely to those -3- patent claims necessary to provide Roberts with the ability to make, have made, use or sell Product within the Territory and shall, further, be limited solely to the right to make, have made, use or sell Product within the Territory. Such license shall include the right of Roberts to sublicense, consistent with the terms of this Agreement. All terms and provisions of this Agreement shall apply to each sublicense to the same extent as they apply to Roberts, and Roberts shall guarantee performance by its sublicensee of all obligations imposed under the terms of this Agreement ARTICLE III ----------- PAYMENTS AND ROYALTIES ---------------------- Section 3.01. Signing and Milestone Payments. --------------------------------------------- (a) As consideration for the licenses granted hereunder, Roberts shall pay Lilly by wire transfer to an account designated by Lilly the following amounts at the following times: (i) Upon execution of this Agreement $500,000 (v) Upon acceptance of the first New $500,000 Drug Application or similar filing in the United States, Canada, Japan or the European Community that seeks permission to market a Product: (b) All payments described above shall be made within thirty (30) days of the relevant event, except for the payment described in (a)(i), which shall be made upon signing of this Agreement. Any payment not made when due shall bear interest at the United States prime rate on the due date as published in the Wall Street Journal, plus six percent (6%). ------------------- Section 3.02. Royalty. As additional consideration for the licenses --------------------- granted hereunder, Roberts shall pay to Lilly a royalty equal to 7% of Net Sales of Product in the Territory. Royalties shall be reported and paid quarterly in accordance with Article VII of this Agreement. ARTICLE IV ---------- PROSECUTION AND INFRINGEMENT OF INTELLECTUAL -------------------------------------------- PROPERTY RIGHTS - --------------- Section 4.01. Patent Term Extensions and Supplementary Protection ------------------------------------------------------------------ Certificates. Lilly upon request of Roberts shall apply for (and grant Roberts a - ------------ license under) patent term extensions, Supplementary Protection Certificates or functional equivalents thereof, in any jurisdiction within the Territory where such items are permissible, for any Lilly Intellectual -4- Property Rights licensed to Roberts hereunder. Roberts will provide Lilly with all material and information as may be necessary to obtain any of the aforesaid rights. Section 4.02. Prosecution and Maintenance of Licensed Patents. -------------------------------------------------------------- (a) Appendix B attached hereto identifies all pending applications and patents worldwide which are encompassed in the Lilly Intellectual Property Rights. (b) Lilly shall prosecute any pending applications of which it is the owner that are encompassed in the Lilly Intellectual Property Rights and maintain any patents that have issued or will issue thereon in full force and effect for the term of such patent. Should, during the course of prosecution of any pending claims, an official action rejecting the claims require that an amendment be made or action be taken which would limit or substantially change the scope of any license hereunder, Lilly will timely inform Roberts in writing. Lilly shall consult Roberts before responding to any such official action, and allow Roberts to assist in the prosecution of such claims or, at Lilly's option, allow Roberts the opportunity at its time and expense to prosecute such claims to Roberts satisfaction. Section 4.03. Costs of Prosecution and Maintenance of Patents. Lilly -------------------------------------------------------------- shall bear all costs incurred in filing, prosecuting and maintaining all patents and patent applications encompassed within the Intellectual Property Rights, provided, however, that Roberts shall pay one-half (1/2) of all reasonable external expenses incurred by Lilly while prosecuting and maintaining such patents and patent applications. External expenses will include patent office fees and taxes in connection with the prosecution and maintenance of any patent or patent application and the fees of any patent attorneys or agents, external of Lilly, in connection with the ex parte prosection and maintenance thereof. -- ----- The allocation of such expenses will occur on a annual basis at the end of the last quarter of each calendar year, at which time Lilly will provide Roberts with an itemized list of external expenses denominated in United States dollars incurred during the previous annual period. Roberts will then reimburse Lilly's expenses within sixty (60) days of the date of receipt of this itemized list. Notwithstanding the foregoing, Lilly may, at its sole discretion, choose not to prosecute or cease to maintain a patent or patent application in any country as it so desires and to the extent that Lilly chooses not to prosecute or ceases to maintain such patent or patent application Lilly shall not be responsible for any patent costs associated with prosecuting and/or maintaining the patent or patent application in such country. If Roberts desires to prosecute or maintain such patent or patent application Roberts may do so at its own expense; however, under these circumstances, Lilly would grant Roberts all of its patent rights associated with such patent in such country. Similarly, upon written notice to Lilly, Roberts may elect not to share in the prosecution or maintenance costs as described in this Section 4.03 related to a patent or patent application in a particular country; however, upon such election any rights that Roberts has in such patent in such country would be granted to Lilly. -5- Section 4.04. Option by Roberts to Discontinue License. Roberts, at its ------------------------------------------------------- option, may elect to discontinue the license granted and surrender all rights hereunder as to any patent on a country-by-country basis. Such election must be made by thirty (30) days written notice by simultaneous facsimile transmission and certified mailing, and, with respect to the surrender of Roberts' rights, will be effective as of the date of mailing. In the event such an election is made, Lilly's obligations under Sections 4.01 and 4.02 and Roberts' obligations under Section 4.03 will terminate thirty (30) days from the date of mailing with respect to the specific patent on which the election is made. Section 4.05. Infringement. Each party shall give prompt notice to the --------------------------- other of any infringement, potential infringement or suspected infringement of Lilly Intellectual Property Rights that may come to such party's attention. Promptly thereafter, the parties shall consult and cooperate fully to determine a course of action, including, but not limited to, the commencement of legal action by one or both parties, to cause such infringement, potential infringement or suspected infringement to be terminated. Each party, at its option, may elect to participate in or commence such a legal action. In the event of a joint action in which both parties agree to participate, the parties will share in the costs and the recovery of the agreed upon course of action in a manner to be agreed upon. Failing agreement on a course of action to abate infringement, potential infringement or suspected infringement within sixty (60) days of the time of such infringement, potential infringement or suspected infringement becomes known to both parties, either party shall have the right, at its own expense, to initiate and prosecute an action against the infringer and shall retain whatever damages are recovered. In the event Roberts is unable to initiate and prosecute such action solely in its own name, Lilly will execute (and cause its Affiliates to execute) all documents necessary for Roberts to initiate and prosecute such action. Neither party will enter into any settlement of any action referred to in this Section without the other party's prior consent, which consent shall not be unreasonably withheld. Section 4.06. Reexamination and Reissue. Lilly shall defend in a ---------------------------------------- reasonable manner any patent encompassed within the Lilly Intellectual Property Rights in any reexamination or reissue proceeding in the United States Patent and Trademark Office and the applicable foreign equivalent. Before Lilly initiates a reissue proceeding, or before either party initiates a reexamination proceeding, the parties shall consult as to the desirability or necessity of such a proceeding. Such proceedings will not be abandoned prior to a final decision of the Patent Office Board of Appeals or Patent Office Board of Interferences and the applicable foreign equivalent without the consent of Roberts, which consent will not be unreasonably withheld taking into consideration, inter alia, the merits of the action of the Patent and Trademark Office and the applicable foreign equivalent, priority dates provable by any interference party (should an interference be involved), and the technological and commercial importance of the subject matter of the claims of the application or patent involved expenses shall be borne as provided in Section 4.03. -6- ARTICLE V --------- DISCLOSURE OF AGREEMENT ----------------------- Section 5.01. Disclosure of Agreement. Except as provided below, neither -------------------------------------- Roberts nor Lilly shall release any information to any third party with respect to the existence and terms of this Agreement without the prior written consent of the other party to this Agreement. This prohibition includes, but is not limited to, press releases, educational and scientific conferences, promotional materials, governmental filings, and discussions with lenders, investment bankers, public officials, and the media. Section 5.02. Releases Required by Law. If either party determines a --------------------------------------- release of information is required by law or governmental regulation, it shall notify the other in writing at least ten (10) days (or such shorter period where legally required) before the time of the proposed release. The notice shall include the exact text of the proposed release, the time and manner of the release, and the basis for such party's belief that disclosure is required. At the other party's request and before the release, the party desiring to release information shall consult with the other party on the necessity for the disclosure and the text of the proposed release. In no event shall a release include information regarding the existence or terms of this Agreement that is not required by law or governmental regulation without the consent of the other party. Notwithstanding any other terms of this Agreement, either party shall be permitted and allowed to provide a copy of this Agreement or any terms hereof or otherwise provide any information with respect to the existence and terms of this Agreement to appropriate governmental taxing or drug regulatory authorities requested, without advance written notice or approval of the other party. ARTICLE VI ---------- CERTAIN UNDERTAKINGS -------------------- Section 6.01. Lilly Warranties. Lilly hereby warrants that it, to the ------------------------------- best of its knowledge, is the sole owner of or is duly licensed under the Lilly Intellectual Property Rights licensed to Roberts hereunder and has a lawful right to grant the rights and licenses granted to Roberts hereunder. Section 6.02. Roberts Efforts. Roberts hereby agrees to use its best ----------------------------- efforts to develop and commercialize Products throughout the Territory. Roberts may abandon development efforts for the Compound at any time if in the reasonable judgment of Roberts further development efforts are not justified. If Roberts so abandons development, it shall upon request assign to Lilly or Lilly's designee all intellectual property, records, data, clinical trial results and other information relating to the Compound in return for which Lilly or its -7- designee shall pay to Roberts an amount equal to Roberts' total development costs (including all out of pocket costs and reasonable internal costs). Roberts shall comply with all responsibilities for all adverse event reporting, annual reporting and any other reporting responsibilities to regulatory agencies in the Territory. Section 6.03. Technical Assistance. For a period of one hundred eighty ----------------------------------- (180) days from the date hereof, Lilly will, through certain designated personnel, provide Roberts with such technical assistance, information and advice regarding the use of Lilly Intellectual Property Rights and the Know-How that may be reasonably necessary in connection with the manufacturing and testing of the Compound and Product. Lilly, at its expense, also agrees that such assistance may include one (1) visit to the Roberts facilities (not to exceed twenty-four (24) hours) located in New Jersey by at least one (1) qualified member of Lilly's personnel to render on-site technical assistance. Except for the on-site visit described in this Section 6.03, all costs external to Lilly and associated with technical assistance shall be borne entirely by Roberts. Furthermore, Lilly shall not be required to engage extra personnel or to provide facilities in connection with providing technical assistance. ARTICLE VII ----------- ACCOUNTING ---------- Section 7.01. Sales and Royalty Reports. Roberts shall deliver to Lilly ---------------------------------------- within sixty (60) days after the end of each calendar quarter a written accounting of Roberts' Net Sales and the royalty payment due to Lilly for such quarter. Such quarterly reports shall be in English and include the Net Sales of products on a country-by-country basis (expressed in United States dollars or computed under the provisions of Section 7.04 hereof), a sales forecast for each quarter of the current calendar year, and contain such other information as Lilly may from time to time reasonably request. Annually, by October 1, Roberts shall deliver to Lilly a sales forecast, by quarter, for the subsequent calendar year. All sales and royalty reports shall be directed to Eli Lilly and Company, Attn: Royalty Administration, D.C. 2211, Lilly Corporate Center, Indianapolis, Indiana 46285. In the event Roberts makes Sales of Product(s) to persons other than End Users, Roberts shall require such persons to provide Roberts with such information as Lilly may reasonably request to permit Lilly to calculate and verify Net Sales and Royalties due. Section 7.02. Delivery of Royalty. When Roberts delivers the accounting ---------------------------------- to Lilly, Roberts shall also pay by wire transfer or other method acceptable to Lilly royalty payments due to Lilly for the preceding calendar quarter. Any payment not made when due shall bear interest at the United States prime rate on due date as published in the Wall Street Journal, plus six percent (6%). ------------------- Section 7.03. Audits. Roberts shall keep accurate records in sufficient --------------------- detail to enable to amounts due to Lilly hereunder to be determined. During the term of this Agreement and for two (2) years after its termination, Lilly shall, not more than once each year and upon written notice, have the right, at its expense, to audit the books and records of -8- Roberts for the purpose of determining the accuracy of royalty payments. If Roberts has underpaid a royalty amount due under this Agreement by more than five percent (5%), Roberts shall, in addition to paying any royalties due, also reimburse Lilly for the cost of such audit. Section 7.04. Exchange Rates and Currency Translation. All payments to be ------------------------------------------------------ made by Roberts to Lilly under this Agreement shall be made and reported in United States dollars. The rate of exchange to be used in computing the amount of Net Sales and the United States dollars due Lilly shall be calculated using Roberts' then current standard exchange rate methodology, which methodology is used by Roberts in the translation of its foreign currency operating results for external reporting, is consistent with United States generally accepted accounting principles and generally reviewed and approved by Roberts' independent certified public accountants. Section 7.05. Withholding Taxes. Roberts shall have no liability for any -------------------------------- income taxes levied against Lilly on account of royalties paid hereunder. If laws or regulations require that any such taxes be withheld by Roberts, Roberts shall deduct such taxes from the payment due Lilly, pay the taxes to withheld to the proper taxing authority, and send proof of payment to Lilly annually within ninety (90) days of the first day of the year following such payment. If Lilly desires to obtain a refund of any taxes so withheld and paid to a taxing authority, Roberts shall cooperate in the pursuit of such refund. ARTICLE VIII ------------ TERM AND TERMINATION -------------------- Section 8.01. Term. This Agreement shall become effective on the date ------------------- hereof, and shall remain in effect until the later of either: (i) the life of the last to expire of the patents encompassed in the Lilly Intellectual Property, or (ii) fifteen (15) years from the date hereof. Upon termination of this Agreement as set forth in this Section 8.01, the licenses granted to Roberts hereunder shall be deemed to be paid up in full. Section 8.02. Termination by Default. If either party is in default of ------------------------------------- any of its material obligations under this Agreement, or fails to remedy such a default within sixty (60) days after the other party sends written notice detailing the substance of the default to the defaulting party, the injured party may terminate this Agreement by written notice. In the event Lilly elects to terminate this Agreement by reason of any default by Roberts, the licenses granted hereunder shall terminate. Section 8.03. Residual Obligation Upon Termination. Termination of this --------------------------------------------------- Agreement for any reason whatsoever will not release or discharge Lilly or Roberts from the performance of any obligation or the payment of any debt which may have previously accrued and remains to be performed, paid or discharged, at the date of such termination. However, upon termination no further obligations under this Agreement shall be incurred by Lilly or Roberts. -9- ARTICLE IX ---------- MISCELLANEOUS PROVISIONS ------------------------ Section 9.01. Amendment. This Agreement may not be amended, supplemented ----------------------- or otherwise modified except by an instrument in writing signed by an authorized representative of both parties. Section 9.02. Entire Agreement. This Agreement constitutes the complete ------------------------------- and definitive agreement of the parties on the subject matter hereof and supersedes, cancels and annuls all prior or subsequent agreements, understandings and undertakings relating to the subject matter hereof including, but without limiting the generality of the foregoing, any documents used by the parties in making or accepting any offer. There are no verbal agreements, warranties, representations or understandings affecting this Agreement, and all previous or other negotiations, representations and understandings between Lilly and Roberts are merged herein. Section 9.03. Severability. Each party agrees that, should any provision --------------------------- of this Agreement be determined by a court of competent jurisdiction to violate or contravene any applicable law or policy, such provision will be severed or modified by the court to the extent necessary to comply with the applicable law or policy, and such modified provision and the remainder of the provisions hereof will continue in full force and effect. The parties specifically agree that nothing in this Agreement is intended to require either party to take, or not take, any action which would constitute a violation of any applicable law or regulation, including but not limited to those regarding trade. Section 9.04. Notices. Any notice required or permitted to be given under ---------------------- this Agreement shall be in writing and shall be deemed to have been sufficiently given for all purposes if mailed by first class certified or registered mail, postage prepaid, or sent by national overnight delivery service, or by acknowledged facsimile. Unless otherwise specified in writing, the mailing addresses of the parties shall be as follows: For Roberts: Roberts Laboratories Inc. 4 Industrial Way West Eatontown, New Jersey 07724 Attention: A.A. Rascio, Vice President For Lilly: Eli Lilly and Company Lilly Corporate Center Indianapolis, IN 46285 Attention: General Counsel -10- Section 9.05. Governing Law. This Agreement shall be governed by, and ---------------------------- construed in accordance with, the laws of Indiana, excluding any choice of law rules which may direct the application of the law of any other jurisdiction. Section 9.06. Assignment. Except as expressly provided herein, neither ------------------------- party may assign its rights and obligations under this Agreement except to an Affiliate without the prior written consent of the other, except a party may make such an assignment without the other party's consent in connection with any merger or sale of all or substantially all of its assets to which this Agreement relates. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assignees of the parties hereto. Section 9.7. Consents Not Unreasonably Withheld. Whenever provision is ------------------------------------------------ made in this Agreement for either party to secure the consent or approval of the other, that consent or approval shall not unreasonably be withheld, and whenever in this Agreement provisions are made for one party to object to or disapprove a matter, such objection or disapproval shall not unreasonably be exercised. Section 9.8. No Strict Construction. This Agreement has been prepared ------------------------------------ jointly and shall not be strictly construed against either party. Section 9.9. Captions. The captions or headings of the Sections or other ---------------------- subdivisions hereof are inserted only as a matter of convenience or for reference and shall have no effect on the meaning of the provisions hereof. Section 9.10. Force Majeure. Any delay or failure in the performance of ---------------------------- any of the duties or obligations of any party hereto caused by an event outside the affected party's reasonable control shall not be considered a breach of this Agreement, and the time required for such party's performance shall be extended for a period equal to the period of such delay. Such events shall include, without limitation, any labor strike or lockout, act of God, war, fire, flood, embargo, act of any governmental authority, riot, or any other unforeseeable cause or causes beyond the reasonable control and without the fault or negligence of the party so affected. The party so affected shall give prompt notice to the other party of such cause, and shall take whatever reasonable steps are appropriate in the party's discretion to relieve the effect of such cause as rapidly as possible. Section 9.11. Currency. All references to "$" or "dollars" in this ----------------------- agreement shall refer to United States dollars. -11- IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their respective officers thereunto duly authorized. ROBERTS LABORATORIES INC. ELI LILLY AND COMPANY By: /s/ Robert A. Vukovich By: /s/ Charles E. Golden ----------------------- ------------------------------ Title: President Title: Executive Vice President and Chief Financial Officer In order to induce Lilly to execute this Agreement, Roberts Pharmaceutical Corporation, the parent company of Roberts Laboratories Inc., hereby unconditionally guarantees the due payment and performance of all obligations of Roberts Laboratories, Inc. contained in this Agreement. By: /s/ Anthony A. Rascio ----------------------- Title: Vice President APPENDIX A Know-How shall mean all written information in the possession of Lilly regarding the Compound of the types listed below reasonably useful to Roberts in developing and manufacturing the compound. Lilly shall use its reasonable efforts to locate and furnish to Roberts all material documents representing Know-How. Roberts acknowledges that certain records may have been lost or destroyed or otherwise be unavailable. Provided that Lilly has used its reasonable efforts to locate such documents, Lilly shall have no further obligation to Roberts with respect to such documents. Marketing . Market research on GI markets prepared with respect to the Compound . Initial forecasts of market potential for the Compound Toxicology . Written summary reports for the Compound Project Management . For the Compound for the 2 years prior Status Reports to discontinuation of Lilly's development effort Regulatory . Material regulatory documents relating to the Compound, if any Appendix B Patent Status ------------- LY246736 -------- X-8244 Compound, Method, Formulation X-8847 Intermediate, Process, Salt, Dihydrate Exhibit 10.81 LICENSE AGREEMENT [LY353433] This License Agreement ("Agreement") is made as of the 5th day of November, 1996 by and between Eli Lilly and Company, an Indiana corporation ("Lily") and Roberts Laboratories Inc., a New Jersey corporation ("Roberts"). RECITALS -------- 1. Lilly and Roberts are in the business of discovering, developing and marketing pharmaceutical products. 2. Lilly has discovered a compound internally designated as LY353433 (as defined in Section 1.02 below, the "Compound") which may be useful in the treatment of functional gastrointestinal disorders and other indications. Lilly has previously engaged in certain research and development efforts including limited clinical trials with respect to the Compound, but has concluded that future development efforts could best be conducted by a company with a focus on gastrointestinal products. 3. Roberts desires to license from Lilly certain rights of Lilly to the Compound and to pursue development and commercialization of the Compound within the Territory (as defined below), and Lilly is willing to grant such license, all upon the terms and conditions set forth in this License Agreement. AGREEMENT --------- In consideration of the Recitals and the mutual covenants and agreements set forth below, the parties agree as follows: ARTICLE 1 --------- DEFINITIONS ----------- When used in this Agreement, each of the following terms shall have the meanings set forth below. Section 1.01. "Affiliate" of a party hereto means any corporation or ------------ business entity which at the time in question controls, is under common control with, or is controlled by such party. As used herein, control shall mean the ownership, directly or indirectly, of more than fifty percent (50%) of the voting stock or similar interests of the corporation or business entity or the ability to otherwise control the management of the corporation or business entity. Section 1.02. "Compound" means 1-(1-methylethyl)-N-[2-[4- ------------ [(tricyclo[3.3.1.1 (3,7)]-dec-1-ylcarbonyl)amino]-1-piperidinyl]ethyl]-1H- indazole-3-carboxamide and all pharmaceutically acceptable salts and solvates thereof. -2- Section 1.03. "End User" means a wholesaler, distributor, pharmacy, ------------ hospital, health care organization or patient. Section 1.04. "Know-How" means the items listed on the attached Appendix A ------------ which are owned by or licensed to Lilly and reasonably useful to Roberts in developing and manufacturing the Compound and Product. Section 1.05. "Lily Intellectual Property Rights" means all patent rights, ------------ trade secret rights, and Know-How rights owned, licensed or otherwise controlled by Lilly as of the date hereof which encompass Compound and Product or are useful in preparing Compound and are effective in the Territory, including all divisions, continuations, continuations-in-part, reissuances, reexaminations, extensions, Supplementary Protection Certificates, and any similar intellectual property rights, and all counterparts thereof in the Territory. A list of all patent rights owned, licensed or otherwise controlled by Lilly as of the date hereof and which are encompassed hereunder is attached as Appendix B. Section 1.06. "Net Sales" means with respect to a Product, the gross ------------ amount invoiced by Roberts, or any sublicensee, to an End User less the following deductions: 1. Trade, quantity and cash discounts actually given or allowed; 2. Rebates, allowances, Medicaid and Medicare reimbursements, chargebacks and similar deductions; 3. Any tax imposed on the sale, delivery or use of the product; and 4. Allowances or credits for returned goods or rejections of any Product which is unsalable. All amounts of Net Sales shall be determined from the books and records of Roberts maintained in accordance with United States generally accepted accounting principles, consistently applied. Section 1.07. "Product" means any pharmaceutical composition for use as a ------------ therapeutic or diagnostic product that incorporates the Compound. Section 1.08. "Territory" means the entire world. ------------ ARTICLE II ---------- LICENSE ------- Lilly grants to Roberts an exclusive license to make, have made, use or sell within the Territory the Compound and Product pursuant to all Lilly Intellectual Property Rights. With respect to any patent rights licensed hereunder, such license shall be limited solely to those -3- patent claims necessary to provide Roberts with the ability to make, have made, use or sell Product within the Territory and shall, further, be limited solely to the right to make, have made, use or sell Product within the Territory. Such license shall include the right of Roberts to sublicense, consistent with the terms of this Agreement. All terms and provisions of this Agreement shall apply to each sublicense to the same extent as they apply to Roberts, and Roberts shall guarantee performance by its sublicensee of all obligations imposed under the terms of this Agreement. ARTICLE III ----------- PAYMENTS AND ROYALTIES ---------------------- Section 3.01. Signing and Milestone Payments. --------------------------------------------- (a) As consideration for the licenses granted hereunder, Roberts shall pay Lilly by wire transfer to an account designated by Lilly the following amounts at the following times: (i) Upon execution of this Agreement $500,000 (ii) Upon acceptance of the first New $500,000 Drug Application or similar filing the United States, Canada, Japan or the the European Community that seeks permission to market a Product: (b) All payments described above shall be made within thirty (30) days of the relevant event, except for the payment described in (a)(i), which shall be made upon signing of this Agreement. Any payment not made when due shall bear interest at the United States prime rate on the due date as published in the Wall Street Journal, plus six percent (6%). ------------------- Section 3.02. Royalty. As additional consideration for the licenses ---------------------- granted hereunder, Roberts shall pay to Lilly a royalty equal to 7% of Net Sales of Product in the Territory. Royalties shall be reported and paid quarterly in accordance with Article VII of this Agreement. ARTICLE IV ---------- PROSECUTION AND INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS ------------------------------------------------------------ Section 4.01. Patent Term Extensions and Supplementary Protection ------------------------------------------------------------------ Certificates. Lilly upon request of Roberts shall apply for (and grant Roberts a - ------------ license under) patent term extensions, Supplementary Protection Certificates or functional equivalents thereof, in any jurisdiction within the Territory where such items are permissible, for any Lilly Intellectual -4- Property Rights licensed to Roberts hereunder. Roberts will provide Lilly with all material and information as may be necessary to obtain any of the aforesaid rights. Section 4.02. Prosecution and Maintenance of Licensed Patents. -------------------------------------------------------------- (a) Appendix B attached hereto identifies all pending applications and patents worldwide which are encompassed in the Lilly Intellectual Property Rights. (b) Lilly shall prosecute any pending applications of which it is the owner that are encompassed in the Lilly Intellectual Property Rights and maintain any patents that have issued or will issue thereon in full force and effect for the term of such patent. Should, during the course of prosecution of any pending claims, an official action rejecting the claims require that an amendment be made or action be taken which would limit or substantially change the scope of any license hereunder, Lilly will timely inform Roberts in writing. Lilly shall consult Roberts before responding to any such official action, and allow Roberts to assist in the prosecution of such claims or, at Lilly's option, allow Roberts the opportunity at its time and expense to prosecute such claims to Roberts satisfaction. Section 4.03. Costs of Prosecution and Maintenance of Patents. Lilly -------------------------------------------------------------- shall bear all costs incurred in filing, prosecuting and maintaining all patents and patent applications encompassed within the Intellectual Property Rights, provided, however, that Roberts shall pay one-half (1/2) of all reasonable external expenses incurred by Lilly while prosecuting and maintaining such patents and patent applications. External expenses will include patent office fees and taxes in connection with the prosecution and maintenance of any patent or patent application and the fees of any patent attorneys or agents, external of Lilly, in connection with the ex parte prosecution and maintenance thereof. -- ----- The allocation of such expenses will occur on an annual basis at the end of the last quarter of each calendar year, at which time Lilly will provide Roberts with an itemized list of external expenses denominated in United States dollars incurred during the previous annual period. Roberts will then reimburse Lilly's expenses within sixty (60) days of the date of receipt of this itemized list. Notwithstanding the foregoing, Lilly may, at its sole discretion, choose not to prosecute or cease to maintain a patent or patent application in any country as it so desires and to the extent that Lilly chooses not to prosecute or ceases to maintain such patent or patent application Lilly shall not be responsible for any patent costs associated with prosecuting and/or maintaining the patent or patent application in such country. If Roberts desires to prosecute or maintain such patent or patent application Roberts may do so at its own expense; however, under these circumstances, Lilly would grant Roberts all of its patent rights associated with such patent in such country. Similarly, upon written notice to Lilly, Roberts may elect not to share in the prosecution or maintenance costs as described in this Section 4.03 related to a patent or patent application in a particular country; however, upon such election any rights that Roberts has in such patent in such country would be granted to Lilly. -5- Section 4.04. Option by Roberts to Discontinue License. Roberts, at its ------------------------------------------------------- option, may elect to discontinue the license granted and surrender all rights hereunder as to any patent on a country-by-country basis. Such election must be made by thirty (30) days written notice by simultaneous facsimile transmission and certified mailing, and, with respect to the surrender of Roberts' rights, will be effective as of the date of mailing. In the event such an election is made, Lilly's obligations under Section 4.01 and 4.02 and Roberts' obligations under Section 4.03 will terminate thirty (30) days from the date of mailing with respect to the specific patent on which the election is made. Section 4.05. Infringement. Each party shall give prompt notice to the --------------------------- other of any infringement, potential infringement or suspected infringement of Lilly Intellectual Property Rights that may come to such party's attention. Promptly thereafter, the parties shall consult and cooperate fully to determine a course of action, including, but not limited to, the commencement of legal action by one or both parties, to cause such infringement, potential infringement, or suspected infringement to be terminated. Each party, at its option, may elect to participate in or commence such a legal action. In the event of a joint action in which both parties agree to participate, the parties will share in the costs and the recovery of the agreed upon course of action in a manner to be agreed upon. Failing agreement on a course of action to abate infringement, potential infringement or suspected infringement within sixty (60) days of the time such infringement, potential infringement or suspected infringement becomes known to both parties, either party shall have the right, at its own expense, to initiate and prosecute an action against the infringer and shall retain whatever damages are recovered. In the event Roberts is unable to initiate and prosecute such action solely in its own name, Lilly will execute (and cause its Affiliates to execute) all documents necessary for Roberts to initiate and prosecute such action. Neither party will enter into any settlement of any action referred to in this Section without the other party's prior consent, which consent shall not be unreasonably withheld. Section 4.06. Reexamination and Reissue. Lilly shall defend in a ---------------------------------------- reasonable manner any patent encompassed within the Lilly Intellectual Property Rights in any reexamination or reissue proceeding in the United States Patent and Trademark Office and the applicable foreign equivalent. Before Lilly initiates a reissue proceeding, or before either party initiates a reexamination proceeding, the parties shall consult as to the desirability or necessity of such a proceeding. Such proceedings will not be abandoned prior to a final decision of the Patent Office Board of Appeals or Patent Office Board of Interferences and the applicable foreign equivalent without the consent of Roberts, which consent will not be unreasonably withheld taking into consideration, inter alia, the merits of the action of the Patent and Trademark Office and the applicable foreign equivalent, priority dates provable by any interference party (should an interference be involved), and the technological and commercial importance of the subject matter of the claims of the application or patent involved expenses shall be borne as provided in Section 4.03. -6- ARTICLE V --------- DISCLOSURE OF AGREEMENT ----------------------- Section 5.01. Disclosure of Agreement. Except as provided below, neither -------------------------------------- Roberts nor Lilly shall release any information to any third party with respect to the existence and terms of this Agreement without the prior written consent of the other party to this Agreement. This prohibition includes, but is not limited to, press releases, educational and scientific conferences, promotional materials, governmental filings, and discussions with lenders, investment bankers, public officials, and the media. Section 5.02. Releases Required by Law. If either party determines a --------------------------------------- release of information is required by law or governmental regulation, it shall notify the other in writing at least ten (10) days (or such shorter period where legally required) before the time of the proposed release. The notice shall include the exact text of the proposed release, the time and manner of the release, and the basis for such party's belief that disclosure is required. At the other party's request and before the release, the party desiring to release information shall consult with the other party on the necessity for the disclosure and the text of the proposed release. In no event shall a release include information regarding the existence or terms of this Agreement that is not required by law or governmental regulation without the consent of the other party. Notwithstanding any other terms of this Agreement, either party shall be permitted and allowed to provide a copy of this Agreement or any terms hereof or otherwise provide any information with respect to the existence and terms of this Agreement to appropriate governmental taxing or drug regulatory authorities requested, without advance written notice or approval of the other party. ARTICLE VI ---------- CERTAIN UNDERTAKINGS -------------------- Section 6.01. Lilly Warranties. Lilly hereby warrants that it, to the ------------------------------- best of its knowledge, is the sole owner of or is duly licensed under the Lilly Intellectual Property Rights licensed to Roberts hereunder and has a lawful right to grant the rights and licenses granted to Roberts hereunder. Section 6.02. Roberts Efforts. Roberts hereby agrees to use its best ------------------------------ efforts to develop and commercialize Products throughout the Territory. Roberts may abandon development efforts for the Compound at any time if in the reasonable judgment of Roberts further development efforts are not justified. If Roberts so abandons development, it shall upon request assign to Lilly or Lilly's designee all intellectual property, records, data, clinical trial results and other information relating to the Compound in return for which Lilly or its designee shall pay to Roberts an amount equal to Roberts' total development costs (including all out of pocket costs and reasonable internal costs). Furthermore, upon execution of this Agreement, Roberts shall comply with all responsibilities for all adverse -7- event reporting, annual reporting and any other reporting responsibilities to regulatory agencies in the Territory. Section 6.03. Technical Assistance. For a period of one hundred eighty ----------------------------------- (180) days from the date hereof, Lilly will, through certain designated personnel, provide Roberts with such technical assistance, information and advice regarding the use of Lilly Intellectual Property Rights and the Know-How that may be reasonably necessary in connection with the manufacturing and testing of the Compound and Product. Lilly, at its expense, also agrees that such assistance may include one (1) visit to the Roberts facilities (not to exceed twenty-four (24) hours) located in New Jersey by at least one (1) qualified member of Lilly's personnel to render on-site technical assistance. Except for the on-site visit described in this Section 6.03, all costs external to Lilly and associated with technical assistance shall be borne entirely by Roberts. Furthermore, Lilly shall not be required to engage extra personnel or to provide facilities in connection with providing technical assistance. ARTICLE VII ----------- ACCOUNTING ---------- Section 7.01. Sales and Royalty Reports. Roberts shall deliver to Lilly --------------------------------------- within sixty (60) days after the end of each calendar quarter a written accounting of Roberts' Net Sales and the royalty payment due to Lilly for such quarter. Such quarterly reports shall be in English and include the Net Sales of products on a country-by-country basis (expressed in United States dollars or computed under the provisions of Section 7.04 hereof), a sales forecast for each quarter of the current calendar year, and contain such other information as Lilly may from time to time reasonably request. Annually, by October 1, Roberts shall deliver to Lilly a sales forecast, by quarter, for the subsequent calendar year. All sales and royalty reports shall be directed to Eli Lilly and Company, Attn: Royalty Administration, D.C. 2211, Lilly Corporate Center, Indianapolis, Indiana 46285. In the event Roberts makes Sales of Product(s) to persons other than End Users, Roberts shall require such persons to provide Roberts with such information as Lilly may reasonably request to permit Lilly to calculate and verify Net Sales and Royalties due. Section 7.02. Delivery of Royalty. When Roberts delivers the accounting ---------------------------------- to Lilly, Roberts shall also pay by wire transfer or other method acceptable to Lilly royalty payments due to Lilly for the preceding calendar quarter. Any payment not made when due shall bear interest at the United States prime rate on due date as published in the Wall Street Journal, plus six percent (6%). ------------------- Section 7.03. Audits. Roberts shall keep accurate records in sufficient --------------------- form to enable the amounts due to Lilly hereunder to be determined. during the term of this Agreement and for two (2) years after its termination, shall not more than once each year and upon written notice, have at its expense, to audit the books and records of Roberts for the purpose of determining the accuracy of royalty payments. If Roberts has underpaid a royalty amount due under this Agreement by more than five percent (5%), -8- Roberts shall, in addition to paying any royalties due, also reimburse Lilly for cost of such audit. Section 7.04. Exchange Rates and Currency Translation. All payments to be ------------------------------------------------------ made by Roberts to Lilly under this Agreement shall be made and reported in United States dollars. The rate of exchange to be used in computing the amount of Net Sales and the United States dollars due Lilly will be calculated using Roberts' then current standard exchange rate methodology, which methodology is used by Roberts in the translation of its foreign currency operating results for external reporting, is consistent with United States generally accepted accounting principles and generally reviewed and approved by Roberts' independent certified public accountants. Section 7.05. Withholding Taxes. Roberts shall have no liability for -------------------------------- any income taxes levied against Lilly on account of royalties paid hereunder. If any law regulations require that any such taxes be withheld by Roberts, Roberts shall deduct such taxes from the payment due Lilly, pay the taxes so withheld to the proper taxing authority, and send proof of payment to Lilly annually within ninety (90) days of the first day of the year following such payment. If Lilly desires to obtain a refund of any taxes so withheld and paid from a taxing authority, Roberts shall cooperate in the pursuit of such refund. ARTICLE VIII ------------ TERM AND TERMINATION -------------------- Section 8.01. Term. This Agreement shall become effective on the date ------------------- hereof, and shall remain in effect until the later of either: (i) the life of the last to expire of the patents encompassed in the Lilly Intellectual Property, or (ii) fifteen (15) years from the date hereof. Upon termination of this Agreement as set forth in this Section 8.01, the licenses granted to Roberts hereunder shall be deemed to be paid up in full. Section 8.02. Termination by Default. If either party is in default of ------------------------------------- its material obligations under this Agreement, or fails to remedy such default within sixty (60) days after the other party sends written notice detailing the substance of the default to the defaulting party, the injured party may terminate this Agreement by written notice. In the event Lilly elects to -9- terminate this Agreement by reason of any default by Roberts, the licenses granted hereunder shall terminate. Section 8.03. Residual Obligation Upon Termination: Termination of -------------------------------------------------- this Agreement for any reason whatsoever willnot release or discharge Lilly or Roberts from the performance of any obligationor the payment of any debt which may have previously accrued and remains to be performed, paid or discharged, at the date of such termination. However, upon termination no further obligations under this Agreement shall be incurred by Lilly or Roberts. Article IX ---------- Miscellaneous Provisions ------------------------ Section 9.01. Amendment. This Agreement may not be amended, supplemented ----------------------- or otherwise modified except by an instrument in writing signed by an authorized representative of both parties. Section 9.02. Entire Agreement. This Agreement constitutes the complete and ------------------------------ definitive agreement of the parties on the subject matter hereof and supersedes, cancels and annuls all prior or subsequent agreements, understandings and undertakings relating to the subject matter hereof including, but, without limiting the generality of the foregoing, any documents used by the parties in making or accepting any offer. There are no verbal agreements, warranties, representations or understandings affecting this Agreement, and all previous or other negotiations, representations and understandings between Lilly and Roberts are merged herein. Section 9.03. Severability. Each party agrees that, should any provision of -------------------------- this Agreement be determined by a court of competent jurisdiction to violate or contravene any applicable law or policy, such provision will be severed or modified by the court to the extent necessary to comply with the applicable law or policy, and such modified provision and the remainder of the provisions hereof will continue in full force and effect. The parties specifically agree that nothing in this Agreement is intended to require either party to take, or not take, any action which would constitute a violation of any applicable law or regulation, including but not limited to those regarding trade. Section 9.04. Notices. Any notice required or permitted to be given under --------------------- this Agreement shall be in writing and shall be deemed to have been sufficiently given for all purposes if mailed by first class certified or registered mail, postage prepaid, or sent by national overnight delivery -10- service, or by acknowledged facsimile. Unless otherwise specified in writing, the mailing addresses of the parties shall be as follows: For Roberts: Roberts Laboratories Inc. 4 Industrial Way West Attention, Eatontown, New Jersey 07724 Attention: A.A. Rascio, Vice President For Lilly: Eli Lilly and Company Lilly Corporate Center Indianapolis, IN 46285 Attention: General Counsel Section 9.05. Governing Law. This Agreement shall be governed by, and ---------------------------- construed in accordance with, the Laws of Indiana, excluding any choice of law rules which may direct the application of the law of any other jurisdiction. Section 9.06. Assignment. Except as expressly provided herein, neither ------------------------- party may assign its rights and obligations under this Agreement except to an Affiliate without the prior written consent of the other, except a party may make such an assignment without the other party's consent in connection with any merger or sale of all or substantially all of its assets to which this Agreement relates. