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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K Annual Report pursuant to Section 13 or 15(d)of the Securities
Exchange Act of 1934 For the Fiscal Year Ended March 31, 2001 Commission File
No. 1-9114
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MYLAN LABORATORIES INC. (Exact name of registrant as specified in its charter)
Pennsylvania 25-1211621
(State of Incorporation) (IRS Employer Identification No.)
1030 Century Building
130 Seventh Street
Pittsburgh, Pennsylvania 15222(412) 232-0100
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class: on Which Registered:
-------------------- --------------------
Common Stock, par value $.50 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark 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 checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of June 20, 2001, was $3,411,923,773 (computed by reference to the
closing price of such stock).
The number of shares of Common Stock of the registrant outstanding as of
June 20, 2001, was 130,854,713.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference into this Report is the Proxy Statement for the
2001 Annual Meeting of Shareholders, Part III, Items 10-13.
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1
MYLAN LABORATORIES INC.
INDEX TO FORM 10-K
For the Fiscal Year Ended March 31, 2001
Page
PART I
Item 1. Business ------------------------------------------------------ 3
Overview of Our Business ---------------------------------- 3
Generic Segment ------------------------------------------- 4
Brand Segment --------------------------------------------- 5
Joint Venture --------------------------------------------- 7
Product Development --------------------------------------- 7
Generic Product Development ------------------------------- 9
Brand Product Development --------------------------------- 10
Patents, Trademarks and Licenses--------------------------- 13
Customers and Marketing ----------------------------------- 13
Competition ----------------------------------------------- 13
Product Liability ----------------------------------------- 16
Raw Materials --------------------------------------------- 16
Government Regulation ------------------------------------- 17
Seasonality ----------------------------------------------- 18
Environment ----------------------------------------------- 18
Employees ------------------------------------------------- 18
Backlog --------------------------------------------------- 18
Item 2. Properties ---------------------------------------------------- 19
Item 3. Legal Proceedings --------------------------------------------- 20
Item 4. Submission of Matters to a Vote of Security Holders ----------- 23
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters ---------------------------------------------------- 23
Item 6. Selected Financial Data -------------------------------------- 24
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -------------- 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk --- 35
Item 8. Financial Statements and Supplementary Data ------------------ 36
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ----------------------------------- 61
PART III
Item 10. Directors and Executive Officers of the Registrant ----------- 61
Item 11. Executive Compensation --------------------------------------- 61
Item 12. Security Ownership of Certain Beneficial Owners and Management 61
Item 13. Certain Relationships and Related Transactions --------------- 61
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 61
Signatures --------------------------------------------------------------- 64
2
PART I
Item 1. Business
Mylan Laboratories Inc. is engaged in developing, licensing, manufacturing,
marketing and distributing generic and brand pharmaceutical products. We were
incorporated in Pennsylvania in 1970. References herein to fiscal 2001, 2000 and
1999 shall mean the fiscal years ended March 31, 2001, 2000 and 1999,
respectively.
Overview of Our Business
We conduct business through our generic (Generic Segment) and brand (Brand
Segment) pharmaceutical operating segments. For fiscal 2001, the Generic Segment
represented approximately 83% of net revenues and the Brand Segment represented
approximately 17% of net revenues. The Generic Segment represented 85% and 88%
of net revenues in fiscal 2000 and 1999, respectively, while the Brand Segment
reported 15% and 12% of net revenues for those fiscal years. The financial
information for our operating segments required by this Item is provided in Note
16 in the Notes to Consolidated Financial Statements under Part II, Item 8, of
this Report.
Pharmaceutical products in the United States are generally marketed as
either brand or generic drugs. Brand products are marketed under brand names and
through programs that are designed to generate physician and consumer loyalty.
Brand products generally are patent protected or benefit from other non-patent
market exclusivities that exist at the time of their market introduction. This
market exclusivity generally provides brand products with the ability to
maintain their profitability for relatively long periods of time. Brand products
generally continue to have a significant role in the market after the end of
patent protection or market exclusivities due to physician and customer
loyalties.
Generic pharmaceutical products are the chemical and therapeutic equivalent
of a reference brand drug. The Drug Price Competition and Patent Term
Restoration Act of 1984 (Waxman-Hatch Act) provides that generic drugs may enter
the market after (1) U.S. Food and Drug Administration (FDA) approval of an
Abbreviated New Drug Application (ANDA) and (2) the expiration, invalidation or
circumvention of any patents on the corresponding brand drug and the end of any
other market exclusivity periods related to the brand drug. Generic drugs are
bioequivalent to their brand name counterparts. Accordingly, generics provide a
safe, effective and cost efficient alternative to users of these brand products.
Growth in the generic pharmaceutical industry has been driven by the increased
acceptance of generic drugs as bioequivalent substitutes for brand name
products, as well as the number of brand drugs for which patent terms and/or FDA
market exclusivities have expired.
3
Generic Segment
We are recognized as a leader in the generic pharmaceutical industry. Our
Generic Segment consists of two principal business units, Mylan Pharmaceuticals
Inc.(Mylan Pharm) and UDL Laboratories Inc.(UDL), both wholly owned
subsidiaries. Mylan Pharm is our primary generic pharmaceutical development,
manufacturing, marketing and distribution arm. Mylan Pharm's net revenues are
derived primarily from solid oral dosage products. We acquired UDL in fiscal
1996. UDL packages and markets generic products, either obtained through Mylan
Pharm or purchased through third parties, in unit dose formats for use primarily
in hospitals and institutions. Our Generic Segment is augmented by transdermal
patch products developed and manufactured by our wholly owned subsidiary, Mylan
Technologies, Inc.(Mylan Tech).
We obtain new products primarily through new product development and FDA
approval, as well as from licensing or co-development arrangements with other
companies. New FDA approved generic products are generally introduced to the
marketplace at the expiration of patent protection for the brand product. The
FDA may extend the period of brand product marketing exclusivity under certain
circumstances, primarily through pediatric exclusivity. New generic product
approvals are obtained from the FDA through the ANDA process. The ANDA process
requires us to demonstrate bioequivalence to a reference brand product. In
addition, we must develop formulations of the reference product that will result
in demonstrating bioequivalence under a variety of clinical conditions. Even
with the uncertainties related to formulation development, the ANDA process
often results in the FDA granting a number of ANDA approvals for a given product
by the time of brand product patent and pediatric exclusivity expiration.
Consequently, we often face a number of competitors when a new generic product
enters the market. Additional ANDA approvals often continue to be granted for a
given product subsequent to the initial launch of the generic product. These
circumstances generally result in significantly lower prices for generic
products and lower margins compared to brand products. New generic market
entrants generally result in continued price and margin erosion over the generic
product life cycle. Our continued success is dependent upon our ability to
successfully develop or acquire and profitably market new generic
pharmaceuticals.
The Waxman-Hatch Act provides for a period of 180 days of generic marketing
exclusivity for those ANDA applicants that are first to file an ANDA containing
a certification of invalidity, non-infringement or unenforceability with respect
to the listed patent(s), referred to as Paragraph IV certifications. This period
of generic market exclusivity generally yields a higher market share, net
revenues and gross margin until the entry of other competitors at the conclusion
of the 180 days. Generic manufacturers may also enjoy longer periods of
relatively high, stable margins through the introduction of difficult to develop
generic pharmaceuticals. Significant market opportunities also result in the
event that we are able to demonstrate that a brand pharmaceutical product's
limiting patent(s) is invalid.
4
We manufacture and market approximately 115 generic pharmaceuticals in
capsule or tablet forms in an aggregate of approximately 261 dosage strengths.
We also manufacture and distribute two transdermal patch generic pharmaceutical
products in six dosage strengths. In addition, we are marketing 72 generic
products in 128 dosage strengths under supply and distribution agreements with
other pharmaceutical companies. We have been successful in developing a number
of extended release products with approximately eight extended release products
in 15 dosage strengths in our portfolio. In fiscal 2001, we held the first or
second market position on 90 out of the 129 generic pharmaceutical products we
marketed, excluding unit-dose.
Our most significant generic product in terms of net revenues in fiscal
2001 was nifedipine ER (Procardia XL(R)), for the treatment of hypertension and
angina, with net revenues of $151.3 million. We obtained this product through an
agreement with Pfizer, Inc. As a result, our gross margins on this product are
relatively lower than our overall Generic Segment gross margins. Net revenues
and gross margins on this product are expected to decrease in fiscal 2002. Our
anti-anxiety drug group represented $27.8 million, $106.8 million and $153.8
million in net revenues in fiscal 2001, 2000 and 1999, respectively.
We sold certain ANDAs related to our UDL liquid unit dose business in
fiscal 2001 for $12.8 million. The sale of these ANDAs will not significantly
impact future profitability.
We have attained a leadership position in the generic industry through our
ability to obtain ANDA approvals, our uncompromising quality control and our
devotion to customer service. We have bolstered our traditional solid oral dose
products with unit dose, transdermal and extended release products. We have
entered into strategic alliances with several pharmaceutical companies through
product development, distribution and licensing agreements that provide us with
additional products to broaden our product line.
We expect that our future growth will come from our ability to expand
substitution rates for existing products. We intend to emphasize the development
or acquisition of new products that may attain FDA first to file status; that
are difficult to formulate; that involve overcoming regulatory adversities; and
that have difficult to source active pharmaceutical ingredients. In addition, we
plan on pursuing complementary, accretive or strategic acquisitions.
Brand Segment
Our Brand Segment operates principally through our wholly owned subsidiary
Bertek Pharmaceuticals Inc. (Bertek). Bertek's principal therapeutic areas of
concentration include neurology and dermatology. We also provide products in the
cardiology arena such as Maxzide(R), Digitek(R) and Nitrek(R). The marketing
rights for the Maxzide(R) products, which we originally developed and currently
manufacture, were reacquired from American Home Products Corporation in fiscal
1997. Our Brand Segment includes pharmaceutical products that have patent
protection, have achieved a brand recognition in the marketplace or represent
branded generic pharmaceutical products which are responsive to sales promotion.
5
We continue to expand our brand business through internally developed
products, as well as through product and company acquisitions. On October 2,
1998, we acquired 100% of the outstanding stock of Penederm Inc. (Penederm).
This acquisition allowed us to expand our presence in dermatology through the
addition of Avita(R), Mentax(R) and Acticin(R). In fiscal 1999, we recognized
$29.0 million in expense related to in-process research and development in
conjunction with this transaction.