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assignees of the parties hereto. Section 9.7. Consents Not Unreasonably Withheld. Whenever provision is ------------------------------------------------ made in this Agreement for either party to secure the consent or approval of the other, that consent or approval shall not unreasonably be withheld, and whenever in this Agreement provisions are made for one party to object to or disapprove a matter, such objection or disapproval shall not unreasonably be exercised. Section 9.8. No Strict Construction. This Agreement has been prepared ------------------------------------ jointly and shall not be strictly construed against either party. Section 9.9. Captions. The captions or headings of the Sections or other ---------------------- subdivisions hereof are inserted only as a matter of convenience or for reference and shall have no effect on the meaning of the provisions hereof. Section 9.10. Force Majeure. Any delay or failure in the performance of ---------------------------- any of the duties or obligations of any party hereto caused by an event outside the affected party's reasonable control shall not be considered a breach of this Agreement, and the time required -11- for such party's performance shall be extended for a period equal to the period of such delay. such events shall include, without limitation, any labor strike or lockout, act of God, war, fire, flood, embargo, act of any governmental authority, riot, or any other unforeseeable cause or causes beyond the reasonable control and without the fault or negligence of the party so affected. The party so affected shall give prompt notice to the other party of such cause, and shall take whatever reasonable steps are appropriate in the party's discretion to relieve the effect of such cause as rapidly as possible. Section 9.11. Currency. All references to "$" or "dollars" in this ----------------------- agreement shall refer to United States dollars. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their respective officers thereunto duly authorized. ROBERTS LABORATORIES, INC. ELI LILLY AND COMPANY By: /s/ Robert A. Vukovich By: /s/Charles E. Golden ----------------------- ------------------------------- Title: President Title: Executive Vice President and Chief Financial Officer In order to induce Lilly to execute this Agreement, Roberts Pharmaceutical Corporation, the parent company of Roberts Laboratories Inc., hereby unconditionally guarantees the due payment and performance of all obligations of Roberts Laboratories, Inc. contained in this Agreement. By: /s/ Anthony A. Rascio ---------------------- Title: Vice President -12- Appendix A Know-How shall mean all written information in the possession of Lilly regarding the Compound of the types listed below reasonably useful to Roberts in developing and manufacturing the compound. Lilly shall use its reasonable efforts to locate and furnish to Roberts all material documents representing Know-How. Roberts acknowledges that certain records may have been lost or destroyed or otherwise be unavailable. Provided that Lilly has used its reasonable efforts to locate such documents, Lilly shall have no further obligation to Roberts with respect to such documents. Marketing . Market research on GI markets prepared with respect to the Compound . Initial forecasts of market potential for the Compound Toxicology . Written summary reports for the Compound . LRL Summary Reports Regulatory . Material regulatory documents relating to the Compound, if any -13- Appendix B Patent Status ------------- LY353433 -------- Country Status Appln/Patent No. - --------------- ------ ---------------- Philippines Filed 52617 Philippines Filed 52616 EPO* Filed 96301682.9 Israel Filed 117438 PCT Filed PCT/US96/03551 Taiwan Filed 84108549 South Africa Filed 96/1955 United States Filed 08/485956 India Filed 425/CAL/96 * Austria, Belgium, Switzerland, Denmark, France, Germany, Spain, Greece, Italy, United Kingdom, Ireland, Lithuania, Latvia, Luxembourg, Netherlands, Portugal, Sweden, Slovenia EXHIBIT 10.81 LICENSE AGREEMENT [LY 315535] This License Agreement ("Agreement") is made as of the 4th day of December, 1996 by and between Eli Lilly and Company, an Indiana corporation ("Lilly") and Roberts Laboratories Inc., a New Jersey corporation ("Roberts"). RECITALS -------- 1. Lilly and Roberts are in the business of discovering, developing and marketing pharmaceutical products. 2. Lilly has discovered a compound internally designated as LY315535 (as defined in Section 1.02 below, the "Compound") which may be useful in the treatment of functional gastrointestinal disorders and other indications. Lilly has previously engaged in certain research and development efforts with respect to the Compound, but has concluded that future development efforts including limited clinical trials could best be conducted by a company with a focus on gastrointestinal products. 3. Roberts desires to license from Lilly certain rights of Lilly to the Compound and to pursue development and commercialization of the Compound in the Field and within the Territory (both as defined below), and Lilly is willing to grant such license, all upon the terms and conditions set forth in this License Agreement. 4. Concurrently with the execution of this Agreement, Lilly is attempting to enter into a License Agreement with Societe de Conseils de Recherches et d'Applications Scientifiques ("Third Party") pursuant to which Lilly is licensing to Third Party certain rights to develop and commercialize the Compound outside the Territory. Roberts and Third Party intend to enter into a separate agreement among themselves providing for certain joint development activities with respect to the Compound (the "Development Agreement"). AGREEMENT --------- In consideration of the Recitals and the mutual covenants and agreements set forth below, the parties agree as follows: Article 1 --------- Definitions ----------- When used in this Agreement, each of the following terms shall have the meanings set forth below. Section 1.01. "Affiliate" of a party hereto means any corporation or ------------- business entity which at the time in question controls, is under common control with, or is controlled by such party. As used herein, control shall mean the ownership, directly or indirectly, of more than fifty percent (50%) of the voting stock or similar interests of the corporation or business -2- entity or the ability to otherwise control the management of the corporation or business entity. Section 1.02. "Compound" means 2-di-n-propylamino-8-(isoxazol-5-yl)- ------------- 1,2,3,4-tetrahydronaphthalene and all pharmaceutically acceptable salts and solvates. Section 1.03. "Digestive System: means any portion of a human or animal's ------------- body which is involved in the process of converting food into material suitable for assimilation for synthesis of tissues or the liberation of energy or the removal of waste from a human or animal's body. Such term thereby encompasses all parts of a human or animal body which come in contact with food or waste materials, from the mouth to the anus or urethra. Section 1.04. "End User" means a wholesaler, distributor, pharmacy, ------------- hospital, health care organization or patient. Section 1.05. "Field" means products for Gastrointestinal Indications. -------------- Section 1.06. "Gastrointestinal Indications" means disease states, such as ------------- excess gastric acid secretion, inflammatory bowel disease, irritable bowel syndrome, gastroesophagael reflux disease, esophagitis, dyspepsia, proctitis, hemorrhoids, gastrointestinal ulceration, nausea and vomiting and constipation and diarrhea, which are characterized by abnormalities of the Digestive System, regardless of the mechanism involved in such disease states. Section 1.07. "Know-How" means the items listed on the attached Appendix A ------------- which are owned by or licensed to Lilly and reasonably useful to Roberts in developing and manufacturing the Compound and Product. Section 1.08. "Lilly Intellectual Property Rights" means all patent ------------- rights, trade secret rights, and Know-How rights owned, licensed or otherwise controlled by Lilly as of the date hereof which are useful in the Field, encompass Compound and Product or are useful in preparing Compound and are effective in the Territory, including all divisions, continuations, continuations-in-part, reissuances, reexaminations, extensions, Supplementary Protection Certificates, and any similar intellectual property rights, and all counterparts thereof in the Territory. A list of all patent rights owned, licensed or otherwise controlled by Lilly as of the date hereof and which are encompassed hereunder is attached as Appendix B. Section 1.09. "Net Sales" means with respect to a Product, the gross ------------- amount invoiced by Roberts, or any sublicensee, to an End User less the following deductions: 1. Trade, quantity and cash discounts actually given or allowed; 2. Rebates, allowances, Medicaid and Medicare reimbursements, chargebacks and similar deductions; 3. Any tax imposed on the sale, delivery or use of the product; and -3- 4. Allowed or credits for returned goods or rejections of any Product which is unsalable. All amounts of Net Sales shall be determined from the books and records of Roberts maintained in accordance with United States generally accepted accounting principles, consistently applied. Section 1.10. "Phase II Clinical Trial" means a large scale clinical study ------------- conducted in patients to establish Product efficacy in the Field and to support Product Registration. Section 1.11. "Product" means any pharmaceutical composition for use as a ------------- therapeutic or diagnostic product that incorporates the Compound. Section 1.12. "Territory" means the United States and its territories ------------- (Puerto Rico, Guam), Canada and Mexico. Article II ---------- License ------- Lilly grants to Roberts an exclusive license to make, have made, use or sell for use in the Field within the Territory the Compound and Product pursuant to all Lilly Intellectual Property Rights. With respect to any patent rights licensed hereunder, such license shall be limited solely to those patent claims necessary to provide Roberts with the ability to make, have made, use or sell Product in the Field within the Territory and shall, further, be limited solely to the right to make, have made, use or sell Product in the Field within the Territory. Such license shall include the right of Roberts to sublicense, consistent with the terms of this Agreement. All terms and provisions of this Agreement shall apply to each sublicense to the same extent as they apply to Roberts, and Roberts shall guarantee performance by its sublicensee of all obligations imposed under the terms of this Agreement. Article III ----------- Payments and Royalties ---------------------- Section 3.01. Signing and Milestone Payments. --------------------------------------------- (a) As consideration for the licenses granted hereunder, Roberts shall pay Lilly by wire transfer loan account designated by Lilly the following account at the following times: (i) Upon execution of this Agreement $1 million (ii) Upon commencement of the first Phase $2 million III Clinical Trial for a Product: (iii) Upon acceptance for filing by the FDA of $2 million -4- the first New Drug Application (or its equivalent) for a Product: (b) It is anticipated that Roberts and Third Party will, pursuant to the Development Agreement or otherwise, jointly conduct certain development efforts and Clinical Trials. If pursuant to such arrangements one or more of the Clinical Trials referred to above shall be conducted by Third Party, with Roberts to utilize the results of such trials, then the Clinical Trials referred to above as milestones for which payments may be due shall mean such Clinical Trials conducted by Third Party. (c) All payments described above shall be made within thirty (30) days of the relevant event, except for the payment described in (a)(i), which shall be made upon signing of this agreement. Any payment not made when due shall bear interest at the United States prime rate on the due date as published in the Wall Street Journal, plus six percent (6%). ------------------- Section 3.02. Royalty. As additional consideration for the licenses ----------------------- granted herein, Roberts shall pay to Lilly a royalty equal to 8% of Net Sales of Products in the Territory. Royalties shall be reported and paid quarterly in accordance with Article VII of this Agreement. Article IV ---------- Prosecution and Infringement of Intellectual Property Rights ------------------------------------------------------------ Section 4.01 Patent Term Extensions and Supplementary Protection ----------------------------------------------------------------- Certificates. Lilly upon request of Roberts shall apply for (and grant Roberts a - ------------ license under) patent term extensions, Supplementary Protection Certificates or functional equivalents thereof, in any jurisdiction within the Territory where such items are permissible, for any Lilly Intellectual Property Rights licensed to Roberts hereunder. Roberts will provide Lilly with all material and information as may be necessary to obtain any of the aforesaid rights. Section 4.02. Prosecution and Maintenance of Licensed Patents. -------------------------------------------------------------- (a) Upon execution of this Agreement, Lilly shall provide to Roberts Appendix B attached hereto which identifies all pending applications and patents in the Territory which are encompassed in the Lilly Intellectual Property Rights. (b) Lilly shall prosecute any pending applications of which it is the owner that are encompassed in the Lilly Intellectual property Rights and maintain any patents that have issued or will issue thereon in full force and effect for the term of such patent. Should, during the course of prosecution of any pending claims, an official action rejecting the claims require that an amendment be made or action be taken which would limit or substantially change the scope of any license -5- hereunder, Lilly will timely inform Roberts in writing. Lilly shall consult Roberts before responding to any such official action, and allow Roberts to assist in the prosecution of such claims or, at Lilly's option, allow Roberts the opportunity at its time and expense to prosecute such claims to its satisfaction. Section 4.03. Costs of Prosecution and Maintenance of Patents. Lilly -------------------------------------------------------------- shall bear all costs incurred in filing, prosecuting and maintaining all patents and patent applications encompassed within the Intellectual Property Rights, provided, however, that Roberts shall pay one-half (1/2) of all reasonable external expenses incurred by Lilly while prosecuting and maintaining such patents and patent applications. External expenses will include patent office fees and taxes in connection with the prosection and maintenance of any patent or patent application and the fees of any patent attorneys or agents, external of Lilly, in connection with the ex parte prosection and maintenance thereof. -- ----- The allocation of such expenses will occur on an annual basis at the end of the last quarter of each calendar year, at which time Lilly will provide Roberts with an itemized list of external expenses denominated in United States dollars incurred during the previous annual period. Roberts will then reimburse Lilly's expenses within sixty (60) days of the date of receipt of this itemized list. Notwithstanding the foregoing, Lilly may, at its sole discretion, choose not to prosecute or cease to maintain a patent or patent application in any country as it so desires and to the extent that Lilly chooses not to prosecute or ceases to maintain such patent or patent application Lilly shall not be responsible for any patent costs associated with prosecuting and/or maintaining the patent or patent application in such country. If Roberts desires to prosecute or maintain such patent or patent application, Roberts may do so at its own expense; however, under these circumstances, Lilly would grant Roberts all of its patent rights associated which such patent in such country. Similarly, upon written notice to Lilly, Roberts may elect not to share in the prosecution or maintenance costs as described in this Section 4.03 related to a patent or patent application in a particular country; however, upon such election any rights that Roberts has in such patent in such country would be granted to Lilly. Section 4.04. Option by Roberts to Discontinue License. Roberts, at its ------------------------------------------------------- option, may elect to discontinue the license granted and surrender all rights hereunder as to any patent on a country-by-country basis. Such election must be made by thirty (30) days written notice by simultaneous facsimile transmission and certified mailing, and, with respect to the surrender of Roberts' rights, will be effective as of the date of mailing. In the event such an election is made, Lilly's obligations under Section 4.01 and 4.02 and Roberts' obligations under Section 4.03 will terminate thirty (30) days from the date of mailing with respect to the specific patent on which the election is made. Section 4.05. Infringement. Each party shall give prompt notice to the --------------------------- other of any infringement, potential infringement or suspected infringement of Lilly Intellectual Property Rights that may come to such party's attention. Promptly thereafter, the parties shall consult and cooperate fully to determine a course of action, including, but not limited to, the commencement of legal action by one or both parties, to cause such infringement, potential -6- infringement or suspected infringement to be terminated. Each party, at its option, may elect to participate in or commence such a legal action. In the event of a joint action in which both parties agree to participate, the parties will share in the costs and the recovery of the agreed upon course of action in a manner to be agreed upon. Failing agreement on a course of action to abate infringement, potential infringement or suspected infringement within sixty (60) days of the time such infringement, potential infringement or suspected infringement becomes known to both parties, either party shall have the right, at its own expense, to initiate and prosecute an action against the infringer and shall retain whatever damages are recovered. In the event Roberts is unable to initiate and prosecute such action solely in its own name, Lilly will execute (and cause its Affiliates to execute) all documents necessary for Roberts to initiate and prosecute such action. Neither party will enter into any settlement of any action referred to in this Section without the other party's prior consent, which consent shall not be unreasonably withheld. Section 4.06. Reexamination and Reissue. Lilly shall defend in a ---------------------------------------- reasonable manner any patent encompassed within the Lily Intellectual Property Rights in any reexamination or reissue proceeding in the United States Patent and Trademark Office and the applicable foreign equivalent. Before Lilly initiates a reissue proceeding, or before either party initiates a reexamination proceeding, the parties shall consult as to the desirability or necessity of such a proceeding. Such proceedings will not be abandoned prior to a final decision of the Patent Office Board of Appeals or Patent Office Board of Interferences and the applicable foreign equivalent without the consent of Roberts, which consent will not be unreasonably withheld taking into consideration, inter alia, the merits of the action of the Patent and Trademark Office and the applicable foreign equivalent, priority dates provable by any interference party (should an interference be involved), and the technological and commercial important of the subject matter of the claims of the application or patent involved expenses shall be borne as provided in Section 4.03. Article V --------- Disclosure of Agreement ----------------------- Section 5.01. Disclosure of Agreement. Except as provided below, neither -------------------------------------- Roberts or Lilly shall release any information to any third party with respect to the existence and terms of this Agreement without the prior written consent of the other party to this Agreement, except that Roberts may disclose the existence (but not financial terms) of this Agreement to Third Party. This prohibition includes, but is not limited to, press releases, educational and scientific conferences, promotional materials, governmental filings, and discussions with lenders, investment bankers, public officials, and the media. Section 5.02. Releases Required by Law. If either party determines a --------------------------------------- release of information is required by law or governmental regulations, it shall notify the other in writing at least ten (10) days (or such shorter period where legally required) before the time -7- of the proposed release. The notice shall include the exact text of the proposed release, the time and manner of the release, and the basis for such party's belief that disclosure is required. At the other party's request and before the release, the party desiring to release information shall consult with the other party on the necessity for the disclosure and the text of the proposed release. In no event shall a release include information regarding the existence of terms of this Agreement that is not required by law or governmental regulation without the consent of the other party. Notwithstanding any other terms of this Agreement, either party shall be permitted and allowed to provide a copy of this Agreement or any terms hereof or otherwise provide any information with respect to the existence and terms of this Agreement to appropriate governmental taxing or drug regulatory authorities requested, without advance written notice or approval of the other party. Article VI ---------- Certain Undertakings -------------------- Section 6.01. Lilly Warranties. Lilly hereby warrants that it, to the ------------------------------- best of its knowledge, is the sole owner of or is duly licensed under the Lilly Intellectual Property Rights licensed to Roberts hereunder and has a lawful right to grant the rights and licenses granted to Roberts hereunder. Section 6.02. Roberts Efforts. Roberts hereby agrees to use its best ------------------------------ efforts to develop and commercialize Products within the Territory. Roberts may abandon development efforts for the Compound at any time if in the reasonable judgment of Roberts further development efforts are not justified. If Roberts so abandons development, it shall upon request, assign to Lilly or Lilly's designee all intellectual property, records, data, clinical trial results and other information relating to the Compound in return for which Lilly or its designee shall pay to Roberts an amount equal to Roberts' total development costs (including all out of pocket costs and reasonable internal costs). Furthermore, upon execution of this Agreement, Roberts shall assume all responsibilities for all adverse event reporting, annual reporting and any other reporting responsibilities to regulatory agencies in the Territory. Section 6.03. Technical Assistance. For a period of one hundred eighty ----------------------------------- (180) days from the date hereof, Lilly will, through certain designated personnel, provide Roberts with such technical assistance, information and advice regarding the use of Lilly Intellectual Property Rights and the Know-How that may be reasonably necessary in connection with the manufacturing and testing of the Compound and Product. Lilly, at its expense, also agrees that such assistance may include one (1) visit to the Roberts facilities (not to exceed twenty-four (24) hours) located in New Jersey by at least one (1) qualified member of Lilly's personnel to render on-site technical assistance. Except for the on-site visit described in this Section 6.03, all costs external to Lilly and associated with technical assistance shall be borne entirely by Roberts. Furthermore, Lilly shall not be required to engage extra personnel or to -8- provide facilities in connection with providing technical assistance. Article VII ----------- Accounting ---------- Section 7.01. Sales and Royalty Reports. Roberts shall deliver to Lilly ---------------------------------------- within sixty (60) days after the end of each calendar quarter a written accounting of Roberts' Net Sales and the royalty payment due to Lilly for such quarter. Such quarterly reports shall be in English and include the Net Sales of products on a country-by-country basis (expressed in United States dollars or computed under the provisions of Section 7.04 hereof), a sales forecast for each quarter of the current calendar year, and contain such other information as Lilly may from time to time reasonably request. Annually, by October 1, Roberts shall deliver to Lilly a sales forecast, by quarter, for the subsequent calendar year. All sales and royalty reports shall be directed to Eli Lilly and Company, Attn: Royalty Administration, D.C. 2211, Lilly Corporate Center, Indianapolis, Indiana 46285. In the event Roberts makes sales of Products(s) to persons other than End Users, Roberts shall require such persons to provide Roberts with such information as Lilly may reasonably request to permit Lilly to calculate and verify Net Sales and royalties due. Section 7.02. Delivery of Royalty. When Roberts delivers the accounting ---------------------------------- to Lilly, Roberts shall also pay by wire transfer or other method acceptable to Lilly royalty payments due to Lilly for the preceding calendar quarter. Any payment not made when due shall bear interest at the United States prime rate on due date as published in the Wall Street Journal, plus six percent (6%). ------------------- Section 7.03. Audits. Roberts shall keep accurate records in sufficient --------------------- detail to enable to amounts due to Lilly hereunder to be determined. During the term of this Agreement and for two (2) years after its termination, Lilly shall, not more than once each year and upon written notice, have the right, at its expense, to audit the books and records of Roberts for the purpose of determining the accuracy of royalty payments. If Roberts has underpaid a royalty amount due under this Agreement by more than five percent (5%), Roberts shall, in addition to paying any royalties due, also reimburse Lilly for the cost of such audit. Section 7.04. Exchange Rates and Currency Translation. All payments to be ------------------------------------------------------ made by Roberts to Lilly under this Agreement shall be made and reported in United States dollars. The rate of exchange to be used in computing the amount of Net Sales and the United States dollars due Lilly shall be calculated using Roberts' then current standard exchange rate methodology, which methodology is used by Roberts in the translation of its foreign currency operating results for external reporting, is consistent with United States generally accepted accounting principles and is reviewed and approved by Roberts' independent certified public accountants. Section 7.05. Withholding Taxes. Roberts shall have no liability for any -------------------------------- income -9- taxes levied against Lilly on account of royalties paid hereunder. If laws or regulations require that any such taxes be withheld by Roberts, Roberts shall deduct such taxes from the payment due Lilly, pay the taxes so withheld to the proper taxing authority, and send proof of payment to Lilly annually within ninety (90) days of the first day of the year following such payment. If Lilly desires to obtain a refund of any taxes so withheld and paid to a taxing authority, Roberts shall cooperate in the pursuit of such refund. Article VIII ------------ Term and Termination -------------------- Section 8.01. Term. This Agreement shall become effective on the date ------------------- hereof, and shall remain in effect until the later of either: (i) the life of the last to expire of the patents encompass in the Lilly Intellectual Property, or (ii) fifteen (15) years from the date hereof. Upon termination of this Agreement as set forth in this Section 8.01, the licenses granted to Roberts hereunder shall be deemed to be paid up in full. Section 8.02. Termination by Default. If either party is in default of ------------------------------------- any of its material obligations under this Agreement, or fails to remedy such a default within sixty (60) days after the other party sends written notice detailing the substance of the default to the defaulting party, the injured party may terminate this Agreement by written notice. In the event Lilly elects to terminate this Agreement by reason of any default by Roberts, the licenses granted hereunder shall terminate. Section 8.03. Residual Obligation Upon Termination. Termination of this --------------------------------------------------- Agreement for any reason whatsoever will not release or discharge Lilly or Roberts from the performance of any obligation or the payment of any debt which may have previously accrued and remains to be performed, paid or discharged, at the date of such termination. However, upon termination, no further obligations under this Agreement shall be incurred by Lilly or Roberts. Article IX ---------- Miscellaneous Provisions ------------------------ Section 9.01. Amendment. This Agreement may not be amended, supplemented ------------------------ or otherwise modified except by an instrument in writing signed by an authorized representative of both parties. Section 9.02. Entire Agreement. This Agreement constitutes the complete ------------------------------- and definitive agreement of the parties on the subject matter hereof and supersedes, cancels and annuls all prior or subsequent agreements, understandings and undertakings relating to the subject matter hereof including, but without limiting the generality of the foregoing, any documents used by the parties in making or accepting any offer. There are no verbal agreements, warranties, representations or understandings affecting this Agreement, and all previous or other negotiations, representations and understandings between Lilly and Roberts -10- are merged herein. Section 9.03. Severability. Each party agrees that, should any provision --------------------------- of this Agreement be determined by a court of competent jurisdiction to violate or contravene any applicable law or policy, such provision will be severed or modified by the court to the extent necessary to comply with the applicable law or policy, and such modified provision and the remainder of the provisions hereof will continue in full force and effect. The parties specifically agree that nothing in this Agreement is intended to require either party to take, or not take, any action which would constitute a violation of any applicable law or regulation, including but not limited to those regarding trade. Section 9.04. Notices. Any notice required or permitted to be given under ---------------------- this Agreement shall be in writing and shall be deemed to have been sufficiently given for all purposes if mailed by first class certified or registered mail, postage prepaid, or sent by national overnight delivery service, or by acknowledged facsimile. Unless otherwise specified in writing, the mailing addresses of the parties shall be as follows: For Roberts: Roberts Laboratories Inc. 4 Industrial Way West Eatontown, New Jersey 07724 Attention: A.A. Rascio, Vice President For Lilly: Eli Lilly and Company Lilly Corporate Center Indianapolis, IN 46285 Attention: General Counsel Section 9.5. Governing Law. This Agreement shall be governed by, and --------------------------- construed in accordance with, the laws of Indiana, excluding any choice of law rules which may direct the application of the law of any other jurisdiction. Section 9.6. Assignment. Except as expressly provided herein, neither ------------------------ party may assign its rights and obligations under this Agreement except to an Affiliate without the prior written consent of the other, except a party may make such an assignment without the other party's consent in connection with any merger or sale of al or substantially all of its assets to which this Agreement relates. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assignees of the parties hereto. Section 9.7. Consents Not Unreasonably Withheld. Whenever provision is ------------------------------------------------ made in this Agreement for either party to secure the consent or approval of the other, that consent or -11- approval shall not unreasonably be withheld, and whenever in this Agreement provisions are made for one party to object to or disapprove a matter, such objection or disapproval shall not unreasonably be exercised. Section 9.8. No Strict Construction. This Agreement has been prepared ------------------------------------ jointly and shall not be strictly construed against either party. Section 9.9. Captions. The captions or headings of the Sections or other ---------------------- subdivisions hereof are inserted only as a matter of convenience or for reference and shall have no effect on the naming of the provisions hereof. Section 9.10. Force Majeure. Any delay or failure in the performance of ---------------------------- any of the duties or obligations of any party hereto caused by an event outside the affected party's reasonable control shall not be considered a breach of this Agreement, and the time required for such party's performance shall be extended for a period equal to the period of such delay. Such events shall include, without limitation, any labor strike or lockout, act of God, war, fire, flood, embargo, act of any governmental authority, riot, or any other unforeseeable cause or causes beyond the reasonable control and without the fault or negligence of the party so affected. The party so affected shall give prompt notice to the other party of such cause, and shall take whatever reasonable steps are appropriate in the party's discretion to relieve the effect of such cause as rapidly as possible. Section 9.11. Currency. All references to "$" or "dollars" in this ----------------------- agreement shall refer to United States dollars. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their respective officers thereunto duly authorized. ROBERTS LABORATORIES INC. ELI LILLY AND COMPANY By: /s/ Peter M. Rogalin By: /s/ Charles E. Golden --------------------- ------------------------- Title: Vice President Title: Executive Vice President and Chief Financial Officer In order to induce Lilly to execute this Agreement, Roberts Pharmaceutical Corporation, the parent company of Roberts Laboratories Inc., hereby unconditionally guarantees the due payment and performance of all obligations of Roberts Laboratories, Inc. contained in this Agreement. By: /s/ Anthony A. Rascio ----------------------- Title: Vice President -12- Appendix A Know-How shall mean all written information in the possession of Lilly regarding the Compound of the types listed below reasonably useful to Roberts in developing and manufacturing the compound. Lilly shall use its reasonable efforts to locate and furnish to Roberts all material documents representing Know-How. Roberts acknowledges that certain records may have been lost or destroyed or otherwise be unavailable. Provided that Lilly has used its reasonable efforts to locate such documents, Lilly shall have no further obligation to Roberts with respect to such documents. Marketing . Market research on GI markets prepared with respect to the Compound . Initial forecasts of market potential for the Compound Toxicology . Written summary reports for the Compound Project Management Status Reports . For the Compound for the 2 years prior to discontinuation of Lilly's development effort Regulatory . CTX for the Compound . All other material regulatory documents relating to the Compound, including any and all clinical data -13- Appendix B ---------- Patent Position --------------- LY315535 -------- Compound USSN 07/850,136 Use in Treating IBS US 5,434,174 Intermediates to Compound US 5,389,687 US 5,426,229 US 5,286,753 US 5,426,226 US 5,434,174 EX-10.82 7 LICENSE AGREEMENT LICENSE AGREEMENT ----------------- Agreement, dated as of March 31, 1997, between PFIZER INC. ("Pfizer Inc."), a Delaware corporation, 235 East 42nd Street, New York, New York 10017 and ROBERTS LABORATORIES INC. ("Roberts"), a New Jersey corporation, Meridian Center II, 4 Industrial Way West, Eatontown, New Jersey 07724. WHEREAS, Pfizer has discovered and developed a compound called sampatrilat, and is the owner of valuable know-how and patents concerning sampatrilat; WHEREAS, Roberts desires to take a license from Pfizer to make, have made, use and sell sampatrilat and related compounds and formulations of the foregoing; and WHEREAS, Pfizer is willing to grant such license to Roberts under certain terms and conditions; NOW, THEREFORE, in consideration of the mutual covenants and agreements provided herein Pfizer and Roberts hereby agree as follows: SECTION 1 - Definitions - ----------------------- 1.1 "Active Ingredient" shall mean an ingredient that is listed in ----------------- standard reference works, such as the Merck Index, as having a therapeutic use and that, when combined with the Licensed Products as a single entity, creates a Combination Product that is an improvement (therapeutically or commercially) over the Licensed Products as a single entity. 1.2 "Affiliate" shall mean, with respect to any party to this --------- Agreement any person, firm, partnership, trust, company or other entity which directly or indirectly, (i) owns or controls said party, or (ii) is owned or controlled by such party or by any person, firm, partnership, trust, company or other entity which owns or controls, directly or indirectly, said party. For purposes of this Section 1.2 "owned" or "owns" shall -2- mean the legal or beneficial ownership of more than fifty percent (50%) of the issued and voting capital stock or other share participation, and "controls" or "controlled" shall mean the power to vote or direct more than fifty percent (50%) of the voting power or otherwise to direct the affairs thereof, but only for so long as said ownership or control shall continue. 1.3 "Compound" shall mean sampatrilat and related compounds claimed -------- by the patents referred to in Section 1.7 (a). 1.4 "Combination Products" shall mean products which contain a -------------------- Compound and one or more other Active Ingredients. 1.5 "Dollars" or "$" shall mean U.S. dollars. ------- 1.6 "IND" shall mean the application filed with the appropriate --- regulatory authority for permission to perform clinical investigations of a Licensed Product. 1.7 "Licensed Patents" shall mean: ---------------- (a) all patents listed in Exhibit 1.7(a), annexed hereto and made a part hereof, and any patents which may issue from the applications listed in Exhibit 1.7(a); (b) all other patents and applications anywhere in the Territory, now owned by or on behalf of Pfizer, which related to the Licensed Products or methods of use or manufacturing processes for the Licensed Products; (c) all patents and applications anywhere in the Territory hereafter acquired during the term of this Agreement by or on behalf of Pfizer, provided that such patents and applications (i) claim inventions conceived during the term of this Agreement as a result of research funded by Pfizer and (ii) relate to the Licensed Products or methods of use or manufacturing processes for the -3- Licensed Products; and (d) divisionals, continuations, continuations-in-part, patents of addition, and extensions (including supplementary protection certificates) and reissues of the patents and applications referred to in Clauses (a) through (c) of this Section 1.7 1.8 "Licensed Products" shall mean any Compound and any ----------------- pharmaceutical compositions and dosage forms containing the Compound either alone or in combination with other Active Ingredients. 1.9 "NDA" shall mean (i) with respect to the United States, an --- application filed with the U.S. Food and Drug Administration for approval to make and sell commercially the Licensed Products, and (ii) with respect to any country other than the United States, an application or series of applications filed with regulatory or other authorities for approval to make and sell commercially the Licensed Products in such country including price approvals. 1.10 "Net Sales" shall mean: (i) with respect to a Licensed --------- Product, the gross amount invoiced by Roberts or a sublicensee to a third party for a final dosage form of the Licensed Product less the following deductions: (a) Trade, quantity and cash discounts actually given or allowed; (b) Rebates, allowances, Medicaid and Medicare reimbursements, chargebacks and similar deductions; (c) Any tax imposed on the sale, delivery or use of a Licensed Product (other than taxes based on income); and (d) Allowances or credits for returned goods or rejections of any Licensed Product which is unsalable; and -4- (ii) in the case of Combination Products, (x) in the event Roberts, an Affiliate or a sublicensee is currently selling the Licensed Product as a single entity, "Net Sales" for any Payment Computation Period for any country shall be computed as follows: aggregate net sales in such country during such period of the Licensed Product as a single entity (determined in accordance with clause (i) hereof) shall be divided by the aggregate number of grams of Licensed Product contained therein, and the result thereof shall be multiplied by the aggregate number of grams of Licensed Product contained in the Combination Products sold in such country during such Payment Computation Period; or (y) in the event Roberts, an Affiliate or a sublicensee is not currently selling in such country the Licensed Product as a single entity, "Net Sales" shall be computed as follows: aggregate net sales of the Combination Product (determined in accordance with clause (i) hereof) shall be multiplied by a fraction, the numerator being Roberts', its Affiliate's or its sublicensee's cost of the Licensed Product in such Combination Product and the denominator being Roberts', its Affiliate's or sublicensee's total cost of all Active Ingredients in such Combination Product. Cost shall be based on Roberts', its Affiliate's or its sublicensee's accounting procedures which shall be in accordance with generally accepted accounting practices. 1.11 "Payment Computation Period" shall mean each three (3) month --------------------------- period, or any portion thereof, ending on the last day of March, June, September and December of a given year. 1.12 "Pfizer" shall mean Pfizer Inc. and its Affiliates. ------ 1.13 "Major Countries" shall mean the United Kingdom, France, --------------- Germany, Italy, Spain and Japan. 1.14 "Phase III Clinical Trials" shall have the meaning ascribed in ------------------------- Section 312.21(c) of Title 21 of the U.S. -5- Code of Federal Regulations as amended from time to time. 1.15 "Roberts" shall mean Roberts Laboratories Inc. and its ------- Affiliates. 1.16 "TI Delivery Date" means the date on which Pfizer has delivered ---------------- to Roberts all of the Technical Information specified in the list attached as Exhibit 3.1(b). 1.17 "Technical Information": shall mean all know-how, trade ---------------------- secrets, data, technology and scientific and technical information owned by Pfizer that relate to or are useful in connection with the Licensed Products, including but not limited to: (a) medical, clinical, toxicological or other scientific data, (b) processes and analytical methodology used in development, testing, analysis, manufacture and packaging of the Licensed Products and (c) the contents of any IND's or similar regulatory filings for Licensed Products. 1.18 "Territory" shall mean all countries of the world. --------- 1.20 "444 Patent" means U.S. Patent No. 4,975,444, which claims all ---------- forms of the Compound and expires on August 25, 2009. 1.21 "Amorphous Patents" means collectively the '444 Patent and all ----------------- foreign counterparts of the '444 Patent. 1.22 "Amorphous Licensed Products" means Licensed Products that ---------------------------- are claimed by the Amorphous Patents but are not claimed by the Polymorphic Patents. 1.23 "First Option Period Negotiations" means the -------------------------------- negotiations described in Section 16.1. 1.24 "First Conversion Option" means the option described in Section ----------------------- 16.2. 1.25 "First Option Commencement Date" means February 25, 2007. ------------------------------ -6- 1.26 "First Option Expiration Date" means the date that is ninety ---------------------------- (90) days after the First Option Commencement Date. 1.27 "First Option Period" means the period of time beginning on the ------------------- First Option Commencement Date and ending on the First Option Expiration Date. 1.28 "750 Patent Application" means U.S. Patent Application serial ---------------------- number 08/648,001, which claims the polymorphic form of the Compound, was filed on May 28, 1996 and claims priority from PCT/EP 94/0375 filed on November 9, 1994. 1.29 "Polymorphic Patents" means collectively all patents issuing on ------------------- the '750 Patent Application and all foreign counterparts of such patents. 1.30 "Polymorphic Licensed Products" means Licensed Products that ----------------------------- are claimed by the Polymorphic Patents. 1.31 "Second Option Period Negotiations" means the negotiations --------------------------------- described in Section 16.3. 1.32 "Second Conversion Option" means the option described in ------------------------ Section 16.4 1.33 "Second Option Commencement Date" means November 9, 2010. ------------------------------- 1.34 "Second Option Expiration Date" means the date that is ninety ----------------------------- (90) days after the Second Option Commencement Date. 1.35 "Second Option Period" means the period of time beginning on -------------------- the Second Option Commencement Date and ending on the Second Option Expiration Date. 1.36 "Reimbursable Development Costs Amount" means the sum of (a)the ------------------------------------- out-of-pocket costs occurred worldwide by Roberts (including any and all payments made under Section 3 of this Agreement) in connection with its development of Licensed Products and efforts to obtain -7- NDA approval thereof through the date on which Pfizer and Roberts consummate the agreement referred to in Sections 16.1 (c) or 16.3 (c) as appropriate, including without limitation the costs of clinical studies, formulation development and manufacturing process improvements and (b) interest upon all such costs, compounded from the last day of the year in which such costs are accrued through the date on which such agreement is consummated at a monthly variable rate of one percent above the prime lending rate of Citibank, N.A., New York, New York. SECTION 2 - Grant of Licenses - ----------------------------- 2.1 Subject to the terms of this Agreement, Pfizer hereby grants to Roberts, and Roberts hereby accepts, (a) a royalty bearing, exclusive license, including the right to sublicense, under the Licensed Patents to make, have made, use, offer to sell, sell, and import Licensed Products in the Territory, and (b) a royalty bearing exclusive license, including the right to sublicense, to use Technical Information in connection with the manufacture, use, offer to sell, sale and importation of Licensed Products in the Territory. It is understood that the foregoing exclusive licenses grant to Roberts the rights enumerated to the exclusion of all other parties, including Pfizer, except for the right of Pfizer, for purely experimental and research purposes only, to make and use Licensed Products under the Licensed Patents and to use Technical Information in connection therewith. Pfizer shall consult with Roberts before initiating any studies involving the Licensed Products. 2.2 Notwithstanding Section 2.1, this Agreement does not grant Roberts any license to make, have made, use, offer to sell, sell or import the Licensed Products in the Territory in connection with the development or commercialization of Licensed Products for use in treating, preventing or curing diseases in non-humans. Pfizer retains all rights to develop and commercialize the Licensed Products for use in non-humans. -8- SECTION 3 - License and Due Diligence Payments - ---------------------------------------------- 3.1 In partial consideration of the licenses granted to Roberts in this Agreement, Roberts shall pay to Pfizer license fees in the total amount of either $13,000,000 or $11,000,000, payable as follows: (a) $1,000,000 upon execution of this Agreement by both parties: (b) $2,000,000 within 30 days after the delivery to Roberts of all of the Technical Information specified in the list attached as Exhibit 3.1 (b): --------------- (c) $2,000,000 within 30 days after the date on which Roberts' IND first becomes effective in the U.S. or a Major Country; (d) $2,000,000 upon the earlier of the following two dates: (i) the date that is six (6) months after the first submission by Roberts of an NDA in the U.S. or in or for a Major Country, or (ii) the date that is 30 days after the earlier of FDA acceptance for filing of an NDA submitted by Roberts in the U.S., or comparable action in or for a Major Country. (e) If prior to the sixth anniversary of the TI Delivery Date either the FDA has accepted for filing an NDA submitted by Roberts in the U.S. or comparable action is taken prior to such anniversary in a Major Country, (i) $3,000,000 within 30 days after the earlier of (A) the date on which the first NDA submitted by Roberts is approved in the U.S. or (B) the date on which an NDA or NDAs permitting sale in at least two Major Countries is or are first approved and (ii) an additional $3,000,000 within twelve months after the earlier of the dates referred to in Clauses (A) and (B). (f) If prior to the sixth anniversary of the TI Delivery Date an NDA submitted by Roberts in the -9- U.S. has not been accepted for filing nor has comparable action been taken in or for a Major Country, $4,000,000 within 30 days after the earlier of (i) the date on which the first NDA submitted by Roberts is approved in the U.S. or (ii) the date on which an NDA or NDAs permitting sale in at least two Major Countries is or are first approved. 3.2 Due Diligence Payments In addition, Roberts shall pay Pfizer the following if the specified conditions are met: (a) $1,000,000 within 30 days after the second anniversary of the TI Delivery Date if Roberts has not initiated Phase III Clinical Trials of the Licensed Product by such anniversary. (b) $2,000,000 within 30 days after the sixth anniversary of the TI Delivery Date, if an NDA in the U.S. is not accepted for filing by the FDA nor has comparable action been taken in a Major Country by such anniversary. 3.3 Roberts will immediately inform Pfizer by telephone and in writing of the achievement of each milestone referred to in Section 3.1(b) through (f). Roberts shall also provide Pfizer with a written status report of the development progress of all Licensed Products by March 1 and September 1 of every year in which this Agreement is in effect. SECTION 4 - Royalty Payments - ---------------------------- 4.1 In partial consideration of the licenses granted to Roberts in this Agreement, and the disclosure to Roberts of Technical Information hereunder, Roberts shall pay to Pfizer royalties based on Net Sales of Licensed Products during each Payment Computation Period as follows: -10- (a) At the rate of seven percent (7%) of the first $100,000,000 of worldwide Net Sales in any given year; (b) At the rate of ten percent (10%) of all worldwide Net Sales over $100,000,000 in any given year. 4.2 The duration of royalty payments under Section 4.1 shall be determined on a country-by-county basis and shall continue in each country until the earlier of (a) the expiration of the last to expire of the Licensed Patents (if any) in such country with claims directed to the Licensed Product sold in such country by Roberts or its sublicensees, or (b) fifteen (15) years from the date of first commercial sale of Roberts or its sublicensees of any Licensed Product for use in humans in such country. After the expiration of Roberts' royalty obligations in a country, the licenses then in effect (as modified under Section 16) shall be fully paid-up. 4.3 Once Roberts launches a Licensed Product, Roberts agrees to use its best efforts to maximize Net Sales of the Licensed Product. SECTION 5 - Payment Procedures, Reports, Records, Taxes, Auditing - ----------------------------------------------------------------- 5.1 Sales between or among Roberts, its Affiliates and its sublicensees shall not be subject to royalties under Section 4, but in such cases royalties shall be calculated upon Net Sales to an independent third party. Roberts Pharmaceutical Corporation shall be responsible for payment of any royalties accrued on sales of Licensed Products to such independent third party through its affiliates or sublicensees. 5.2 Roberts shall pay to Pfizer royalties on Net Sales during each Payment Computation Period within sixty (60) days after the end of each such Payment Computation Period, and each payment shall be accompanied by a report identifying the Licensed Product, the Net Sales, and the royalties payable to Pfizer, as well as computation thereof. -11- 5.3 All payments to be made by Roberts to Pfizer under this Agreement shall be made and reported in Dollars. The rate of exchange to be used in computing the amount of Net Sales and the Dollars due Pfizer shall be calculated using Roberts' then current standard exchange rate methodology, which methodology is used by Roberts in the translation of its foreign currency operating results for external reporting; is consistent with United States generally accepted accounting principles and is reviewed and approved by Roberts' independent certified public accountants. 5.4 Taxes required to be paid or withheld by Roberts, or its sublicensees for the account of Pfizer on amounts payable to Pfizer under this Agreement shall be deducted from the amounts due hereunder at the rates specified by applicable law. In addition, Roberts shall provide promptly to Pfizer receipts from the government or taxing authority evidencing payment of such taxes. 5.5 Roberts and its sublicensees shall keep full and accurate books and records setting forth gross sales, Net Sales, and amounts payable to Pfizer hereunder. Roberts shall permit Pfizer, at Pfizer's expense, by independent certified public accountants employed by Pfizer and reasonably acceptable to Roberts upon written notice to Roberts and no more than once a year, to examine such books and records at any reasonable time, but not later than five (5) years following the rendering of any such reports, accountings and payments. Such independent accountants shall not disclose to Pfizer any of Roberts' cost data. The opinion of said independent accountants regarding such reports, accountings and payments shall be binding on the parties hereto. All amounts of Net Sales shall be determined from the books and records of Roberts maintained in accordance with United States generally accepted accounting principles, consistently applied. 5.6 Roberts shall pay interest to Pfizer upon any and all amounts payable under Section 3 and 4 (including royalties that are contested or overlooked but later -12- paid) that are at any time overdue and payable to Pfizer at a monthly variable interest rate of 1% above the prime lending rate of Citibank, N.A., New York, New York which was in effect on the first day of the preceding calendar month, such interest accruing from the date when such royalties are due and payable as provided herein to the date of payment. SECTION 6 - Disclosure of Information - -------------------------------------- 6.1 Pfizer shall deliver photocopies or originals of all of the Technical Information listed on Exhibit 3.1(b) within six (6) months after the execution of this Agreement. Within ten (10) calendar days after such delivery, Roberts shall either confirm its receipt of all such Technical Information or specify which of such Technical Information it has not received. All such Technical Information is subject to the disclaimers and caveats set forth on Exhibit 3.1(b). 6.2 During the term of this Agreement or if this Agreement is terminated by Roberts or Pfizer, for five (5) years after such termination hereof, Roberts shall keep confidential and not disclose to others or use for any purpose, other than in connection with the discharge of its obligations or exercise of its rights under this Agreement, any Technical Information supplied in writing by Pfizer or its Affiliates; provided, however, that the foregoing obligations of confidentiality and non-use shall not apply to the extent that any such information (a) already known to Roberts at the time of disclosure hereunder or hereafter developed by Roberts independent of any disclosure hereunder as Roberts can demonstrate by competent proof; or (b) is or becomes publicly known prior to or after disclosure other than through acts or omissions of Roberts or its employees or (c) is disclosed in good faith to Roberts by a third party under a reasonable claim of right. Any disclosure of Technical Information to third parties shall be subject to confidentiality obligations consistent with the provisions of this Section 6.2, to the extent possible under applicable law. Nothing herein shall be deemed to prevent Roberts investigators -13- from publishing the results of their work. 6.3 In connection with the furnishing by Pfizer of Technical Information hereunder, Pfizer agrees, at the request of Roberts, to allow personnel of Roberts to visit facilities of Pfizer and its Affiliates and to consult with their personnel, at mutually agreeable times, to discuss and review such information. In addition, Pfizer agrees, at the request of Roberts and at Roberts' expense, to allow personnel of Pfizer or its Affiliates to visit Roberts' manufacturing and research facilities, at mutually agreeable times to discuss and review such information. 6.4 During the term of this Agreement and for five (5) years after expiration or termination hereof (except in case of termination by Pfizer under Section 13), Pfizer shall keep confidential and not disclose to others or use for any purpose, other than in connection with the discharge of its obligations or exercise of its rights under this Agreement, any know-how, data or information that are owned by Roberts, directed to Licensed Products and disclosed in writing by Roberts and marked "confidential"; provided, however, the foregoing obligations of confidentiality and non-use shall not apply to the extent that such know-how, data and information is: (a) already known to Pfizer at the time of disclosure hereunder or hereafter developed by Pfizer independent of any disclosure hereunder as Pfizer can demonstrate by competent proof; or (b) publicly known prior to or after disclosure hereunder other than through acts or omissions of Pfizer or its employees; or (c) disclosed in good faith to Pfizer by a third party under a reasonable claim of right. Nothing herein shall be deemed to prevent Pfizer investigators from publishing the results of their work. 6.5 All Technical Information heretofore disclosed by Pfizer to Roberts and any know-how, data and information disclosed by Roberts to Pfizer shall be deemed to have been disclosed pursuant to this Agreement and shall be subject to the provisions of -14- this Agreement, including but not limited to Sections 6.3 and 6.4 SECTION 7 - Supply of Bulk Sampatrilat - -------------------------------------- 7.1 Except as specified below, Roberts alone will be responsible for manufacturing all Licensed Product needed to meet its developmental and commercial requirements. Pfizer will supply Roberts with approximately 20 kilograms of bulk sampatrilat and will use reasonable efforts to extend the period during which such bulk sampatrilat may be used under U.S. law and regulations in clinical studies such as by extending the shelf life of such bulk sampatrilat. The outcome of Pfizer's efforts to extend such period is not assured and will have no impact on either parties' rights or obligations under this Agreement. 7.2 PFIZER EXPRESSLY DISCLAIMS ALL IMPLIED AND EXPRESS WARRANTIES (INCLUDING WITHOUT LIMITATION THE WARRANTY OF MERCHANTABILITY) WITH RESPECT TO THE BULK SAMPATRILAT IT SUPPLIES TO ROBERTS UNDER SECTION 7.1 SECTION 8 - Prosecution, Maintenance and Extension of Patents - ------------------------------------------------------------- 8.1 Pfizer and Roberts shall cooperate in connection with the continued prosecution by Pfizer of the patent applications listed in Exhibit 1.7(a). Such cooperation shall include, without limitation: (a) Roberts shall have full access to all documentation, filings and communications to or from the respective patent offices, and shall be kept fully advised as to the status of all pending applications; (b) Pfizer, its agents and attorneys will use their reasonable efforts to secure grant of all the Licensed Patents and will consult with Roberts in the event that any country rejects any of the patent applications constituting Licensed Patents; and (c) Pfizer, its agents and attorneys will give due consideration to all suggestions and comments of Roberts regarding any aspect of such patent prosecutions. 8.2 In addition, Pfizer shall take all necessary steps and -15- pay all expenses necessary to maintain for the full life thereof all Licensed Patents. Pfizer and Roberts shall consult with each other during the term of this Agreement to determine a worldwide patent filing strategy. Roberts shall use reasonable efforts to reduce or eliminate patent prosecution and maintenance costs related to the Licensed Patents in countries where Roberts has no reasonable expectation of actively making, using or selling the Licensed Products. 8.3 Unless Pfizer elects to do so, Roberts shall have the right, upon consultation with Pfizer, to file on behalf of and as agent for Pfizer all applications and filings and take all actions necessary to obtain the benefits under the Drug Price Competition and Patent Term Restoration Act of 1984 and any amendments thereof. Pfizer agrees to sign such further authorizations and instruments and take such further actions as may be requested by Roberts to implement the foregoing. 8.4 Pfizer and Roberts shall cooperate to obtain Supplementary Protection Certificates in Europe where possible and for this purpose Roberts shall inform Pfizer promptly of any country which grants regulatory approval for Licensed Products and, upon request, shall provide Pfizer with a summary of the registration documents or any other documents reasonably required by Pfizer for such purpose. 8.5 If any claim of a Licensed Patents becomes, within any country in the Territory, the subject of a judgment, decree or decision of a court, tribunal, or other authority of competent jurisdiction, which judgment, decree, or decision is or becomes final (there being no further right of review) and adjudicates the validity, enforceability, scope, or infringement of the same, the construction of such claim in such judgment, decree or decision shall be followed thereafter in such country in determining whether a product is licensed hereunder, not only as to such claim but also as to all other claims to which such construction reasonably applies. If at any time there are two or more conflicting final judgments, decrees, or decisions with respect to the -16- same claim, the decision of the higher tribunal shall thereafter control, but if the tribunal be of equal rank, then the final judgment, decree, or decision more favorable to such claim shall control unless and until the majority of such tribunals of equal rank adopt or follow a less favorable final judgment, decree, or decision, in which event the latter shall control. 8.6 Roberts shall mark all Licensed Products made, used or sold under the terms of this Agreement, or their containers, in accordance with the patent laws of the country where made, used or sold. SECTION 9 - Infringement Of Licensed Patents - -------------------------------------------- 9.1 Roberts shall give Pfizer prompt notice of any infringement, potential infringement or suspected infringement of the Licensed Patents that may come to Roberts' attention. Pfizer shall give Roberts prompt notice of its intent to bring legal action against a party for infringing the Licensed Patents. Promptly after any such notice, the party receiving the notice shall consult and cooperate fully with the other to determine a course of action, including, but not limited to, the commencement of legal action by one or both parties, to cause such infringement, potential infringement or suspected infringement to be terminated. Each party, at its option, may elect to participate in or commence such a legal action. In the event of a joint action in which both parties agree to participate, the parties will share in the costs and the recovery of the agreed upon course of action in a manner to be agreed upon. Failing agreement on a course of action to abate infringement, potential infringement or suspected infringement within thirty (30) days of the time such infringement, potential or suspected infringement becomes known to both parties, either party shall have the right, at its own expense, (a) to initiate and prosecute an action against the infringer and retain whatever damages are recovered and (b) to take whatever other steps it shall deem advisable. In the event Roberts is unable to initiate and prosecute any such action solely in its own name, Pfizer will -17- execute all documents necessary for Roberts to initiate and prosecute such action and cooperate in such action, at the cost and expense of Roberts, and vice versa. Neither party will enter into any settlement of any action referred to in this Section 9.1 without the other party's prior consent, which consent shall not be unreasonably withheld. 9.2 Roberts and Pfizer shall, at the other's request, take all action necessary to assist in suits initiated under Section 9.1 (including joining as a party). SECTION 10 - Representations, Warranties and Covenants - ------------------------------------------------------ 10.1 Pfizer hereby represents and warrants to Roberts as follows: (a) Pfizer has the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and the execution, delivery and performance of this Agreement by Pfizer have been duly and validly authorized and approved by proper corporate action on the part of Pfizer, and Pfizer has taken all other action required by law, its corporate statutes, certificate of incorporation or by-laws or any agreement to which it is a party or to which it may be subject required to authorize such execution, delivery and performance. Assuming due authorization, execution and delivery on the part of Roberts, this Agreement constitutes a legal, valid and binding obligation of Pfizer, enforceable against Pfizer in accordance with its terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws of general application relating to creditors' rights. (b) To the best of Pfizer's knowledge, the execution and delivery of this Agreement by Pfizer and the performance by Pfizer contemplated hereunder will not violate any ordinance, law, decree or government regulation or any order of any court or -18- other governmental department, authority, agency or instrumentality thereof. (c) To the best of Pfizer's knowledge, as of the date hereof the issued Licensed Patents are valid and enforceable patents and are not being infringed. In addition, Pfizer is the legal and beneficial owner of all the Licensed Patents and all of the Technical Information, and no other person, firm, corporation or other entity has any right, interest or claim in or to the Licensed Patents or Technical Information. (d) Neither the execution and delivery of this Agreement nor the performance hereof by Pfizer requires Pfizer to obtain any permits, authorizations or consents from any governmental body or from any other persons, firm or corporation, and such execution, delivery and performance will not result in the breach of or give rise to any termination of any agreement or contract to which Pfizer may be a party or which otherwise relates to the Licensed Patents, Technical Information or the Licensed Products. 10.2 Roberts hereby represents and warrants to Pfizer as follows: (a) Roberts has the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and the execution, delivery and performance of this Agreement by Roberts has been duly and validly authorized and approved by proper corporate action on the part of Roberts, and Roberts has taken all other action required by law, its certificate of incorporation or by-laws or any agreement to which it is a party or to which it may be subject required to authorize such execution and delivery. Assuming due authorization, execution and delivery on the part of Pfizer, this Agreement constitutes a legal, valid and binding obligation of Roberts, enforceable against Roberts in accordance with its -19- terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws of general application relating to creditors' rights. (b) To the best of Roberts' knowledge, the execution and delivery of this Agreement and the performance by Roberts contemplated hereunder will not violate any state, federal or other statute or regulation or any order of any court or other governmental department, authority, agency or instrumentality of the United States. (c) Neither the execution and delivery of this Agreement nor the performance hereof by Roberts requires Roberts to obtain any permits, authorizations or consents from any governmental body or from any other persons, firm or corporation, and such execution, delivery and performance will not result in the breach of or give rise to any termination of any agreement or contract to which Roberts may be a party. 10.3 Pfizer disclaims any implied warranty that Licensed Products made in accordance with Licensed Patents have commercial utility. SECTION 11 - Indemnification - ---------------------------- 11.1 Roberts agrees to indemnify, defend and hold Pfizer and its directors, officers, agents and employees (the "Pfizer Parties") harmless from all loss, damage, liability, claim of loss, lawsuit, action, cost, fees (including reasonable attorneys' fees), expenses, and other claims asserted against them or any of them for any damage, injury or death arising directly or indirectly as a result of the clinical or animal testing or use, manufacturing, processing, packaging, marketing, sale, distribution or disposal of Licensed Products, or the disposal of wastes produced in the course of any of the foregoing activities in each case by Roberts or its sublicensees; provided, however, (a) such loss, damage, liability, claim, lawsuit or action -20- shall not be the result of the gross negligence or intentional misconduct on the part of the Pfizer Parties, and (b) that Pfizer shall give Roberts notice as soon as practicable of any such claim or action and that Roberts shall have the right to participate in any compromise, settlement or defense hereof. SECTION 12 - Termination - ------------------------ 12.1 This Agreement shall be effective as of the date first set forth above and shall remain in effect for so long as Roberts is obligated to make payments to Pfizer under Sections 3 and 4, unless earlier terminated as provided herein. The provisions of Sections 6 and 11 shall survive the expiration or termination of this Agreement. In addition, the provisions of the last sentence of Section 4.2 with respect to the fully paid-up Technical Information license shall survive the expiration of this Agreement. SECTION 13 - Termination - ------------------------ 13.1 Roberts shall have the exclusive option at any time to terminate this Agreement in full for whatever reason upon ninety (90) days' prior written notice to Pfizer. 13.2 If either Roberts or Pfizer materially breaches or defaults in the performance or observance of any of the provisions of this Agreement, and such breach or default is not cured within sixty (60) days after the giving of notice by the other party specifying such breach or default, the other party shall have the right to terminate this Agreement upon a further thirty (30) days notice. If any representation or warranty of any party as contained in this Agreement shall be materially incorrect or inaccurate, such shall be deemed to be a material breach or default of this Agreement by such party. 13.3 Termination of this Agreement for any reason shall be without prejudice to: (i) the rights and obligations of the parties as provided in Sections 6 and 11; (ii) Pfizer's right to receive all payments accrued under -21- Sections 3 and 4 prior to the effective date of such termination; and (iii) any other remedies which either party may otherwise have. 13.4 Upon any termination by Pfizer under Section 13.2, and to the extent requested by Pfizer, Roberts shall, at its sole expense, transfer to Pfizer all Technical Information delivered to Roberts hereunder, all scientific and technical information developed by Roberts regarding Licensed Products, all INDs, NDAs and other governmental health registrations and approvals regarding Licensed Products; provided, however, Pfizer shall not be entitled to any rights under any Roberts patents or scientific or technical information to the extent such do not relate to Licensed Products as a single entity. SECTION 14 - Force Majeure - -------------------------- 14.1 Neither party shall be liable to the other for loss or damages or shall have any right to terminate this Agreement for any default or delay attributable to any force majeure event, including but not limited to acts of God, acts of government, fire, flood, earthquake, strikes, labor, disputes, and the like, if the party affected shall give prompt notice of any such cause to the other party. The party giving such notice shall thereupon be excused from such of its obligations hereunder as it is thereby disabled from performing for so long as it is so disabled and for 60 days thereafter; provided, however, that such affected party commences and continues to take reasonable and diligent actions to cure such cause. Notwithstanding the foregoing, nothing in this Section 14.1 shall excuse or suspend the obligation to make any payment due hereunder in the manner and at the time provided. If a party's performance cannot be resumed within 180 days of its suspension, this Agreement may be terminated by the other party upon 30 days advance written notice. SECTION 15 - Assignment - ----------------------- 15.1 Except as expressly provided herein, neither party may -22- assign its rights and obligations under this Agreement except to an Affiliate without the prior written consent of the other, except a party may make such an assignment without the other party's consent in connection with any merger or sale of all or substantially all of its assets to which this Agreement relates. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assignees of the parties hereto. If any assignment of this Agreement occurs, the assignor shall remain liable for all payments and obligations hereunder of the assignee. SECTION 16 - Option Rights Retained by Pfizer - --------------------------------------------- 16.1 First Option Period Negotiations -------------------------------- (a) Evaluation Period. At any time during the First Option ----------------- Period, if Pfizer is interested in initiating the negotiations referred to in Section 16.1(c), Pfizer may elect to initiate an evaluation period by giving written notice to Roberts of its desire to initiate such evaluation period. (b) Roberts' Obligations during the Evaluation Period. If ------------------------------------------------- Pfizer elects to initiate the evaluation period pursuant to Section 16.1(a), Roberts shall (i) give Pfizer access to any INDs or NDAs maintained by Roberts with respect to the Amphorous Licensed Products, (ii) make available personnel qualified to respond to any Pfizer questions concerning such filings, and (iii) notify Pfizer of its estimate of the Reimbursable Development Costs Amount, assuming consummation of the agreement referred to in Section 16.1(c) on the last day of the First Option Period. For each day that elapses after the date on which Pfizer initiates the evaluation period and the date on which Roberts first complies with its obligations under the preceding sentence, the First Option Period shall be extended by a day. Pfizer may use any information disclosed to Pfizer under this Section 16.1(b) -23- solely in connection with its evaluation and negotiations under this Section 16.1. (c) Initiation of First Option Period Negotiations. At any ---------------------------------------------- time during the First Option Period, upon Pfizer's written request, Roberts will enter into good faith negotiations with Pfizer aimed at the consummation of an agreement under which (i) the exclusive licenses under the Amorphous Patents and the Technical Information granted in Section 2.1 shall be converted automatically to non-exclusive licenses; (ii) Pfizer and any licensees it selects shall have automatically the right to make, have made, use, offer to sell, sell and import the Amorphous Licensed Products under the Amorphous Patents and using the Technical Information under brand names that are different from the brand names used by Roberts for the Licensed Products; (iii) Roberts will furnish Pfizer immediately with a complete copy of Roberts' INDs and NDAs for Amorphous Licensed Products; (iv) Roberts shall grant Pfizer immediately the right to refer to Roberts' INDs and NDAs in connection with any applications by Pfizer for INDs or NDAs for Amorphous Licensed Products; (v) Pfizer shall automatically have a non-exclusive worldwide license from Roberts, with the right to sublicense, to use the contents of such INDs and NDAs in connection with the manufacture, use, offer to sell, sale and importation -24- of the Amorphous Licensed Products; (vi) In full consideration of the rights and license referred to in Section 16.1(d) (iv) and (v), within thirty (30) days after the date on which Pfizer enters into the agreement with Roberts, Pfizer shall pay Roberts a fair percentage of the Reimbursable Development Costs Amount, which as of this date the parties estimate to be 50%; (vii) Roberts will supply all of Pfizer or any licensee's developmental and commercial requirements of Amorphous Licensed Products; (viii) Upon commercial launch by Pfizer or any of its licensees of any Amorphous Licensed Products in any country, the royalty rates applicable to sales in such country under Section 4 shall be reduced automatically by a fair percentage, which as of this date the parties estimate to be seventy-five percent (75%); (ix) The parties shall establish promptly a mutually acceptable procedure for exchanging information regarding adverse experiences with respect to the Licensed Products. (d) The outcome of the First Option Period Negotiations is not assured, Roberts not being under any obligation other than the obligation to negotiate in good faith. 16.2 First Conversion Option ----------------------- (a) Exercise of First Conversion Option. In lieu of ----------------------------------- exercising any of its rights under Section 16.1, at any time during the Fist Option Period, Pfizer -25- may elect to exercise the First Conversion Option by giving written notice to Roberts of such exercise. (b) Effect of Exercise of First Conversion Option. Upon --------------------------------------------- Pfizer's exercise of the First Conversion Option, the following provisions shall apply automatically: (i) the exclusive licenses under the Amorphous Patents and the Technical Information granted to Roberts in Section 2.1 shall be converted automatically to non-exclusive licenses; (ii) Pfizer and any licensees selected by Pfizer shall have automatically the right to make, have made, use, offer to sell, sell and import the Amorphous Licensed Products under the Amorphous Patents and using the Technical Information under brand names that are different from the brand names used by Roberts for the Licensed Products; (iii) Upon Pfizer's request, Roberts and Pfizer will enter into good faith negotiations aimed at the consummation of a supply agreement under which Roberts would supply all of the developmental and commercial requirements of Amorphous Licensed Products of Pfizer or its licensees; (iv) Upon commercial launch by Pfizer or any of its licensees of any Amorphous Licensed Products in any country, the royalty rates set forth in Section 4 shall be reduced automatically by seventy-five percent (75%) for sales in such country; (v) The parties shall establish promptly a -26- mutually acceptable procedure for exchanging information regarding adverse experiences with respect to the Licensed Products. 16.3 Second Option Period Negotiations --------------------------------- (a) Evaluation Period. At any time during the Second Option ----------------- Period, if Pfizer is interested in initiating the negotiations referred to in Section 16.3(c), Pfizer may elect to initiate an evaluation period by giving written notice to Roberts of its desire to initiate such evaluation period. (b) Roberts' Obligations during the Evaluation ------------------------------------------ Period. If Pfizer elects to initiate the evaluation period ------ pursuant to Section 16.1(a), Roberts shall (i) give Pfizer access to any INDs or NDAs maintained by Roberts with respect to the Polymorphic Licensed Products, (ii) make available personnel qualified to respond to any Pfizer questions concerning such filings, and (iii) notify Pfizer of its estimate of the Reimbursable Development Costs Amount, assuming consummation of the agreement referred to in Section 16.3(c) on the last day of the Second Option Period. For each day that elapses after the date on which Pfizer initiates the evaluation period and the date on which Roberts first complies with its obligations under the preceding sentence, the Second Option Period shall be extended by a day. Pfizer may use any information disclosed to Pfizer under this Section 16.1(b) solely in connection with its evaluation and negotiations under this Section 16.3. (c) Initiation of Second Option Period Negotiations. At any ----------------------------------------------- time during the Second Option Period, upon Pfizer's written request, Roberts will enter into good faith negotiations with Pfizer aimed at the consummation of an agreement under which -27- (i) the exclusive licenses under the Polymorphic Patents and the Technical Information granted in Section 2.1 shall be converted automatically to non-exclusive licenses; (ii) Pfizer and any licensees it selects shall have automatically the right to make, have made, use, offer to sell, sell and import the Polymorphic Licensed Products under the Polymorphic Patents and using the Technical Information under brand names that are different from the brand names used by Roberts for the Licensed Products; (iii) Roberts will furnish Pfizer immediately with a complete copy of Roberts' INDs and NDAs for Polymorphic Licensed Products; (iv) Roberts shall grant Pfizer immediately the right to refer to Roberts' INDs and NDAs in connection with any applications by Pfizer for INDs or NDAs for Polymorphic Licensed Products; (v) Pfizer shall automatically have a non-exclusive worldwide license from Roberts, with the right to sublicense, to use the contents of such INDs and NDAs in connection with the manufacture, use, offer to sell, sale and importation of the Polymorphic Licensed Products; (vi) In full consideration of the rights and license referred to in Section 16.1(d)(iv) and (v), and so long as the agreement referred to in Section 16.1(c) has not been consummated and the First Conversion Option has not been exercised, within thirty (30) days after the date on which Pfizer exercises the -28- Second Hybrid Option, Pfizer shall pay Roberts a fair percentage of the Reimbursable Development Costs Amount, which as of this date the parties estimate to be 50%. (vii) Roberts will supply all of Pfizer or any licensee's developmental and commercial requirements of Polymorphic Licensed Products; (viii) Upon commercial launch by Pfizer or any of its licensees of any Polymorphic Licensed Products in any country, and so long as the royalty rates have not already been reduced in such country, the royalty rates applicable to sales in such country under Section 4 shall be reduced automatically by a fair percentage, which as of this date the parties estimate to be seventy-five (75%). (ix) The parties shall establish promptly a mutually acceptable procedure for exchanging information regarding adverse experiences with respect to the Licensed Products. (d) The outcome of the Second Option Period Negotiations is not assured, Roberts not being under any obligation other than the obligation to negotiate in good faith. 16.4 Second Conversion Option ------------------------ (a) Exercise of Second Conversion Option. In lieu of ------------------------------------ exercising any of its rights under Section 16.3, at any time during the Second Option Period, Pfizer may elect to exercise the Second Conversion Option by giving written notice to Roberts of such exercise. -29- (b) Effect of Exercise of Second Conversion Option. Upon ---------------------------------------------- Pfizer's exercise of the Second Conversion Option, the following provisions shall apply automatically: (i) the exclusive licenses under the Polymorphic Patents and the Technical Information granted to Roberts in Section 2.1 shall be converted automatically to non-exclusive licenses; (ii) Pfizer and any licensees selected by Pfizer shall have automatically the right to make, have made, use, offer for sale, sell and import the Polymorphic Licensed Products under the Polymorphic Patents and using the Technical Information under brand names that are different from the brand names used by Roberts for the Licensed Products; (iii) Upon Pfizer's request, Roberts and Pfizer will enter into good faith negotiations aimed at the consummation of a supply agreement under which Roberts would supply all of the developmental and commercial requirements of Polymorphic Licensed Products of Pfizer or its licensees; (iv) Upon commercial launch by Pfizer or any of its licensees of any Polymorphic Licensed Products in any country, and so long as the royalty rates have not already been reduced in such country, the royalty rates set forth in Section 4 shall be reduced automatically by seventy-five percent (75%) for sales in such country. (v) The parties shall establish promptly a mutually acceptable procedure for exchanging information regarding adverse -30- experiences with respect to the Licensed Products. 16.5 Condition for Exercise of Options. Pfizer may elect to --------------------------------- initiate the evaluation periods and negotiations referred to in Sections 16.1 and 16.3, or exercise the options referred to in Sections 16.2 and 16.4, only if during the then most recent twelve month period for which independent audited prescription drug sales data are available, the Licensed Products have collectively accounted for at least six percent (6%) of all worldwide sales of pharmaceuticals sold for the treatment of hypertension in humans. 