The Penederm acquisition enhanced our research and development
capabilities. We have several dermatological products in the new drug
development process, including oral and topical dosage forms of butenafine for
onychomycosis, a nail fungus, as well as topical butenafine for tinea
versicolor, a type of skin blotching, and anticipate the submission of the New
Drug Applications (NDA) to the FDA. We also anticipate receiving an ANDA for
isotretinoin, the generic equivalent to Accutane(R) for the treatment of acne,
in fiscal 2002. In the area of neurology, we expect to seek a NDA for
apomorphine for the treatment of the "off" or "freeze" phenomenon for late stage
Parkinson's disease. We are also seeking a NDA for doxepin for the treatment of
sleep disorders. In addition, we anticipate approval of an ANDA for the 200mg
and 300mg dosage forms of extended phenytoin, for the treatment of epilepsy, in
fiscal 2002. See "Product Development" for additional discussion.
We licensed the rights to nebivolol in fiscal 2001. Nebivolol is a beta
blocker for which we expect to pursue a NDA for the indication of hypertension.
We believe that we will be able to clinically demonstrate the unique beta
1-receptor blockade selectivity characteristics of this product which could
result in providing nebivolol with certain competitive advantages. The nebivolol
compound has patent protection in the U.S. through March 2004, which we
anticipate will be extended through 2009. An additional patent application has
been filed that could further extend patent protection on this compound. We
expect to experience increased research and development expenses in support of
the nebivolol clinical program, as well as milestone payments under our license
agreement.
Mylan Tech also contributes to the Brand Segment through the manufacture of
the Nitrek(R) transdermal nitroglycerine patch. Mylan Tech provides us with
unique capabilities in transdermal and polymer film product development. We
believe that Mylan Tech will augment both the Brand and Generic Segments with
future NDA and ANDA products.
Our sales force consists of approximately 160 sales representatives which
promote our brand products mostly to primary care physicians, dermatologists,
neurologists and pharmacists. We expect our sales force to increase as we launch
new brand pharmaceutical products.
We consolidated our non-manufacturing Brand Segment operations in fiscal
2001 from Foster City, California, Sugar Land, Texas and Morgantown, West
Virginia into a new location in Research Triangle Park (RTP), North Carolina. We
believe that this consolidation will increase the efficiency and effectiveness
of our Brand Segment. The expense associated with this consolidation was not
significant.
6
Brand segment growth will be driven by our ability to expand awareness and
prescriptions for our current products, as well as through the successful
development and introduction of innovative and unique brand pharmaceuticals. As
in the past, we will look to increase the proportion of our Brand Segment
business through the in-licensing or acquisition of new compounds, as well as
through complementary, accretive or strategic acquisitions.
Joint Venture
We own a 50% interest in Somerset Pharmaceuticals, Inc., a joint venture
with Watson Pharmaceuticals, Inc. Currently, Somerset's only marketed product is
Eldepryl(R) , a drug for the treatment of Parkinson's disease that lost Orphan
Drug exclusivity in 1996. Somerset is actively involved in research projects
regarding additional indications for Eldepryl(R) and other chemical compounds.
Product Development
The Company is required to secure and maintain FDA approval for the
products it intends to manufacture and market. The FDA grants such approval by
approving our submitted ANDAs for generic drug products and NDAs for brand drug
products.
Our research and development strategy focuses on the following product
development areas:
o development of sustained-release technologies and the application of
these technologies to existing products;
o expansion of our existing oral immediate-release products with respect
to additional dosage strengths;
o development of NDA and ANDA transdermal and polymer film
pharmaceuticals;
o development of drugs technically difficult to develop or manufacture
because of unusual factors that affect their bioequivalence or because
of unusually stringent regulatory requirements;
o development of drugs that target smaller, specialized or under-served
markets;
o leveraging of our expertise in the development of innovative
dermatological and neurological pharmaceuticals; and
o successful completion of nebivolol clinical trials and filing of the
related NDA.
7
Our future results of operations will depend in part upon our ability to
develop and successfully commercialize new brand and generic pharmaceutical
products in a timely manner. These new products must be continually developed,
tested and manufactured and, in addition, must meet regulatory standards and
receive regulatory approvals(see "Government Regulation"). Furthermore, the
development and commercialization process is time-consuming and costly. If any
of our development products cannot be successfully or timely commercialized, our
operating results could be adversely affected. The risk particularly exists with
respect to the development of brand products because of the uncertainties,
higher costs and lengthy timeframes associated with the research and development
and governmental approval process of such products and their inherent unproven
market acceptance.
FDA approval is required before any dosage form of any new drug, including
a generic equivalent of a previously approved drug, can be marketed. The process
for obtaining governmental approval to manufacture and market pharmaceutical
products is rigorous, time-consuming and costly, and we cannot predict the
extent to which it may be affected by legislative and regulatory developments.
We are dependent on receiving FDA and other governmental approvals prior to
manufacturing, marketing and shipping new products. The rate, timing and cost of
such approvals may adversely affect our product introduction plans and results
of operations (see "Government Regulation").
All applications for FDA approval must contain information relating to
product formulation, raw material suppliers, stability, manufacturing processes,
packaging, labeling and quality control. There are generally two types of
applications for FDA approval that would be applicable to our new products:
New Drug Application (NDA). We file a NDA when we seek approval to market
drugs with active ingredients which have not been previously approved by the
FDA. NDAs are filed for our newly developed brand products and, in certain
instances, for a new dosage form of previously approved drugs.
Abbreviated New Drug Application (ANDA). We file an ANDA when we seek
approval to market a drug product previously approved under a NDA.
We expensed $64.4 million, $49.1 million and $61.8 million for research and
development in fiscal 2001, 2000 and 1999, respectively. Our research and
development efforts are conducted primarily to qualify us to manufacture
approved ethical pharmaceuticals under FDA regulations. Typically, research
expenses related to the development of innovative compounds and the filing of
NDAs are significantly higher than those associated with ANDAs. As we continue
to develop brand products, research expenses related to their development will
likely increase.
8
Generic Product Development
FDA approval of an ANDA is required before we may begin marketing the
generic equivalent of a drug that has been approved under a NDA, or a previously
unapproved dosage form of a drug that has been approved under an ANDA. The ANDA
approval process is generally less time consuming and complex than the NDA
approval process in that it does not require new preclinical and clinical
studies since it relies on the clinical studies establishing safety and efficacy
conducted for the previously approved drug. The ANDA process does, however,
require a bioequivalency study to show that the ANDA drug is bioequivalent to
the previously approved drug. Bioequivalence compares the bioavailability of one
drug product with another formulation containing the same active ingredient.
When established, bioequivalency confirms that the rate of absorption and levels
of concentration in the bloodstream of a formulation of the previously approved
drug and the generic drug are bioequivalent. Bioavailability indicates the rate
and extent of absorption and levels of concentration of a drug product in the
bloodstream needed to produce a therapeutic effect.
Among other things, supplemental NDAs or ANDAs are required for approval to
transfer products from one manufacturing site to another and may be under review
for a year or more. In addition, certain products may only be approved for
transfer once new bioequivalency studies are conducted or other requirements are
satisfied.
The Generic Drug Enforcement Act of 1992 established penalties for
wrongdoing in connection with the development or submission of an ANDA. Under
the Act, the FDA has the authority to permanently or temporarily debar companies
or individuals who have engaged in such wrongdoing from submitting or assisting
in the submission of an ANDA, and to temporarily deny approval and suspend
applications to market off-patent drugs. The FDA may also suspend the
distribution of all drugs approved or developed in connection with such wrongful
conduct and/or withdraw approval of an ANDA and seek civil penalties. The FDA
can also significantly delay the approval of any pending ANDA, as well as any
pending NDA, under the Fraud, Untrue Statements of Material Facts, Bribery and
Illegal Gratuities Policy Act.
Among the requirements for FDA approval of ANDAs, as well as NDAs, is that
our manufacturing procedures and operations must conform to FDA requirements and
guidelines generally referred to as current Good Manufacturing Practices (cGMP),
as defined in Title 21 of the U.S. Code of Federal Regulations. These
regulations encompass all aspects of the production process, including
validation and record keeping, and involve changing and evolving standards. In
complying with the cGMP regulations, we must continue to expend time, money and
effort in such areas as production and quality control to ensure full technical
compliance. The evolving and complex nature of regulatory requirements, the
broad authority and discretion of the FDA, and the generally high level of
regulatory oversight result in a continuing possibility that we may be adversely
affected by regulatory actions despite our efforts to maintain compliance with
regulatory requirements.
9
During fiscal 2001, we received 12 final ANDA approvals: bupropion HCl
tablets, tamoxifen citrate tablets, enalapril maleate tablets, bisoprolol
fumarate/HCTZ tablets, doxazosin mesylate tablets, fluvoxamine maleate tablets,
terazosin HCl capsules, sotalol HCl tablets, valproic acid syrup, metoclopramide
oral solution, phenytoin oral suspension and buspirone HCl tablets.
Additionally, in fiscal 2001, the Company received a supplemental ANDA for
carbidopa/levodopa 25mg/100mg tablets. We have 22 ANDAs pending final approval
at the FDA.
Over the next few years, patent protection on a relatively large number of
brand drugs will expire, thereby providing additional generic product
opportunities. We intend to continue to concentrate our generic product
development activities on brand products with U.S. sales exceeding $50 million
in specialized or growing markets and in areas that offer significant
opportunities and competitive advantages. In addition, we intend to continue to
focus our development efforts on technically difficult-to-formulate products, or
products that require advanced manufacturing technology. When evaluating which
drug development projects to undertake, we also consider whether the product
would complement other products in our portfolio, or would otherwise assist in
making our product line more complete. During fiscal 2002, we plan to invest in
a significant number of bioequivalency studies for development of generic
products or dosage forms.
Brand Product Development
The process required by the FDA before a previously unapproved
pharmaceutical product may be marketed in the U.S. generally involves the
following:
o laboratory and preclinical tests;
o submission of an investigational new drug application (IND), which
must become effective before clinical trials may begin;
o adequate and well-controlled human clinical trials to establish the
safety and efficacy of the proposed product for its intended use;
o submission of a NDA containing the results of the clinical trials
establishing the safety and efficacy of the proposed product for its
intended use, as well as extensive data addressing such matters as
manufacturing and quality assurance; and
o FDA approval of a NDA.