16.6 Environmental Information Disclosure. Upon Pfizer's request in ------------------------------------ connection with the exercise of its rights under this Section 16, Roberts will furnish Pfizer with information (if any) reasonably needed by Pfizer to assess the environmental, health and safety requirements associated with the manufacture of Licensed Products. SECTION 17 - Miscellaneous - -------------------------- 17.1 Governing Law - This Agreement shall be governed by and ------------- construed under the law of the State of New York, regardless of the choice of law principles of New York or any other jurisdiction. 17.2 Notices - Any notice required under this Agreement shall be in ------- writing sent by (a) certified mail, postage prepaid with return receipt requested (b) Fed Ex or another reliable courier service or (c) telefax (confirmed by such mail or courier service), addressed as follows: If to Roberts: If to Pfizer: Roberts Pharmaceutical Pfizer Inc. Corporation 235 East 42nd Street Meridian Center II New York, NY 10017 4 Industrial Way West Attention: General Counsel Eatontown, NJ 07724 -31- Attention: Anthony A. Rascio Telefax: (908) 389-1014 Telefax: (212) 808-8926 All notices shall be deemed to be effective on the date sent. In case any party changes its addresses at which notice is to be received, written notice of such change shall be given without delay to the other party. 17.3 Entire Agreement - This Agreement sets forth the entire ---------------- agreement and understanding between the parties hereto as to the subject matter hereof and has priority over all documents, verbal consents or understandings made between Pfizer and Roberts before the conclusion of this Agreement with respect to the subject matter hereof. None of the terms of this Agreement shall be amended or modified except in a writing signed by the parties hereto. 17.4 Waivers - A waiver by any party of any term or condition of ------- this Agreement in any one instance shall not be deemed or construed to be a waiver of such term or condition for any similar instance in the future or of any subsequent breach hereof. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement of any party. 17.5 Independent Contractor Status - Both parties shall act as ----------------------------- independent contractors, and nothing in this Agreement shall be construed to give either party the power or authority to act for, bind or commit the other party. 17.6 Consents and Approvals - Whatever provision is made in this ---------------------- Agreement for either party to secure the consent or approval of the other, that consent or approval shall not be unreasonably withheld, and whenever in this Agreement provisions are made for one party to object to or disapprove a matter, such objection or -32- disapproval shall not be exercised unreasonably. 17.7 Public Statements - Neither party shall make any public ----------------- statement or issue any press release expressly or implicitly specifying the financial terms of this Agreement without first obtaining the consent of the other party (which consent shall not be unreasonably withheld), except that consent of the other party shall not be required as to any such public statement or other communication (i) which is reasonably believed to be required by law, or (ii) which has already been publicly disclosed and is still accurate. In addition, Roberts agrees not to use the name of Pfizer or any of its subdivisions in any advertising or promotion relating to the sale of Licensed Products. 17.8 Headings and Sections - Headings in this Agreement are included --------------------- herein for ease of reference only and have no legal effect. References to Sections are to Sections of this Agreement unless specified otherwise. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their duly authorized officers. Pfizer Inc. Roberts Laboratories Inc. Signature not determined /s/ Robert A. Vukovich By:___________________________ By:___________________________ President In order to induce Pfizer Inc. to execute this Agreement, Roberts Pharmaceutical Corporation, the owner of all of the outstanding shares of Roberts Laboratories Inc., hereby guarantees the full and timely performance of all of the obligations of Roberts Laboratories Inc. under this Agreement. Roberts Pharmaceutical Corporation By: /s/ Robert A. Vukovich ---------------------- President EX-10.83 8 AGREEMENT FOR OAKVILLE MANUFACTURING FACILITY EXHIBIT 10.83 AGREEMENT --------- THIS AGREEMENT, dated this third day of December, 1996 by and between: SEARLE CANADA, a unit of Monsanto Canada Inc., having its office at 400 Iroquois Shore Road, Oakville, Ontario L6H 1M5 (hereinafter referred to as "MONSANTO"); and ROBERTS PHARMACEUTICAL CORPORATION, having its office at Meridian Center II, 4 Industrial Way West, Eatontown, New Jersey 07724 (hereinafter referred to as "ROBERTS"). WITNESSETH: WHEREAS, MONSANTO owns certain property and assets, hereinafter referred to as "ASSETS" located at 400 Iroquois Shore Road, Oakville, Ontario L6H 1M5. WHEREAS, ROBERTS or its designee desires to acquire the ASSETS subject to the terms, conditions and provisions hereinafter set forth. NOW, THEREFORE, in consideration of $6.3 million Cdn plus applicable taxes if any, and other good and valuable consideration, the parties agree as follows: ARTICLE I - ASSETS TO BE CONVEYED --------------------------------- In consideration of the purchase price hereinafter set forth and the performance by the parties of the covenants and agreements herein contained, and subject to the other provisions of this Agreement, MONSANTO agrees to sell, assign and grant to ROBERTS and ROBERTS agrees to purchase and accept from MONSANTO the following ASSETS (excluding such property as is identified in this Agreement including its attachments): 1.1 All of MONSANTO's right, title and interest in and to its real property located at 400 Iroquois Shore Road, Oakville, Ontario, registered in the Land Registry Office for the Registry Division of Halton 1 and described as follows: Lot 6, Plan M-14, Town of Oakville, Regional Municipality of Halton being Parcel 6-1, Section M-14; all of Lot 7, Plan M-14, Town of Oakville, Regional Municipality of Halton being Parcel 7-3, Section M-14; SAVE AND EXCEPT that part of Lot 7, Plan M-14 designated as Part 1 on HR-30. 1.2 All of MONSANTO's right, title and interest in the following: All machinery and equipment, office furniture, telephone system, alarm system, engineering CADCAM system and cafeteria furniture and kitchen equipment as identified in Exhibit A. Specifically excluded from the sale are as follows: All equipment related to the QA/QC laboratory and warehouse (except as set forth in Exhibit A, page 11) and all electronic equipment including all computers, photocopiers, video conference equipment, projection equipment and fax machines and all furnishings in the Video Conference Room. 1.3 The ASSETS shall be deemed to have been physically delivered to ROBERTS at the Closing upon conveyance of the ownership of the ASSETS to ROBERTS. 1.4 It is recognized by the Parties, that MONSANTO may not, prior to the Closing, have removed assets or property of MONSANTO or third parties not being sold, assigned, conveyed or granted to ROBERTS hereunder. Accordingly, ROBERTS shall allow MONSANTO a reasonable period of time following the Closing in order to remove such assets and property. ROBERTS agrees to render reasonable assistance in connection therewith. In addition, should MONSANTO locate any ASSETS following the Closing which were not delivered to ROBERTS, it shall promptly deliver the same to ROBERTS. ARTICLE II - PRICE ------------------ 2.1 The purchase price for the ASSETS shall be $6.3 Cdn. million, plus applicable taxes if any, and shall be paid according to the following payment schedule. (MONSANTO acknowledges receipt on or 2 about October 7, 1996 of 5% (i.e. $0.315 million Cdn.) of the purchase price which is held in trust by Colliers Macaulay Nicolls (Ontario) Inc. and acknowledges receipt on the signing of this Agreement of 10% (i.e. $0.630 million Cdn.) of the purchase price paid directly to MONSANTO). Payment Schedule: ----------------- 2.1.1 $2.0 Cdn. million on Closing. 2.1.2 The outstanding balance remaining on the purchase price (i.e. $3.355 million Cdn.) plus accumulated interest at Canadian prime in effect on the Closing on or before December 31, 1997 to be evidenced by a promissory note delivered on Closing (the Promissory Note). 2.2 Allocation of the purchase price shall be as agreed by ROBERTS and MONSANTO by the Closing according to the following schedule: Land Building Equipment/Furnishings Total and both parties agree to file all returns consistent with such allocations. ARTICLE III - TITLE AND RISK OF LOSS ------------------------------------ 3.1 Risk of loss or destruction or damage to the ASSETS shall pass to ROBERTS as of Closing. Good and marketable title to the ASSETS shall be transferred to ROBERTS by means of a bill of sale and/or general conveyances to be delivered to ROBERTS at the Closing. Title to the real property shall be in fee simple free from all encumbrances save for registered restrictions or covenants that run with the land, rights-of-way or easements disclosed by the registered title or for the supply of utilities, existing zoning or environmental regulations and any defects in title which do not materially affect ROBERTS' rights to use the real property as currently being used. ROBERTS shall have until February 3, 1997 to satisfy itself as to the state of the title of the ASSETS and if before that time it makes any objection to title which MONSANTO is unable or unwilling to satisfy and such objection relates to a matter which has not been accepted by ROBERTS pursuant to the terms of this Agreement, then ROBERTS may, as 3 its sole remedy, on written notice to MONSANTO terminate this Agreement and MONSANTO shall ensure the return of all purchase price payments provisionally made by ROBERTS. 3.2 The ASSETS shall remain at the risk of MONSANTO until Closing and in the event of any loss or damage to the ASSETS, any insurance proceeds shall belong to MONSANTO absolutely. ARTICLE IV - REPRESENTATIONS AND AGREEMENTS PENDING CLOSING ----------------------------------------------------------- 4.1 MONSANTO Representations. MONSANTO represents and warrants to ROBERTS: ------------------------- 4.1.1 It is, and on the Closing will be, a corporation duly organized and validly existing under the laws of Canada; and at the Closing, this Agreement and the transactions provided for herein shall have been duly authorized or ratified by all necessary corporate action on the part of MONSANTO and this Agreement shall be a valid and binding obligation of MONSANTO enforceable in accordance with its terms. 4.1.2 This Agreement and the performance of MONSANTO's obligations hereunder shall not, as of the Closing, contravene MONSANTO's by-laws, or any material agreement to which it is a party. 4.1.3 To the best of MONSANTO's knowledge and belief there is, and at the Closing will be, no lien, charge or other encumbrance (except as otherwise permitted under this Agreement) against the ASSETS. 4.1.4 MONSANTO is not, and at the Closing will not be, a non-resident of Canada for purposes of Section 116 of the Income Tax Act (Canada). 4.1.5 MONSANTO is not, and at the Closing will not be, engaged in any litigation which would have a material and adverse effect on the transaction contemplated by this Agreement and to the best of its knowledge and belief, no such litigation is, or at the Closing will be, threatened or anticipated by against MONSANTO. 4 4.2 ROBERTS Representations. ROBERTS represents and warrants to MONSANTO that: ------------------------ 4.2.1 ROBERTS is and at the Closing will be a corporation duly organized and validly existing under the laws of New Jersey and has and will have full power and authority to make, execute, deliver and perform this Agreement; this Agreement and the transaction provided for herein have been duly authorized by all necessary corporate action on the part of ROBERTS and this Agreement is and will continue to be after Closing a valid and binding obligation of ROBERTS enforceable in accordance with the terms hereof. 4.2.2 At Closing, ROBERTS as Lessor and MONSANTO as Lessee shall enter into a Lease of QA/QC, office and warehouse space substantially in the form of the draft Lease annexed as Exhibit B. 4.2.3 ROBERTS plans to hire most or all of the existing production and packaging employees and those QA/QC employees deemed redundant in the MONSANTO closure plans. The transfer date to ROBERTS payroll will be Closing. Salaries and benefits shall be negotiated by ROBERTS with the individual employees that ROBERTS hires. ROBERTS shall indemnify MONSANTO against any claims by such employees arising after their hiring by ROBERTS. Nothing in this Section 4.2.3 or elsewhere in this Agreement shall be construed as relieving MONSANTO or Searle Canada or any other company within the MONSANTO group from any obligation to pay any severance or other separation pay or any other termination obligation to any of the personnel mentioned in this Section 4.2.3. ARTICLE V - SURVIVAL OF REPRESENTATIONS AND WARRANTIES ------------------------------------------------------ 5.1 Neither Party shall have any obligation or liability to the other Party on account of the breach of any representation or warranty contained in this Article V unless such breach shall have materially and adversely affected the Party and such Party shall have notified the breaching Party of such breach within one (1) year after the Closing Date. 5 ARTICLE VI - CONDITION OF ASSETS -------------------------------- 6.1 ROBERTS acknowledges that it has inspected the ASSETS and is accepting them on an as is where is basis without recourse to MONSANTO. ROBERTS agrees that MONSANTO has not made any representation, warranties, or agreement, express or implied, as to the physical condition or any other matter or thing affecting or relating to the ASSETS except those representations and warranties contained in this Agreement. 6.2 Without limiting the generality of the foregoing Section 6.1, ROBERTS acknowledges that it has received a full and complete copy of the environmental assessment by Equity Environmental Services Corporation dated August 1995; attached hereto as Exhibit C ("Environmental Assessment"). ROBERTS further acknowledges that it has reviewed the Environmental Assessment and is satisfied that it accurately reflects the condition of the property. ARTICLE VII - CLOSING --------------------- 7.1 Closing of the transactions contemplated in this Agreement (the "Closing" or "Closing Date") shall take place on June 30, 1997 at 10:00 A.M. at Searle Canada 400 Iroquois Shore Road Oakville Ontario unless the Parties hereto shall agree in writing upon another place, date and time of Closing. 7.2 On December 3, 1996, all documents shall be delivered and all payments shall be made as required pursuant to the terms of an Escrow Agreement to be entered into between ROBERTS, MONSANTO and BORDEN AND ELLIOT (the Escrow Agent) substantially in the form of the draft Escrow Agreement annexed as Exhibit D. No fee shall be charged by the Escrow Agent. Possession of the ASSETS (subject to Monsanto's rights under the Lease) shall be delivered to ROBERTS on Closing. 7.3 ROBERTS shall be responsible for registration of the deed to the real property and the payment of any costs associated therewith including land transfer tax. 6 7.4 Real estate taxes and regular water, sewer and other utility charges if any will be prorated and apportioned as of the Closing. 7.5 At the Closing Monsanto shall have performed and complied in all material respects with all of the agreements and conditions on its part to be performed or complied with prior to or at the Closing pursuant to this Agreement. 7.6 At the Closing ROBERTS shall have performed and complied in all material respects with all of the agreements and conditions on its part to be performed or complied with prior to or at the Closing pursuant to this Agreement. ARTICLE VIII - FURTHER ASSURANCES --------------------------------- 8.1 MONSANTO shall, pending the Closing, deal with the ASSETS only in the ordinary and usual course of business except as otherwise consented to by ROBERTS. If, prior to Closing, there should be any material damage or destruction to such ASSETS, which has not been caused by ROBERTS, its agents or representatives, ROBERTS may, provided MONSANTO is unable to materially repair or replace the damaged or destroyed ASSETS with assets capable of performing substantially similar tasks prior to Closing, terminate this Agreement upon written notice to MONSANTO prior to Closing and this Agreement shall be void without further obligation or liability of either Party except that MONSANTO shall ensure the return of all purchase price payments provisionally made by ROBERTS. Any other damage or destruction to any other portion of the ASSETS subsequent to Closing, shall be at the risk of ROBERTS and MONSANTO shall have no obligations to repair or replace the same. 8.2 From time to time at the request of the other party hereto, a party shall execute and deliver such instruments and take such further action as may reasonably be requested and as shall reasonably be required in order to give effect to the provisions of this Agreement. 8.3 Between the date hereof and the Closing Date as well as beyond the Closing Date, the Parties agree to negotiate in good faith the following. 7 a) a contract by MONSANTO to ROBERTS, where appropriate, for the manufacturer and validation of clinical trial materials and for investigational drugs at fair market value. Additionally, MONSANTO will grant to ROBERTS first consideration, where appropriate, for the manufacture and validation of clinical trial materials for investigational drugs at fair market value. Both the contract and consideration clinical supply projects are identified in Exhibit E. b) a contract for ROBERTS, at a fair market price, to package for a period of two years all of G.D. Searle and Co.'s ("Searle") commercial requirements for SLOW-MAG which are currently being met by Oakville based production. Estimated volumes and proposed fair market contract prices are set forth in Exhibit F. c) A ROBERTS' option to discontinue as of July 1, 1997 all manufacturing agreements with Searle Canada and Searle if ROBERTS deems appropriate. ROBERTS agrees to purchase all finished goods at Searle Canada's and Searle's usual price and all work in progress and materials at Searle Canada and Searle's cost exclusively related to the above manufacturing agreements. This option is conditional on all outstanding ROBERTS' debts and accounts with Searle Canada and Searle being current. Nothing in this Section 8.3 is a condition of Closing. ARTICLE IX - INDEMNIFICATION ---------------------------- 9.1 Until one (1) year after the Closing, MONSANTO assumes full responsibility for and agrees to defend, indemnify, save and hold harmless ROBERTS from and against any claims, losses, damages, costs, expenses or liabilities or other legal, administrative or governmental action or proceedings (including reasonable expenses of litigation and solicitors' fees in connection therewith) in respect to events, occurrences or omissions prior to the Closing on account of the ownership, possession, or use of any of the ASSETS sold transferred or granted to ROBERTS. Notwithstanding the foregoing, MONSANTO's indemnification with respect to environmental liabilities shall be governed exclusively by Section 10.1. 9.2 From and after Closing, ROBERTS assumes full responsibility for and agrees to defend, indemnify, save and hold harmless MONSANTO from and against any claims, losses, damages, costs, 8 expenses or liabilities or other legal, administrative or governmental action or proceedings (including reasonable expenses of litigation and solicitors' fees in connection therewith) in respect to (i) events, occurrences or omissions on account of ROBERTS ownership, possession, sale or use of any of the ASSETS sold transferred or granted to ROBERTS and (ii) events, occurrences or omissions prior to the Closing which give rise to any claims, losses, damages, costs, expenses or liabilities made beyond the one-year period following the Closing. Notwithstanding the foregoing, ROBERTS' indemnification with respect to environmental liabilities shall be governed exclusively by Section 10.2. ARTICLE X - ENVIRONMENTAL INDEMNIFICATION ----------------------------------------- 10.1 Until one (1) year after the Closing, unless a claim has been made prior to, MONSANTO agrees to defend, indemnify, save and hold harmless ROBERTS from and against any costs paid to third parties as a result of governmentally mandated environmental actions (including without limitation investigations, cleanups, monitoring or sampling), or as a result of the requirements of applicable environmental laws, resulting from events, occurrences, or omissions prior to the Closing on account of the ownership, possession or use of the ASSETS, to the extent that the condition giving rise to the action was NOT identified in the Environmental Assessment. 10.2 Except as provided in Section 10.1, ROBERTS agrees to defend, indemnify, safe and hold harmless MONSANTO from and against any costs paid to third parties as a result of governmentally mandated environmental actions (including without limitation investigations, cleanups, monitoring or sampling) or as a result of the requirements of applicable environmental laws, resulting from events, occurrences, or omissions on account of the ownership, possession or use of the ASSETS. ARTICLE XI - CONFIDENTIALITY ---------------------------- 11.1 Confidentiality. In the event this Agreement or the transactions called ---------------- for herein are not consummated, ROBERTS agrees to keep confidential and not to use or disclose to others and to prevent any of its employees agents or representatives from using or disclosing without MONSANTO's prior written permission, any information or data pertaining to the business, property, activities, or operations of MONSANTO obtained or developed by, or furnished or made available by MONSANTO to 9 ROBERTS or any of its employees, agents or representatives as a result of or in connection with this Agreement, any negotiations pertaining thereto or any of the transactions contemplated hereby; provided however that nothing in this Article X shall apply to any information or data (a) which ROBERTS can show was in its possession or was known to the public or in published literature prior to the disclosure or making available of such information or data to ROBERTS by MONSANTO, or (b) which subsequent to the time of MONSANTO'S disclosure or making available of such information or data to ROBERTS, (i) becomes known to the public or in published literature other than by acts or omissions of ROBERTS or anyone acting on behalf of ROBERTS, or breach of this Agreement by ROBERTS, or (ii) is lawfully acquired by ROBERTS from a third party who is not in breach of any confidentiality agreement with MONSANTO. In the event this Agreement or the transactions called for herein are not consummated, any and all documents, writings, papers or other materials furnished or made available by MONSANTO to ROBERTS, its employees, agents and representatives and all copies, reproductions, extracts, or summaries in whole or in part thereof shall be returned by ROBERTS to MONSANTO promptly following request therefore. ARTICLE XII - MISCELLANEOUS --------------------------- 12.1 Notices. Any notice required or permitted hereunder shall be in writing -------- and shall be sufficiently given when delivered to an officer of either Party or when faxed to such office or when deposited in the mail, postage prepaid, addressed as follows: If to MONSANTO, addressed to: Monsanto Canada Inc. P.O. Box 787 2300 Argentia Road Mississauga, Ontario L5M 2G4 Attention: Director, Legal Affairs Copy to: General Counsel G.D. Searle and Co. 5200 Old Orchard Skokie Illinois 60077 10 If to ROBERTS, addressed to: ROBERTS PHARMACEUTICAL CORPORATION Meridian Center II 4 Industrial Way West Eatontown, New Jersey 07724 Attention: Anthony A. Rascio, Vice President and General Counsel 12.2 Entire Agreement. This Agreement contains the entire and sole ----------------- understanding of the Parties hereto with respect to the matters covered hereby or any of the transactions contemplated herein, and supersedes and cancels any and all oral or written prior agreements, understandings, statements and representations between the Parties with respect thereto or any part hereof. All of the Exhibits hereto are made a part of this Agreement. 12.3 Amendments. No waiver, modification or amendment of any term, condition ----------- or provision of this Agreement shall be valid or of any effect unless made in writing, signed by the Party to be bound or its duly authorized representative and specifying with particularity the nature and extent of such waiver, modification or amendment. Any waiver by any Party of any default of the other shall not affect or impair any right arising from any subsequent default. 12.4 Governing Law. This Agreement and the validity, interpretation and -------------- performance thereof shall be governed by and construed in accordance with the laws of the Province of Ontario. 12.5 Public Announcement. No press release, public announcement, confirmation -------------------- or other communication regarding this Agreement or the contents hereof shall be made by either Party without the prior written approval of the other Party (which shall not be withheld unreasonably). 12.6 Expenses and Fees. Except as otherwise specifically provided in this ------------------ Agreement, each Party shall pay and bear its own expenses and fees incurred in connection with this Agreement and any of the transactions contemplated hereby, including without limitation the fees of solicitors, or finders, employed by it. 11 12.7 Article and Section Headings. Article and Section headings are inserted ----------------------------- for convenience only and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular Articles or Sections to which they refer. 12.8 Time is of the Essence. Time is of the essence with respect to each and ----------------------- every provision of this Agreement. 12.9 Breach. If ROBERTS fails to close the transaction described herein (other ------- than because of a default by MONSANTO), or pursuant to the terms of this Agreement, MONSANTO shall be entitled to as its sole remedy to retain all payments previously made by ROBERTS to Monsanto under this Agreement (including any interest) as full liquidated damages. If MONSANTO fails to close the transaction described herein (other than because of a default by ROBERTS) ROBERTS shall be entitled as its sole remedy to the return of all payments previously made by ROBERTS to MONSANTO under this Agreement (including any interest). 12.10 Successors and Assigns. Neither Party may assign this Agreement (except ----------------------- that ROBERTS may assign to a wholly owned subsidiary provided that ROBERTS continues to be fully liable to MONSANTO hereunder). The terms and conditions of this Agreement will survive closing and be binding upon, and enure to the benefit of the parties hereto and their respective permitted successors and assigns. 12 IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement and affixed their corporate seals as of the day and year first hereinabove written. MONSANTO CANADA INC. /s/ R. Ian Lenox ____________________________________________ Title: President/Monsanto Canada ____________________________________________ ROBERTS PHARMACEUTICAL CORPORATION /s/ Anthony A. Rascio ____________________________________________ Title: Vice President ____________________________________________ 13 EX-10.84 9 DIVESTITURE AGREEMENT EXHIBIT 10.84 DIVESTITURE AGREEMENT --------------------- BY AND AMONG ROBERTS PHARMACEUTICAL CORPORATION, PRONETICS HEALTH CARE GROUP, INC. (NEW JERSEY) PRONETICS HEALTH CARE GROUP, INC. (NEW YORK) PHCG, INC. AND MJGC CORP. DIVESTITURE AGREEMENT --------------------- THIS DIVESTITURE AGREEMENT (the "Agreement"), dated as of December 1, 1996, --------- by and among ROBERTS PHARMACEUTICAL CORPORATION, a corporation organized under the laws of the State of New Jersey ("Roberts"), PRONETICS HEALTH CARE GROUP, ------- INC., a corporation organized under the laws of the State of New Jersey ("PHCG ---- New Jersey"), PRONETICS HEALTH CARE GROUP, INC., a corporation organized under - ---------- the laws of the State of New York ("PHCG New York" and, together with PHCG New ------------- Jersey, "PHCG"), PHCG, INC., a corporation organized under the laws of the State ---- of New York ("Purchaser") and MJGC CORP., a corporation organized under the laws --------- of the State of New York ("Parent"). ------ WITNESSETH: ---------- WHEREAS, Roberts is the owner of 100 shares of stock of PHCG New Jersey, which shares of stock constitute all of the issued and outstanding stock of PHCG New Jersey (the "New Jersey Stock"); ---------------- WHEREAS, Roberts is the owner of 200 shares of PHCG New York, which shares constitute all of the issued and outstanding shares of PHCG New York (the "New --- York Stock" and, together with the New Jersey Stock, the "Stock"); - ---------- ----- WHEREAS, PHCG New Jersey and PHCG New York own and operate the Business (as defined herein); and WHEREAS, Roberts desires to cause PHCG, and PHCG desires, to sell to Purchaser, and Purchaser desires to purchase from PHCG, upon the terms and subject to the conditions hereinafter set forth, the Assets (as hereinafter defined) and the Business. NOW, THEREFORE, in consideration of the foregoing and of the promises, representations, warranties, agreements and mutual covenants hereinafter contained and for other good and valuable consideration, Roberts, PHCG New Jersey, PHCG New York, Purchaser and Parent hereby agree as follows: ARTICLE I --------- DEFINED TERMS; SALE AND PURCHASE OF ----------------------------------- CERTAIN ASSETS -------------- SECTION 1.01. DEFINED TERMS. ------------- The following terms shall have the definitions set forth in this Section 1.01. All other capitalized terms shall have the respective definitions set forth herein. "Affiliates" shall mean any Person that, directly or indirectly through one ---------- or more intermediaries, controls, is controlled by or is under common control with the Person specified. For purposes of this definition, the term "control" of a Person means the possession, direct or indirect, of the power to (i) vote 50% or more of the voting securities of such Person or (ii) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise, and the terms and phrases "controlling", "controlled by" and "under common control with" have correlative meanings. "Article" shall mean an Article of this Agreement. ------- "Assets" shall mean the Automobiles, the Intellectual Property Rights, the ------ Tangible Personal Property (expressly excluding cash), the Inventory, the Contracts, the Personal Property Leases, the Real Property Leases, the Records, the Premises and goodwill, in each case owned by PHCG New Jersey or PHCG New York. "Automobiles" shall mean all of the automobiles and other vehicles owned by ----------- PHCG. "Business" shall mean, together, the pharmacy, durable medical equipment -------- and licensed home care services businesses of PHCG New Jersey and PHCG New York, including all of their respective Assets. "Contracts" shall mean all rights of Roberts or PHCG under the contracts --------- and licenses in connection with the Business, as set forth on Schedule A. ---------- "Encumbrances" shall mean any claim, lien, pledge, option, charge, ------------ easement, security interest, right-of-way, restriction, encumbrance or other right of a third party. "Exhibit" shall mean an exhibit which is attached to and made a part of ------- this Agreement. "First Closing Date" shall mean the date as shall be agreed upon by the ------------------ parties hereto as soon as possible after the approval by the New York State Department of Health of the Management Agreement, dated July 30, 1996, between PHCG New York and Caregivers, Inc., and after all conditions to the First Closing have been waived, satisfied or performed, as the case may be. 2 "Governmental Authority" shall mean any (i) nation, state, county, city, ---------------------- town, village, district, or other jurisdiction, (ii) Federal, state, local, municipal, foreign or other government or authority, (iii) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity, and any court or other tribunal), or (iv) body exercising or entitled to exercise any public administrative, executive, judicial, legislative, police, licensing, regulatory or taxing authority of any nature. "Intellectual Property Rights" shall mean all patents, trademarks, service ---------------------------- marks, trade names and copyrights relating to the Business, as set forth in Schedule B. - ---------- "Inventory" shall mean all of the inventory, including without limitation, --------- all durable medical equipment, drug, infusion, pharmacy and nursing supplies, office and administrative supplies, owned by PHCG from time to time, schedules of which as of December 31, 1995 and June 30, 1996, are set forth in Schedules C ----------- and C-1, respectively, --- "Material Shortfall" shall mean a decrease in the aggregate value of the ------------------ Inventory (computed on the bases of the lower of cost or market and first-in, first-out) and Tangible Personal Property of more than 10% from the aggregate value of the Inventory (computed on the same bases) and Tangible Personal Property as of December 31, 1995, as reported on Schedules C and F, ----------- - respectively. "New Jersey Assets" shall mean all of the Assets of PHCG New Jersey. ----------------- "New York Assets" shall mean all of the Assets of PHCG New York, excluding --------------- its home care services agency license, and the Records relating to such agency. "Permits" shall mean all licenses, permits, orders, consents, approvals, ------- registrations, authorizations, variances, waivers, qualifications, declarations and filings with and under all federal, state or local laws and Governmental Authorities and all industry or other non-governmental self-regulatory organizations, in each case relating to the operation of the Business. "Person" shall mean an individual, a partnership, a limited liability ------ company, a joint venture, a corporation, a trust, an unincorporated organization, a government or any department or agency thereof or any other legal entity. "Personal Property Leases" shall mean all rights of PHCG as lessee under ------------------------ all leases of personal property, including all security deposits, as set forth on Schedule D. ---------- "Pre-Closing Liabilities" shall mean any and all liabilities or obligations ----------------------- of any nature whatsoever, whether realized, contingent or otherwise, attributable to activities of or actions or services rendered by PHCG prior to the First Closing Date. "Premises" shall mean that certain real property owned by PHCG New York -------- located at 510 Flatbush Avenue, Brooklyn, New York, as more particularly described in Exhibit A, together with (i) all fixtures, furniture and equipment --------- therein and all improvements, buildings, fixtures, and appurtenances thereon or thereunto belonging, including, but not limited to, all electrical, heating, air conditioning, ventilation and plumbing facilities and systems, (ii) 3 all unexpired assignable warranties and guaranties in respect of, and all the estate and rights of PHCG New York in and to, the foregoing, and (iii) all right, title and interest of PHCG New York, if any, in and to the land lying in the bed of any street adjoining the Premises and to any unpaid award for any taking by condemnation or any damage to the Premises by reason of a change of grade of any street or otherwise. "Real Property Leases" shall mean all rights of PHCG as lessee under all -------------------- leases of real property, including all security deposits, as set forth on Schedule E. - ---------- "Records" shall mean all of the records, books, files, invoices, flow ------- sheets, computer software (including all operating systems, source codes and systems applications software), and other technical and non-technical data and information which are owned by PHCG or which are unreasonably necessary for the operation of the Business. "Second Closing Date" shall mean the date as shall be agreed upon by the ------------------- parties hereto, after all conditions to the Second Closing have been waived, satisfied or performed, as the case may be. "Section" shall mean a Section of this Agreement. ------- "Schedule" shall mean a schedule which is attached to and made a part of -------- this Agreement. "Tangible Personal Property" shall mean all of the tangible personal -------------------------- property (expressly excluding cash), including, without limitation, the Automobiles and equipment owned by PHCG, schedules of which as of December 31, 1995, and June 30, 1996, are set forth on Schedules F and F-1, respectively. ----------- --- "Transaction" shall mean any verbal or written agreement, arrangement, ----------- understanding, commitment or obligation in connection with any merger, consolidation, or recapitalization of PHCG, or sale of all or substantially all of the assets of PHCG or any sale of some or all of the Stock. SECTION 1.02 FIRST CLOSING. -------------- Upon the terms and subject to the conditions contained herein, on and as of the First Closing Date (as defined herein): (a) Roberts shall cause PHCG New York to, and PHCG New York shall, sell, convey, set over, deliver, assign and transfer to Purchaser, and Purchaser shall purchase and acquire from PHCG New York, the New York Assets, including the Premises; (b) Roberts shall cause PHCG New Jersey to, and PHCG New Jersey shall, sell, convey, set over, deliver, assign and transfer to Purchaser, and Purchaser shall purchase and acquire from PHCG New Jersey, the New Jersey Assets, and; 4 (c) Purchaser shall assume the obligations of PHCG under the Contracts, the Personal Property Leases and the Real Property Leases which arise after the First Closing. SECTION 1.03 SECOND CLOSING. -------------- Upon the terms and subject to the conditions contained herein, on and as of the Second Closing Date (as defined herein), Roberts shall sell, convey, transfer, assign and deliver to Purchaser, and Purchaser shall purchase and acquire, the home care services agency license of PHCG New York and the Records relating to the then current patients of such agency. SECTION 1.04. PURCHASE PRICE; DELIVERY OF ESCROWED FUNDS. ------------------------------------------ As consideration for the purchase by Purchaser of the Assets and the Business, Purchaser shall pay to Roberts a purchase price of $1,000,000 (such amount, as may be adjusted pursuant to Section 1.04(b), the "Purchase Price"). -------------- The Purchase Price shall be paid as follows: (a) Purchaser shall pay $500,000 to Roberts by check at the First Closing, and counsel to Purchaser shall retain as escrow agent $300,000 previously deposited in escrow on behalf of Purchaser pending the negotiation of this Agreement (the "Escrowed Funds"). -------------- (b) Within five days after the First Closing, Purchaser shall cause an inventory to be conducted of the Inventory and the Tangible Personal Property. In the event that such inventory reveals no Material Shortfall, Purchaser shall pay $300,000 to Roberts from the Escrowed Funds by check not later than five business days after the inventory is completed. In the event that such inventory reveals a Material Shortfall, Purchaser shall report such Material Shortfall to Roberts, and Purchaser shall pay to Roberts by check from the Escrowed Funds within five business days after the inventory is completed an amount equal to $300,000 less the Material Shortfall. In the event Roberts disagrees with the Material Shortfall as determined by Purchaser, Roberts may so notify Purchaser within ten business days after receiving the payment described in the previous sentence and retain, at its expense, an independent accounting firm, which shall be approved by Purchaser, which approval shall not be unreasonably withheld, to value the Material Shortfall. In the event that the value of the Material Shortfall as determined by such accounting firm (such value of the Material Shortfall as determined by such accounting firm, the "Adjusted Material Shortfall"), is less than the Material Shortfall, Purchaser - ---------------------------- shall pay to Roberts the amount of the difference between the Material Shortfall and the Adjusted Material Shortfall by check from the Escrowed Funds within five business days of receiving notice of the determination made by the accounting firm. In the event that the Adjusted Material Shortfall is more than the Material Shortfall, Roberts shall pay to Purchaser the amount of the difference between the Material Shortfall and the Adjusted Material Shortfall by check within five business days of receiving notice of the Adjusted Material Shortfall by the accounting firm. The balance of the Escrowed Funds shall be paid to Purchaser or its designee if Roberts does not notify Purchaser of its disagreement with respect to Purchaser's calculation of the Material Shortfall within the ten business day period described above, or upon payment to Roberts of any amount due based on the determination of the Adjusted Material Shortfall by the accounting firm as described above. (c) Purchaser shall pay $200,000 to Roberts by check at the Second Closing. 5 SECTION 1.05. PURCHASE PRICE ALLOCATION. ------------------------- Roberts, PHCG and Purchaser agree that the amount of the Purchase Price shall be allocated among the Assets as determined by the accounting firm of Loeb & Troper as soon as reasonably possible following the First and Second Closings, as the case may be. Roberts, PHCG and Purchaser agree that each shall report the purchase and sale transactions described herein for all governmental reporting purposes, using the values assigned to categories of assets identified by Loeb & Troper, and shall not, upon audit or otherwise, take an audit position inconsistent with such allocation or this Section 1.05. ARTICLE II ---------- TRANSFER OF TITLE TO PREMISES AND ASSETS ---------------------- SECTION 2.01. TITLE TO THE PREMISES. --------------------- (a) At the First Closing, Roberts shall cause PHCG New York to, and PHCG New York shall, convey title to the Premises to Purchaser by bargain and sale deed with covenants against grantor's acts in substantially the form of Exhibit ------- B (the "Deed"),. Purchaser shall accept title to the Premises such as the title - - ---- company selected by Purchaser shall be willing to approve and insure at regular premium rates, subject only to the matters described in the following clauses (i) through (iii): (i) building restrictions and zoning regulations heretofore or hereafter adopted by any Governmental Authority; (ii) any encroachments by fences; any variances between fences, retaining walls and the like and the lines of record title; rights, if any, relating to the construction and maintenance, in connection with any public utility, of wires, poles, pipes, conduits and appurtenances thereto, on, under, or across the Premises; and consents prior to the date hereof by PHCG New York of the erection of any structure or structures on, under or above any street or streets on which the Premises may abut; and (iii) Such state of facts as an accurate survey of the Premises might show, provided such facts do not render the title unmarketable. (b) Purchaser agrees that in the event that there shall be any defects in or objections to title, or in the event that there shall be any notices of material violations of laws, ordinances, orders, regulations or requirements issued by any Governmental Authority having jurisdiction against or affecting the Premises, Purchaser will immediately notify Roberts of the existence of such facts or conditions or violations, and Roberts shall, or shall cause PHCG New York to, immediately correct such defects or objections or remove such violations. 