10
Preclinical tests include laboratory evaluation of the product, its
chemistry, formulation and stability, as well as toxicology studies to assess
the potential safety and efficacy of the product. We then submit the results of
these studies, which must demonstrate that the product delivers sufficient
quantities of the drug to the bloodstream to produce the desired therapeutic
results, to the FDA as part of an IND, which must become effective before we may
begin human clinical trials. The IND automatically becomes effective 30 days
after receipt by the FDA unless the FDA, during that 30-day period, raises
concerns or questions about the conduct of the trials as outlined in the IND. In
such cases, the IND sponsor and FDA must resolve any outstanding concerns before
clinical trials can begin. In addition, an independent Institutional Review
Board at the study center proposing to conduct the clinical trials must review
and approve any clinical study.
Human clinical trials are typically conducted in three sequential phases,
which may overlap:
o Phase I: The drug is initially introduced into a relatively small
number of healthy human subjects or patients and is tested for safety,
dosage tolerance, absorption, metabolism, distribution and excretion.
o Phase II: Involves studies in a limited patient population to identify
possible adverse effects and safety risks to assess the efficacy of
the product for specific targeted diseases or conditions, and to
determine dosage tolerance and optimal dosage.
o Phase III: When Phase II evaluations demonstrate a dosage range of the
product is effective and has an acceptable safety profile, Phase III
trials are undertaken to further evaluate dosage, clinical efficacy
and to further test for safety in an expanded patient population at
geographically dispersed clinical study sites.
The results of product development, preclinical studies and clinical
studies are then submitted to the FDA, as part of a NDA, for approval of the
marketing and commercial shipment of the new product. The NDA drug development
and approval process could take from three to more than ten years.
11
Mylan is presently developing a number of brand products. Our brand product
development continues to emphasize areas where we have an existing sales and
marketing presence, namely Dermatology and Neurology. Products currently in
development include:
Estimated IND or NDA
Compound Indication Phase Calendar Filing Date
NEUROLOGY
Apomorphine "Off" or "Freeze" episodes in III Q1 02
late stage Parkinson's disease
Doxepin Sleep disorders III Q1 04
MT110 Pain management Pre-IND Q3 01
MT111 Pain management Pre-IND Q3 01
DERMATOLOGY
Topical Butenafine Onychomycosis III Q4 02
(Nail fungus)
Onychomycosis III Q4 03
Oral Butenafine (Nail fungus)
CARDIOLOGY
Hypertension III Q4 03
Nebivolol (High blood pressure)
In the first quarter of fiscal 2002, we received FDA approval of our NDA
related to topical butenafine for tinea versicolor, a condition marked by skin
blotches.
Product development is inherently risky, especially when the development
concerns new products for which safety and efficacy has not been established and
the market for which is yet unproven. The development process also requires
substantial time, effort and financial resources, and any commercialization of a
product will require prior government approval, which may not be forthcoming. We
cannot be certain that we will be successful in commercializing any of the
products we are developing on a timely basis, if at all. We also cannot
guarantee that any investment we make in developing products will be recouped,
even if we are successful in commercialization.
In recent years, Somerset has increased its research and development
spending to: (a) develop additional indications for selegiline, the active
ingredient of Eldepryl(R), using a transdermal delivery system and (b) develop
and evaluate different therapeutic areas using selegilene and other compounds.
Clinical studies using the selegiline transdermal system for the treatment of
several disorders, including depression, were performed in fiscal 1999, 2000 and
2001. Somerset filed a NDA related to a selegiline transdermal delivery system
for the treatment of depression in May 2001.
12
Patents, Trademarks and Licenses
We own or are licensed under a number of patents in the United States and
foreign countries covering products, and have also developed many brand names
and trademarks for products. Generally, the brand pharmaceutical business relies
upon patent protection to ensure market exclusivity for the life of the patent.
Following the expiration of the patents, brand products often continue to have
market viability based upon the good will of the product name, which typically
enjoys trademark protection. We consider the overall protection of our patents,
trademarks and license rights to be of material value and act to prevent these
rights from infringement; however, our business in the brand segment is not
dependent upon any single patent, trademark or license. See "Brand Segment" in
this Item 1.
Customers and Marketing
We sell our products primarily to proprietary and ethical pharmaceutical
wholesalers and distributors, drug store chains, drug manufacturers,
institutions and governmental agencies within the U.S. Two of our customers
represented approximately 14% and 11% of net revenues in fiscal 2001. Four of
our customers accounted for approximately 15%, 15%, 11%, and 10% of net revenues
in fiscal 2000. Three customers accounted for approximately 15%, 14%, and 11% of
net revenues in fiscal 1999.
Based on industry practice, generic manufacturers have liberal return
policies and have been willing to give customers post-sale inventory allowances
referred to as shelf-stock adjustments. Under these arrangements, we give
customers credits on our generic products which the customers hold in inventory
after decreases in the market prices of the generic products. Like our
competitors, we also give credits for chargebacks to our wholesale customers who
sell our products to hospitals, institutions, group purchasing organizations,
pharmacies or other retail customers under pricing agreements. A chargeback is
the difference between the price the wholesale customer pays and the third party
price for the product under the third party pricing agreement with us.
Approximately 60 employees are engaged in selling and servicing our Generic
Segment customers.
Brand pharmaceutical products are marketed directly to health care
professionals in order to increase brand awareness and prescriptions written for
the product. However, brand and branded generic products are generally sold
through the same channels and customers as generic products. Due to the buying
patterns of certain customers, in conjunction with incentive programs, a
disproportionate amount of sales may be recognized in the latter part of a
period. Branded generic products are often subject to the same return policies,
shelf-stock adjustments and chargebacks as generic pharmaceutical products.
Approximately 240 employees are engaged in marketing, selling and servicing our
Brand Segment customers.
Competition
The pharmaceutical industry is very competitive. Our primary competitors
include Bristol-Myers Squibb Company, Eli Lilly and Company, Geneva
Pharmaceuticals, GlaxoSmithKline, IVAX Corporation, Merck & Co.,Inc., Novartis,
Teva Pharmaceutical Indstries Ltd. and Watson Pharmaceuticals, Inc.
13
The primary means of competition are innovation and development, timely FDA
approval, manufacturing capabilities, product quality, marketing, customer
service, reputation and price. Price is a key competitive factor in the generic
pharmaceutical business. To compete effectively on the basis of price and remain
profitable, a generic drug manufacturer must manufacture its products in a
cost-effective manner. Additionally, we maintain an adequate level of
inventories to meet customer demands. The competition we experience varies among
the markets and classes of customers. We have experienced additional competition
from brand companies that have entered the generic pharmaceutical industry by
creating generic subsidiaries, purchasing generic companies or licensing their
products prior to or as relevant patents expire. No further regulatory approvals
are required for a brand manufacturer to sell their pharmaceutical products
directly or through a third party to the generic market, nor do such
manufacturers face any other significant barriers to entry into such market.
Our competitors may be able to develop products and processes competitive
with or superior to our own for many reasons, including that they may have:
o significantly greater financial resources;
o larger research and development and marketing staffs;
o larger production facilities; or
o extensive experience in preclinical testing and human clinical trials.
The pharmaceutical market is undergoing, and is expected to continue to
undergo, rapid and significant technological change, and we expect competition
to intensify as technological advances are made. We intend to compete in this
marketplace by developing or licensing pharmaceutical products that are either
patented or proprietary and which are primarily for indications having
relatively large patient populations or for which limited or inadequate
treatments are available, and by developing therapeutic equivalents to brand
products which offer unique marketing opportunities. Developments by others
could make our pharmaceutical products or technologies obsolete or
noncompetitive.
Net revenues and gross profit derived from generic pharmaceutical products
tend to follow a pattern of regulatory and competitive factors unique to the
generic pharmaceutical industry. The first generic manufacturer to file an ANDA
containing Paragraph IV certification for a generic equivalent to a brand
product may be entitled to a 180-day period of marketing exclusivity under the
Waxman-Hatch Act. During this exclusivity period, the FDA cannot give final
approval to any other generic equivalent. If we are not the first generic
applicant, our generic product will be kept off the market for 180 days after
the first generic commercial launch of the product. The first generic equivalent
on the market is usually able to achieve relatively significant market share. As
competing generics receive regulatory approvals on similar products, market
share, net revenues and gross profit typically decline. Accordingly, the level
of market share, net revenues and gross profit attributable to generic products
developed and manufactured by us is normally related to:
o our ability to maintain a pipeline of products in development;
o our ability to develop and rapidly introduce new products;
o the timing of regulatory approval of such products;
14
o the number and timing of regulatory approvals of competing products;
and
o our ability to manufacture such products efficiently.
Because of the regulatory and competitive factors discussed above, our net
revenues and results of operations historically have fluctuated from period to
period. We expect this fluctuation to continue as long as a significant part of
our net revenues are generated from sales of generic pharmaceuticals.
In addition, many brand drug companies are increasingly pursuing strategies
to prevent or delay the introduction of generic competition. These strategies
include:
o seeking to establish regulatory and legal obstacles which would make
it more difficult to demonstrate bioequivalence of our products;
o initiating legislative efforts in various states to limit the
substitution of generic versions of certain types of brand
pharmaceuticals;
o instituting legal action that automatically delays approval of generic
products, the approval of which requires certifications that the brand
drug's patents are invalid or unenforceable;
o obtaining FDA approval for a rare disease or condition and, as a
result, obtaining seven years of exclusivity for such indication;
o obtaining extensions of market exclusivity by conducting trials of
brand drugs in pediatric populations as discussed below; and
o persuading the FDA to withdraw the approval of brand drugs, the
patents for which are about to expire.
The Food and Drug Modernization Act of 1997 includes a pediatric
exclusivity provision, if certain agreed upon pediatric studies are completed by
the applicant, that may provide an additional six months of market exclusivity
for indications of new or currently marketed drugs. Brand companies are
utilizing this provision to increase their period of market exclusivity.
Additionally, in the United States, some companies have lobbied Congress
for amendments to the Waxman-Hatch legislation, which could give them additional
advantages over generic competitors. For example, although the term of a drug
company's drug patent can be extended to reflect a portion of the time a NDA is
under regulatory review, some companies have proposed extending the patent term
by a full year for each year spent in clinical trials, rather than the one-half
year that is currently allowed. If proposals like these become effective, our
entry into the market and our ability to generate revenues associated with these
products will be delayed.