6 SECTION 2.02. POSSESSION OF THE PREMISES. -------------------------- Roberts shall cause PHCG New York to, and PHCG New York shall, deliver possession of the Premises to the Purchaser at the First Closing in their present condition, except for normal wear and tear. SECTION 2.03. UTILITIES, REAL ESTATE TAXES AND CHARGES RELATED TO THE ------------------------------------------------------- PREMISES. -------- (a) Roberts shall cause final water, gas, electric and other utility meter readings for the Premises to be made as of the First Closing and shall cause, or shall cause PHCG New York to cause, such utilities to be transferred to Purchaser as of that date without interruption of service. Roberts or PHCG New York shall pay the final bills rendered on such final readings, and Purchaser shall be responsible for utility charges incurred from and after the First Closing. (b) The parties shall apportion, as of the close of business on the day prior to the First Closing, real estate taxes, unmetered water charges, sewer rents and vault charges, if any, on the basis of the fiscal period for which assessed. If the First Closing shall occur before a new tax rate is fixed, the apportionment of taxes at the First Closing shall be upon the basis of the old tax rate for the preceding period applied to the latest assessed valuation. Promptly after the new tax rate is fixed, the apportionment of taxes shall be recomputed. Any discrepancy resulting from such recomputation or any errors or omissions in computing apportionments at the First Closing shall be promptly corrected. Any obligations of PHCG New York determined pursuant to such apportionment shall be paid by PHCG New York or Roberts. This Section 2.03(b) shall survive the First Closing. SECTION 2.04. TRANSFER TAX RELATED TO THE PREMISES. ------------------------------------ (a) Roberts shall cause PHCG New York to, and Purchaser and PHCG New York shall, deliver on the date of First Closing a New York State real estate transfer tax return with respect to the transaction contemplated hereunder and/or any other form required by law in connection therewith which return or other form shall be duly executed and sworn to by Purchaser and PHCG New York. (b) Purchaser shall pay for the documentary stamps and real property transfer tax imposed in connection with the transaction contemplated hereunder and shall deliver the checks and the returns for the documentary stamps and real estate transfer tax at the First Closing hereunder. The provisions of this Section 2.04 shall survive the delivery of title hereunder. SECTION 2.05. NEW YORK CITY REAL PROPERTY TRANSFER TAX RELATED TO THE -------------------------------------------------------- PREMISES. -------- (a) Roberts shall cause PHCG New York to, and Purchaser and PHCG New York shall, deliver on the date of the First Closing a New York City Real Property Transfer Tax Return with respect to the conveyance of the Premises and/or any other form required by law 7 in connection therewith, which return or other forms will be duly executed and sworn to by Purchaser and PHCG New York. (b) Purchaser shall pay any New York City Real Property Transfer Tax imposed in connection with the conveyance of the Premises and shall deliver the checks and the returns with such tax at the First Closing. The provisions of this Section 2.05 shall survive the delivery of title hereunder. (c) The parties hereto agree and acknowledge that no part of the consideration paid by Purchaser hereunder relates to the Real Property Leases. SECTION 2.06. BILLS OF SALE. ------------- Roberts shall cause PHCG New York and PHCG New Jersey to, and PHCG New York and PHCG New Jersey shall, convey to Purchaser at the First Closing all of PHCG's right and title to, and interest in, the Inventory, the Tangible Personal Property and the Records, exclusive of the Records of PHCG New York that are not included in the New York Assets, by a bill of sale (the "First Bill of Sale") in ------------------ substantially the form of Exhibit C. Roberts shall cause PHCG New York to and --------- PHCG New York shall, convey to Purchaser at the Second Closing all of PHCG New York's right and title to, and interest in the Records of PHCG New York relating to the then current patients of its home care services agency, by a bill of sale (the "Second Bill of Sale") in substantially the form of Exhibit D. ------------------- SECTION 2.07. CERTIFICATES OF TITLE. --------------------- Roberts shall cause PHCG New York and PHCG New Jersey to, and PHCG New York and PHCG New Jersey shall, deliver to Purchaser at the First Closing properly endorsed certificates of title to the Automobiles owned by PHCG (the "Certificates of Title") evidencing the ownership thereof by Purchaser as of the - ---------------------- First Closing Date. SECTION 2.08. ASSIGNMENTS. ----------- Roberts shall cause PHCG New York and PHCG New Jersey to, and PHCG New York and PHCG New Jersey shall, convey to Purchaser at the First Closing all of PHCG's right and title to, and interest in, the Permits, exclusive of the home care services agency license of PHCG New York, the Contracts, the Personal Property Leases, the Real Property Leases and the Intellectual Property Rights of PHCG pursuant to an assignment (the "PHCG Assignment") in substantially the --------------- form of Exhibit E. Roberts shall cause PHCG New York to, and PHCG New York --------- shall, convey to Purchaser at the Second Closing all of PHCG New York's right and title to, and interest in, the home care services license of PHCG New York, at the request of the Purchaser, pursuant to an assignment in a form approved by counsel to Purchaser. SECTION 2.09. ASSUMED LIABILITIES. ------------------- At the First Closing, Purchaser shall assume by an assumption instrument in substantially the form attached hereto as Exhibit F (the "Assumption --------- ---------- Instrument"), the 8 obligations of Roberts and PHCG under the Contracts, the Personal Property Leases and the Real Property Leases which arise after the First Closing. SECTION 2.10. CERTAIN ALLOCATIONS AS OF THE FIRST CLOSING. ------------------------------------------- All assets of PHCG other than the Premises and the other Assets, including all accounts receivable of PHCG as of the First Closing Date (the "Closing ------- Accounts Receivable"), shall remain the property of PHCG following the First - ------------------- Closing. All accounts receivable relating to the operation of the Business which arise on or after the First Closing Date shall be the property of the Purchaser. After the First Closing, Roberts shall have the right, and Purchaser shall permit Roberts to, at its own expense, designate and maintain not more than two employees, agents or representatives at the Premises during normal business hours for the purpose of collecting such Closing Accounts Receivable until the Second Closing Date. Purchaser agrees that if Roberts has not collected at least 75% of the Closing Accounts Receivable by the Second Closing Date, Purchaser shall consider with Roberts the extension of the right of Roberts to maintain personnel at the Premises after the Second Closing Date for collection purposes. This Section 2.10 shall survive the First Closing. SECTION 2.11. NET OPERATING LOSSES. -------------------- Roberts may elect to retain net operating loss carryovers and capital loss carryovers of PHCG, existing or attributable to operations prior to the First Closing Date, to the extent permitted under Treasury Reg. (S)1.1502-20(g). ARTICLE III ----------- THE CLOSINGS ------------ SECTION 3.01. TRANSFERS AND DELIVERIES AT THE FIRST CLOSING. --------------------------------------------- The payment of the first installment of the Purchase Price as described in Sections 1.04(a) and (b), and all other transfers and deliveries described in Section 1.02 shall, except as otherwise provided herein, take place at 10:00 A.M. on the First Closing Date, at the offices of Cadwalader, Wickersham & Taft, 100 Maiden Lane, New York, New York 10038 (the "First Closing"). All ------------- deliveries and payments required to be made hereunder at the First Closing shall be deemed to take place simultaneously and to be effective as of the time on the First Closing date that all of such deliveries and payments have taken place. SECTION 3.02. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER AND -------------------------------------------------------- PARENT AT THE FIRST CLOSING. -------------------------- Each of the covenants, agreements and obligations of Purchaser and Parent to be performed at the First Closing pursuant to this Agreement shall be subject to the fulfillment of each of the following conditions, any of which conditions may be waived in writing by Purchaser: (a) Each of the representations and warranties of Roberts and PHCG set forth in Article V hereof shall be true and correct in all material respects both on the date hereof and 9 on the First Closing Date as if made at that time, except insofar as changes shall have occurred after the date hereof which are contemplated by this Agreement; (b) PHCG and Roberts shall, and Roberts shall have caused PHCG to, have performed and complied with all agreements, covenants, undertakings and obligations which are required pursuant to this Agreement to be performed or complied with by Roberts and/or PHCG at or prior to the First Closing; (c) Since December 31, 1995, there shall have been no material adverse change, or a discovery of a condition or the occurrence of any event which might result in any material adverse change, in the Business, other than changes in the ordinary course of business which are permitted by this Agreement; (d) Purchaser shall have received from counsel for Roberts and PHCG their opinions, as of the First Closing Date, in substantially the forms attached hereto as Exhibit H ("Roberts' First Legal Opinion") and Exhibit I ("Roberts' --------- ---------------------------- --------- -------- First Outside Legal Opinion"); - --------------------------- (e) All Permits listed on Schedule G shall be in full force and effect on ---------- and as of the First Closing Date, and Purchaser, Roberts and PHCG shall have obtained all Permits required, if any, in connection with the transactions contemplated by this Agreement; (f) As of the First Closing, there shall not be in effect any injunction, writ, preliminary restraining order or any order of any nature issued by any court or other Governmental Authority directing that the transactions provided for herein not by consummated as herein provided, nor shall there be any litigation or proceeding pending or threatened in respect of the transactions contemplated hereby; (g) Roberts shall not have received any notice of condemnation proceedings affecting the Premises or a property subject to any Real Property Leases, and neither the Premises nor any property subject to a Real Property Lease shall have been subject to any material damage which has not been repaired; and (h) The delivery by Roberts and PHCG to Purchaser and Parent of a certification by an executive officer of Roberts and PHCG ("Roberts' First -------------- Closing Certificate"), as of the First Closing Date, that the conditions to - ------------------- Purchaser's and Parent's obligations set forth in subparagraphs (a) through (c) and (e) through (g) of this Section 3.02 have been fulfilled or have been waived by Purchaser, as the case may be. SECTION 3.03. CONDITIONS PRECEDENT TO ROBERTS' AND PHCG'S OBLIGATIONS AT ---------------------------------------------------------- THE FIRST CLOSING. ----------------- Each of the covenants, agreements and obligations of Roberts and PHCG to be performed by them at the First Closing pursuant to this Agreement shall be subject to the fulfillment of each of the following conditions, any of which conditions may be waived in writing by Roberts: 10 (a) The representations and warranties of Purchaser and Parent set forth in Article VI shall be true and correct in all material respects, both on the date hereof and on the First Closing Date as if made at that time; (b) Purchaser and Parent shall have performed and complied with all agreements, covenants, undertakings and obligations which are required to be performed or complied with by them at or prior to the First Closing, as the case may be, except to the extent waived by Roberts in writing; (c) Purchaser shall have obtained all Permits required in connection with the First Closing; (d) Roberts hall have received from counsel for Purchaser and Parent, its opinion, as of the First Closing Date, in substantially the form set forth on Exhibit L ("Purchaser's First Legal Opinion"); and - --------- ------------------------------- (e) The delivery by Purchaser and Parent to Roberts and PHCG of a certification by an executive officer of each of Purchaser and Parent ("Purchaser's and Parent's First Closing Certificates", respectively), as of the - ----------------------------------------------------- First Closing Date, that the conditions to Roberts' and PHCG's obligations set forth in paragraphs (a) through (c) above have been fulfilled or waived by Roberts, as the case may be. SECTION 3.04. TRANSFERS AND DELIVERIES AT THE SECOND CLOSING. ---------------------------------------------- Payment of the balance of the Purchase Price as described in Section 1.04(c), and all other transfers and deliveries described in Section 1.03, shall, except as otherwise provided herein, take place at 10:00 A.M. on the Second Closing Date, at the offices of Cadwalader, Wickersham & Taft, 100 Maiden Lane, New York, New York 10038 (the "Second Closing"). All deliveries and -------------- payments required to be made hereunder at the Second Closing shall be deemed to take place simultaneously and to be effective as of the time on the Second Closing Date that all of such deliveries and payments have taken place. SECTION 3.05. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER AND -------------------------------------------------------- PARENT AT THE SECOND CLOSING. ---------------------------- Each of the covenants, agreements and obligations of Purchaser and Parent to be performed at the Second Closing pursuant to this Agreement shall be subject to the fulfillment of each of the following conditions, any of which conditions may be waived in writing by Purchaser: (a) Each of the representations and warranties of Roberts and PHCG New York set forth in Article V hereof shall be true and correct in all material respects both on the date hereof and on the Second Closing Date as if made at that time, except insofar as changes shall have occurred after the date hereof either (i) which are contemplated by this Agreement, or (ii) which are caused by acts or omissions of the Purchaser (after the First Closing), or any Affiliate of Purchaser; 11 (b) PHCG and Roberts shall, and Roberts shall have caused PHCG New York to, have performed and complied with all agreements, covenants, undertakings and obligations which are required pursuant to this Agreement to be performed or complied with by Roberts and/or PHCG New York at or prior to the Second Closing; (c) Purchaser and Parent shall have received from counsel for Roberts their opinions, as of the Second Closing Date, in substantially the forms set forth on Exhibit J ("Roberts' Second Legal Opinion") and Exhibit K ("Roberts' Second - --------- ----------------------------- --------- --------------- Outside Legal Opinion"); - --------------------- (d) All Permits listed on Schedule G shall be, with respect to PHCG New ---------- York, in full force and effect on and as of the Second Closing Date, and Purchaser, Roberts and PHCG shall have obtained all Permits required in connection with the Second Closing; (e) As of the Second Closing, there shall not be in effect any injunction, writ, preliminary restraining order or any order of any nature issued by any court or other Governmental Authority directing that the transactions provided for herein not be consummated as herein provided, nor shall there be any litigation or proceeding pending or threatened in respect of the transactions contemplated hereby; and (f) The delivery by Roberts to Purchaser and Parent of a certification by an executive officer of Roberts ("Roberts' Second Closing Certificate"), as of ----------------------------------- the Second Closing Date, that the conditions to Purchaser's and Parent's obligations set forth in subparagraphs (a), (b), (d) and (e) have been fulfilled or have been waived by Purchaser, as the case may be. SECTION 3.06. CONDITIONS PRECEDENT TO ROBERTS' OBLIGATIONS AT THE SECOND ---------------------------------------------------------- CLOSING. ------- Each of the covenants, agreements and obligations of Roberts to be performed by them at the Second Closing pursuant to this Agreement shall be subject to the fulfillment of each of the following conditions, any of which conditions may be waived in writing by Roberts: (a) The representations and warranties of Purchaser and Parent set forth in Article VI shall be true and correct in all material respects, both on the date hereof and on the Second Closing Date as if made at that time; (b) Purchaser and Parent shall have performed and complied with all agreements, covenants, undertakings and obligations which are required to be performed or complied with by them at or prior to the Second Closing, as the case may be, except to the extent waived by Roberts in writing; (c) Purchaser shall have obtained all Permits required in connection with the Second Closing; (d) Roberts shall have received from counsel for Purchaser and Parent, its opinion, as of the Second Closing Date, in substantially the form set forth on Exhibit M ("Purchaser's Second Legal Opinion"); and - --------- -------------------------------- 12 (e) The delivery by Purchaser and Parent to Roberts of a certification by an executive officer of each of Purchaser and Parent ("Purchaser's and Parent's ------------------------ Second Closing Certificates", respectively), as of the Second Closing Date, that - --------------------------- the conditions to Roberts' obligations set forth in paragraphs (a) through (c) above have been fulfilled or waived by Roberts as the case may be. ARTICLE IV ---------- DOCUMENTS TO BE DELIVERED AT THE CLOSINGS ----------------------------------------- SECTION 4.01. DOCUMENTS TO BE DELIVERED BY ROBERTS TO PURCHASER AND ----------------------------------------------------- PARENT AT THE FIRST CLOSING. --------------------------- In addition to any other documents specifically required to be delivered pursuant to this Agreement, Roberts shall, and shall cause PHCG to, deliver to Purchaser at the First Closing, in form and substance reasonably satisfactory to Purchaser and its counsel: (a) Certified copies of the resolutions of the Board of Directors of Roberts and PHCG authorizing and approving this Agreement and all other transactions and agreements contemplated hereby; (b) Roberts' First Legal Opinion; (c) Roberts' First Closing Certificate; (d) A schedule of the New Jersey Assets; (e) The Amendment to the charter of PHCG New Jersey (as defined below); (f) The Deed; (g) The First Bill of Sale; (h) The Certificates of Title; (i) The original Records, Contracts, Real Property Leases, Personal Property Leases and Permits to be conveyed or assigned to the Purchaser at the First Closing, including all amendments thereto, except to the extent Purchaser may agree that any such items may be delivered outside the First Closing; (j) Any consents necessary from third parties to the assignment of the Contracts, the Personal Property Leases and the Real Property Leases to Purchaser; (k) All keys to the Premises, the Automobiles and the premises subject to the Real Property Leases; 13 (l) A certification on behalf of PHCG New York stating that such entity is not a "foreign person" as defined in the Internal Revenue Code; and (m) Such other deeds, bills of sale, certificates of title, endorsements, assignments, affidavits and other good and sufficient instruments of sale, assignment, conveyance and transfer, in form and substance reasonably satisfactory to Purchaser and its counsel, as shall be required to vest effectively in Purchaser all of PHCG's right, title and interest in and to the New Jersey Assets and the New York Assets. SECTION 4.02. DOCUMENTS TO BE DELIVERED BY PURCHASER AND PARENT TO ROBERTS ------------------------------------------------------------ AT THE FIRST CLOSING. -------------------- In addition to any other documents specifically required to be delivered pursuant to this Agreement, Parent and Purchaser shall deliver to Roberts at the First Closing, in form and substance reasonably satisfactory to Roberts and its counsel: (a) Certified copies of the respective resolutions of the Board of Directors of Purchaser and Parent authorizing and approving this Agreement and all other transactions and agreements contemplated hereby; (b) The Assumption Instrument; (c) Purchaser's First Legal Opinion; (d) Purchaser's and Parent's First Closing Certificates; and (e) A check from Purchaser payable to Roberts in the amount of $500,000. SECTION 4.03. DOCUMENTS TO BE DELIVERED BY ROBERTS AND PHCG NEW YORK AT --------------------------------------------------------- THE SECOND CLOSING. ------------------ In addition to any other documents specifically required to be delivered pursuant to this Agreement, Roberts shall, and shall cause PHCG New York to, deliver to Purchaser at the Second Closing, in form and substance reasonably satisfactory to Purchaser and its counsel: (a) The Second Bill of Sale; (b) An assignment of the PHCG New York home care services agency license to Purchaser if requested by Purchaser; (c) The Amendment to the charter of PHCG New York; (d) Roberts' Second Legal Opinion; and (e) Roberts' Second Closing Certificate. 14 SECTION 4.04. DOCUMENTS TO BE DELIVERED BY PURCHASER AND PARENT AT THE -------------------------------------------------------- SECOND CLOSING. -------------- In addition to any other documents specifically required to be delivered pursuant to this Agreement, Parent and Purchaser shall deliver to Roberts at the Second Closing, in form and substance reasonably satisfactory to Roberts and its counsel: (a) Purchaser's Second Legal Opinion; (b) Purchaser's and Parent's Second Closing Certificates; and (c) A check from Purchaser payable to Roberts in the amount of $200,000. ARTICLE V --------- REPRESENTATIONS AND WARRANTIES OF ROBERTS' AND PHCG --------------------------------------------------- Roberts and PHCG each hereby represents and warrants to Purchaser and Parent as follows: SECTION 5.01. CORPORATE STATUS. ---------------- Roberts is a corporation duly organized, validly existing, and in good standing under the laws of the State of New Jersey. Each of PHCG New York and PHCG New Jersey is a corporation duly organized, validly existing and in good standing under the laws of the States of New York (in the case of PHCG New York) and New Jersey (in the case of PHCG New Jersey), and each has the requisite corporate power and authority to own or lease their respective Assets and to operate the Business in their respective jurisdictions of incorporation. Each of PHCG New Jersey and PHCG New York is duly qualified or licensed to do business as a foreign corporation and is in good standing in any jurisdiction wherein the character of property owned or leased or the nature of the activities conducted by it makes such qualification or licensure necessary. SECTION 5.02. AUTHORITY AND APPROVAL. ---------------------- Each of Roberts and PHCG has full power and authority to enter into this Agreement and to assume and perform its obligations hereunder. This Agreement and the agreements and transactions contemplated hereby have been approved and authorized by the Boards of Directors of Roberts and PHCG, and constitute valid, binding and enforceable obligations of Roberts and PHCG, except to the extent the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, equitable principles or similar laws affecting legal or equitable rights generally. No action, approval, consent or authorization with respect to Roberts is required, which has not already been taken or obtained, in order to constitute this Agreement as a binding and enforceable obligation of Roberts and PHCG in accordance with its terms. SECTION 5.03. NO VIOLATION. ------------- 15 Neither the execution and delivery of this Agreement by Roberts and PHCG, nor the performance of Roberts' and PHCG's obligations hereunder, will violate, conflict with, or constitute a default under, any of the terms of the Certificates or Articles of Incorporation or by-laws of Roberts, PHCG New Jersey or PHCG New York, or any provisions thereof, or result in the acceleration of any obligation under any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree to which Roberts, PHCG New Jersey or PHCG New York is a party or by which Roberts, PHCG New Jersey, PHCG New York, the Premises, or the Assets are bound, and will not constitute an event which, after the giving of notice or lapse of time or both, will result in such violation, conflict, default or acceleration. The execution and delivery of this Agreement and the performance by Roberts and PHCG of the transactions contemplated hereby will not result in the creation or imposition of any Encumbrances in favor of any third person or entity upon the Premises or the Assets and will not violate any law, judgment, decree, order, rule or regulation of any Governmental Authority applicable to Roberts, PHCG New Jersey, PHCG New York, the Premises, or the Assets. SECTION 5.04. TITLE. ----- PHCG is the owner of and has good and marketable title to the Assets, free and clear of any and all Encumbrances, except as expressly set forth on Schedule -------- H and as contemplated in Section 2.02 above with respect to the Premises. - - SECTION 5.05. CONTRACTS AND COMMITMENTS. ------------------------- Each of the Contracts, the Personal Property Leases and the Real Property Leases is a valid and binding agreement, enforceable according to its terms and is in full force and effect, and all obligations thereunder shall be paid in full through the end of the calendar month in which the First Closing Date occurs. Neither PHCG nor Roberts has breached or terminated or is in default under any of the Contracts, the Personal Property Leases or the Real Property Leases and there exists no condition or event which, after notice or lapse of time or both, would constitute any such breach, termination or default. To the best of Roberts' and PHCG's knowledge and belief, no other party to any such Contract, Personal Property Lease or Real Property Lease has breached, terminated or is in default under such Contract, Personal Property Lease or Real Property Lease, and there exists no condition or event which, after notice or lapse of time or both, would constitute any such breach, termination, or default. Except as set forth on Schedules A, D and E, PHCG has no agreements or ----------- - - obligations, and is not a party with respect to, any written (i) lease; (ii) royalty, distribution, manufacturing, research or license agreement; (iii) contract or agreement (for employment or otherwise); with any officer, employee, director, professional person or firm, consultant, independent contractor or advertising firm or agency which is not terminable without payment or other penalty on notice from PHCG of not more than 30 days; (iv) contract or collective bargaining agreement with any labor union or representative of employees; (v) commitment, contract or agreement guaranteeing the payment or performance of the obligations or others; (vi) group health or life insurance, pension, profit sharing, retirement, medical, bonus, incentive plan, or other similar benefit plan in effect with respect to its employees or others; (vii) loan agreement, line of credit or other credit commitment to banks, other financial institutions, or to 16 any of Roberts or any third parties; (viii) commitment, contract or agreement not made in the ordinary course of business; (ix) contract or agreement relating tot he provision of home infusion therapy or the supply of pharmaceutical products and supplies in connection therewith; or (x) contract or agreement continuing for more than 180 days from its date. Except as set forth therein, no consent of any party is required under any document listed on Schedules A, D ----------- - and E in connection with the consummation of the transactions contemplated by - this Agreement or any agreement entered into in connection herewith. The consummation of the transactions contemplated by this Agreement or any agreement executed in connection herewith will not violate the terms or provisions of any agreement to which PHCG is a party, cause the acceleration of the maturity of any debt or obligation of PHCG or result in the creation or imposition of any Encumbrance upon any of the Assets. SECTION 5.06. FINANCIAL STATEMENTS. -------------------- Roberts and PHCG have heretofore delivered to Purchaser unaudited financial statements for PHCG as of and for the year ending December 31, 1995, and as of and for the nine month period ending September 30, 1996. Said financial statements fairly and accurately present the financial condition of PHCG and the Business as of the respective dates and for the periods indicated therein and have been prepared in accordance with generally accepted accounting principles consistently applied. All of the foregoing financial statements are hereinafter referred to as the "PHCG Financial Statements". Copies of the PHCG Financial ------------------------- Statements are set forth in Schedule I. Since June 13, 1994, PHCG has kept its ---------- accounting records in a consistent manner, and the books of account of PHCG have been regularly kept and maintained in conformity with generally accepted accounting practices. SECTION 5.07. RECORDS. ------- Since June 13, 1994, the records of each of PHCG New Jersey and PHCG New York have been regularly kept and maintained in conformity with generally accepted business practices. SECTION 5.08. CERTIFICATES OF INCORPORATION. ----------------------------- Correct and complete copies of the Certificate or Articles of Incorporation of each of Roberts, PHCG New Jersey and PHCG New York, in each case as amended to the date hereof, have been furnished to Purchaser. SECTION 5.09. TAXES. ----- Except as set forth on Schedule J PHCG has duly filed all foreign, federal, ---------- state, county and local, income, excise, sales, property, withholding, social security, franchise, license and information tax returns and other tax returns and reports required to have been filed by it to the date hereof. Each such filed return is correct and complete and PHCG has paid all taxes, assessments, interest and penalties due to any foreign, federal, state, county, local or other taxing authority required to be paid by it and has created sufficient reserves or made provision for all taxes accrued but not yet due and payable by it. Neither Roberts nor PHCG know of any basis for any additional tax claims or assessments which are material singly or in the aggregate, 17 other than as may be shown on the PHCG Financial Statements. Since June 13, 1994, none of the tax returns of PHCG has been audited by the Internal Revenue Service or any other authority levying or collecting taxes. No Governmental Authority is now asserting or, to the best knowledge of either Roberts or PHCG, threatening to assert, any deficiency or assessment for additional taxes or any interest, penalties or fines with respect to PHCG. Complete and correct copies of all federal income tax returns filed by PHCG, as well as any other tax returns of PHCG requested in writing by Purchaser have been heretofore delivered to the Purchaser. SECTION 5.10. LITIGATION. ---------- There exists no litigation, action, suit, investigation, claim or proceeding pending or, to the best of Roberts' or PHCG's knowledge and belief, threatened against or adversely affecting, Roberts, PHCG, the Business, the Premises, or the Assets, at law or in equity or before any Governmental Authority that would materially affect the Business, the transactions contemplated by this Agreement or the ability of Roberts or PHCG to perform their respective obligations hereunder. Neither Roberts nor PHCG is in default with respect to any order, writ, injunction or decree of any court or any Governmental Authority. SECTION 5.11. COMPLIANCE. ---------- Neither PHCG nor Roberts has failed to comply with any law or any other requirement of any Governmental Authority that would prevent Purchaser from conducting the Business following the First Closing (in the case of PHCG New Jersey) and the Second Closing (in the case of PHCG New York, except to the extent such failure was caused (after the First Closing) by acts or omissions of Purchaser or any Affiliate of Purchaser) on substantially the same terms as it is currently being operated by PHCG, and PHCG has complied in all material respects with all laws (including, but not limited to, the Food, Drug and Cosmetic Act, the provisions of Medicare and Medicaid and any state or Federal law with respect to health care or the supplying or dispensing of pharmaceutical products), orders and regulations of any Governmental Authority (including but not limited to the Food and Drug Administration and the New Jersey and New York Departments of Health) applicable to it. Except as set forth on Schedule K ---------- there are no orders, decrees, injunctions or regulations of any court or any Governmental Authority issued specifically against or affecting Roberts or PHCG which may materially affect, limit or control Purchaser's method or manner of operating the Business or Roberts' or PHCG's ability to consummate the transactions contemplated hereunder. SECTION 5.12. PERMITS. ------- PHCG holds the Permits which are listed on Schedule G. Each of the Permits ---------- is validly issued and in full force and effect and the party holding same has complied in all material respects with all terms and conditions thereof. Except as may be set forth on Schedule G, no proceeding is pending or, to the knowledge ---------- of Roberts or PHCG, threatened for the purpose of, or which may result in, canceling, suspending, restricting or modifying any of the Permits or denying any pending applications. Copies of each of the Permits have been made available to Purchaser. The Permits are the only material approvals, authorizations, consents, licenses, orders, franchises, certificates, rights, registrations and permits of any Governmental Authority, whether foreign, Federal, state or local, required or necessary to permit the operation 18 of PHCG and the conduct of the Business, including ownership and use of the Premises, and PHCG is being operated and the Business is being conducted in all material respects in accordance with the terms and conditions of the Permits. SECTION 5.13. NO RIGHTS OF THIRD PARTIES. --------------------------- PHCG shall, upon the First Closing (in the case of PHCG New Jersey) and upon the Second Closing (in the case of PHCG New York, except to the extent the absence of such rights of PHCG or the existence of such claimed right to interfere with such rights was caused (after the First Closing) by acts or omissions of Purchaser or any Affiliate of Purchaser), have complete rights, directly or indirectly, to develop, market, sell, license, lease or otherwise deal in any of its products and services and no individual or entity will have a valid basis for any claimed right to interfere (by way of legal action, oral or written statements or agreements, competition, complaints before an administrative agency or the like) with the exercise by PHCG of such rights or any other rights hereunder or in connection with the Business. Except for obligations or agreements set forth on Schedule L, PHCG is not obligated to any ---------- third party to market any products or services and is not obligated to pay fees or royalties to any third party Person. SECTION 5.14. INVENTORY AND TANGIBLE PERSONAL PROPERTY. ----------------------------------------- Schedule C sets forth a true and correct list of the Inventory owned by ---------- PHCG as of December 31, 1995. Schedule C-1 sets forth a true and correct list ------------ of the Inventory owned by PHCG as of June 30, 1996. The Inventory on hand as of the First Closing will be usable or salable in the ordinary and normal course of business. The value at which the Inventory is carried on the PHCG Financial Statements reflects the lower of cost or market on a first-in, first-out basis and reflects write-offs or write-downs for damaged or obsolete items in accordance with historical practices of PHCG. Schedule F sets forth true and ---------- correct lists of the Tangible Personal Property owned by PHCG as of December 31, 1995. Schedule F-1 sets forth true and correct lists of the Tangible Personal ------------ Property owned by PHCG as of June 30, 1996. The Tangible Personal Property and all personal property and equipment leased by PHCG are in substantially good operating condition and repair, excluding ordinary wear and tear and taking into consideration the age and prior use of same, and are in compliance with all applicable laws, regulations, orders and ordinances. SECTION 5.15. ORDINARY COURSE OF BUSINESS. ---------------------------- Since December 31, 1995 until the First Closing, neither PHCG nor Roberts with respect to the Business, has, except in the ordinary and normal course of the Business and in accordance with historical practices in effect since June 13, 1994: (a) Experienced any material adverse change (whether or not in the ordinary and normal course of business) in the Business, or the financial condition or prospects of PHCG; (b) Made purchases of inventory; 19 (c) Sold, transferred or otherwise disposed of any interest in PHCG, the Premises or any of the Assets; (d) Pledged or subjected to any Encumbrance the Premises or any of the Assets; (e) Sustained any damage, loss or destruction of or to the Premises or the other Assets by reason of fire, explosion, earthquake, casualty, significant labor trouble, requisition or taking of property by any Governmental Authority, windstorm, embargo, riot, act of God or public enemy, flood, accident, other calamity, or other similar event; (f) Entered into any Transaction except as contemplated hereby; (g) Granted any salary or compensation increase or permitted any advance to any employee, agent, or independent contractor (except scheduled increases consistent with past practice), altered or amended an existing employment or other agreement with any employee, agent or independent contractor, or entered into any new employment or other agreement with any employee; (h) Entered into any license or lease; (i) Modified, amended, canceled, renewed, or terminated any of the Contracts, the Personal Property Leases or the Real Property Leases; or (j) Commenced or undertaken any capital projects or capital expenditures by or on behalf of PHCG. SECTION 5.16. CONDEMNATION. ------------- Neither Roberts nor PHCG has any knowledge of any plan of any Governmental Authority to appropriate, condemn or take by right of eminent domain all or any part of the Premises. SECTION 5.17. NO ADVERSE EFFECT ON USE. ------------------------- The Premises are not subject to any agreement or arrangement or right of any Person which, in any manner, could adversely affect the use thereof or the purposes for which said Premises are presently occupied. SECTION 5.18. EMPLOYEES. ---------- Schedule M lists the name of each employee of PHCG as of the date hereof, ---------- his or her position, his or her current rate of compensation, his or her vacation, holidays and personal days earned and not taken and his or her unused sick leave. SECTION 5.19. INTELLECTUAL PROPERTY RIGHTS. ----------------------------- 20 Set forth on Schedule B is a true and correct description of all of the ---------- Intellectual Property Rights used in the Business. Each of the Intellectual Property Rights is owned by PHCG. PHCG has all right, title and interest in and to, and possesses exclusive rights to use, free and clear of any payment or encumbrance, all the Intellectual Property Rights, other than as set forth on Schedule B. No claims have been asserted by any person with respect to the - ---------- Intellectual Property Rights and neither Roberts nor PHCG knows of any valid basis for any such claim. Roberts has not, with respect to the Business, and PHCG has not, nor has either of them been alleged to have, infringed upon any patent, trademark, service mark, trade name or copyright or any other intellectual property right of any other Person, or misappropriated or misused any proprietary information of any other Person. Neither Roberts nor PHCG has asserted any claim for infringement of any of the Intellectual Property Rights, nor are either of them aware of any basis to assert such infringement. None of the Intellectual Property Rights is subject to any outstanding order, ruling, decree, judgment or stipulation by or with any Governmental Authority. PHCG is not restricted by any agreement from carrying on its business in any geographic location. SECTION 5.20. INSURANCE POLICIES. ------------------- Set forth on Schedule N is a list and brief description of all insurance ---------- policies held by PHCG or otherwise related to the Business, including the named policyholder. All premiums for such insurance have been paid in full, except for those indicated on Schedule N as being paid in installments, for which all ---------- installments due have been paid in full. Except as may be set forth on Schedule -------- N all claims, if any, made against PHCG which are covered by insurance are being - - defended by the insurance companies writing such insurance. As of the date hereof, no policy listed on Schedule N has been canceled by the issuer thereof, ---------- neither Roberts nor PHCG has received notice of cancellation thereof and Roberts and PHCG will each use their best respective efforts to keep such issuers from canceling such policies. SECTION 5.21. CUSTOMERS AND SUPPLIERS. ------------------------ Schedule O sets forth a true and complete list of all customers of PHCG as ---------- well as a true and complete list of all suppliers of PHCG. Neither Roberts nor PHCG has any knowledge that any material customer or material supplier has terminated or expects to terminate any portion of its, his or her business with PHCG. No customer has refused to honor any of its commitments to PHCG nor has any customer expressed material dissatisfaction with the nature or the quality of any services or products nor has there been any material adverse change in the relationships of PHCG with any of its customers since December 31, 1995. SECTION 5.22. ENVIRONMENTAL CLAIMS. -------------------- Neither Roberts nor PHCG has received any notification that PHCG is in violation of, nor is PHCG in material violation of, any law, regulation, permit, license or other authorization with respect to any Federal, State or local law or regulation regulating pollution or the protection of the environment. There are no environmental conditions existing at any facility operated in connection with the Business which reasonably could be expected to give rise to common law or statutory liability for damages or injunctive relief against PHCG. No premises owned or leased by PHCG contain any hazardous substance (as defined below) other 21 than those required to conduct the Business in the ordinary course which are used and stored in compliance with all applicable laws; PHCG has not conducted or authorized the generation, transportation, storage, treatment or disposal of any hazardous substance other than that required in the ordinary course of the Business. There is no pending or, to the knowledge of Roberts or PHCG, threatened litigation or proceedings before any Governmental Authority in which any Person alleges the presence, release, threat of release, placement on or in the Premises or any real property leased by PHCG, or the generation, transportation, storage, treatment or disposal on or in any such premises, of any hazardous substance. No Governmental Authority or any employee or agent thereof has determined, or, to the knowledge of Roberts or PHCG, threatens to determine, that there is a presence, release, threat of release, placement on or in the Premises or any real property leased by PHCG, or the generation, transportation, storage, treatment, or disposal at such premises, of any hazardous substance. There have been no communications or agreements with any Governmental Authority or any private entity, including, but not limited to, any prior owners of the Premises or any real property leased by PHCG, relating in any way to the presence, release, placement on or in such premises, or the generation, transportation, storage or treatment or disposal at such premises, of any hazardous substance. For purposes of this Section 5.22, "hazardous substance" means any matter giving rise to liability under the Resources Conversation Recovery Act, 42 U.S.C. Sections 6901 et seq., the Comprehensive -- ---- Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq., -- ---- or any applicable laws or regulations of the States of New Jersey or New York, or any agency or department thereof, or any common law theory based on nuisance or strict liability. SECTION 5.23. NO MATERIAL OMISSIONS. --------------------- Neither Roberts nor PHCG knows of any material facts or circumstances not disclosed to Purchaser which should be disclosed to Purchaser in order to make any of the representations or warranties made herein not misleading. The copies of all instruments, agreements, other documents and written information referred to in this Agreement and the Schedules are complete and correct in all material respects as of the date hereof. No representation or warranty by Roberts or PHCG in this Agreement and no statement contained in any document, certificate or other writing furnished or to be furnished by Roberts and PHCG to Purchaser pursuant to the provisions hereof, when all such documents are taken as a whole, contains or will contain any untrue statement of material fact or omit or will omit to state any material fact necessary in order to make the statements herein or therein not misleading. ARTICLE VI ---------- REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT ------------------------------------------------------ Purchaser and Parent, respectively, represent and warrant to Roberts and PHCG as follows: SECTION 6.01. ORGANIZATION. ------------ Each of Purchaser and Parent is a corporation duly organized, validly existing, and in good standing under the laws of the State of New York, and has full corporate power and authority to execute, deliver and perform its obligations under this Agreement. 