15
A significant amount of our generic pharmaceutical sales are made to a
relatively small number of drug wholesalers and retail drug chains. These
customers represent an essential part of the distribution chain of generic
pharmaceutical products. Drug wholesalers and retail drug chains have undergone,
and are continuing to undergo, significant consolidation, which has resulted in
customers gaining more purchasing leverage and consequently increasing the
pricing pressures facing our generic pharmaceutical business. Further
consolidation among our customers may result in even greater pricing pressures
and correspondingly reduce the net revenues and gross margins of this business.
Other competitive factors affecting our business include the emergence of
large buying groups representing independent retail pharmacies and the
prevalence and influence of managed care organizations and similar institutions,
which are able to extract price discounts on pharmaceutical products. As the
influence of these entities continues to grow, we may continue to face pricing
pressure on the products we market.
In response to the price declines for generic products, we raised prices on
29 products beginning in fiscal 1998 and continuing through fiscal 1999. While
these price increases had a favorable impact on net earnings during these
periods, several of these products have had significant price and unit erosion
in subsequent periods. We continually evaluate our pricing practices and make
adjustments to the price of our products when appropriate.
In the Brand Segment, we face competition from other brand pharmaceutical
companies that offer products which, while having different properties, are
intended to provide similar benefits to consumers. These competitors tend to
have more products, a longer history in the industry, additional marketing and
sales representatives and significantly more financial resources. Each of these
factors and others could prevent us from achieving profitable results in the
Brand Segment.
Product Liability
Product liability suits represent a continuing risk to firms in the
pharmaceutical industry. We strive to minimize such risks by adherence to
stringent quality control procedures. Although we carry insurance, we believe
that no reasonable amount of insurance can fully protect us against all such
risks because of the potential liability inherent in the business of producing
pharmaceuticals for human consumption.
Raw Materials
The active pharmaceutical ingredients and other materials and supplies used
in our pharmaceutical manufacturing operations are generally available and
purchased from many different foreign and domestic suppliers. However, in some
cases, the raw materials we use to manufacture pharmaceutical products are only
available from a single FDA-approved supplier. Even when more than one supplier
exists, we may elect to list, and in some cases have only listed, one supplier
in our applications with the FDA. Any change in a supplier not previously
approved must then be submitted through a formal approval process with the FDA.
16
Government Regulation
All pharmaceutical manufacturers, including Mylan, are subject to
extensive, complex and evolving regulation by the federal government,
principally the FDA, and to a lesser extent, by the U.S. Drug Enforcement
Administration and state government agencies. The Federal Food, Drug and
Cosmetic Act, the Controlled Substances Act and other federal government
statutes and regulations govern or influence the testing, manufacturing,
packaging, labeling, storing, record keeping, safety, approval, advertising,
promotion, sale and distribution of our products.
We are subject to the periodic inspection of our facilities, procedures and
operations and/or testing of our products by the FDA, the Drug Enforcement
Administration and other authorities. In addition, the FDA conducts pre-approval
and post-approval reviews and plant inspections to determine whether our systems
and processes are in compliance with cGMP and other FDA regulations. Among other
things, the FDA may withhold approval of NDAs, ANDAs or other product
applications of a facility if deficiencies are found at that facility. Certain
of our vendors are subject to similar regulations and periodic inspections.
Following such inspections, the FDA may issue notices on Form 483 and
Warning Letters that could cause us to modify certain activities identified
during the inspection. A Form 483 notice is generally issued at the conclusion
of a FDA inspection and lists conditions the FDA inspectors believe may violate
cGMP or other FDA regulations. FDA guidelines specify that a Warning Letter is
issued only for violations of "regulatory significance" for which the failure to
adequately and promptly achieve correction may be expected to result in an
enforcement action.
Failure to comply with FDA and other governmental regulations can result in
fines, unanticipated compliance expenditures, recall or seizure of products,
total or partial suspension of production and/or distribution, suspension of the
FDA's review of NDAs, ANDAs or other product applications, enforcement actions,
injunctions and criminal prosecution. Under certain circumstances, the FDA also
has the authority to revoke previously granted drug approvals. Although we have
internal compliance programs and have had a very favorable compliance
experience, if these programs were not to meet regulatory agency standards or if
our compliance was deemed deficient in any significant way, it could have a
material adverse effect.
Medicaid, Medicare and other reimbursement legislation or programs govern
reimbursement levels and require all pharmaceutical manufacturers to rebate a
percentage of their revenues arising from Medicaid-reimbursed drug sales to
individual states. The required rebate is currently 11% of the average
manufacturer's price for sales of Medicaid-reimbursed products marketed under
ANDAs. For sales of Medicaid-reimbursed products marketed under NDAs,
manufacturers are required to rebate the greater of approximately 15% of the
average manufacturer's price, or the difference between the average net sales
price and the lowest net sales price during a specific period. We believe that
the federal and/or state governments may continue to enact measures in the
future aimed at reducing the cost of drugs to the public. For example, over the
past year, the extension of prescription drug coverage to all Medicare
recipients has gained support among many federal legislators. We cannot predict
the nature of any measures that may be enacted or their impact on our
profitability.
17
Federal, state and local laws of general applicability, such as laws
regulating working conditions, also govern us. In addition, we are subject, as
are all manufacturers generally, to various federal, state and local
environmental protection laws and regulations, including those governing the
discharge of materials into the environment. We do not expect the costs of
complying with such environmental provisions to have a material effect on our
earnings, cash requirements or competitive position in the foreseeable future.
However, changes to, or compliance with, such environmental provisions could
have a material effect on our earnings, cash requirements or competitive
position.
Continuing studies of the proper utilization, safety, and efficacy of
pharmaceuticals and other health care products are being conducted by the
industry, government agencies and others. Such studies, which increasingly
employ sophisticated methods and techniques, can call into question the
utilization, safety and efficacy of previously marketed products. In some cases,
these studies have resulted, and may in the future result, in the discontinuance
of product marketing.
Seasonality
Our business, taken as a whole, is not materially affected by seasonal
factors.
Environment
We believe that our operations comply in all material respects with
applicable laws and regulations concerning the environment. While it is
impossible to accurately predict the future costs associated with environmental
compliance and potential remediation activities, compliance with environmental
laws is not expected to require significant capital expenditures and has not
had, and is not presently expected to have, a material adverse effect on our
earnings or competitive position.
Employees
We employ approximately 2,220 persons, approximately 1,170 of whom serve in
clerical, sales and management capacities. The remaining are engaged in
production and maintenance activities.
The production and maintenance employees at our manufacturing facility in
Morgantown, West Virginia, are represented by the Oil, Chemical and Atomic
Workers International Union (AFL-CIO) and its Local Union 8-957 under a contract
which expires April 5, 2002.
Backlog
At March 31, 2001, the uncompleted portion of our backlog of orders was
approximately $22.1 million as compared to $28.2 million at March 31, 2000, and
$7.4 million at March 31, 1999. Because of the relatively short lead time
required in filling orders for our products, we do not believe these backlog
amounts bear a significant relationship to sales or income for any full
twelve-month period.
18
Item 2. Properties
We operate from various facilities in the United States and Puerto Rico,
which have an aggregate of approximately 1,420,000 square feet.
Mylan Pharm owns production, warehouse, laboratory and office facilities in
three buildings in Morgantown, West Virginia, containing 549,000 square feet.
Mylan Pharm owns and operates a 166,000 square foot distribution center in
Greensboro, North Carolina. We closed a 38,000 square foot distribution center
in Reno, Nevada, and have been released from the operating lease for this
facility. In fiscal 2001, we completed the construction of a new 65,000 square
foot administration and sales facility in Morgantown, West Virginia.
Our Puerto Rico manufacturing subsidiary, Mylan Inc., owns a production and
office facility in Caguas, Puerto Rico, containing 140,000 square feet and a
production facility in Cidra, Puerto Rico, containing 32,000 square feet.
In March 2001, Bertek consolidated administration from Sugar Land,
Texas and research and development from Foster City, California, along with
sales and marketing from Morgantown, to one facility in Research Triangle Park,
North Carolina. This 72,000 square foot facility is under an operating lease,
expiring in 2008. Bertek owns two buildings in Sugar Land, containing 73,000
square feet. One building is a production, warehouse and office facility. The
other is an office facility and has been placed on the market for sale. Bertek
leases a research and development facility in Foster City, California,
containing 15,000 square feet. We are pursuing a sublease related to this
facility.
Mylan Tech owns production, warehouse, laboratory, and office facilities in
three buildings in Swanton and St. Albans, Vermont, containing 118,000 square
feet. Mylan Tech also operates a coating and extrusion facility in St. Albans,
containing 71,000 square feet, under a lease expiring in 2015. Mylan Tech also
owns two facilities in Swanton containing 59,000 square feet that it leases to
an independent manufacturer.
UDL owns production, laboratory, warehouse, and office facilities in
three buildings in Rockford, Illinois, and Largo, Florida, containing 136,000
square feet. UDL also utilizes a warehouse facility in Rockford containing
41,000 square feet under a lease expiring in 2005. As discussed above, UDL sold
ANDAs related to certain products produced in our Largo, Florida, facilities. We
have determined that we will close these facilities and place them on the market
for sale.
Our production equipment includes that equipment necessary to produce and
package tablet, capsule, aerosol, liquid, transdermal and powder dosage forms.
We maintain seven analytical testing laboratories for quality control.
Our production facilities are operated on a two-shift basis. Properties and
equipment are well maintained and adequate for present operations.
We also utilize approximately 7,000 square feet of office space located in
Pittsburgh, Pennsylvania, under an operating lease expiring in 2003.
19
Item 3. Legal Proceedings
We had an agreement with Genpharm whereby we benefited from the sale of
ranitidine tablets by Novopharm under a separate agreement between Genpharm and
Novopharm. Based on an independent audit, Genpharm initiated a lawsuit in the
general division of Ontario Court, Canada, against Novopharm to resolve contract
interpretation issues and collect additional funds due. In response to
Genpharm's suit, Novopharm filed counterclaims against both Genpharm and the
Company. In March 2001, the Company, Genpharm and Novopharm reached a settlement
dismissing all claims between the parties.
In June 1998, we filed suit in Los Angeles Superior Court against American
Bioscience, Inc. (ABI), American Pharmaceutical Partners, Inc. (APP) and certain
of their directors and officers. Our suit sought various legal and equitable
remedies. In June 1999, the defendants filed their answer and a cross-complaint
against the Company. The cross-complaint sought unspecified compensatory and
punitive damages.
In August 2000, we entered into a settlement agreement with ABI, APP and
certain of their directors and officers. The settlement resulted in the
resolution of all differences, disputes and claims raised in the complaint and
cross-complaint mentioned above. Upon settlement, we received $5,000,000 from
ABI for our equity investment in VivoRx, Inc. In December 2000, as required
under the terms of the settlement, we received payment from ABI for the transfer
to ABI of ABI's common stock owned by us. This payment has been included in
other income, net of expenses, in the amount of $9,200,000.
The Company was involved in a dispute with KaiGai Pharmaceuticals, Co. Ltd.
(KaiGai) relating to a license and supply contract which both parties claim was
breached. KaiGai sought damages in excess of $20,000,000. The dispute was
subject to binding arbitration, and in November 1999, the arbitration panel
denied KaiGai's request for damages. KaiGai appealed the award to the United
States District Court for the Central District of California. In July 2000, our
motion to dismiss KaiGai's appeal was granted.
In December 1998, the FTC filed suit in U.S. District Court for the
District of Columbia against the Company. The FTC's complaint alleges the
Company engaged in restraint of trade, monopolization, attempted monopolization
and conspiracy to monopolize arising out of certain agreements involving the
supply of raw materials used to manufacture two drugs.
The FTC also sued in the same case the foreign supplier of the raw
materials, the supplier's parent company and its United States distributor.
Under the terms of the agreements related to these raw materials, the Company
had agreed to indemnify these parties. The Company is a party to other suits
filed in the same court involving the Attorneys General from all states and the
District of Columbia and more than 25 putative class actions that allege the
same conduct alleged in the FTC suit, as well as alleged violations of state
antitrust and consumer protection laws.
The relief sought by the FTC includes an injunction barring the Company
from engaging in the challenged conduct, recision of certain agreements and
disgorgement in excess of $120,000,000. The states and private parties seek
similar relief, treble damages and attorneys' fees. The Company's motions to
dismiss several of the private actions were granted.
20
In July 2000, the Company reached a tentative agreement to settle the
actions brought by the FTC and the States Attorneys General regarding raw
material contracts for lorazepam and clorazepate. The Company has agreed to pay
$100,000,000 plus up to $8,000,000 in attorneys' fees incurred by the States
Attorneys General. Based on the FTC commissioners' approval of the tentative
settlement with the FTC and States Attorneys General, in December 2000, the
Company placed into escrow $100,000,000. Settlement papers have been executed
and filed by the parties. The court has preliminarily approved the tentative
settlement. Under the court's current schedule, a hearing with respect to final
approval is scheduled for November 29, 2001.
In July 2000, the Company also reached a tentative agreement to settle
private class action lawsuits filed on behalf of consumers and third-party
reimbursers related to the same facts and circumstances at issue in the FTC and
States Attorneys General cases. The Company has agreed to pay $35,000,000 to
settle the third party reimburser actions, plus up to $4,000,000 in attorneys'
fees incurred by counsel in the consumer actions. The tentative settlement has
been preliminarily approved by the court, pursuant to which the Company placed
into escrow $35,000,000 in March 2001. Under the court's current schedule, a
hearing with respect to final approval is scheduled for November 29, 2001.
In total, the Company has agreed to pay up to $147,000,000 to settle these
actions brought by the FTC, States Attorneys General, and certain private
parties (Tentative Settlement). The Tentative Settlement also includes three
companies indemnified by the Company - Cambrex Corporation, Profarmaco S.r.l.
and Gyma Laboratories, Inc. Lawsuits not included in this Tentative Settlement
principally involve alleged direct purchasers such as wholesalers and
distributors.
The Company believes that it has meritorious defenses, with respect to the
claims asserted, in those anti-trust suits which are not part of the Tentative
Settlement and will vigorously defend its position. However, an adverse result
in these cases, or if the Tentative Settlement is not given final approval by
the court, the outcome of continued litigation of these cases could have a
material adverse effect on the Company's financial position and results of
operations.
A qui tam action was also commenced by a private party in the U.S. District
Court for the District of South Carolina purportedly on behalf of the United
States alleging violations of the False Claims Act and other statutes. In
January 2001, the District Court granted the Company's motion to dismiss. The
time for filing an appeal has lapsed.
In addition to these cases, in January 1999, a class action suit was filed
by Frank Ieradi on behalf of himself and other similarly situated shareholders
in the U.S. District Court of the Western District of Pennsylvania. In this
suit, the plaintiff alleged violations of federal securities laws by the Company
and certain of its current and former directors and officers and asked for
compensatory damages in an unspecified amount. In December 1999, the U.S.
District Court of the Western District of Pennsylvania granted the Company's
motion to dismiss the case. In August 2000, the U.S. Court of Appeals for the
Third Circuit affirmed the decision of the District Court. No further appeal of
this case has been taken.
21
The Company filed an ANDA seeking approval to market buspirone, a generic
equivalent to Bristol-Myers Squibb's (BMS) BuSpar(R). The Company had filed the
appropriate certifications relating to the patents then listed in the Orange
Book for this product. On November 21, 2000, a new patent claiming the
administration of a metabolite of buspirone (which BMS claims also covers the
administration of buspirone itself) was issued to BMS. The subsequent listing of
this patent in the Orange Book prevented the FDA from granting final approval
for the Company's buspirone ANDA. On November 30, 2000, the Company filed suit
against the FDA and BMS in the United States District Court for the District of
Columbia. The complaint asked the court to order the FDA to immediately grant
final approval of the Company's ANDA for the 15mg buspirone product and require
BMS to request withdrawal of the patent from the Orange Book. Upon the Company
posting a bond in the amount of $25,000,000, the court entered an order granting
the Company's motion for a preliminary injunction. Following a brief stay by the
court of appeals, the FDA granted approval for the Company's ANDA with respect
to the 15mg strength. Upon receiving FDA approval, the Company commenced
marketing and selling the product in March 2001. BMS appealed the preliminary
injunction order to both the Court of Appeals for the Federal Circuit and the
Court of Appeals for the District Court of Columbia Circuit. The Federal Circuit
is hearing the appeal on an expedited basis.
The Company is involved in three other suits related to the buspirone
ANDAs. In November 2000, the Company filed suit against BMS in the United States
District Court for the Northern District of West Virginia. The suit seeks a
declaratory judgement of non-infringement and/or invalidity of the BMS patent
listed in November 2000. In January 2001, BMS sued the Company for patent
infringement in the United States District Court for the District of Vermont and
also in the United States Court for the Southern District of New York. In each
of these cases, BMS asserts the Company infringes BMS' recently issued patent
and seeks to rescind FDA approval of the Company's 15mg ANDA and to block
approval of the 5mg, 10mg and 30mg strengths. It is expected that BMS will seek
to recover damages equal to the profits it has lost as a result of the Company's
sales of this product. While the suits are in the early stages, the Company
believes it has meritorious defenses to the claims and intends to vigorously
defend its position. An adverse outcome could have a material adverse effect on
the Company's operations and/or financial position.
In February 2001, Biovail Corporation (Biovail) filed suit against the
Company and Pfizer Inc. (Pfizer) in United States Federal District Court for the
Eastern District of Virginia alleging anti-trust violations with respect to
agreements entered into between the Company and Pfizer regarding nifedipine. The
Company filed a motion to transfer the case to United States Federal District
Court for the Northern District of West Virginia, which was granted. While this
suit is in its early stages, the Company believes it has meritorious defenses to
the claims asserted by Biovail and intends to vigorously defend its position. An
adverse outcome could have a material adverse effect on the Company's operations
and/or financial position.
In May 2001, Great Lakes Health Plan Inc. filed suit against the Company in
the United States District Court for the Eastern District of Michigan, Southern
Division. The suit alleges anti-trust claims based on a settlement agreement
entered into by the Company with Bayer AG, Bayer Corporation and Pfizer Inc.
regarding nifedipine. The Company believes the suit is without merit and intends
to vigorously defend its position.
22
We are involved in various legal proceedings that are considered normal to
our business. While it is not feasible to predict the ultimate outcome of such
proceedings, it is the opinion of management that the ultimate outcome will not
have a material adverse effect on the results of our operations or our financial
position.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
Our common stock is traded on the New York Stock Exchange under the symbol
"MYL". The following table sets forth the quarterly high and low common share
price information for the periods indicated:
Fiscal 2001 High Low
----------- ---- ---
First quarter $32.25 $17.00
Second quarter 27.94 18.06
Third quarter 30.00 22.50
Fourth quarter 25.85 21.00
Fiscal 2000
First quarter $28.38 $21.63
Second quarter 30.31 17.06
Third quarter 25.63 17.19
Fourth quarter 30.00 22.50
As of April 30, 2001, we estimate that there were approximately 72,792
holders of our common stock, including those who held in street or nominee name.
We have paid dividends since April 1992. For both fiscal 2001 and 2000, we
paid quarterly cash dividends of $.04 per common share.
23
Item 6. Selected Financial Data
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
Notes to Consolidated Financial Statements included elsewhere in this report.
(in thousands, except per share data and notes)
Fiscal year ended March 31, 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Statements of Earnings:
Net revenues $ 846,696 $ 790,145 $ 721,123 $ 555,423 $ 440,192
Cost of sales 464,521 369,377 339,342 288,290 259,666
--------- --------- --------- --------- ---------
Gross profit 382,175 420,768 381,781 267,133 180,526
Operating expenses:
Research and development 64,385 49,121 61,843 46,278 42,633
Selling and administrative 151,212 148,688 122,468 96,708 79,948
Acquired in-process research
And development - - 29,000 - -
Tentative litigation settlement 147,000 - - - -
--------- --------- --------- --------- ---------
Earnings from operations 19,578 222,959 168,470 124,147 57,945
Equity in (loss) earnings of Somerset (1,477) (4,193) 5,482 10,282 18,814
Other income, net 39,912 23,977 18,342 13,960 10,436
--------- --------- --------- --------- ---------
Earnings before income taxes 58,013 242,743 192,294 148,389 87,195
Provision for income taxes 20,885 88,497 76,885 47,612 24,068
--------- --------- --------- --------- ---------
Net earnings $ 37,128 $ 154,246 $ 115,409 $ 100,777 $ 63,127
========= ========= ======== ========= =========
Selected Balance Sheet data at March 31,
Working capital $ 588,037 $ 598,976 $ 475,398 $ 379,726 $ 323,942
Total assets 1,465,973 1,341,230 1,206,661 847,753 777,580
Long-term obligations 23,345 30,630 26,827 26,218 32,593
Total shareholders' equity 1,132,536 1,203,722 1,059,905 744,465 659,740
Per common share data:
Net earnings - diluted $ .29 $ 1.18 $ .91 $ .82 $ .51
Shareholders' equity - diluted $ 8.94 $ 9.24 $ 8.34 $ 6.05 $ 5.38
Cash dividends declared and paid $ .16 $ .16 $ .16 $ .16 $ .16
Weighted average common shares
Outstanding - diluted 126,749 130,224 127,156 123,043 122,727
In July 2000, we reached a tentative settlement with the Federal Trade
Commission, States Attorneys General and certain private parties with regard to
lawsuits filed against the Company relating to pricing issues and raw material
contracts on two of our products. As a result, we recognized a tentative
litigation settlement charge of $147,000,000. Excluding the tentative settlement
charge, net earnings for fiscal 2001 were $131,208,000, or $1.04 per basic and
diluted share.