22 SECTION 6.02. APPROVAL. -------- This Agreement and the agreements and transactions contemplated hereby have been approved and authorized by the Board of Directors of each of Purchaser and Parent, and constitute valid, binding and enforceable obligations of each of Purchaser and Parent, except to the extent the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, equitable principles or similar laws affecting legal or equitable rights generally. SECTION 6.03. NO VIOLATION. ------------ Neither the execution and delivery of this Agreement by Purchaser and Parent nor the performance of Purchaser's or Parent's obligations hereunder will violate, conflict with, or constitute a default under, any of the terms of either of Purchaser's or Parent's Certificate of Incorporation or by-laws or any provisions thereof, or result in the acceleration of any obligation under any contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease, agreement, instrument, order, judgment or decree to which Purchaser or Parent is a party or by which Purchaser or Parent is bound, and will not constitute an event which, after notice or lapse of time or both, will result in such violation, conflict, default or acceleration. The execution and delivery of this Agreement and the performance by Purchaser and Parent of the transactions contemplated hereby will not violate any law, judgment, decree, order, rule or regulation of any Governmental Authority applicable to Purchaser or Parent. SECTION 6.04. FINANCIAL STATEMENTS. -------------------- Parent has heretofore delivered to Roberts unaudited financial statements of Parent as of and for the year ending December 31, 1995. Said financial statements fairly and accurately present the financial condition of Parent as of December 31, 1995 and have been prepared in accordance with generally accepted accounting principles consistently applied. ARTICLE VII ----------- AGREEMENTS OF ROBERTS AND PHCG ------------------------------ SECTION 7.01. BEST EFFORTS. ------------ Roberts and PHCG each agrees to use its best respective efforts to, and Roberts agrees to use its best efforts to cause PHCG to, cause all of Roberts' and PHCG's covenants, undertakings, obligations and agreements and all conditions precedent to Purchaser's covenants, agreements and obligations hereunder to be performed, satisfied and fulfilled on or prior to the First Closing and the Second Closing, in each case with respect to the actions and transactions to be taken and consummated thereat. SECTION 7.02. OPERATION OF BUSINESS UNTIL CLOSING. ----------------------------------- From the date hereof until the Second Closing Date, except (i) to the extent otherwise contemplated by this Agreement or consented to by an instrument in writing signed by the parties hereto, (ii) to the extent caused by acts or omissions of Purchaser or any Affiliate of Purchaser, or (iii) to the extent relating to Assets theretofore conveyed to the Purchaser, 23 Roberts, PHCG New Jersey (until the First Closing Date only) and PHCG New York shall, and Roberts shall cause PHCG New Jersey and PHCG New York for the applicable periods to: (a) exercise their best respective efforts to keep the Assets intact and to maintain the goodwill and reputation associated with the Business; (b) maintain the Premises and Tangible Personal Property in good operating condition and repair, ordinary wear and tear excepted; (c) maintain, in full force and effect, such insurance with respect to the Premises, the Assets and the Business as is in effect on the date hereof, which insurance is set forth on Schedule N; ---------- (d) not, other than in the ordinary course of business, enter into any licenses or leases; (e) not enter into any contract, agreement or commitment, including without limiting the generality of the foregoing, any contract, agreement or commitment for the purchase of materials, supplies or services if such contract, agreement or commitment exceeds amounts historically committed by PHCG thereto; (f) not terminate, renew, amend or allow a default to occur under, any of the Permits or, until the First Closing only, the Contracts, the Personal Property Leases or the Real Property Leases; (g) not encumber, or permit an Encumbrance on, nor, other than in the ordinary course of business, sell, assign, transfer or convey any of the Premises or the other Assets; (h) not curtail or accelerate purchases or shipments beyond customary requirements and not reduce or increase inventory from customary levels; and (i) not grant any salary increase to any employee (except for scheduled salary increases consistent with past practice) or enter into any new or amend or alter any existing bonus, incentive compensation, profit sharing, retirement, pension, group insurance, death benefit or other fringe benefit plan, trust agreement or other similar or dissimilar arrangement, or any employment or consultancy agreement. SECTION 7.03. BULK SALES. ---------- Roberts and PHCG shall comply with the laws of the States of New York and New Jersey relating to bulk transfers which may be applicable in connection with the transfer of the Premises and the New York Assets as provided herein. SECTION 7.04. NEW YORK PHARMACY REGISTRATION. ------------------------------ 24 Following the First Closing, Purchaser shall have the right to operate the Business using the New York pharmacy registration of PHCG New York for such reasonable period as is required for Purchaser to obtain a New York pharmacy registration. SECTION 7.05. CONSENTS. -------- Prior to the First Closing, Roberts or PHCG shall obtain all consents from third parties necessary to assign the Contracts, the Personal Property Leases and the Real Property Leases to Purchaser. SECTION 7.06. ASSETS OF PHCG NEW JERSEY. ------------------------- Roberts agrees to deliver the New Jersey assets as set forth in the schedule of such assets delivered at the First Closing to a location designated by the Purchaser within 90 days after the First Closing. ARTICLE VII ----------- AGREEMENTS OF PURCHASER AND PARENT ---------------------------------- SECTION 8.01. BEST EFFORTS. ------------ Purchaser and Parent each agrees to use its best respective efforts to cause all its covenants, undertakings, obligations and agreements and all conditions precedent to Roberts' and PHCG's covenants, agreements and obligations hereunder to be performed, satisfied and fulfilled at or prior to the First Closing and the Second Closing, in each case with respect to the actions and transactions to be taken and consummated thereat. SECTION 8.02. ACCESS TO BUSINESS RECORDS. -------------------------- From and after the First Closing (with respect to PHCG New Jersey) and the Second Closing (with respect to PHCG New York), Purchaser, whenever reasonably requested by Roberts, shall permit Roberts to have access to all business records of PHCG in accordance with this Agreement for use in a manner consistent with this Agreement and the transactions contemplated hereby. SECTION 8.03. ACCESS TO MEDICAL RECORDS. ------------------------- To the extent reasonably necessary and permitted by law, Roberts shall, after the First Closing (with respect to PHCG New Jersey) and the Second Closing (with respect to PHCG New York), have access to and be entitled to make copies (solely at the expense of Roberts) of any patient records, including the medical records and medical charts of PHCG, which are transferred to Purchaser. In addition, Roberts shall be entitled to remove any such record or chart for purposes of pending litigation as certified in writing prior to removal by an officer of Roberts or counsel retained by Roberts in connection with such litigation. Any record or chart so removed shall be promptly returned to Purchaser following its use by Roberts. 25 SECTION 8.04. PRESERVATION OF RECORDS. ----------------------- After the First Closing (in the case of PHCG New Jersey) and the Second Closing (in the case of PHCG New York), Purchaser shall keep and preserve all Records for the periods required (a) by any applicable Federal or State law or regulation, or (b) in connection with any claim or controversy still pending involving PHCG of which Purchaser has notice. Without limiting the foregoing, Purchaser shall keep and preserve all Records conveyed to Purchaser for a period of at least six years from the First Closing Date. ARTICLE IX ---------- CERTAIN ADDITIONAL COVENANTS ---------------------------- SECTION 9.01. EXPENSES. -------- Except as expressly set forth herein, each party hereto will bear the legal, accounting and other expenses incurred by such party in connection with this Agreement and the other agreements and transactions contemplated hereby. Notwithstanding the foregoing, Purchaser shall bear all costs and expenses in connection with the transfer of title to the Premises by PHCG New York to Purchaser as provided in Article II. SECTION 9.02. NO BROKERAGE. ------------ Each party hereto represents and warrants to the other parties hereto that no person or persons assisted in or brought about the negotiation of this Agreement in the capacity of broker, agent, finder or originator on behalf of it. Each party hereto agrees to indemnify and hold harmless the other parties hereto from any claim asserted against such other party hereto for a brokerage or agent's or finder's or originator's commission or compensation in respect of the transactions contemplated by this Agreement. SECTION 9.03. FURTHER ASSURANCES. ------------------ From time to time after the First Closing and the Second Closing, upon reasonable notice and without further consideration, Roberts shall execute, acknowledge and deliver all such other instruments and documents of sale, assignment, conveyance and transfer and shall take all such other action as may be required by Purchaser, in its sole reasonable discretion, for the consummation of the transactions contemplated hereby. Roberts and PHCG shall each, and Roberts shall, prior to the First Closing (in the case of PHCG New Jersey) and Second Closing (in the case of PHCG New York), cause PHCG to, use its best respective efforts to assist Purchaser in securing, any consent, waiver or approval from any Governmental Authority which may be required for the consummation of the transactions contemplated hereby. After the First Closing (in the case of PHCG New Jersey) and the Second Closing (in the case of PHCG New York), Purchaser shall cooperate with Roberts, at the expense of Roberts, in connection with any investigation, audit, litigation or other proceeding relating to the operations of PHCG. SECTION 9.04. LOSS OR DAMAGE. -------------- 26 Risk of loss to the Premises or any part thereof, shall be and remain on Robert and PHCG until the First Closing. If the Premises, or any part thereof, shall be damaged or destroyed by any casualty whatsoever prior to the First Closing, Roberts shall notify Purchaser within five days thereafter and the parties shall proceed as follows: (a) Within 30 days after the occurrence of any damage or destruction referred to in this Section 9.04, Roberts shall obtain and deliver to Purchaser a written estimate from a responsible reputable contractor doing business in the State of New York (the selection of said contractor to be subject to Purchaser's written approval) of the cost for repairing such damage or destruction; (b) If the cost of repair of such damage or destruction as determined pursuant to subparagraph (a) shall be $100,000 or less, the obligations of the parties hereunder shall not be affected by such damage or destruction, except Purchaser shall be entitled to receive a credit against the Purchase Price in an amount equal to the cost of such repair as determined pursuant to subparagraph (a) of this Section 9.04 (which credit shall be reduced to the extent of any insurance proceeds paid over by Roberts to PHCG or Purchaser); and (c) If the cost of repair of such damage or destruction as determined pursuant to subparagraph (a) shall be more than $100,000, Purchaser shall have the right to (i) elect to terminate this Agreement, and thereupon the parties shall be fully released and discharged from any further liability or obligations hereunder, each to the other except as set forth in Section 11.08, or (ii) accept the Premises in their damaged condition, with no abatement in the Purchase Price, provided that all insurance proceeds payable or paid with respect to such damage or destruction shall be assigned by Roberts and/or PHCG, as the case may be, and paid over to Purchaser at the First Closing. SECTION 9.05. CONDEMNATION. ------------ In the event of any condemnation of the Premises, or any material part thereof, prior to the First Closing, Roberts shall notify Purchaser within five days thereafter and Purchase shall have the right to elect within ten days of such notice either (a) to proceed with the First Closing, without any credit against the Purchase Price, but in which event Purchaser shall be entitled to receive the proceeds of the condemnation, or (b) to withdraw from this Agreement and the transactions contemplated hereunder, and thereupon the parties hereto shall be fully released and discharged from any further liability or obligation hereunder, each to the other except as set forth in Section 11.08. In the event that Purchaser does not provide Roberts with notice of its election within the ten day period as provided for in this Section, Purchaser shall be deemed to have elected to proceed with the Closing pursuant to subsection (a) of this Section 9.05. SECTION 9.06. CONFIDENTIALITY. --------------- The parties hereto agree that they will not, without the prior written consent of the other parties hereto, issue, give or make any press release, notification or disclosure to any third party or to the public, in each case relating to this Agreement or any of the terms or conditions hereof or any of the transactions contemplated hereby, except as required to perform 27 the obligations of the parties hereunder, including obtaining any consent or approval required by this Agreement, until the Second Closing or earlier termination of this Agreement. Roberts and PHCG each agrees, and Roberts agrees to cause PHCG, to obtain the prior written approval of Purchaser before making its initial public announcements or disclosures following the Second Closing with respect to this Agreement and the transactions contemplated hereby. SECTION 9.07. SALES AND OTHER TAXES. --------------------- Roberts agrees to pay all sales taxes, if any, on the sale of the Assets which may become due and owing as a result of the transactions contemplated by this Agreement, provided, however, that Purchaser shall pay all transfer taxes -------- ------- incurred in connection with the transfer of the Premises as provided in Article II. SECTION 9.08. LOANS BY PURCHASER TO PHCG NEW YORK PRIOR TO THE SECOND ------------------------------------------------------- CLOSING. ------- From and after the First Closing, Purchaser may elect to advance funds to PHCG New York, at such time, in such amount and on such terms as it may determine in its sole discretion (such funds in the aggregate, the "Loans"). In ----- the event that the New York State Public Health Council does not approve the transfer of the home care services agency license of PHCG New York to Purchaser, PHCG New York shall, and Roberts shall cause PHCG New York to, repay to Purchaser the Loans in full, together with interest thereon at a rate equal to 8% per annum, accruing from the date of each such advance, through and including the date of repayment; provided, however, that such obligation of PHCG New York -------- ------- to repay the Loans to Purchaser shall not exceed an amount equal to the revenues of PHCG New York attributable to the period commencing on the First Closing Date and ending on the date of repayment, and provided further that (i) such -------- ------- repayment obligation shall only apply to Loans consented to by Roberts and (ii) Roberts hereby consents to all Loans from Purchaser to PHCG New York which do not at any time exceed $350,000 in the aggregate principal amount outstanding. SECTION 9.09. PRONETICS NAME. -------------- Roberts and PHCG hereby consent to the use by Purchaser of the name "Pronetics Health Care Group" in the States of New Jersey, New York and Connecticut following the First Closing, and agree to take such action as may be reasonably required by Purchaser to obtain the approval of any Governmental Authority or any third party to such use, including, but not limited to, any approval required to qualify Purchaser to conduct business in the States of New Jersey, New York and Connecticut under such name. PHCG New Jersey and PHCG New York shall deliver to Purchaser at the First and Second Closings, respectively, executed amendments to the corporate charters of PHCG New Jersey and PHCG New York substantially in the forms attached hereto as Exhibits N and O (together, -------- - - the "Amendments") to change the names of such corporations. Purchaser shall ---------- file the Amendments with the Secretary of State of the respective jurisdictions immediately following the First and Second Closings, as the case may be. Roberts and PHCG agree on behalf of themselves and their successors and assigns that they shall not use the "Pronetics" name following the First Closing in the operation of any business in the States of New Jersey, New York or Connecticut and that Purchaser shall have the exclusive right to use the Intellectual Property Rights following the First Closing, except as is necessary in the 28 conduct of the home care services agency operated by PHCG New York until the Second Closing. ARTICLE X --------- INDEMNIFICATION --------------- SECTION 10.01. PURCHASER'S INDEMNITY. --------------------- (a) Purchaser shall and hereby does agree to indemnify and hold Roberts harmless from and against any and all loss, damage and expense of any nature (including, but not limited to, reasonable attorney's fees) incurred by Roberts, arising out of, attributable to, or in connection with: (i) Any matter in respect of which Purchaser shall have made any misrepresentation, breached any warranty, or failed to fulfill any covenant or agreement on the part of Purchaser contained in this Agreement, in any list or certificate or other document delivered or to be delivered, by Purchaser to Roberts in connection with this Agreement; (ii) Any and all liabilities relating to the operation of the Business, expressly excluding any Pre-Closing Liabilities, which relate to events which occur or services provided, with respect to PHCG New Jersey subsequent to the First Closing Date, and with respect to PHCG New York, subsequent to the Second Closing Date; and (iii) Any and all actions, suits, proceedings, demands, assessments or judgments, costs and expenses (including reasonable legal and accounting fees and investigation costs) incident to the foregoing and the enforcement thereof. (b) Subject to the notice of claim provisions set forth in Section 10.03, the provisions of subparagraph (a) of this Section 10.01 shall not be deemed to be an election of remedies, but shall be in addition to, and not in lieu of, any other remedy or remedies, at law or in equity, to which Roberts may be otherwise entitled. SECTION 10.02. ROBERTS' INDEMNITY. ------------------ (a) Roberts shall and hereby does agree to indemnify and hold Purchaser harmless from and against any and all loss, damage and expense of any nature (including, but not limited to, reasonable attorney's fees) incurred by Purchaser arising out of, attributable to, or in connection with: (i) Any matter in respect of which Roberts, PHCG New Jersey (at or prior to the First Closing) or PHCG New York (at or prior to the Second Closing) shall have made any misrepresentation, breached 29 any warranty, or failed to fulfill any covenant or agreement on the part of Roberts or PHCG contained in this Agreement, in any list or certificate or other document delivered or to be delivered, by Roberts or PHCG to Purchaser in connection with this Agreement, except to the extent such misrepresentation, breach or failure was caused by acts or omissions of Purchaser or any Affiliate of Purchaser; (ii) Any and all Pre-Closing Liabilities; and (iii) Any and all actions, suits, proceedings, demands, assessments or judgments, costs and expenses (including reasonable legal and accounting fees and investigation costs) incident to the foregoing and the enforcement thereof; provided, however, that (i) with respect to all claims other than claims - -------- ------- relating to taxes, employee compensation and benefits, workmen's compensation, termination of employment, employment discrimination, the environment or hazardous substances, Professional Liability, Medicaid or Medicare, Roberts' obligation to indemnify Purchaser and PHCG hereunder shall be limited to such claims of which Purchaser notifies Roberts, or of which Roberts is otherwise on notice, by the earlier of (A) the date that is two years after the First Closing Date and (B) the date that is one year after the Second Closing Date, and (ii) in no event shall Roberts' obligation to indemnify Purchaser hereunder exceed the amount of $4,800,000 for all claims in the aggregate. (b) Subject to the notice of claim provisions set forth in Section 10.03, the provisions of subparagraph (a) of this Section 10.02 shall not be deemed to be an election of remedies but shall be in addition to, and not in lieu of, any other remedy or remedies, at law or in equity, to which Purchaser may be otherwise entitled. SECTION 10.03. NOTICE OF CLAIMS. ---------------- The party seeking indemnification shall give the party from whom the indemnification is sought notice of any actual or reasonably likely claim of which it has knowledge and as to which it is entitled to indemnification. The indemnifying party shall defend any actions or proceedings by counsel of its own choosing and at its own expense, and in such case the party seeking indemnification shall cooperate, to the fullest reasonable extent requested in such defenses, and shall not settle, compromise or otherwise adversely affect the interests of the indemnifying party in respect of the foregoing. SECTION 10.04. SURVIVAL. -------- Subject to the provisions of Section 10.02(a), the obligations of the parties hereto under this Article X shall survive the First Closing, the Second Closing and any termination of this Agreement. 30 ARTICLE XI ---------- MISCELLANEOUS ------------- SECTION 11.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. ------------------------------------------ The representations and warranties of the parties hereto made in this Agreement shall survive until the earlier of (a) the date that is two years after the First Closing Date and (b) the date that is one year after the Second Closing Date, except the representations and warranties of Roberts and PHCG set forth in Sections 5.09, 5.10, 5.13 and 5.22, which shall survive indefinitely. None of the representations or warranties of the parties shall be affected by any information furnished to, or any investigation conducted by, either of the parties or their representatives in connection with the subject matter of this Agreement. SECTION 11.02. AMENDMENT. --------- This Agreement may be amended only by a writing executed by the parties hereto that refers to this Agreement. SECTION 11.03. ENTIRE AGREEMENT. ---------------- This Agreement and the other agreements expressly referred to herein set forth the entire understanding of the parties hereto and supersede all prior contracts, agreements, arrangements, communications, discussions, representations and warranties, whether oral or written, between the parties. SECTION 11.04. NOTICE. ------ Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given when sent by certified mail, return receipt requested, postage prepaid, to the parties hereto at the respective addresses set forth below: TO ROBERTS, TO PHCG NEW JERSEY (BEFORE THE FIRST CLOSING) OR TO PHCG NEW YORK (BEFORE THE SECOND CLOSING): Roberts Pharmaceutical Corporation Meridian Center II Four Industrial Way East Eatontown, New Jersey 07724-2274 Attention: Mr. Peter Rogalin Chief Financial Officer 31 WITH A COPY TO: Roberts Pharmaceutical Corporation Meridian Center II Four Industrial Way Eatontown, New Jersey 07724-2274 Attention: Anthony A. Rascio, Esq. General Counsel TO PURCHASER: PHCG, Inc. 6323 Seventh Avenue Brooklyn, New York 11220-4711 Attention: John DiBernardi, Esq. General Counsel WITH A COPY TO: Cadwalader, Wickersham & Taft 100 Maiden Lane New York, New York 10038 Attention: Paul W. Mourning, Esq. TO PARENT: MJGC Corp. 6323 Seventh Avenue Brooklyn, New York 11220 Attention: John DiBernardi, Esq. General Counsel WITH A COPY TO: Cadwalader, Wickersham & Taft 100 Maiden Lane New York, New York 10038 Attention: Paul W. Mourning, Esq. Any party by written notice to the others may change the address or the person to whom notices or copies thereof shall be directed. 32 SECTION 11.05. COUNTERPARTS. ------------ This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together will constitute one and the same instrument. SECTION 11.06. BINDING NATURE. -------------- This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of each party hereto. No rights, obligations or liabilities hereunder shall be assignable by any party without the prior written consent of the other parties, except that the rights and obligations of Purchaser hereunder shall be assignable by Purchaser to one or more Affiliates designated by Purchaser. SECTION 11.07. WAIVERS OF BREACH. ----------------- No waiver, other than a waiver in writing, by any party hereto of the violation of, breach or a default under, any provision of this Agreement or any other agreements provided for herein by the other party hereto shall be construed as or constitute a continuing waiver of such provision or a waiver of any other violation of, breach of, or default under any provisions of this Agreement or any other agreements provided for herein. SECTION 11.08. TERMINATION. ----------- (a) This Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the First Closing: (i) By mutual consent of Roberts and Purchaser; (ii) By Purchaser if any representation or warranty of Roberts of PHCG contained in Article V shall not be true and correct; or (iii) By Roberts if any representation or warranty of Purchaser or Parent contained in Article VI shall not be true and correct. (b) In the event of the termination of this Agreement pursuant to the provisions of this Section 11.08, this Agreement shall, except as otherwise specifically provided in this Agreement, become void and have no effect, without any obligations on the part of any party hereto, except that upon any such termination, Purchaser agrees to return to Roberts and PHCG, as the case may be, all records, contracts, leases, documents and other written information provided by Roberts and PHCG, as the case may be, to Purchaser in connection with the negotiation of this Agreement. 33 SECTION 11.09. EFFECT OF HEADINGS. ------------------ The subject headings of the Articles and Sections of this Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of this Agreement. SECTION 11.10. GOVERNING LAW. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of New York. Any action in law or in equity relating to this Agreement shall be brought in a federal or state court located in the State of New York. 34 IN WITNESS WHEREOF, the duly authorized representatives of the parties have executed this Agreement as of the day and year first written above. ROBERTS PHARMACEUTICAL CORPORATION By: /s/ Anthony A. Rascio _____________________________ Name: Anthony A. Rascio Title: Vice President PRONETICS HEALTH CARE GROUP, INC., a New Jersey corporation By: /s/ Anthony A. Rascio ______________________________ Name: Anthony A. Rascio Title: Vice President PRONETICS HEALTH CARE GROUP, INC., a New York corporation By: /s/ Anthony A. Rascio ______________________________ Name: Anthony A. Rascio Title: Vice President PHCG, INC. By: /s/ Eli Feldman ______________________________ Name: Eli Feldman Title: Vice President MJGC CORP. By: /s/ Mark Goldstein ______________________________ Name: Mark Goldstein Title: President 35 EX-10.85 10 STOCK PURCHASE AGREEMENT EXHIBIT 10.85 STOCK PURCHASE AGREEMENT among PRONETICS HEALTH CARE GROUP, INC. the Company, ROBERTS PHARMACEUTICAL CORPORATION the Shareholder, and AMERICAN HOMEPATIENT, INC. the Buyer TABLE OF CONTENTS ARTICLE I. PURCHASE AND SALE....................................... 1 1.1 Purchase and Sale...................................... 1 1.2 Assets at Closing...................................... 1 1.3 Excluded Items......................................... 3 1.4 Continuing Contracts, Leases and Liabilities........... 3 1.5 Simultaneous Transfer of Receivables................... 4 1.6 Closing................................................ 4 ARTICLE II. PURCHASE PRICE......................................... 4 2.1 Purchase Price......................................... 4 2.2 Interest on Purchase Price............................. 4 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER........................................ 5 3.1 Organization, Qualification and Authority.............. 5 3.2 Capitalization and Stock Ownership..................... 5 3.3 Absence of Default..................................... 6 3.4 Financial Statements................................... 6 3.5 Operations Since December 31, 1996..................... 7 3.6 Litigation............................................. 8 3.7 Licenses............................................... 8 3.8 Medicare, Medicaid and Other Third-Party Payors........ 9 3.9 Title to and Condition of Assets....................... 10 3.10 Contracts.............................................. 11 3.11 Environmental Matters.................................. 12 3.12 Miscellaneous Representations Relating to Real Estate.. 13 3.13 Company Employees...................................... 13 3.14 Employee Benefit Plans................................. 14 3.15 Insurance.............................................. 15 3.16 Conflicts of Interest.................................. 15 3.17 Compliance with Healthcare and Other Laws.............. 15 3.18 WARN Act............................................... 16 3.19 Tax Returns; Taxes..................................... 16 3.20 Asset Value; Statement of Income and Net Revenues...... 16 3.21 No Omissions or Misstatements.......................... 16 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER................ 17 4.1 Organization, Qualification and Authority.............. 17 4.2 Absence of Default..................................... 17 ARTICLE V. COVENANTS OF PARTIES................................... 18 5.1 Preservation of Business and Assets.................... 18 5.2 Books and Records...................................... 18 5.3 Preserve Accuracy of Representations and Warranties.... 20 5.4 Broker's or Finder's Fee............................... 20 5.5 Indebtedness; Liens.................................... 20 5.6 Compliance with Laws and Regulatory Consents........... 20 5.7 Maintain Insurance Coverage............................ 21 5.8 Tangible Net Worth..................................... 21 i 5.9 Medicare and Medicaid Reporting........................ 21 5.10 Current Return Filing.................................. 21 5.11 The Election........................................... 21 ARTICLE VI. COMPANY'S AND SHAREHOLDER'S CONDITIONS TO CLOSE........ 22 6.1 Representations and Warranties True at Closing; Compliance with Agreement.............................. 22 6.2 No Action/Proceeding................................... 22 6.3 Order Prohibiting Transaction.......................... 22 6.4 Receivables Agreement.................................. 22 6.5 Exhibits............................................... 22 ARTICLE VII. BUYER'S CONDITIONS TO CLOSE............................ 23 7.1 Representations and Warranties True at Closing; Compliance with Agreement.............................. 23 7.2 Regulatory Approvals................................... 23 7.3 No Action/Proceeding................................... 23 7.4 Inspection of Assets; U.C.C. Searches, etc............. 23 7.5 Order Prohibiting Transaction.......................... 23 7.6 Confidentiality and Non-Compete Agreements............. 24 7.7 Employment Agreements.................................. 24 7.8 Operating Targets...................................... 24 7.9 Approval of Board of Directors......................... 24 7.10 Exhibits............................................... 24 ARTICLE VIII. OBLIGATIONS OF COMPANY AND SHAREHOLDER AT CLOSING................................................ 24 8.1 Documents Relating to Title............................ 24 8.2 Possession............................................. 25 8.3 Opinion of Counsel..................................... 25 8.4 Corporate Good Standing and Corporate Resolution....... 25 8.5 Closing Certificate.................................... 25 8.6 Third Party Consents................................... 26 8.7 Receivables and Confidentiality Agreements............. 26 8.8 Assumption Agreement................................... 26 8.9 Closing Statement...................................... 26 8.10 Additionally Requested Documents; Post-Closing Assistance............................................. 26 ARTICLE IX. OBLIGATIONS OF BUYER AT CLOSING........................ 26 9.1 Purchase Price......................................... 26 9.2 Corporate Good Standing and Certified Board Resolutions............................................ 26 9.3 Closing Certificate.................................... 27 9.4 Opinion of Buyer's Counsel............................. 27 ARTICLE X. SURVIVAL OF PROVISIONS AND INDEMNIFICATION............. 27 10.1 Survival............................................... 27 10.2 Indemnification by Shareholder......................... 27 10.3 Indemnification by Company and Buyer................... 28 10.4 Rules Regarding Indemnification........................ 28 ARTICLE XI. PRESERVATION OF BUSINESS AND NONCOMPETE RESTRICTIONS........................................... 30 11.1 Covenant Not to Compete................................ 30 ii 11.2 Enforceability......................................... 31 ARTICLE XII. MISCELLANEOUS.......................................... 31 12.1 Assignment............................................. 31 12.2 Other Expenses......................................... 31 12.3 Notices................................................ 32 12.4 Confidentiality; Prohibition on Trading................ 32 12.5 Partial invalidity; Waiver............................. 33 12.6 Interpretation; Knowledge.............................. 33 12.7 Entire Agreement; Counterparts......................... 33 12.8 Further Assurance of Shareholder After Closing......... 33 12.9 Legal Fees and Costs................................... 34 12.10 Controlling Law ....................................... 34 iii STOCK PURCHASE AGREEMENT ------------------------ THIS STOCK PURCHASE AGREEMENT is entered into on January 31, 1997, by and among PRONETICS HEALTH CARE GROUP, INC., a North Carolina corporation, (the "Company"), ROBERTS PHARMACEUTICAL CORPORATION, a New Jersey corporation (the "Shareholder"), and AMERICAN HOMEPATIENT, INC., a Tennessee corporation ("Buyer"). R E C I T A L S: ---------------- WHEREAS, the Company owns and operates a home health care business (the "Business") located at 915 Kildaire Farm Road, Suite 2, Cary, North Carolina 27511; and WHEREAS, Shareholder owns all of the issued and outstanding capital stock of the Company (the "Stock"); and WHEREAS, Shareholder desires to sell and transfer the Stock to Buyer, and Buyer desires to purchase the same from Shareholder, subject to the terms and conditions set forth in this Agreement; and WHEREAS, the parties have agreed to make a joint election in accordance with Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Election"). NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows: ARTICLE 1. PURCHASE AND SALE 1.1 Purchase and Sale. Shareholder agrees to sell, transfer, assign, ----------------- convey and deliver to Buyer, and Buyer agrees to purchase from Shareholder, all right, title and interest in and to the Stock, which consists of all of the issued and outstanding capital stock of the Company. Shareholder will deliver to Buyer at Closing all stock certificates representing the Stock, duly endorsed for transfer or accompanied by duly executed stock powers. The Stock will be conveyed to Buyer fully paid and nonassessable with good and valid title, free and clear of all liens, charges, claims, liabilities, encumbrances, security interests, restrictive agreements, options, rights of others and imperfections of title of any nature whatsoever, including all amounts due and payable for federal, state and local transfer taxes. 1.2 Assets at Closing. At Closing the Company will own or lease, as ----------------- specified, all assets, tangible and intangible, real and personal, that are used to operate the Business (collectively, the "Assets"), free and clear of all encumbrances, mortgages, pledges, liens, security interests, obligations and liabilities other than the Continuing Liabilities (as defined in paragraph 1.4), which Assets will include, without limitation, the following: (1) All leasehold right, title and interest in and to all of the real property leased by the Company and/or used in connection with the Business as listed in Exhibit 1.2(1) attached hereto, including improvements, fixed assets ------- ----- and fixtures including fixed machinery and fixed equipment situated thereon or forming a part thereof and in which Company has an interest (collectively, the "Real Estate"); (2) All medical and other equipment, machinery, data processing hardware and software, furniture, furnishings, appliances, vehicles and other tangible personal property and all replacement parts therefor used in connection with the Business including, without limitation, the items listed on Exhibit 1.2(2) ------ attached hereto (collectively, the "Equipment and Furnishings"); (3) All inventory of goods and supplies used or maintained in connection with the Business reflected on the Financial Statements (collectively, the "Inventory"); (4) All accounts and notes receivable existing as of December 31, 1996 and the proceeds thereof (collectively, the "Receivables"); (5) One-half (1/2) of the aggregate amount of cash of the Business existing as of December 31, 1996 and all cash generated from operation of the Business on and after the Effective Date, and any related bank accounts (as listed by name and address of banking institution, account name and account and routing numbers on Exhibit 1.2(5) attached hereto, money market accounts, other accounts, ------- ------ certificates of deposit and other investments of the Company (the "Cash and Cash Equivalents"), and all prepaid expenses; (6) All patient, medical, personnel, corporate and other records related to the Business (including both hard and microfiche copies), and all manuals, books and records used in operating the Business, including, without limitation, personnel policies and files and manuals, accounting records, and computer software; (7) To the full extent transferable, all federal, state and local licenses, permits, registrations, certificates, consents, accreditations, approvals and franchises currently held by Company and necessary to operate and conduct the Business (collectively, the "Licenses"), together with assignments thereof, if required, and all waivers which the Company currently has, if any, of any requirements pertaining to the Licenses; (8) All goodwill, and, to the extent assignable by the Company, all warranties (express or implied) and rights and claims related to the Assets or the operation of the Business; (9) Contract and leasehold rights and interests arising out of or released to the Business and that are Continuing Liabilities; and (10) All intangible or intellectual property owned, leased, licensed or possessed by either the Company or the Shareholder and utilized in connection with the Business, including without 2 limitation, the names "Pronetics Health Care Group" and derivatives thereof, to the extent the Company or Shareholder has rights in or to each such name. Buyer acknowledges and agrees that it is not acquiring, and Company is not retaining or acquiring, any license or other right regarding the name "Roberts Pharmaceutical" or derivatives thereof. 1.3 Excluded Items. Immediately prior to conveyance of the Stock, Company --------------- will transfer to the Shareholder one-half (1/2) of the aggregate amount of cash existing as of December 31, 1996 and all debts, liabilities and other obligations of any nature whatsoever, whether known or unknown, contingent or otherwise, other than the Continuing Liabilities as specifically set forth in paragraph 1.4(1). The parties acknowledge and agree that Company is not retaining the Excluded Items and that, following Closing, neither Company nor Buyer will, directly or indirectly, have any right, title, interest or obligation with respect to the Excluded Items. 1.4 Continuing Contracts, Leases and Liabilities. --------------------------------------------- (1) At Closing, Company will retain and agree to pay or perform, as the case may be, only (a) those obligations existing at December 31, 1996 constituting working capital liabilities incurred in the ordinary course of business with respect to the purchase of equipment, inventory or fixed assets, exclusive of long-term and interest bearing debt, which Company expressly elects to retain as specifically set forth on Exhibit 1.4 attached hereto, (b) those ------------ obligations constituting working capital liabilities incurred in the ordinary course of business on and after the Effective Date (as such term is defined in paragraph 1.6), exclusive of long-term and interest bearing debt, and (c) those obligations arising on and after the Effective Date under those Contracts (as defined in paragraph 3.10) which Company expressly elects to retain (collectively, the "Continuing Liabilities"). (2) Buyer is not assuming any debt, liability or obligation of the Company or of Shareholder and, except for the Continuing Liabilities, it is expressly agreed and understood by each of the parties to this Agreement that after the Closing Company will not retain or be liable for, any debt, liability or obligation of Company prior to the Closing or of Shareholder of any type or description whatsoever, whether related or unrelated to the Stock, the Business or the transactions contemplated under this Agreement and that Shareholder will be liable and responsible for the payment or performance, as the case may be, of all debts, liabilities, obligations, contracts, leases, notes payable, accounts payable, commitments, agreements, suits, claims, indemnities, mortgages, taxes, contingent liabilities and other obligations of Company arising prior to Closing and of Shareholder including, without limitation, any and all investment tax credit recapture, depreciation recapture, recapture or prior period adjustments under Medicare, Medicaid and Blue Cross, all impositions of income tax and other taxes; all employee wages, salaries and benefits including, without limitation, COBRA and WARN obligations, accrued vacation and 3 sick pay not expressly assumed by Buyer pursuant to this paragraph, and other accrued employee benefits including rights of Company's retirees to participate in medical plans. 1.5 Simultaneous Transfer of Receivables. Immediately upon Closing, ------------------------------------- Company will transfer the Receivables to Shareholder and Shareholder will pay in consideration therefor the fair market value of the Receivables as of December 31, 1996, as such value is mutually determined by the parties (the "Receivables Price"). The parties acknowledge and agree that the fair market value of the Receivables will be equal to the tax basis of the Receivables for Buyer immediately subsequent to the transfer of Stock. The Receivables Price will be payable in cash at Closing. 1.6 Closing. If all of the conditions to Closing set forth in Articles VI -------- and VII are satisfied, then the Closing will occur on or by February 21,1997 at the offices of Shareholder, Eatontown, New Jersey, or at such other time or place as the parties may mutually agree (the "Closing"). Upon consummation, the Closing will be deemed to be effective and the transfer of the Stock will be deemed to have occurred, as of 12:01 a.m. Eastern Standard Time on January 1, 1997 (the "Effective Date"). Accordingly, all income generated from operation of the Business on and after the Effective Date will remain with the Company and, indirectly, be for the benefit of Buyer. Shareholder hereby acknowledges that for the period from the Effective Date until the Closing when the physical transfer of certificate(s) evidencing the Stock will actually take place, Shareholder will hold such certificate(s) for the benefit of Buyer and such certificates will be deemed delivered as of the Effective Date, subject to the other provisions of this Agreement. If Closing has not occurred by March 31, 1997, then any party not in default hereunder may terminate this Agreement without further obligation. ARTICLE II. PURCHASE PRICE 2.1 Purchase Price. The purchase price payable by Buyer to Shareholder --------------- for the Stock and in consideration for the agreements contained herein, including the agreements contained in Article XI, will be the sum of Six Hundred Fifty Thousand and No/l00 Dollars ($650,000.00) plus the Receivables Price (the "Purchase Price"). The Purchase Price will be subject to adjustment as set forth in this Agreement and will be payable in immediately available funds by wire transfer at Closing in the following manner: 2.2 Interest on Purchase Price. In addition to the Purchase Price --------------------------- described in paragraph 2.1, Buyer will deliver to Shareholder, in immediately available funds by wire transfer at Closing, interest on $650,000.00 of the Purchase Price at the rate of seven percent (7.0%) per annum from the Effective Date through Closing. 4 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER As a material inducement to Buyer to enter into this Agreement and to consummate the transactions contemplated hereunder, Shareholder hereby represents and warrants to Buyer, which representations and warranties will be true and correct on the date of Closing, as follows: 3.1 Organization, Qualification and Authority. Company is a corporation ------------------------------------------ duly organized and validly existing in the State of North Carolina, and is not required to be qualified to do business as a foreign corporation in any other jurisdiction. Since the date of its organization and incorporation, Company has consistently observed and operated within the corporate formalities of the jurisdictions in which it is incorporated and/or conducts its business, and has consistently observed and complied with the general corporation law of such jurisdictions. Company has full power and authority to own, lease and operate its facilities and assets as presently owned, leased and operated; and to carry on its business as it is now being conducted. Company has never operated any other business. Except for Shareholder, no other person or entity owns or holds, has any interest in, whether legal, equitable or beneficial, or has the right to purchase, any capital stock or other security of Company. Company owns no capital stock, security, interest or other right, or any option or warrant convertible into the same, of any corporation, partnership, joint venture or other business enterprise. Company and Shareholder have the full right, power and authority to execute, deliver and carry out the terms of this Agreement and all documents and agreements necessary to give effect to the provisions of this Agreement, to consummate the transactions contemplated on the part of each such party hereby, and to take all actions necessary, in their respective capacities, to permit or approve the actions of Company and Shareholder taken in connection with this Agreement. The execution, delivery and consummation of this Agreement, and all other agreements and documents executed in connection herewith by Company and Shareholder, have been duly authorized by all necessary action on the part of such parties. No other action, consent or approval on the part of Company, Shareholder or any other person or entity is necessary to authorize due and valid execution, delivery and consummation, of this Agreement and all other agreements and documents executed in connection herewith. This Agreement and all other agreements and documents executed in connection herewith by Company and/or Shareholder, upon due execution and delivery thereof, will constitute the valid and binding obligations of Company and/or Shareholder, as the case may be, enforceable against each in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by general principles of equity. 