In June 2000, we completed the Stock Repurchase Program authorized and announced
by the Board of Directors in April 1997. We repurchased 4,855,100 shares for
$91,456,000 with cash provided from operating activities.
In October 1998, we acquired 100% of the common stock of Penederm Inc. (see Note
3 in the Notes to Consolidated Financial Statements). The Consolidated
Statements of Earnings reflect Penederm's results of operations from the date of
acquisition.
In fiscal 1998, net revenues included other income of $26,822,000 in connection
with a supply agreement between Genpharm Inc. and Novopharm Limited (see Note 19
in the Notes to Consolidated Financial Statements).
24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
the fiscal 2001 Consolidated Financial Statements and related Notes to
Consolidated Financial Statements included elsewhere in this report. All
references to fiscal years shall mean the twelve-month period ended March 31.
Overview
Mylan Laboratories Inc. and its subsidiaries develop, manufacture, market
and distribute generic and brand pharmaceutical products. The Generic Segment
currently represents the largest portion of our business in terms of net
revenues, gross profit, operating expenses and earnings from operations.
However, we have been increasing our emphasis on brand products. Brand product
net revenues as a percent of total net revenues were 17%, 15% and 12% in fiscal
2001, 2000 and 1999, respectively. Additionally, Brand Segment research and
development expenses represented 27%, 20% and 5% of total research and
development expenses in fiscal 2001, 2000 and 1999, respectively. Our focus on
brand products will likely result in continued increases in Brand Segment
research and development expenses, as well as increases in selling and
administrative expenses to support new brand product sales.
Generic pharmaceutical products are products that have demonstrated
bioequivalence to a reference brand product. Generic product development follows
an Abbreviated New Drug Application (ANDA) process as specified by the Food and
Drug Administration (FDA). We experience significant competitive pressures in
the marketplace which often result in price and volume erosion. We strive to
take advantage of opportunities to maintain profit margins through the
development or in-licensing of products. We try to attain a 'first to file'
status through the ANDA process which may provide up to 180 days of market
exclusivity from other generic competitors. Our primary customers for our
generic products are wholesalers, warehousing chains, group purchasing
organizations, distributors, institutions and governmental agencies. The
competitive pressures, regulatory environment and the uncertainties of the
development process provide significant potential for variations in net revenues
and profitability.
The Brand Segment consists of brand and branded generic products. Brand
products generally provide for higher, sustainable gross profits due to their
patent protection. Brand product development follows the FDA's New Drug Approval
(NDA) process that requires significantly more time and expense to complete.
Brand products generally require significantly greater marketing expenses
and the use of much larger sales forces in order to generate product awareness
at the prescriber level. Brand products are generally sold through the same
customers as the Generic Segment; however, brand product success is highly
correlated with our ability to increase the number of prescriptions written and
dispensed for a specific brand product. Although brand products generally
provide higher margins for a longer time period, the rigors of the NDA process,
competing technological changes, requisite marketing expenses and the need for a
successful sales force effort provide significant uncertainties in our brand
product efforts. There are certain products without patent protection that are
marketed by our Brand Segment due to their established brand recognition or due
to promotional sensitivity.
25
The following table presents our results of operations for each of our
business segments:
Fiscal Change
(in millions) 2001 2000 1999 2001 2000
---- ---- ---- ---- ----
Consolidated:
Net revenues $ 846.7 $790.1 $721.1 7% 10%
Gross profit 382.2 420.8 381.8 (9%) 10%
Research and development 64.4 49.1 61.8 31% (21%)
Selling and administrative 151.2 148.7 122.5 2% 21%
Pretax earnings 58.0 242.7 192.3 (76%) 26%
Generic Segment:
Net revenues 701.4 667.8 638.1 5% 5%
Gross profit 294.2 345.4 329.5 (15%) 5%
Research and development 47.2 39.2 58.7 20% (33%)
Selling and administrative 38.8 44.9 44.7 (14%) 0%
Segment profit 208.2 261.2 226.2 (20%) 15%
Brand Segment:
Net revenues 145.3 122.3 83.0 19% 47%
Gross profit 88.0 75.4 52.3 17% 44%
Research and development 17.2 9.9 3.1 74% 219%
Selling and administrative 65.7 49.9 34.2 32% 46%
Segment profit 5.1 15.6 14.9 (67%) 5%
Corporate/Other Segment:
Segment loss $(155.3) $(34.1) $(48.8) 355% (30%)
Segment net revenues represent sales to unrelated third parties. Segment
profit is pretax. For the Generic and Brand Segments, segment profit represents
segment gross profit less direct research and development and selling and
administrative expenses. Segment loss for Corporate/Other includes legal costs,
goodwill amortization, other corporate administrative expenses and other income
and expense. In fiscal 2001, Corporate/Other includes the expense of $147.0
million for the tentative settlement with the FTC and related litigation (see
Note 19 in the Notes to Consolidated Financial Statements). In fiscal 1999,
Corporate/Other includes expense of $29.0 million for acquired in-process
research and development related to the Penederm acquisition (see Note 3 in the
Notes to Consolidated Financial Statements).
26
Results of Operations
Fiscal 2001 compared to Fiscal 2000
Net earnings for fiscal 2001, were $37.1 million, or $.29 per diluted
share, compared to $154.2 million, or $1.18 per diluted share, for fiscal 2000.
In June 2000, we reached a tentative settlement with the Federal Trade
Commission, States Attorneys General and certain private parties with regard to
lawsuits filed against the Company relating to pricing issues and raw material
contracts on two of our products (see Note 19 in the Notes to Consolidated
Financial Statements). Excluding the $147.0 million before tax effect of the
settlement, net earnings for fiscal 2001 were $131.2 million, or $1.04 per
diluted share.
Net Revenues and Gross Profit
Net revenues for fiscal 2001 were $846.7 million compared to $790.1 million
for fiscal 2000, an increase of $56.6 million. The 7% increase in net revenues
is attributable to increased net revenues for both our Generic and Brand
Segments, with 59% or $33.6 million of the growth from the Generic Segment and
41% or $23.0 million of the increase contributed by the Brand Segment.
Fiscal 2001 Generic Segment net revenues benefited from the addition of
eight new products to our generic product line that resulted in aggregate net
revenue increases of $22.9 million. Nifedipine, which we launched in late fiscal
2000 through a license and supply agreement, increased net revenues by $136.3
million in fiscal 2001 as compared to fiscal 2000. Additional net revenue
increases were derived from sales of carbidopa/levodopa which increased by $36.9
million as compared to the prior year. The net revenue increase provided from
these and other products was partially offset by reduced prices and volumes
related to sales of lorazepam and clorazepate, which declined $82.7 million as
compared to fiscal 2000. Other products for which we had increased prices in
prior years had price and volume erosion that totaled $27.6 million in fiscal
2001 compared to fiscal 2000. We anticipate that we will experience pricing and
volume pressure related to nifedipine due to the entry of another competitor in
the latter part of fiscal 2001. Additional price and volume erosion related to
lorazepam and clorazepate should not be a significant factor in future periods
given the extent of past erosion and current sales levels.
During the last week of March 2001, we launched buspirone HCl 15mg, which
is indicated for the management of anxiety disorders or the short-term relief of
the symptoms of anxiety. We are entitled to 180 days of exclusivity on this
dosage strength through September 2001. We are currently litigating certain
issues relating to buspirone (see Note 19 in the Notes to Consolidated Financial
Statements).
27
Brand Segment net revenue increases were largely the result of increases
from clozapine, Kristalose(R), Digitek(R), Avita(R) and Mentax(R) as compared to
fiscal 2000. No individual product represented a significant portion of the net
revenue increase. The increases in net revenues were partially offset by a $6.0
million decrease in Zagam(R) sales due to product supply issues resulting from
our contract supplier, as well as decreases in various nonpromoted brand
products, including the wound and burn care product line. The Zagam(R) supply
issues have impaired our ability to market this product. Consequently, we have
reduced related inventories to net realizable value and written-off the related
product license intangible.
Gross profit for fiscal 2001 was $382.2 million, or 45% of net revenues,
compared to $420.8 million, or 53% of net revenues, for fiscal 2000, a $38.6
million or 9% decrease. Generic Segment gross profit decreased largely due to
both price and volume erosion on lorazepam and clorazepate, as well as decreases
related to other products that also had price increases in prior years. These
decreases, coupled with the lower gross profit resulting from contractual
obligations associated with nifedipine, resulted in a lower overall generic
gross profit in fiscal 2001. Brand Segment gross profit was also lower due to
the absence of Zagam(R) sales, the $2.4 million write-down of Zagam(R)
inventories and overall product sales mix.
Research and Development
Research and development expenses for fiscal 2001 were $64.4 million, or 8%
of net revenues, compared to $49.1 million, or 6% of net revenues in fiscal
2000. The increase of $15.3 million is primarily attributed to increased studies
expenses for both generic and brand product development projects, as well as
increased licensing expenses associated with joint development opportunities.
Generic Segment research and development expenses increased $8.0 million to
$47.2 million in fiscal 2001 compared to fiscal 2000. The increase was primarily
due to milestone payments for in-licensed products and increased expenses due to
biostudies and raw materials, as well as payroll and payroll related expenses.
Brand Segment research and development expenses were $17.2 million in
fiscal 2001, an increase of $7.3 million as compared to fiscal 2000. The
increase was due largely to additional clinical trial expenses and milestone
payments under product licensing arrangements. We anticipate that Brand Segment
research and development expenses will continue to increase due to our emphasis
on brand product research and development. In the latter part of fiscal 2001, we
obtained the rights to develop and, upon FDA approval, to market nebivolol in
the United States and Canada. The clinical development program and potential
additional milestone payments related to nebivolol will significantly increase
Brand Segment research and development in future periods.
We are actively pursuing and are involved in joint development projects in
an effort to broaden our scope of capabilities to market both generic and brand
products. Many of these arrangements provide for payments by us upon the
attainment of specified milestones. While these arrangements help to reduce our
financial risk for unsuccessful projects, fulfillment of milestones or the
occurrence of other obligations may result in fluctuations in research and
development expenses.
28
Selling and Administrative
Selling and administrative expenses for fiscal 2001 were $151.2 million, or
18% of net revenues, relatively unchanged compared to $148.7 million, or 19% of
net revenues, in fiscal 2000. Generic Segment selling and administrative
expenses were $38.8 million in fiscal 2001 which represented a $6.1 million
decrease from the prior year. The decrease was primarily due to lower
promotions, advertising and professional fee expenses.
Brand Segment selling and administrative expenses increased $15.8 million
to $65.7 million in fiscal 2001 compared to fiscal 2000. The increase was
largely the result of a $7.8 million write-off of the Zagam(R) product license
intangible. Additional increases were due to increased payroll and payroll
related expenses, product sample expenses and expenses associated with our
consolidation of the Brand Segment non-manufacturing operations. Future Brand
Segment selling and administrative expenses are expected to increase to support
new product introductions.
Corporate administrative expenses for fiscal 2001 were $46.7 million
compared to $53.9 million for fiscal 2000, a decrease of $7.2 million. Lower
legal expenses accounted for most of the decrease.
Tentative Litigation Settlement
In July 2000, we reached a tentative settlement with the Federal Trade
Commission (FTC), States Attorneys General and certain private parties with
regard to lawsuits filed against the Company relating to pricing issues and raw
material contracts on two of our products. As a result, we recognized a
litigation settlement charge of $147.0 million (see Note 19 in the Notes to
Consolidated Financial Statements).
Equity in Loss of Somerset
We own a 50% interest in Somerset Pharmaceuticals, Inc. (Somerset). Watson
Pharmaceuticals, Inc. owns the remaining 50% interest. We account for our
investment in Somerset using the equity method of accounting. Somerset is
engaged in the manufacturing and marketing of Eldepryl(R)(selegiline), its sole
commercial product which is used for the treatment of Parkinson's disease.
Somerset also conducts research and development activities related to new
indications and delivery technologies for selegiline and other products.
Our portion of Somerset's losses in fiscal 2001 was $1.5 million compared
to $4.2 million in fiscal 2000. The decrease in fiscal 2001 is primarily
attributable to decreased research and development expenses. Our earnings may
continue to be adversely affected by Somerset's efforts to develop and receive
approval for a patented delivery system for an alternative indication for
selegiline.
Other Income
Other income for fiscal 2001 was $39.9 million compared to $24.0 million
for fiscal 2000. The $15.9 million increase is primarily attributed to gains of
$9.2 million and $4.4 million related to a settlement with American Bioscience,
Inc. (see Note 19 in the Notes to Consolidated Financial Statements) and the
sale of certain intangible assets, respectively.
29
Other income recognized in fiscal 2001 also included income from our
investment in a certain limited partnership of $14.9 million as compared to
$15.4 million in fiscal 2000. Although, in fiscal 2001, we liquidated $52.2
million of this investment in an effort to reduce our exposure to market
fluctuations in fiscal 2001, future performance of this investment is uncertain.
Income Taxes
Our effective tax rate for fiscal 2001 was 36.0% compared to 36.5% for
fiscal 2000. For future years, we believe the effective tax rate will remain
relatively constant with potential opportunities for minimal decreases.
Fiscal 2000 Compared to Fiscal 1999
Net earnings for fiscal 2000 were $154.2 million, or $1.18 per diluted
share, compared to $115.4 million, or $.91 per diluted share, for fiscal 1999.
Net Revenues and Gross Profit
Net revenues for fiscal 2000 were $790.1 million compared to $721.1 million
for fiscal 1999. The $69.0 million or 10% increase is attributable to increased
net revenues for both our Generic and Brand Segments, with 43% or $29.7 million
of the growth from the Generic Segment and 57% or $39.3 million from the growth
of the Brand Segment.
In fiscal 2000, Generic Segment net revenues increased significantly due to
the addition of 17 new products to our generic product line that resulted in
aggregate net revenues of $42.6 million. Five of the 17 new products added in
fiscal 2000 accounted for over 90% of the aggregate net revenues for new
products. Products on which we had raised prices during the prior two fiscal
years increased net revenues by $39.0 million compared to fiscal 1999. Net
revenues also increased due to a 10% increase in volume. The net revenue
increases were partially offset by price erosion on lorazepam and clorazepate,
which declined $47.0 million, and other products, which declined $41.0 million.
Net revenues for our Brand Segment increased 47% in fiscal 2000. The
increase was primarily attributed to a full year of Penederm net revenues as
opposed to a half-year of net revenues in fiscal 1999, the year of acquisition
(see Note 3 in the Notes to Consolidated Financial Statements). The October 1998
acquisition of Penederm expanded our presence in one of our targeted markets,
dermatology. Dermatology products accounted for approximately 38% of net
revenues for our Brand Segment in fiscal 2000.
Gross profit for fiscal 2000 was $420.8 million compared to $381.8 million
for fiscal 1999, a $39.0 million or 10% increase. Gross profit as a percent of
net revenues was 53% for both years. The increase in Generic Segment gross
profit was primarily the result of new products and additional volume. The
increase in Brand Segment gross profit was primarily attributed to the Penederm
acquisition.
30
Research and Development
Research and development expenses in fiscal 2000 were $49.1 million, or 6%
of net revenues, compared to $61.8 million, or 9% of net revenues, in fiscal
1999. The $12.7 million decrease is primarily attributed to the Generic Segment
as a result of an arbitration award in fiscal 1999 in which we recorded
approximately $10.0 million in funding obligations.
Selling and Administrative
Selling and administrative expenses in fiscal 2000 were $148.7 million, or
19% of net revenues, compared to $122.5 million, or 17% of net revenues, in
fiscal 1999. This increase is primarily attributed to a full year of expenses in
our Brand Segment related to Penederm in fiscal 2000 compared to only a
half-year in fiscal 1999. Also contributing to the increase were amortization
expense and increased payroll and payroll related expenses associated with the
addition of direct sales representatives and customer support personnel.
Corporate legal expenses also contributed to the increase, principally as a
result of the continued FTC litigation initiated in December 1998.
In-Process Research and Development
In connection with our acquisition of Penederm, we allocated $29.0 million
of the purchase price to in-process research and development in fiscal 1999 (see
Note 3 in the Notes to Consolidated Financial Statements).
Equity in Loss of Somerset
In fiscal 2000, we recognized a loss of $4.2 million on our investment in
Somerset as compared to earnings of $5.5 million in fiscal 1999. The loss in
fiscal 2000 resulted from lower sales due to increased generic competition in
the market for Eldepryl(R) and increased research and development expenditures.
Other Income
Other income in fiscal 2000 was $24.0 million compared to $18.3 million in
fiscal 1999. Increasing interest rates and significantly higher cash and
investment balances favorably impacted other income throughout fiscal 2000.
Income Taxes
The effective tax rate in fiscal 2000 was 36.5% compared to 40.0% in fiscal
1999. Approximately 5% of the fiscal 1999 tax rate was the result of the $29.0
million charge for acquired in-process research and development associated with
the Penederm acquisition which was not deductible for tax purposes.
Liquidity and Capital Resources
Working capital was $588.0 million at March 31, 2001, compared to $599.0
million at March 31, 2000, and $475.4 million at March 31, 1999. Cash and cash
equivalents were $229.2 million at March 31, 2001, compared to $203.5 million at
March 31, 2000, and $189.8 million at March 31, 1999.
31
Net cash provided from operating activities in fiscal 2001 was $67.0
million compared to $120.3 million in fiscal 2000 and $165.5 million in fiscal
1999. Net cash provided from operating activities in fiscal 2001 was adversely
affected by the tentative litigation settlement charge of $147.0 million. Other
items impacting net cash provided from operating activities in fiscal 2001 were
increases in accounts receivable of $78.8 million, income tax benefit of $28.2
million and inventory of $17.2 million. Net cash provided from operating
activities during fiscal 2001 was also impacted by depreciation and amortization
of $42.4 million and increases in adjustments for accounts receivable related to
estimated credits of $41.2 million, trade accounts payable of $30.9 million and
accrued income taxes of $29.1 million.
Net cash provided from investing activities totaled $70.6 million in fiscal
2001 compared to net cash used in investing activities of $73.9 million in
fiscal 2000 and $54.9 million in fiscal 1999. The shift in fiscal 2001 was
primarily related to the liquidation of $52.2 million of our interest in a
limited partnership, net cash provided from purchases and sales of marketable
securities of $37.8 million and proceeds from the sale of certain intangible
assets of $12.8 million.
Capital expenditures continue to be purchased with the funds generated from
operating activities. Capital expenditures were $24.7 million for fiscal 2001
compared to $29.8 million and $18.8 million for fiscal 2000 and fiscal 1999. The
funds in the current year were primarily used to complete a sales and
administration building in Morgantown, West Virginia, and an addition to one of
our generic manufacturing facilities in Puerto Rico. Capital expenditures in
fiscal 2002 are anticipated to remain at approximately the same level as fiscal
2001 in order to continue our increase of capacity and innovation. Currently, we
plan to dispose of three facilities: an administration facility in Sugar Land,
Texas, a liquid pharmaceutical manufacturing facility and a warehouse, both in
Largo, Florida.
Financing activities during fiscal 2001 included repurchases of over 4.8
million shares of common stock, totaling $91.5 million. During fiscal years
2001, 2000 and 1999, we have paid cash dividends of $.16 per common share
totaling $20.1 million, $20.7 million and $19.8 million, respectively. Proceeds
from the exercise of stock options related to our stock option plans totaled
$5.7 million, $3.6 million and $10.1 million in fiscal 2001, 2000 and 1999,
respectively. We have made payments totaling $6.0 million, $15.7 million and
$14.7 million in fiscal 2001, 2000 and 1999, respectively, on long-term
obligations for product acquisitions entered into prior to fiscal 2001.