3.2 Capitalization and Stock Ownership. Except for Shareholder, no other ----------------------------------- person or entity owns or holds, has any interest in, whether legal, equitable or beneficial, or has the 5 right to purchase, any capital stock or other security of Company. The Stock, being 45 shares, $.01 par value, of common stock, constitutes all issued and outstanding securities of Company, is duly authorized, validly issued, fully paid and nonassessable, and is owned free and clear of any liens, charges, encumbrances, security interests, pledges or any other restrictions whatsoever. At Closing, Company will have no outstanding subscriptions, options, warrants, calls, contracts, convertible securities or other instruments, agreements or arrangements of any nature whatsoever under which Company is or may be obligated or compelled to issue any capital stock, security or interest of any kind, or to transfer or modify any right with respect to any capital stock, security or other interest, and no one has any preemptive rights, right of first refusal or similar rights with respect to the Stock or any equity interest in Company. Neither Company nor Shareholder is a party to any, and there exist no, voting trusts, stockholder agreements, pledge agreements or other agreements relating to or restricting the transferability of any shares of the Stock or equity interests of Company. The Stock has been issued in accordance with all applicable federal and state securities laws. 3.3 Absence of Default. The execution, delivery and consummation of this ------------------- Agreement, and all other agreements and documents executed in connection herewith by Company and Shareholder will not constitute a violation of, or be in conflict with, will not, with or without the giving of notice or the passage of time, or both, result in a breach of, constitute a default under, create (or cause the acceleration of the maturity on any debt, indenture, obligation or liability affecting Company or its Business or rights in the Stock, result in the creation or imposition of any security interest, lien, charge or other encumbrance upon any of the Stock, or otherwise adversely affect Buyer, Company or the Business under: (a) any term or provision of the Charter or Bylaws of Company; (b) any contract, lease, purchase order, agreement, document, instrument, indenture, mortgage, pledge, assignment, permit, license, approval or other commitment to which Company and/or Shareholder is a party or by which Company, Shareholder, Stock or the Assets are bound; (c) any judgment, decree, order, regulation or rule of any court or regulatory authority; or (d) any law, statute, rule, regulation, order, writ, injunction, judgment or decree of any court or governmental authority or arbitration tribunal to which Company, Shareholder, the Stock and/or the Assets are subject. 3.4 Financial Statement ------------------- (1) Attached hereto as Exhibit 3.4 are true and correct copies of Company's unaudited balance sheets as of December 31, 1996, and its unaudited income statements for the year then ending (the "Financial Statements"). The Financial Statements are based on the books and records of Company and present fairly, in compliance with generally accepted accounting principles, the financial position of Company as of, and the results of its operations for, the periods specified. Except as set forth in the Financial Statements, Company has, and as of the Closing will have, no 6 contingent liabilities or obligations. (2) The books and records of Company are in such order and completeness so that an unqualified audit may be performed for any period prior to Closing not already audited. Shareholder will fully and readily cooperate with Buyer in Buyer's attempt to perform an audit of Company for any period prior to Closing not already audited. 3.5 Operations Since December 31, 1996. Since December 31, 1996, there has ----------------------------------- been no: (1) material change in the condition, financial or otherwise, which has, or could reasonably be expected to have, an adverse effect on any of the Assets, the Business or future prospects of the Business, or in the results of the operations of the Company; (2) material loss, damage or destruction of or to any of the Assets, whether or not covered by insurance; (3) sale, lease, transfer or other disposition by Company of, or mortgages or pledges of or the imposition of any lien, charge or encumbrance on, any portion of the Assets, except inventory for sale and equipment held for rent in the ordinary course of business; (4) increase in the compensation payable by Company to Shareholder or any employees, directors, independent contractors or agents, or material increase in, or institution of, any bonus, insurance, pension, profit-sharing or other employee benefit plan or arrangements made to, for or with the employees, directors, independent contractors or agents of Company; (5) cumulative net operating loss incurred in the operation of the Business, adjustment or write-off of Receivables or reduction in reserves for Receivables outside of the ordinary course of business, or change in the accounting methods or practices employed by Company or change in adopted depreciation or amortization policies; (6) issuance or sale by Company, or contract or other commitment entered into by Company or Shareholder for the issuance or sale, of any shares of capital stock or securities convertible into or exchangeable for capital stock of Company; (7) payment by Company of any dividend, distribution or extraordinary or unusual disbursement or expenditure or intercompany payable; (8) merger, consolidation or similar transaction; or solicitation therefor; (9) security interest, guarantee or other encumbrance, other than in the ordinary course of business, obligation or liability, in each case whether absolute, accrued, contingent or 7 otherwise, or whether due or to become due, incurred or paid by Company to any person or entity; or the making by Company of any loan or advance to, or an investment in, any person or entity; (10) federal, state or local statute, rule, regulation, order or case adopted, promulgated or decided which, to the best knowledge of Company and Shareholder, materially adversely affects Company, Stock, Business or Assets; (11) strike, work stoppage or other labor dispute adversely affecting the Business; or (12) termination, waiver or cancellation of any rights or claims of Company, under contract or otherwise. Further, since the Effective Date, neither Shareholder nor any of its affiliates has received any compensation, benefits or distributions from Company, whether as salary, bonus, fees, dividends or any other form of compensation. 3.6 Litigation. Except as disclosed in Exhibit 3.6 attached hereto, no ----------- person or party (including, without limitation, any governmental agency) has asserted, or to the best knowledge of the Company or Shareholder, has threatened to assert, any claim for any action or proceeding, against Company (or any officer, director, employee, agent or Shareholder of Company) arising out of any statute, ordinance or regulation relating to wages, collective bargaining, discrimination in employment or employment practices or occupational safety and health standards (including, without limitation, the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as amended, the Occupational Safety and Health Act, the Age Discrimination in Employment Act of 1967, or the Americans With Disabilities Act). Neither Company nor Shareholder has received notice of any violation of any law, rule, regulation, ordinance or order of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality (including, without limitation, legislation and regulations applicable to the Medicare and Medicaid programs, environmental protection, civil rights, public health and safety and occupational health). Except as set forth in Exhibit 3.6. there are no ------------ lawsuits, proceedings, actions, arbitrations, governmental investigations, claims, inquiries or proceedings pending or threatened involving Company, Shareholder, Stock, any of the Assets or the Business. The claims disclosed in Exhibit 3.6, if any, will not result in any liability to or obligation of Buyer, - ------------ directly or through the Company, and will not cause or lead to any lien or encumbrance being placed, created or filed against or upon any of the Stock or Assets, and Shareholder will indemnify and hold Buyer and Company harmless with respect to the same. 3.7 Licenses. --------- (1) Company has all Licenses necessary for Company to occupy, operate and conduct the Business, and there do not exist any waivers or exemptions relating thereto. There is no material 8 default on the part of Company or any other party under any of the Licenses. There exist no grounds for revocation, suspension or limitation of any of the Licenses. Copies of each of the Licenses are attached to and listed on Exhibit ------- 3.7(1) attached hereto. The most recent licensure surveys, deficiency reports - ------ and plans of correction, if any, related to each of these items has also been included in Exhibit 3.7(1). Company is, and at the time of Closing will be, --------------- licensed by the regulatory bodies listed on Exhibit 3.7(1). No notices have been -------------- received by Company or Shareholder with respect to any threatened, pending, or possible revocation, termination, suspension or limitation of the Licenses. (2) Company is not required to have any certificates of need or equivalents in order to operate the Business. (3) Each employee of Company has all Licenses required for each such employee to perform such employee's designated functions and duties for Company in connection with conducting the Business, and there exist no waivers or exemptions relating thereto. There is no material default under, nor does there exist any grounds for revocation, suspension or limitation of, any such Licenses. (4) Company is duly accredited by the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") to operate and conduct the Business. Included in Exhibit 3.7(4) attached hereto are the certificates of -------------- accreditation issued by the JCAHO, and copies of the most recent JCAHO accreditation survey report, including a list of deficiencies, if any. 3.8 Medicare, Medicaid and Other Third-Party Payors. ------------------------------------------------ (1) Company participates in the Medicare and Medicaid Programs (collectively, the "Programs"). A list of and copies of its existing Medicare and Medicaid contracts and other documentation evidencing such participation (collectively, the "Program Agreements") are included in Exhibit 3.10 attached ------------ hereto. Company is, and will be at the time of Closing, in full compliance with all of the material terms, conditions and provisions of the Program Agreements. (2) No notice of any offsets against future reimbursements under or pursuant to the Programs has been received by either Company or Shareholder, nor is there any basis therefor. There are no pending appeals, adjustments, challenges, audits, litigation, notices of intent to recoup past or present reimbursements with respect to the Programs. Company has not been subject to or threatened with loss of waiver of liability for utilization review denials with respect to the Programs during the past twelve (12) months, nor has either Company or Shareholder received notice of any pending, threatened or possible decertification or other loss of participation in, any of the Programs. (3) Company currently has contractual arrangements with 9 Blue Cross and other third party Payors. A list of and copies of its existing Blue Cross contract(s) and other third party payor contract(s) are included in Exhibit 3.10. Company is, and will be at the time of Closing, in full compliance - ------------- with all of the material terms, conditions and provisions of such contracts. (4) All liabilities and contractual adjustments of Company under any third party payor or reimbursement programs have been properly reflected and adequately reserved for in the Financial Statements. If, following Closing, Company suffers any offsets against any reimbursement under any third-party payor or reimbursement programs due to Buyer or Company relating to the periods on or prior to the Closing, then Shareholder will immediately pay to Company the amounts so offset, with interest at a rate equal to seven percent (7.0%) per annum; provided, however that Buyer will bear the risk of offset as to operations from the Effective Date through Closing so long as such offsets are not caused by the wilful acts or omissions, or negligence, of Shareholder, Company and/or their respective employees, representatives or agents. The interest will accrue from the date of offset by the third party until the date paid by Shareholder to Company. Buyer hereby agrees to notify Shareholder promptly in the event for such an offset. 3.9 Title to and Condition of Assets. --------------------------------- (1) Company is the sole legal and beneficial owner of the personal property included in the Assets, free and clear of all mortgages, security interests, liens, leases, covenants, assessments, easements, options, rights of refusal, restrictions, reservations, defects in the title, encroachments, and other encumbrances, except the Continuing Liabilities. No debt of Shareholder imposes any lien or other encumbrance on the Assets. The Assets are all the assets set forth on the Financial Statements or used in the operation of the Business. (2) The description of the Real Estate contained in Exhibit 1.2(1) is -------------- accurate and include all real property leased by Company, used in connection with the Business or set forth on the Financial Statements. Company owns no real property. Company is in lawful possession of all of the Real Estate. Additionally, the transfer and conveyance of the Stock to Buyer as contemplated by the terms of this Agreement once effected as contemplated hereunder, will vest in the Buyer, either directly or indirectly through Company, the lawful right to possess and use the Real Estate. (3) The Equipment and Furnishings are all of the "Equipment" reflected on the Financial Statements, other than those items sold and replaced in the ordinary course of business. The Assets comprise all assets owned by the Company and all assets used in connection with the Business. All components of all of the Equipment and Furnishings (a) operate in accordance with their respective specifications, (b) perform the functions they are supposed to perform, (c) are free of patent structural, 10 installation, engineering, or mechanical defects or problems, and (d) are otherwise in good working order. The Company has received no written recommendation from any insurer to repair or replace any of the Assets with which the Company has not complied. (4) The Inventory is, and on Closing will be, of a quality and quantity previously used by Company in the ordinary course of business determined and valued consistent with Company's past practice. The Inventory is properly valued at the lower of cost or market value on a first-in/first-out basis in accordance with generally accepted accounting principles consistently applied. Since the date of the Financial Statements, Company has not decreased or substituted its items of Inventory other than in the ordinary course of business. (5) All motor vehicles used in the Business, whether owned or leased, are listed in Exhibit 1.2(2) attached hereto, are properly licensed and are -------------- registered in accordance with applicable law. (6) All trademarks, service marks, trade names, patents, inventions, processes, copyrights and applications therefor, whether registered or at common law (collectively, the "Intellectual Property"), owned by Company are listed and described in Exhibit 3.9 attached hereto. No proceedings have been instituted ----------- or are pending or, to the best knowledge of Company and Shareholder, threatened which challenge the validity of the ownership by Company of any such Intellectual Property. Company has not licensed anyone to use any such Intellectual Property, and neither Company nor Shareholder has any knowledge of the use or the infringement of any of such Intellectual Property by any other person. Company owns or possesses adequate and enforceable licenses or other rights to use all Intellectual Property now used in the conduct of its Business. 3.10 Contracts. ---------- (1) Exhibit 3.10 attached hereto sets forth a complete and accurate ------------ list of all written contracts, including the Program Agreements, agreements, purchase orders, leases, subleases, options and commitments, oral-or written, and all assignments, amendments, schedules, exhibits and appendices thereof, affecting or relating to the Business, Stock or any Asset or any interest therein, to which either Company and/or Shareholder is a party or by which Company, the Assets or the Business is bound or affected, including, without limitation, service contracts, management agreements, equipment leases and building leases pertaining to any part of the Real Estate (collectively, the "Contracts"). To the best knowledge of Company and Shareholder, there are no oral contracts or agreements to which Company is a party or by which Company, the Assets or the Business is bound or affected. Attached to Exhibit 3.10 are ------------ accurate and complete copies of all written Contracts. Except for the Continuing Liabilities, all obligations under the Contracts will be assumed by Shareholder. 11 (2) None of the Contracts has been modified, amended, assigned or transferred and each is in full force and effect and is valid, binding and enforceable in accordance with its respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by general principles of equity. No event or condition has happened or currently exists which constitutes a default or breach or, after notice or lapse of time or both, would constitute a default or breach by any party under any of the Contracts. There are no counterclaims or offsets under any of the Contracts. (3) There does not exist any security interest, lien, encumbrance or claim of others created or allowed to exist on any interest created under any of the Contracts (except for those that result from or relate to leased Assets). No purchase commitment by Company is in excess of Company's ordinary business requirements. (4) Conveyance to Buyer of the Stock will not cause a default under, alter or terminate any of those Contracts which constitute Continuing Liabilities, and Buyer, directly or through Company, will be entitled to all rights thereunder. 3.11 Environmental Matters. ---------------------- (1) Hazardous Substances. As used in this paragraph, the term --------------------- "Hazardous Substances" means any hazardous or toxic substances, materials or wastes, including but not limited to those substances, materials, and wastes defined in Paragraph 101 of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed in the United States Department of Transportation Table (49 CFR 172.101) or by the Environmental Protection Agency as hazardous substances pursuant to 40 CFR Part 302, or which are regulated under any other Environmental Law (as such term is defined herein), and any of the following: hydrocarbons, petroleum and petroleum products, asbestos, polychlorinated biphenyls, formaldehyde, radioactive substances (other than naturally occurring materials in place), flammables and explosives. (2) Compliance with Laws and Regulations. (a) All operations or ------------------------------------- activities on, and any use or occupancy of the Real Estate by Company, any Affiliates of Company (wherein the term "Affiliates" will mean any person or entity controlling, controlled by or under common control at any time with Company, and the term "control" will mean the power, directly or indirectly to direct the management or policies of such person or entity), and any agent, contractor or employee of any agent or contractor of Company or its Affiliates ("Agents") is and has been in compliance with any and all laws, regulations, orders, codes, judicial decisions, decrees, licenses, permits and other applicable requirements of governmental authorities with respect to Hazardous Substances, pollution or protection of human health and safety (collectively, "Environmental Laws"), except where the failure to be in compliance could not materially adversely affect 12 the Business or Assets. To the knowledge of Company and Shareholder, all prior owners, operators and occupants of the Real Estate complied with Environmental Law. Other than in the ordinary course of business, neither Company nor its Affiliates or Agents have allowed the use, generation, treatment, handling, manufacture, voluntary transmission, disposal discharge or storage of any Hazardous Substances on the Real Estate. Neither Company nor its Affiliates or Agents have installed or permitted to be installed, on the Real Estate friable asbestos or any substance containing asbestos in condition or amount deemed hazardous by Environmental Law. (b) Company has not, and to the knowledge of Company and Shareholder the Landlord of the Real Estate has not, either received or been issued a notice, demand, request for information, citations, summons or complaint regarding an alleged failure to comply with Environmental Law; to the knowledge of Company or Shareholder, the Real Estate is not subject to any existing, pending or threatened investigation or inquiry by any governmental authority for noncompliance with, or any remedial obligations under Environmental Law; and there are no circumstances known to Company or Shareholder which could serve as a basis therefor. The Company has not assumed any liability of a third party for clean-up under or noncompliance with Environmental Law. Neither the Company nor its Affiliates or Agents have transported or arranged for the transportation of any Hazardous Substances to any location which is listed or, to the best knowledge of Company and Shareholder, proposed for listing under Environmental Law or is the subject of any enforcement action, investigation or other inquiry under Environmental Law. 3.12 Miscellaneous Representations Relating to Real Estate. ------------------------------------------------------ To the knowledge of Company and Shareholder, no part of the Real Estate is currently subject to condemnation proceedings, no condemnation or taking is threatened or contemplated, and none of the Real Estate is in violation of any zoning, public health, building code or other similar laws applicable thereto or to the ownership, occupancy and/or operation thereof. All utilities serving the Real Estate are adequate to operate the Real Estate in the manner it is currently operated and any associated charges accrued to date have been fully paid. There are no facts known to either Company or Shareholder that would adversely affect the possession, use or occupancy of the Real Estate. 3.13 Company Employees. ------------------ (1) Exhibit 3.13 attached hereto sets forth: (a) a complete list of all of ------------ the Company's employees, (b) their respective rates of pay, (c) the employment dates and job titles of each such person, and (d) categorization of each such person as a full-time or part time employee of Company. For purposes of this paragraph, "part-time employee" means an employee who is employed for an average of fewer than twenty hours per week or who has been employed for fewer than six (6) of the twelve (12) months preceding the date on which notice 13 is required pursuant to the "Worker Adjustment and Retraining Notification Act" ("WARN"), 29 U.S.C. Section 2102 et seq. Except as provided in Exhibit 3.10, -- ---- ------------- Company has no employment agreements with its employees and all such employees are employed on an "at will" basis. Exhibit 3.13 also (a) lists, and has ------------ attached copies of all employee fringe benefits and personnel policies, and (b) lists all ex-employees of Company utilizing or eligible to utilize COBRA (health insurance). Shareholder agrees to indemnity and hold Buyer and Company harmless from and against any and all claims of employees, whenever made, relating to their employment by Company through Closing. Company has adequately accrued all salaries and wages, related payroll taxes and all sick leave, holiday, vacation benefits, retirement and other fringe benefits that have accrued to Company employees through the Closing Date, including related payroll taxes. (2) Company is not a party to any labor contract, collective bargaining agreement, contract, letter of understanding, or any other arrangement with any labor union or organization which obligates Company to compensate employees at prevailing rates or union scale, nor are any of its employees represented by any labor union or organization. There is no pending or, to the best knowledge of Company and Shareholder, threatened labor dispute, work stoppage, unfair labor practice complaint, strike, administrative or court proceeding or order between Company and any present or former employee(s) of Company. There is no pending or, to the best knowledge of Company and Shareholder, threatened suit, action, investigation or claim between Company and any present or former employee(s) of Company. There has not been any labor union organizing activity at any location of Company, or elsewhere, with respect to Company's employees. 3.14 Employee Benefit Plans. ----------------------- (1) Exhibit 3.14 attached hereto contains a true, accurate and ------------ complete list of each (a) "employee welfare benefit plan" (as defined in Paragraph 3(1) of the Employee Retirement Income Security Act of 1974 as amended ("ERISA")) maintained by Company or to which Company contributes or is required to contribute, and (b) "employee pension benefit plan" (as defined in Paragraph 3(2) of ERISA) maintained by Company, to which Company contributes or is required to contribute, or which covered employees of Company during the period of their employment with any predecessor of Company, including any multi- employer pension plan as defined under Internal Revenue Code of 1986, Paragraph 414(f) (such employee welfare benefit plans and pension benefit plans being hereinafter collectively referred to as the "Benefit Plans"). Copies of all Benefit Plans have previously been provided to Buyer. (2) Liabilities. There are no unfunded liabilities under any Benefit ------------ Plan currently due and owing. Neither Buyer nor Company will be liable or responsible for any debt, obligation, responsibility or liability under any such plans. Shareholder hereby assumes liability under such plans for all claims due and 14 unpaid thereunder, whether or not incurred, paid or presented before Closing. (3) Termination of Participation. Shareholder will, at its cost, take ----------------------------- all necessary action so that Company, by Closing, will cease to be a participating employer under all Benefit Plans, and any such action will in no way diminish Shareholder's obligations to Buyer or Company. 3.15 Insurance. Company has in effect and has for at least five (5) years ---------- continuously maintained insurance coverage for all of its operations, personnel and assets, and for the Assets and the Business. A complete and accurate list of all current insurance policies is included in Exhibit 3.10. Exhibit 3.15 ------------- ------------ attached hereto sets forth a summary of Company's current insurance coverage (listing type, carrier and limits), includes a list of any pending insurance claims relating to Company or Business, and includes a recent three-year claims history relating to Company and the Business as prepared by the applicable insurance carrier(s). Shareholder agrees to indemnity and hold Buyer and Company harmless from and against such pending insurance claims to the extent such claims are not satisfied by Company's insurance policies. Company is not in default or breach with respect to any provision contained in any such insurance policies, nor has Company failed to give any notice or to present any claim thereunder in due and timely fashion. 3.16 Conflicts of Interest. None of the following is either a supplier of ---------------------- goods or services to Company, or directly or indirectly controls or is a director, officer, employee or agent of any corporation, firm, association, partnership or other business entity that is a supplier of goods or services to Company: (a) Shareholder, other than as reflected in intercompany payables noted in the Financial Statements (b) any director or officer of Company, or (c) any entity under common control with Company or controlled by or related to Shareholder. 3.17 Compliance with Healthcare and Other Laws. Neither Company nor ------------------------------------------ Shareholder has made any kickback, bribe or payment to any person or entity, directly or indirectly, for referring, recommending or arranging business or patients with, to or for Company which action could have a material adverse effect on the Business. No bulk sales or similar statute applies to the transactions contemplated under this Agreement. Neither WARN nor any similar state law applies to such transactions, and such transactions comply with applicable state antitrust and similar laws. None of the Contracts and no activity of Company or Shareholder violates Paragraph 1877 of the Social Security Act or any similar provision of applicable state law in any material respect. None of the Contracts and no activity of Company or Shareholder violates provisions of applicable state law relating to the corporate practice of medicine in any material respect. Company is in compliance (without obtaining waivers, variances or extensions) with all federal, state and local laws, rules and regulations which relate to the operations of the Business, except 15 where the failure to be in compliance would not have a material adverse effect on the Business. All Certificates of Medical Necessity filed by the Company have been properly completed, executed and filed in compliance with all applicable laws, rules and regulations. All healthcare, tax and other returns, reports, plans and filings of any nature required to be or otherwise filed by Company or Shareholder with any governmental authorities or third party payors have been properly completed, except where the failure to be so completed or filed could not have a material adverse effect on the Business, and timely filed in compliance with all applicable requirements. Each return, report, plan and filing contains no materially untrue or misleading statements and does not omit anything which could cause it to be misleading or inaccurate in any material respect. Shareholder will be responsible for any liability incurred in connection with any such, return, report, plan and filing. 3.18 WARN Act. Since ninety (90) days prior to Effective Date, Company has --------- not temporarily or permanently closed or shut down any single site of employment or any facility or any operating unit, department or service within a single site of employment, as such terms are used in WARN. 3.19 Tax Returns; Taxes. Company and Shareholder have filed all federal, ------------------- state and local tax returns and tax reports related to Company which are required by governmental authorities to be filed as of the time of Closing. Company and Shareholder have paid all taxes, assessments, governmental charges, penalties, interest and fines due or claimed to be due as of the time of Closing (including, without limitation, taxes on properties, income, franchises, licenses, sales and payrolls) by any governmental authority. Additionally, the reserves for taxes reflected in the Financial Statements are adequate to cover all tax liabilities accrued as of the respective dates thereof. There is no pending tax examination or audit of, nor any action, suit, investigation or claim asserted or, to the best knowledge of Company and Shareholder, threatened against Company or Shareholder by any governmental authority; and Company and/or Shareholder have not been granted any extension of the limitation period applicable to any tax claims. 3.20 Asset Value; Statement of Income and Net Revenues. The aggregate book -------------------------------------------------- value of the Assets owned by Company at Closing will be no less than One Hundred Ten Thousand and No/100 Dollars ($110,000.00). For the twelve(12) month period ended December 31, 1996, Company suffered a loss, before interest and taxes, of no more than Eight Thousand and No/100 Dollars ($8,000.00), and revenues, net of contractual adjustments, bad debt reserves, bad debt write-offs and billing adjustments, of at least One Million One Hundred Nineteen Thousand and No/100 Dollars ($1,119,000.00). 3.21 No Omissions or Misstatements. There is no material fact applicable to ------------------------------ the Stock, Assets, liabilities, Business or prospects of Company which has not been set forth or described in this Agreement or in the Exhibits hereto and which is material to 16 the conduct, prospects, operations or financial condition of Company, Business or the Assets. None of the information included in this Agreement and Exhibits hereto, or other documents furnished or to be furnished by Shareholder or Company, or any of its representatives, contains any untrue statement of a material fact or is misleading in any material respect or omits to state any material fact necessary in order to make any of the statements herein or therein not misleading in light of the circumstances in which they were made. Copies of all documents referred to in any Exhibit hereto have been delivered or made available to Buyer and constitute true, correct and complete copies thereof and include all amendments, exhibits, schedules, appendices, supplements or modifications thereto or waivers thereunder. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER As an inducement to Shareholder and Company to enter into this Agreement and to consummate the transactions contemplated hereunder, Buyer hereby represents and warrants to Shareholder and Company, which representations and warranties will be true and correct on the date of Closing, as follows: 4.1 Organization, Qualification and Authority. Buyer is a corporation ------------------------------------------ duly organized, validly existing and in good standing under the laws of the State of Tennessee. Buyer has the full corporate power and authority to own, lease and operate its properties and assets as currently owned, leased and operated and to carry on its business as it is now being conducted. Buyer has the full right, power and authority to execute, deliver and carry out the terms of this Agreement and all documents and agreements necessary to give effect to the provisions of this Agreement and to consummate the transactions contemplated on the part of Buyer hereby. The execution, delivery and consummation of this Agreement and all other agreements and documents executed in connection herewith by Buyer has been duly authorized by all necessary corporate action on the part of Buyer. No other action on the part of Buyer or any other person or entity is necessary to authorize the execution, delivery and consummation of this Agreement and all other agreements and documents executed in connection herewith. This Agreement, and all other agreements and documents executed in connection herewith by Buyer, upon due execution and delivery thereof, will constitute the valid binding obligations of Buyer, enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by general principles of equity. 4.2 Absence of Default. The execution, delivery and consummation of this ------------------- Agreement and all other agreements and documents executed in connection herewith by Buyer will not constitute a violation of, be in conflict with, or, with or without the giving of notice or the passage of time, or both, result in a breach of, constitute a default under, or create (or cause the acceleration of the maturity of) any debt, indenture, obligation or 17 liability or result in the creation or imposition of any security interest, lien, charge or other encumbrance upon any of the Assets (except in the ordinary course pursuant to the existing credit agreement of Buyer's parent) under any judgment, decree, order, regulation or rule of any court or regulatory authority, or any law, statute, rule, regulation, order, writ, injunction, judgment or decree of any court or governmental authority or arbitration tribunal to which Buyer is subject. ARTICLE V. COVENANTS OF PARTIES 5.1 Preservation of Business and Assets. From the Effective Date until ------------------------------------ Closing, Company and Shareholder will use their best efforts and will do or cause to be done all such acts and things as may be necessary to preserve, protect and maintain intact the operation of the Business and Assets as a going concern consistent with prior practice and in ordinary course of business, to preserve, protect and maintain for Buyer the goodwill of the suppliers, employees, clientele, patients and others having business relations with Company or the Business. Company will use its best efforts to retain its employees in their current positions up to Closing. Following Closing, Company will provide its employees such medical and health benefits as are provided to employees of Buyer of similar rank and responsibility. Until termination of this Agreement, Company and Shareholder will not sell, transfer or pledge, or negotiate the sale, transfer or pledge of, either any of the Assets (other than inventory in the ordinary course of business) or Stock or other security oil Company, nor merge or consolidate with any other entity; neither Seller nor Shareholder will solicit any inquiries, proposals or offers relating to any such transactions; and both parties will promptly notify Buyer orally, and confirm in writing, of all relevant details relating to inquires, proposals or offers which either may receive relating to any such matters. From the Effective Date until Closing, Company will pay no dividend, and will make no distribution or extraordinary payment to Shareholder or any third party or pay any intercompany payable and, other than in the ordinary course of business, Company will not sell, discard or dispose of any of the Assets. None of the Contracts will be amended in any material respect between the date hereof and Closing without the prior written consent of Buyer, and Company will not enter into any new material contract, commitment or other transaction with respect to the Business or the Assets without the prior written consent of Buyer. From the Effective Date until Closing, Company and any party in possession of all or any part of the Assets will maintain and keep the Assets in a sanitary, well-maintained condition and in good order and repair, ordinary wear and tear expected. Buyer, Company and Shareholder shall use their best efforts to facilitate the consummation of the transactions contemplated under this Agreement. 5.2 Books and Records. ------------------ (1) From the date hereof until the Closing, Company will maintain its books of account in the usual, regular and ordinary 18 manner on a basis consistent with prior years and will make no change in its accounting methods or practices. (2) Until Closing, Company and Shareholder will give to Buyer full access to all of Company's offices, properties, books, contracts, commitments, records and affairs relating to the Stock, Assets or the Business so that Buyer may inspect and audit them and will furnish to Buyer a copy of all documents and information concerning the properties and affairs of Company, the Business, Stock or the Assets as Buyer may request. If any such books, records and materials are in the custody of third parties, Company and Shareholder will direct such third parties to provide them promptly to Buyer. (3) Following the Closing, Buyer will permit Shareholder, during normal business hours, to have reasonable access to, and examine and make copies of, all books and records of the Business which relate to transactions or events occurring prior to the Closing. All out-of-pocket costs associated with the delivery of the requested documents will be paid by Shareholder. (4) Following the Closing, Shareholder will permit Buyer to have access to, and examine and make copies of, any books and records relating to the Business, Stock or Assets which Shareholder is required by law to retain, if any, and which relate to transactions or events occurring prior to the Closing. For a period of five (5) years after the Closing, Shareholder agrees that, prior to the destruction or disposition of any such books or records, Shareholder will provide not less than forty-five (45) days', nor more than ninety (90) days', prior written notice to Buyer of such proposed destruction or disposal. If Buyer desires to obtain any such documents or records, it may do so by notifying Shareholder in writing at any time prior to the date scheduled for such destruction or disposal. In such event, Shareholder will not destroy such documents or records and the parties will then promptly arrange for the delivery of such documents or records to Buyer, its successors or assigns. All out-of- pocket costs associated with the delivery of the requested documents or records will be paid by Buyer. (5) Shareholder will use its best efforts to cause Company's accounting firm to consent to the inclusion of the Financial Statements in any registration statements, private placement memoranda, and periodic reports, if any, necessary or appropriate in order to enable Buyer or its Affiliates to comply with any applicable registration or reporting requirements of federal or state securities laws. After Closing, Shareholder will make the books and records of Company available to Buyer and will otherwise cooperate with Buyer in order to permit Buyer, at its expense, to conduct an audit of Company's financial statements for any period prior to Closing not already audited. Shareholder agrees to cooperate with Buyer in Buyer's preparation of financial statements relating to such periods and Buyer's filing in a timely manner of registration statements, private placement memoranda and periodic reports, if any, pursuant to any applicable federal or 19 state securities law. 5.3 Preserve Accuracy of Representations and Warranties. Shareholder and ---------------------------------------------------- Company will refrain from taking any action which would render any representation and warranty contained in Article Ill untrue, materially inaccurate or misleading as of Closing. Shareholder and Company will promptly notify Buyer of any lawsuit, claim, audit, investigation, administrative action or other proceeding asserted or commenced against Company or its directors, officers or Shareholder, that may involve or relate in any way to Company, the Assets, Stock, Shareholder or the operation of the Business. Shareholder and Company will promptly notify Buyer of any facts or circumstances that come to its attention and that cause, or through the passage of time may cause, any of Shareholder's or Company's representations, warranties or covenants to be untrue or misleading at any time from the date hereof through Closing. 5.4 Broker's or Finder's Fee. Other than Corporate Development Associates, ------------------------- for whose fees and expenses Shareholder will be solely responsible, neither Buyer, Company nor Shareholder has employed or is liable for the payment of any fee to any finder, broker or similar person in connection with the transactions contemplated under this Agreement. 5.5 Indebtedness; Liens. Other than in the ordinary course of business as -------------------- reflected in the Financial Statements, from the Effective Date through Closing Company will not create, incur, assume, guarantee or otherwise become liable or obligated with respect to any indebtedness for borrowed money, nor make any loan or advance to, or any investment in, any person or entity, nor create any lien, security interest, mortgage, right or other encumbrance in any of the Assets, without Buyer's prior written approval. At Closing, the Assets will be free and clear of all mortgages, security interests, liens, leases, covenants, assessments, easements, options, rights of first refusal, restrictions, reservations, defects in title, encroachments or other encumbrances, except as set forth in those Leases and Contracts which are to be retained by Company, and Company will deliver to Buyer such pay-off letters, releases, U.C.C. termination statements and other documents as Buyer may reasonably request to evidence the same. 5.6 Compliance with Laws and Regulatory Consents. From the date hereof --------------------------------------------- through Closing, (a) Company will comply in all material respects with all applicable statutes, laws, ordinances and regulations, (b) Company will keep, hold and maintain all Licenses necessary for the Business and operation of the Assets, (c) Shareholder and Company will use their reasonable efforts and will cooperate fully with Buyer to obtain all consents, approvals, exemptions and authorizations of third parties, whether governmental or private, necessary to consummate the transactions contemplated by this Agreement, and (d) Shareholder and Company will make and cause to be made all filings and give and cause to be given all notices which may be necessary on their part under 20 all applicable laws and under their respective contracts, agreements and commitments in order to consummate the transactions contemplated under this Agreement. 5.7 Maintain Insurance Coverage. From the date hereof through Closing, ---------------------------- Company will maintain and cause to be maintained in full force and effect the existing insurance on the Assets and the operations of the Business and will provide at Closing written evidence satisfactory to Buyer that such insurance continues to be in effect, that all premiums due have been paid, and that Buyer has been named additional insured since the Effective Date. 5.8 Tangible Net Worth. Shareholder will maintain a tangible net worth of ------------------- at least One Million and No/100 Dollars ($1,000,000.00) for at least five (5) years following Closing. 5.9 Medicare and Medicaid Reporting. Up to the Effective Date, Shareholder -------------------------------- will assume and be responsible for any liability incurred as a result of the failure to file or improper filing of all reports and claims of every kind, nature or description required by law or by written contract to be filed with respect to the purchase of services by third party payors, including, without limitation, Medicare, Medicaid and Blue Cross; provided, however, that if any adverse adjustments or offsets with respect to the same regarding operations on or after the Effective Date are the result of the wilful acts or omissions, or negligence, of Company, Shareholder and/or either's employees, representatives and agents, Shareholder will also be responsible for such adjustments and offsets. As of the Effective Date and through Closing, Company has adequately accrued or reserved for all liabilities for contractual adjustments, discounts, refunds and other offsets in connection with such reports. Shareholder will be entitled to receive any refund or other benefit which may result from the filing of said reports and claims for operations up to the Effective Date, and Buyer will likewise be so entitled with respect to operations on and after the Effective Date. 5.10 Current Return Filing. Shareholder will be responsible for the ---------------------- preparation and filing of all federal, state and local income tax and gross receipts and use tax returns of Company which are due on or before Closing. Buyer will be responsible for the preparation and filing of all such returns which relate to periods beginning subsequent to Closing. 5.11 The Election. The parties agree to properly make the Election to have ------------- the effect that the Company will, for income tax purposes only, pay tax as if it had sold its assets to Buyer. Notwithstanding the foregoing, Shareholder will be solely responsible for the timely and proper payment of any and all federal, state and local taxes and other assessments which may under law be payable by any party hereto in connection with the transfer of Stock, whether deemed a sale of stock or assets, including but not limited to taxes which may be payable by Company or Buyer pursuant to Regulation 1.338(h)(1O)-1(e)(5) under the Internal Revenue Code or under private letter rulings and 21 regulations adopted by the State of North Carolina, and Shareholder hereby agrees to indemnify and hold harmless Company, Buyer and their representatives and agents for any damages caused by the failure to pay the same timely and properly. Attached hereto as Exhibit 5.11 is an asset-based allocation of the ------------ Purchase Price. ARTICLE VI. COMPANY'S AND SHAREHOLDER'S CONDITIONS TO CLOSE The obligations of Company and Shareholder under this Agreement are subject to the satisfaction on or prior to Closing, of the following conditions (which may be waived in writing by Company or Shareholder, in whole or in part): 6.1 Representations and Warranties True at Closing; Compliance with --------------------------------------------------------------- Agreement. The representations and warranties of Buyer contained in this - ---------- Agreement and in any certificate or document delivered pursuant hereto will be deemed to have been made again at the Closing and will then be true in all respects. Buyer will have performed and complied with all covenants, agreements and conditions required by this Agreement to be performed or complied with by it prior to or at Closing. 6.2 No Action/Proceeding. No action or proceeding before a court or any --------------------- other governmental agency or body will have been instituted or threatened to restrain or prohibit the transactions hereunder contemplated, and no governmental agency or body or other entity will have taken any other action or made any request of Company, Shareholder or Buyer as a result of which Shareholder reasonably and in good faith deem that to proceed with the transactions hereunder may constitute a violation of law. 6.3 Order Prohibiting Transaction. No order will have been entered in any ------------------------------ action or proceeding before any court or governmental agency, and no preliminary or permanent injunction by any court will have been issued which would have the effect of (a) making the transactions contemplated by this Agreement illegal, or (b) otherwise preventing consummation of such transactions. There will have been no United States federal or state statute, rule or regulations enacted or promulgated after the date of this Agreement that would reasonably, directly or indirectly, result in any of the consequences referred to in this paragraph. 6.4 Receivables Agreement. Company and Shareholder will execute and deliver ---------------------- at Closing an agreement regarding the collection of certain Receivables, the form of which is attached hereto as Exhibit 6.4. Such agreement will stipulate ------------ the terms under which a temporary employee of Shareholder will be retained for purposes of collecting the Receivables and the allocation among Shareholder, Buyer and Company of the expenses associated with retention of such temporary employee. 6.5 Exhibits. The Exhibits to this Agreement will be completed to the --------- mutual satisfaction of the parties. 22 ARTICLE VII. BUYER'S CONDITIONS TO CLOSE The obligations of Buyer under this Agreement are subject to the satisfaction, on or prior to Closing, of the following conditions (which may be waived in writing by Buyer, in whole or in part): 7.1 Representations and Warranties True at Closing; Compliance with --------------------------------------------------------------- Agreement. The representations and warranties of Shareholder and Company - ---------- contained in this Agreement (including the Exhibits hereto) and in any certificate or document delivered pursuant hereto will be deemed to have been made again at the Closing and will then be true in all respects. Company and Shareholder will have performed and complied with all covenants, agreements and conditions required by this Agreement to be performed or complied with by them prior to or at Closing. 7.2 Regulatory Approvals. Buyer will have obtained (a) certification for --------------------- participation in the Medicaid Programs of the states where the Business is conducted, (b) certification from the appropriate agency of the federal government for participation in the federal Medicare Program, and (c) all other consents, licenses, permits, approvals, provider contracts, determinations or certificates of need necessary in the judgment of Buyer to acquire the Stock and operate the Assets and Business as contemplated hereunder. Buyer will use its best efforts to obtain promptly the items referenced in this paragraph 7.2. 7.3 No Action/Proceeding. No action or proceeding before a court or any --------------------- other governmental agency or body will have been instituted or threatened to restrain or prohibit the transaction herein contemplated, and no governmental agency or body or other entity will have taken any other action or made any request of Company, Shareholder or Buyer as a result of which Buyer reasonably and in good faith deems that to proceed with the transactions hereunder may constitute a violation of law. 7.4 Inspection of Assets; U.C.C. Searches, etc. Buyer and its ------------------------------------------- representatives will have had and continue to have reasonable rights of inspection of the Business in connection with Buyer's due diligence review, and the results of Buyer's inspection and due diligence review will be acceptable to it. Buyer will obtain, at its expense, all U.C.C. financing statements, local and central, and federal and state pending litigation, tax lien and judgment searches with respect to Company, with results satisfactory to Buyer in its sole discretion. Company and Shareholder hereby covenant to Buyer that such searches need only be done in the corporate name of Company. 7.5 Order Prohibiting Transaction. No order will have been entered in any ------------------------------ action or proceeding before any court or governmental agency, and no preliminary or permanent injunction by any court will have been issued which would have the effect of (a) making the transactions contemplated by this Agreement illegal, (b) otherwise 23 preventing consummation of such transactions, or (c) imposing material limitations on the ability of Buyer effectively to acquire and hold the Stock or Assets, to operate the Business, or, in any case, to exercise rights of ownership pursuant thereto. There will have been no federal or state statute, rule or regulations enacted or promulgated after the date of this Agreement that would reasonably result, directly or indirectly, in any of the consequences referred to in this paragraph. 7.6 Confide and Non-Compete Agreements. Shareholder will execute and ----------------------------------- deliver to Buyer a Confidentiality and Non-Compete Agreement in the form attached hereto as Exhibit 7.6. ------------ 7.7 Employment Agreements. Buyer and each of Linda Rosen, Rebecca ---------------------- Blikslager and David Blanchard will have entered into an employment agreement in the respective forms included in Exhibit 7.7 attached hereto. ----------- 7.8 Operating Targets. As of the date of Closing, Company and the Business ------------------ will meet the following minimum operating thresholds: (i) for the twelve (12) month period ended December 31, 1996, Company will have suffered a loss, before interest and taxes, of no more than Eight Thousand and No/100 Dollars ($8,000.00) and revenues, net of contractual adjustments, bad debt reserves, bad debt write-offs and billing adjustments of at least One Million One Hundred Nineteen Thousand and No/100 Dollars ($1,119,000.00); and (ii) as of the date of Closing, the Assets will have an aggregate book value of at least One Hundred Ten Thousand and No/100 Dollars ($1 10,000.00). The Assets will be free and clear of all liabilities and encumbrances whatsoever other than the Continuing Liabilities. 7.9 Approval of Board of Directors. This Agreement and consummation of the ------------------------------- transactions contemplated hereunder will have been approved by the Board of Directors of Buyer. 7.10 Exhibits. The Exhibits to this Agreement will be completed to the --------- mutual satisfaction of the parties. ARTICLE VIII. OBLIGATIONS OF COMPANY AND SHAREHOLDER AT CLOSING At Closing, Company and Shareholder will deliver or cause to be delivered to Buyer the following in form and substance reasonably satisfactory to Buyer: 8.1 Documents Relating to Title. Shareholder will execute, acknowledge, ---------------------------- deliver and cause to be executed, acknowledged and delivered to Buyer: (1) Stock certificates, registered in the name of the Shareholder, duly endorsed by Shareholder or with stock powers attached, representing all of the Stock. (2) The resignation of each member of the Board of Directors and each officer of Company effective as of the Closing. 24 8.2 Possession. Company will deliver to Buyer full possession and control ----------- of the Stock, Business and Assets, including but not limited to the Cash and Cash Equivalents. 8.3 Opinion of Counsel. Shareholder will deliver to Buyer a favorable ------------------- opinion of Anthony A. Rascio, Shareholder's Vice President and General Counsel, dated as of Closing, in form and substance reasonably satisfactory to Buyer and its counsel to the effect that: (1) Shareholder is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey. Company is a corporation duly organized, validly existing and in good standing under the laws of the State of North Carolina and has all requisite corporate power and corporate authority to own, operate and lease its properties and assets and to carry on its business as now conducted. (2) Each of Shareholder and Company has the corporate power and corporate authority to execute, deliver and carry out the terms of this Agreement and all documents and agreements delivered by each such corporation at Closing and to consummate the transactions contemplated on the part of each such corporation hereby and thereby. Each of Shareholder and Company has taken all action required by law and its Charter and Bylaws to authorize such execution, delivery and consummation of this Agreement, and this Agreement, and all other agreements delivered by Shareholder and Company at Closing constitute the valid and binding obligations of each such corporation, enforceable against it in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by general principles of equity. 8.4 Corporate Good Standing and Corporate Resolution. Shareholder will ------------------------------------------------- deliver to Buyer certificates of good standing from the Secretary of State of Company's state of organization, certified copies of the Bylaws and Charter of Company, and a certified copy of the resolutions of the Board of Directors and Shareholder of Company authorizing the execution, delivery and consummation of this Agreement and the execution, delivery and consummation of all other agreements and documents executed in connection herewith by them, including all assumption agreements and other instruments required hereunder, sufficient in form and content to meet the requirements of the law of the State of Company's incorporation relevant to such transactions and certified by officers of Company to be validly adopted and in full force and effect and unamended as of Closing. 8.5 Closing Certificate. Company will deliver to Buyer a certificate of an -------------------- officer of Company and of Shareholder, dated as of Closing, certifying that (a) Company and Shareholder are in compliance with each covenant and obligation applicable to Company and Shareholder pursuant to this Agreement, and (b) each representation, warranty and covenant of Company and Shareholder pursuant to this Agreement is true and correct at the Closing as if made on and as of the Closing. 25 8.6 Third Party Consents. Shareholder will deliver to Buyer by Closing all --------------------- consents, estoppels, approvals, releases, pay-off letters, U.C.C. termination statements and other filings, and authorizations of third parties that Buyer believes are necessary for the legal and proper execution, delivery and consummation of this Agreement, and the transactions contemplated hereunder, including but not limited to releases of all mortgages, security interests, liens, pledges, restrictions or other encumbrances on or applicable to the Stock or Assets. 8.7 Receivables and Confidentiality Agreements. Shareholder will deliver -------------------------------------------- to Buyer each of the agreements described in paragraphs 6.4 and 7.6. 8.8 Assumption Agreement. Shareholder will deliver to Buyer and the --------------------- Company an Assumption Agreement evidencing that Shareholder will be responsible for all obligations pertaining to past operations of the Business other than the Continuing Liabilities. 8.9 Closing Statement. Shareholder and Company will, along with Buyer, ------------------ execute a Closing Statement setting forth the Purchase Price and various adjustments thereto. 8.10 Additionally Requested Documents; Post-Closing Assistance. At the --------------------------------------------------------- reasonable request of Buyer at Closing and at any time for a period of one year thereafter, Shareholder will (a) cooperate with Buyer to put Buyer in actual possession and operating control of the Stock, Company, Business and Assets, (b) execute and deliver such further instruments of sale, conveyance, transfer and assignment effectively to sell, convey, transfer and assign the same to Buyer, (c) execute and deliver such further instruments and to take such other actions as Buyer may reasonably request to release Buyer and Company from all obligation and liability with regard to any obligation or liability retained or assumed by Shareholder, and (d) execute and deliver such further instruments and to cooperate with Buyer as Buyer may reasonably request to enable Buyer and Company to obtain all necessary health care or regulatory certifications, approvals, consents and licenses, accreditation or permits. ARTICLE IX. OBLIGATIONS OF BUYER AT CLOSING At Closing, Buyer will deliver or cause to be delivered to Shareholder the following in a form and substance reasonably satisfactory to Shareholder: 9.1 Purchase Price. Buyer will pay to Shareholder the Purchase Price upon --------------- the terms specified in this Agreement. 9.2 Corporate Good Standing and Certified Board Resolutions. Buyer will ------------------------------------------------------- deliver to Shareholder a certificate of existence from the Secretary of State of Tennessee, dated the most recent practical date prior to Closing, together with a certified copy of the resolutions of the Board of Directors of Buyer authorizing the execution, delivery and consummation of this Agreement and the 26 consummation of the transactions contemplated hereunder. 9.3 Closing Certificate. Buyer will deliver to Shareholder a certificate of -------------------- an officer of Buyer, dated as of Closing, certifying that (a) Buyer is in compliance with each covenant and obligation applicable to Buyer pursuant to this Agreement, and (b) each representation, warranty and covenant of Buyer pursuant to this Agreement is true and correct at the Closing as if made on and as of the Closing. 9.4 Opinion of Buyer's Counsel. Buyer will deliver to Shareholder an --------------------------- opinion of Harwell Howard Hyne Gabbert & Manner, P.C. dated the date of the Closing and pursuant to the Legal Opinion Accord of the ABA Section of Business Law (1991), in form and substance reasonably satisfactory to Shareholder and its counsel to the effect that: (1) Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee and has all requisite corporate power and corporate authority to own, operate and lease its properties and assets and to carry on its business as now conducted. (2) Buyer has the corporate power and corporate authority to execute, deliver and carry out the terms of this Agreement and all documents and agreements delivered by Buyer at Closing and to consummate the transactions contemplated on the part of Buyer hereby and thereby; Buyer has taken all action required by law, and its Charter and Bylaws, to authorize such execution, delivery and consummation of this Agreement, and this Agreement, and all other agreements delivered by Buyer at Closing constitute the valid and binding obligations of Buyer enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by general principles of equity. ARTICLE X. SURVIVAL OF PROVISIONS AND INDEMNIFICATION 10.1 Survival. The covenants, obligations, representations and warranties --------- of Buyer, Company and Shareholder contained in this Agreement, or in any certificate or document delivered pursuant to this Agreement, will be deemed to be material and to have been relied upon by the parties hereto notwithstanding any investigation prior to the Closing, will not be merged into any documents delivered in connection with the Closing, and will survive the date of Closing for a period of two (2) years; provided, however, that the representations, warranties and covenants set forth in paragraphs 3.8, 3.11, 3.17 (as such paragraph pertains to healthcare matters), 3.19, 5.9 and 5.10 will each survive for the applicable statute of limitations. 10.2 Indemnification by Shareholder. Subject to the provisions of paragraph ------------------------------- 13.4, Shareholder will promptly indemnify, defend, and hold harmless Buyer, Company and the directors, 27 officers, stockholders, employees and agents of each against any and all losses, costs, and expenses (including reasonable cost of investigation, court costs and legal fees actually incurred) and other damages resulting from (i) any breach by either Company or Shareholder of any of the covenants, obligations, representations or warranties or breach or untruth of any representation, warranty, fact or covenants contained in this Agreement or any certificate or document of Company and/or Shareholder delivered pursuant to this Agreement, (ii) any liability of Company not expressly retained by Company or assumed by Buyer pursuant to paragraph 1.4, and (iii) any claim (whether or not disclosed herein) that is brought or asserted by any third party(ies) against Buyer or Company arising out of the ownership, licensing, operation or conduct of the Business or Assets or the conduct of any of Company's employees, agents or independent contractors, relating to all periods of time prior to the Effective Date. Any indemnification payment made pursuant to the foregoing will include interest at an annual rate of seven percent (7.0%) payable for the period measured from thirty (30) days after determination that such payment is due until the date of payment. 10.3 Indemnification by Company and Buyer. Subject to the provisions of ------------------------------------- paragraph 10.4, Company and Buyer will promptly indemnify, defend, and hold Shareholder harmless against any and all losses, costs, and expenses (including reasonable cost of investigation, court costs and legal fees) and other damages resulting from (i) any breach by Buyer of any of its covenants, obligations, representations or warranties or breach or untruth of any representation, warranty, fact or conclusion contained in this Agreement or any certificate or document of Buyer delivered pursuant to this Agreement, (ii) any claim which is brought or asserted by any third party(ies) against Shareholder for failure to pay or perform any of the Continuing Liabilities, and (iii) subject to the other provisions of this Agreement, any claim that is brought or asserted by any third party(ies) against Shareholder arising out of the ownership, licensing, operation or conduct of the Business or the conduct of any of Company's employees, agents or independent contractors, relating to periods of time subsequent to the Effective Date. Any indemnification payment made pursuant to the foregoing will include interest at an annual rate of seven percent (7.0%) payable for the period measured from thirty (30) days after determination that such payment is due until the date of payment. 10.4 Rules Regarding Indemnification. The obligations and liabilities of -------------------------------- each party which may be subject to indemnification liability hereunder (the "indemnifying party") to the other party (the "indemnified party") will be subject to the following terms and conditions: (1) Claims by Non-parties. The indemnified party will give written ---------------------- notice within a reasonably prompt period of time to the indemnifying party of any written claim by a third party which is likely to give rise to a claim by the indemnified party against the indemnifying party based on the indemnity agreements contained 28 in this Article, stating the nature of said claim and the amount thereof, to the extent known. The indemnified party will give notice to the indemnifying party that pursuant to the indemnity, the indemnified party is asserting against the indemnifying party a claim with respect to a potential loss from the third party claim, and such notice will constitute the assertion of a claim for indemnity by the indemnified party. If, within twenty (20) days after receiving such notice, the indemnifying party advises the indemnified party that it will provide indemnification and assume the defense at its expense, then so long as such defense is being conducted, the indemnified party will not settle or admit liability with respect to the claim and will afford to the indemnifying party and defending counsel reasonable assistance in defending against the claim. If the indemnifying party assumes the defense, counsel will be selected by such party and if the indemnified party then retains its own counsel, it will do so at its own expense. If the indemnified party does not receive a written objection to the notice from the indemnifying party within twenty (20) days after the indemnifying party's receipt of such notice, the claim for indemnity will be conclusively presumed to have been accepted to and approved, and in such case the indemnified party may control the defense of the matter or case and, at its sole discretion, settle or admit liability. If within the aforesaid twenty (20) day period the indemnified party will have received written objection to a claim (which written objection will briefly describe the basis of the objection to the claim or the amount thereof, all in good faith), then for a period of sixty (60) days after receipt of such objection the parties will attempt to settle the dispute as between the indemnified and indemnifying parties. If they are unable to settle the dispute, the unresolved issue or issues will be settled by arbitration in accordance with the rules and procedures of the American Arbitration Association. If the indemnified party is Buyer or Company, such arbitration will be conducted in Nashville, Tennessee, and if the indemnified party is Shareholder, such arbitration will be conducted in New York, New York. (2) Claims by a Party. The determination of a claim asserted by a ------------------ party hereunder (other than as set forth in subparagraph (1) above) pursuant to this Article will be made as follows: The indemnified party will give written notice within a reasonably prompt period of time to the indemnifying party of any claim by the indemnified party which has not been made pursuant to subparagraph (1) above, stating the nature and basis of such claim and the amount thereof, to the extent known. The claim will be deemed to have resulted in a determination in favor of the indemnified party and to have resulted in a liability of the indemnifying party in an amount equal to the amount of such claim estimated pursuant to this paragraph if within thirty (30) days after the indemnifying party's receipt of the claim the indemnified party will not have received written objection to the claim. In such event, the claim will be conclusively presumed to have been assented to and approved. If within the aforesaid thirty (30) day period the indemnified party will have received written objection to a claim (which written objection will briefly 29 describe the basis of the objection to the claim or the amount thereof, all in good faith), then for a period of sixty (60) days after receipt of such objection the parties will attempt to settle the disputed claim as between the indemnified and indemnifying parties. If they are unable to settle the disputed claim, the unresolved issue or issues will be settled by arbitration in accordance with the rules and procedures of the American Arbitration Association. Notwithstanding the provisions of this clause (2), the enforcement provisions set forth in paragraph 11.2 will be available in the event of a breach of paragraph 11.1. If the indemnified party is Buyer or Company, such arbitration will be conducted in Nashville, Tennessee, and if the indemnified party is Shareholder, such arbitration will be conducted in New York, New York. (3) Claims by a Straddle Patient. Any claim by a patient relating to ----------------------------- professional negligence or similar matters involving a patient served both prior to the Effective Date and subsequent to the Effective Date will be the responsibility of either Company or Shareholder in accordance with the following guidelines: (i) if it is a claim in which the incident giving rise to allegations of liability clearly arose prior to the Effective Date, Shareholder will respond to the loss and defense expenses; (ii) subject to the other provisions of this Agreement, if it is a claim in which the incident giving rise to allegations of liability clearly arose on or after the Effective Date, Company will respond to the loss and defense expenses; and (iii) if the incident giving rise to allegations of liability is not clear as to time, Shareholder and Company will jointly defend the case and each will fully cooperate with the other in such defense. Once the case is closed, if Buyer, Company and Shareholder cannot agree to the allocation of both indemnity and expenses, then the matter will be submitted to binding arbitration in New York, New York in accordance with the rules and procedures of the American Arbitration Association. ARTICLE XI. PRESERVATION OF BUSINESS AND NONCOMPETE RESTRICTIONS 11.1 Covenant Not to Compete. Shareholder hereby covenants and agrees with ------------------------ Buyer that, during the NON-COMPETE PERIOD (as such term is defined herein) and within the NON-COMPETE AREA (as such term is defined herein), Shareholder will not directly or indirectly, (a) acquire, lease, manage, consult for, serve as agent or subcontractor for, finance, invest in, own any part of or exercise management control over any health care operation or business which provides any goods or services competitive with the goods and services provided by the Business as of the Closing, or (b) solicit for employment or employ any person who at Closing or thereafter became an employee of Buyer, Company or an affiliate unless such person is not so employed for at least six (6) months, or (c) with respect to any customer, patient, physician, physician group, or healthcare provider with whom Buyer, Company and/or an Affiliate contracts with in connection with the Business, either solicit the same in a manner which could adversely affect Buyer, Company or an Affiliate, or make 30 statements to the same which disparage Buyer, Company, an Affiliate or their respective operations in any way. The "Non-Compete Period" will commence at the Closing and terminate on the fifth (5th) anniversary thereof. The "Non-Compete Area" will mean the area within a fifty (50) mile radius of each location from which the Business is operated or conducted as of the Closing. Ownership of less than five percent (5%) of the stock of a publicly held company will not be deemed a breach of this covenant. 11.2 Enforceability. In the event of a breach of paragraph 11.1, --------------- Shareholder recognizes that monetary damages will be inadequate to compensate Buyer and Company, and Buyer and Company will be entitled, without the posting of a bond or similar security and notwithstanding the arbitration provisions contained in Article X, to an injunction restraining such breach, with the costs (including attorney's fees) of securing such injunction to be borne by Shareholder. Nothing contained herein will be construed as prohibiting Buyer or Company from pursuing any other remedy available to either for such breach or threatened breach. All parties hereby acknowledge the necessity of protection against the competition of Shareholder and that the nature and scope of such protection has been carefully considered by the parties. The period provided and the area covered are expressly represented and agreed to be fair, reasonable and necessary. The consideration provided for herein is deemed to be sufficient and adequate to compensate Shareholder for agreeing to the restrictions contained in paragraph 11.1. If, however, any court determines that the forgoing restrictions are not reasonable, such restrictions will be modified, rewritten or interpreted to include as much of their nature and scope as will render them enforceable. ARTICLE XII. MISCELLANEOUS 12.1 Assignment. Following Closing, Buyer and Company may freely assign any ----------- or all of their respective rights or delegate any or all of their respective obligations under this Agreement to any Affiliate without the express written consent of Shareholder. Buyer and Company may not assign any rights or delegate any obligations under this Agreement to any other party without the prior written consent of Shareholder, and Shareholder may not assign any rights or delegate any obligations under this Agreement without the prior written consent of Buyer. Any prohibited assignment or delegation will be null and void. Subject to the foregoing, this Agreement will be binding upon and inure to the exclusive benefit of the parties hereto and their respective legal representatives, successors and assigns. This Agreement is not intended to nor will it, create any rights in any other party. 12.2 Other Expenses. Except as otherwise provided in this Agreement, --------------- Shareholder will pay all of its and Company's expenses in connection with the negotiation, execution, and implementation of the transactions contemplated under this Agreement and Buyer will pay all of its expenses in connection with the negotiation, execution, and implementation of the transactions contemplated under 31 this Agreement. All sales and use taxes, recording fees and transfer taxes incurred in connection under the transactions contemplated within this Agreement will be borne by Shareholder and paid at Closing. 12.3 Notices. All notices, requests, demands, waivers and other -------- communications required or permitted to be given under this Agreement will be in writing and will be deemed to have been duly given: (a) if delivered personally or sent by facsimile, on the date received, (b) if delivered by overnight courier, on the day after mailing, and (c) if mailed, five days after mailing with postage prepaid. Any such notice will be sent as follows: To Shareholder and, prior to Closing, Company: ---------------------------------------------- Roberts Pharmaceutical Corporation Meridian Center 11 4 Industrial Way West Eatontown, New Jersey 07724 Attn: Peter Rogalin with a copy to: Anthony A. Rascio Roberts Pharmaceutical Corporation Meridian Center II 4 Industrial Way West Eatontown, New Jersey 07724 To the Buyer and, after Closing to the Company: ----------------------------------------------- American HomePatient, Inc. 5200 Maryland Way Suite 400 Brentwood, Tennessee 37027 Attn: Edward K. Wissing with a copy to: Lauren W. Anderson Harwell Howard Hyne Gabbert & Manner, P.C. 1800 First American Center 315 Deaderick Street Nashville, Tennessee 37238-1800 12.4 Confidentiality; Prohibition on Trading. Except for press releases ---------------------------------------- issued by Buyer and Shareholder in the ordinary course following Closing, all parties agree to maintain the confidentiality of the existence of this Agreement and the transactions contemplated hereunder, unless disclosure is required by law. Both Buyer and Shareholder will provide the other a copy of such press release two (2) business days prior to issuance for review and comment. Each party and its Affiliates agree not to trade in the securities of the other parties based upon any nonpublic information. 32 12.5 Partial Invalidity: Waiver. The invalidity or unenforceability of any --------------------------- particular provision of this Agreement will not affect the other provisions hereof, and this Agreement will be construed in all respects as if such invalid or unenforceable provisions were omitted. Further, there will be automatically substituted for such invalid or unenforceable provision a provision as similar as possible which is valid and enforceable. Neither the failure nor any delay on the part of any party hereto in exercising any rights, power or remedy hereunder will operate as a waiver thereof, or of any other right, power or remedy; nor will any single or partial exercise of any right, power or remedy preclude any further or other exercise thereof, or the exercise of any other right, power or remedy. No waiver of any of the provisions of this Agreement will be valid unless it is in writing and signed by the party against which it is sought to be enforced. 12.6 Interpretation; Knowledge. All pronouns and any variation thereof will -------------------------- be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or entity, or the context, may require. Further, it is acknowledged by the parties that this Agreement has undergone several drafts with the negotiated suggestions of both; and, therefore, no presumptions will arise favoring either party by virtue of the authorship of any of its provisions or the changes made through revisions. Any table of contents and paragraph headings in this Agreement are for convenience of reference only and will not be considered or referred to in resolving questions of interpretation. Whenever in this Agreement the term "to the best knowledge of Company or Shareholder" or the like is used, Company and Shareholder will each be deemed to have the knowledge of its respective officers and directors; and Company and Shareholder will each be under a duty of due inquiry. 12.7 Entire Agreement; Counterparts. This Agreement, including the Exhibits ------------------------------- and Attachments hereto, constitutes the entire agreement between the parties hereto with regard to the matters contained herein and it is understood and agreed that all previous undertakings, negotiations, letters of intent and agreements between the parties related to the subject matter hereof are merged herein. This Agreement may not be modified orally, but only by an agreement in writing signed by Buyer, Company and Shareholder. This Agreement may be executed simultaneously in two or more counterparts each of which will be deemed an original and all of which together will constitute one and the same instrument. 12.8 Further Assurance of Shareholder After Closing. Subsequent to the ----------------------------------------------- Closing, Shareholder will from time to time, at Buyer's request, execute and deliver such other instruments of conveyance and transfer, and take such other action as Buyer may reasonably request, in order more effectively to sell, transfer, assign and deliver and vest in Buyer and Company, as the case may be, the benefits of, title to and possession of the Stock and Assets. 33 12.9 Legal Fees and Costs. If any party hereto incurs legal expenses to --------------------- enforce or interpret any provision of this Agreement, the prevailing party will be entitled to recover such legal expenses, including, without limitation, attorney's fees, costs and disbursements, in addition to any other relief to which such party may be entitled. 12.10 Controlling Law. This Agreement will be construed, interpreted and enforced in accordance with the substantive laws of the State of Tennessee, without giving effect to its conflicts of laws provisions. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. "COMPANY": PRONETICS HEALTH CARE GROUP, INC. By: /s/ Anthony A. Rascio ------------------------------- Title: Vice President ------------------------------ "SHAREHOLDER": ROBERTS PHARMACEUTICAL CORPORATION By: /s/ Anthony A. Rascio ------------------------------- Title: Vice President "BUYER": AMERICAN HOMEPATIENT, INC. By: /s/ Richie Billings -------------------------------- Title: Vice President 34 EX-11 11 STATEMENT RE COMPUTATION OF EARNINGS EXHIBIT 11 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE FOR THE FOUR QUARTERS ENDED DECEMBER 31, 1996 (In thousands, except per share data)
Net income (loss) per Year Ended consolidated statement First Second Third Fourth December 31, of operations: Quarter Quarter Quarter Quarter 1996 ------- ------- ------- ------- ----------- Continuing operations $(4,212) $(1,754) $(3,133) $(25,176) $(34,275) Discontinued operations $ --- $ 3,969 $ --- $ (3,413) $ 556 ------- ------- -------- -------- ---------- Total $(4,212) $ 2,215 $(3,133) $(28,589) $(33,719) Avg. common shares 18,722 18,659 19,582 20,288 19,133 Earnings per share before consideration of adjustments: Continuing operations $ (0.22) $ (0.09) $ (0.16) $ (1.24) $ (1.79) Discontinued operations $ --- $ 0.21 $ --- $ (0.17) $ 0.03 -------- ------- ------- --------- ---------- $ (0.22) $ 0.12 $ (0.16) $ (1.41) $ (1.76) Adjustments for purposes of calculating earnings per share: Adjusted common shares 18,820 5% Preferred Stock dividends paid and accrued $ 475 $ 810 $ 1,285 5% Preferred Stock convertible to market at a 10% discount (1) $ 3,890 $ 7,780 $ 11,670 Earnings per share: Continuing operations $ (0.22) $ (0.09) $ (0.40) $ (1.66) $ (2.47) Discontinued operations $ --- $ 0.21 $ --- $ (0.17) $ 0.03 -------- -------- -------- --------- --------- $ (0.22) $ 0.12 $ (0.40) $ (1.83) $ (2.44)
__________________________ (1) Pursuant to a new position taken by the Securities and Exchange Commission staff (the "Staff"), effective March 13,1997, on accounting for preferred stock which is convertible at a discount to market, this schedule reflects the Staff's position that the 10% discount available to holders of the Company's 5% Convertible Preferred Stock shall be incorporated in the calculation of earnings per share. EX-21 12 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 LIST OF SUBSIDIARIES STATE OR OTHER JURISDICTION SUBSIDIARIES OF INCORPORATION - ------------ --------------------------- Roberts Laboratories, Inc. New Jersey Linz-Roberts, Inc. Delaware Pronetics Health Care Group, Inc. New York and New Jersey VRG International, Inc. New Jersey Monmouth Pharmaceuticals, Ltd. United Kingdom Roberts Pharma GmbH Germany Roberts Pharmaceutical of Canada, Inc. Canada Roberts Investments, Inc. Delaware Shore Pharmaceuticals, Inc. New Jersey Geriatric Pharmaceutical Corp. New York EX-23 13 CONSENT OF COOPERS & LYBRAND L.L.P. EXHIBIT 23 COOPERS Coopers & Lybrand L.L.P. & LYBRAND a professional services firm CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Roberts Pharmaceutical Corporation on (1) Form S-3 (File No. 333-13729) and (2) Form S-8 (File No.'s 33-34767, 33-61543 and 333-09847) of our report dated February 14, 1997, on our audits of the consolidated financial statements of Roberts Pharmaceutical Corporation and Subsidiaries as of December 31, 1996, 1995 and 1994, and for each of the three years in the period ended December 31, 1996, which report is included in the Corporation's 1996 Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Princeton, New Jersey April 1, 1997 Coopers & Lybrand L.L.P., a registered limited liability partnership, is a member firm of Coopers & Lybrand (International). EX-27 14 FINANCIAL DATA SCHEDULES WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 87,125 7,793 38,984 [BLANK] 16,665 156,927 14,945 [BLANK] 372,225 51,482 10,639 [BLANK] 272 233 309,254 372,225 [BLANK] 98,111 49,753 49,753 98,553 [BLANK] 1,750 (48,850) 14,575 (34,275) 556 [BLANK] [BLANK] (33,719) (2.44) (2.44) INCLUDES $8,193 NOTES FROM BUYERS OF PRODUCT LINES SOLD. INCLUDES RAW MATERIAL INVENTORY OF $2,393. NON-CURRENT PORTION OF LONG TERM DEBT. INCLUDES $37,306 LOSS ON INTANGIBLE WRITE-OFFS AND DISPOSITIONS. BENEFIT.
EX-99.1 15 LIST OF PRIVATE PLACEMENT INVESTORS EXHIBIT 99.1 INVESTORS IN PRIVATE PLACEMENTS ------------------------------- DFA Group Trust - 6-7-8 Subtrust(2) DFA Group Trust - Small Cap Value Subtrust DFA Group Trust - 6-10 Subtrust U.S. Small Cap Value Series U.S. 6-10 Small Company Series AG Super Fund International Partners, L.P. Raphael, L.P. SIL Nominees Ltd. Loretta Hirsh Shine Lisa G. Shine Otato Limited Partnership ProFutures Special Equities Fund, L.P. Olympus Securities, Ltd. John J. Pujol Richmont Value Partners, L.P. Ailouros Ltd Alfred Partners, L.P. Alfred Partners, LLC. Kayne Anderson Non-Traditional Investments, L.P. Foremost Insurance Company Arbco Associates, L.P. Offense Group Associates, LP Strome Partners, L.P Strome Offshore Limited Strome Susskind Hedgecap Fund, L.P. Strome Hedgecap Limited Anvil Investment Partners, L.P. Lawrence K. Fleischman Trust Company of America FBO PAC Fayerweather Associates Doerge-Deere Park, L.P. Deere Park Partners, L.P. Robert A. Davidow and Diana R. Davidow, JTWROS Chap-Cap Partners, L.P. Gerard K. Cappello Linda S. Cappello Chestnut Pacific Fund The & Trust Standard Global Equity Partners L.P. The Common Fund Scorpion Offshore Investment Fund Standard Pacific Capital Offshore Fund, Ltd Banque Scandinave en Suisse Metropolis Partners, L.P Weyburn Overseas Ltd. Goodland International Investments Ltd. Richard Friedman Fortune Fund-Seeker Lake Management LDC Irvin Kessler JMG Capital Partners L.P Efraim Gildor KA Trading L.P. Leonardo, L.P. Gam Arbitrage Investments, Inc. NY-DBL Diamond Group Edmond O'Donnell LICAP Partners Grove Limited Partnership Stanley A. Kaplan Och-Ziff Capital Management, L.P. Theodore Meisel Barry Meisel Gotham Capital III, L.P. Gotham Capital IV, L.P. Newberg Family Trust UTD Dated 12/18/90 Nelson Partners Daniel S. Martin Jeffrey Markowitz Andrew M. Kaplan Lawrence Kaplan Charles B. Krusen Morgan and Morgan Trust Corp Silverton International Fund Limited Overlook Performance Fund Q Investments, L.P. Crisostomo B. Garcia Trust Seafair Investments Ltd. BT Holdings Wessel Corporation N.V. Andromeda Corporation N.V. Chesham Associates Limited Rimata Corporation N.V. Stonehouse Investments N.V. Canadian Imperial Bank of Commerce A.B. Laffer, V.A. Canto Associates -----END PRIVACY-ENHANCED MESSAGE-----