In fiscal 2002, we believe that operating activities from the sale of our
pharmaceutical products will be our principal source of cash. However, to
provide us with additional operating leverage if needed, in March 2001, we
entered into a one-year agreement with a commercial bank to establish a
revolving line of credit up to $50.0 million (see Note 9 in the Notes to
Consolidated Financial Statements). As of March 31, 2001, we did not have any
outstanding borrowings under this line of credit.
We believe that the acquisition of new products, as well as other
companies, will play a strategic role in our growth. Consequently, to finance
these acquisitions, we may incur additional indebtedness which would impact
future liquidity and most likely subject us to various debt covenants.
32
In connection with the tentative litigation settlement charge (see Note 19
in the Notes to Consolidated Financial Statements), we have an additional $12.0
million obligation to fund. If the tentative settlement is not given final court
approval, the outcome of continued litigation of these cases could have a
material adverse effect on our financial position and results of operations.
In fiscal 2001, payments for state and federal income taxes decreased due
to the lower taxable earnings resulting from the tentative litigation settlement
charge of $147.0 million. Payments for state and federal income taxes are
expected to significantly increase in fiscal 2002 to correlate with higher
taxable earnings.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. The Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivatives embedded in other contracts and hedging activities. It requires an
entity to recognize all derivative instruments as either assets or liabilities
on the balance sheet at fair value and that changes in fair value be recognized
currently in earnings, unless specific hedge accounting criteria are met. In
June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133, which delayed the required adoption of SFAS No. 133 to fiscal years
beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities, an
amendment to SFAS No. 133. We adopted the provisions of SFAS No. 133, as
amended, effective April 1, 2001. We have concluded that there are no transition
adjustments to record as of April 1, 2001, to reflect the adoption of SFAS No.
133, as amended.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
SAB No. 101 summarizes certain of the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements. After
giving consideration to the guidance provided by SAB No. 101, we have concluded
that the cumulative effect adjustment for the implementation of SAB No. 101 is
not material.
Fluctuating Results of Operations and Liquidity
In the past, our results of operations have fluctuated on both an annual
and a quarterly basis. These fluctuations have resulted from several timing
factors, including, among others, new product approvals, new product launches,
as well as those of our competitors, product and/or business acquisitions,
litigation settlements and milestone payments related to in-licensing research
and development projects.
33
We believe we will continue to experience fluctuations in net revenues,
gross profit, net earnings and liquidity. Such fluctuations will result from,
among other things, the timing of regulatory approvals and market introduction
of our new products, as well as those of our competitors, downward pricing
pressure on products available from multiple approved sources and the timing of
milestone payments related to in-licensing research and development projects.
Risk of Product Liability Claims
The testing, manufacturing and marketing of pharmaceutical products subject
the Company to the risk of product liability claims. The Company is a defendant
in a number of product liability cases, none of which we believe will have a
material adverse effect on our business, results of operations or financial
condition. We believe that we maintain an adequate amount of product liability
insurance, but no assurance can be given that our insurance will cover all
existing and future claims or that we will be able to maintain existing coverage
or obtain additional coverage at reasonable rates.
Forward-Looking Statements
The statements set forth in this Annual Report concerning the manner in
which we intend to conduct our future operations, potential trends that may
impact future results of operations, and our beliefs or expectations about
future operations are forward-looking statements. Our actual results could
differ materially from those projected or suggested in any forward-looking
statement due to various important factors, including, but not limited to, the
following:
Our results of operations have historically depended, and continue to
depend, to a significant extent, on our ability to develop and bring to the
market new generic products. Generally, following the expiration of patents and
other market exclusivity periods, the first manufacturers to bring a generic
product to the market achieve higher revenues and gross profits than competitors
that subsequently enter the market. As additional manufacturers and distributors
bring their own versions of a generic product to the market, prices, sales
volume and profit margins typically decline, often precipitously. Furthermore,
in recent years, we have increased prices on selected older generic products. As
expected, these price increases have provided an incentive to other generic
manufacturers to reenter the market for many of these products. Price
deterioration can be expected on both our new generic products and older
products on which we have raised prices. (See "Results of Operations - Net
Revenues and Gross Profit.")
34
Our periodic introduction of new generic products has historically enabled
us to counterbalance eroding revenues and margins from older products. However,
our results of operations for fiscal 2001 continued to be impacted by delays in
our ability to introduce new generic products due to litigation initiated by
branded manufacturers under the Waxman-Hatch Act to extend the exclusivity
periods on drugs on which patents were expiring. The continuing failure of
Congress and the courts to recognize and provide redress for the present abuses
of the Waxman-Hatch Act could materially diminish the commercial success of new
generic products we seek to introduce, resulting in both lower revenues and
gross profits. In addition, the commercial success of new generic products could
also be diminished as a result of the increasingly aggressive posture some
branded companies have taken in seeking to extend the reach of patent protection
on products on which the original patents have expired.
We are seeking to strengthen our development of brand products. Obtaining
approval from the FDA to market brand pharmaceutical products in the United
States is a lengthy, complex and expensive process. Products that appear to be
promising in the research laboratories may fail to survive the testing phase due
to ineffectiveness or as a result of unforeseen side effects. Even if we are
successful in obtaining approval for new products, no assurance can be given
that such products will be accepted in the medical community as being effective
as a treatment for indicated conditions. Furthermore, even if a product is
highly effective as a treatment for indicated conditions, its commercial success
may be adversely impacted by lower-priced alternatives or the more effective
marketing campaigns of competitors.
Our principal customers include wholesale drug distributors and major drug
store chains. A continuation of the consolidation that has been experienced in
these pharmaceutical distribution networks in recent years is likely to result
in pricing pressures on pharmaceutical manufacturers.
In July 2000, we entered into a tentative settlement (see Note 19 in the
Notes to Consolidated Financial Statements) to settle actions brought by the
Federal Trade Commission, the States Attorneys General from all states and the
District of Columbia and private class action lawsuits filed on behalf of
consumers and third party reimbursers involving anti-trust and anti-competition
claims. Not included in the tentative settlement are other anti-trust cases
principally involving direct purchasers and wholesalers. An unfavorable outcome
in these or other material suits in which we are involved could have a
potentially adverse effect on our financial position and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk primarily from changes in market values on
our investments in marketable debt and equity securities, including marketable
securities owned indirectly through certain pooled asset funds. Market prices on
debt securities generally bear an inverse relationship with changes in interest
rates. We also invest in overnight deposits and money market funds and
marketable securities with maturities of less than three months. These
instruments are classified as cash equivalents for financial reporting purposes
and have minimal or no interest rate risk due to their short-term nature. We
also invest in nonpublic securities, often in consideration of our strategic
interests. We do not consider these investments to be market risk sensitive.
35
We attempt to mitigate our exposure to market risk by assessing the
relative proportion of our investments in cash and cash equivalents and the
relatively stable and risk minimized returns available on such investments with
the risks attendant to our investments in other debt and equity securities. Our
objective in managing our exposure to changes in the market value of our
investments in debt and equity securities is to balance the risk of the impact
of such changes on earnings and cash flows with our expectations for investment
returns. Our pooled asset funds and certain other investments in debt and equity
securities are managed by professional portfolio managers. We were not a party
to any forward or derivative option contracts related to interest rates or
equity security prices during fiscal 2001 or 2000.
The fair market value of our debt securities at March 31, 2001, was $46.0
million, of which $25.9 million had maturities of less than one year (the market
values of which are generally less sensitive to interest rate fluctuations than
is the case with longer term debt instruments). The fair market value of our
equity securities at March 31, 2001, was $9.7 million. Such investments
collectively represent 4% of our total assets as of March 31, 2001, and 20% of
the aggregate value of debt and equity securities and cash and cash equivalents
held by us at such date. Assuming an instantaneous 10% decrease in the market
value of our debt and equity securities, the change in the aggregate fair market
value of these securities would be $5.6 million.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and
Supplementary Financial Information
Page
------
Consolidated Balance Sheets as of March 31, 2001, and 2000 37
Consolidated Statements of Earnings for the years ended
March 31, 2001, 2000 and 1999 38
Consolidated Statements of Shareholders' Equity for the
years ended March 31, 2001, 2000 and 1999 39
Consolidated Statements of Cash Flows for the years ended
March 31, 2001, 2000 and 1999 40
Notes to Consolidated Financial Statements 41
Independent Auditors' Report 59
Supplementary Financial Information 60
36
Mylan Laboratories Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
March 31, 2001 2000
Assets
Current assets:
Cash and cash equivalents $ 229,183 $ 203,493
Marketable securities 55,715 99,557
Accounts receivable, net 232,599 197,760
Inventories 161,810 148,673
Deferred income tax benefit 59,474 30,792
Deposit - tentative litigation settlement 135,000 -
Other current assets 5,443 6,471
------------ ------------
Total current assets 879,224 686,746
Property, plant and equipment, net 168,396 168,000
Intangible assets, net 296,181 332,142
Investment in and advances to Somerset 27,621 29,461
Other assets 94,551 124,881
------------ ------------
Total assets $1,465,973 $1,341,230
============ ============
Liabilities and shareholder' equity
Liabilities
Current liabilities:
Trade accounts payable $ 48,928 $ 17,981
Income taxes payable 34,348 7,858
Current portion of long-term obligations 5,245 9,874
Cash dividends payable 5,007 5,194
Tentative litigation settlement 147,000 -
Other current liabilities 50,659 46,863
------------ ------------
Total current liabilities 291,187 87,770
Long-term obligations 23,345 30,630
Deferred income tax liability 18,905 19,108
------------ ------------
Total liabilities 333,437 137,508
Shareholders' equity
Preferred stock - par value $.50 per share
Shares authorized: 5,000,000
Shares issued: none
Common stock - par value $.50 per share
Shares authorized: 300,000,000
Shares issued: 130,689,762 in 2001 and 130,277,568 in 2000 65,345 65,139
Additional paid-in capital 322,987 316,393
Retained earnings 840,741 823,570
Accumulated other comprehensive earnings 2,983 6,936
------------ ------------
1,232,056 1,212,038
Less treasury stock - at cost
Shares: 5,731,913 in 2001 and 893,498 in 2000 99,520 8,316
------------ ------------
Total shareholders' equity 1,132,536 1,203,722
------------ ------------
Total liabilities and shareholders' equity $1,465,973 $1,341,230
See Notes to Consolidated Financial Statements.
37
Mylan Laboratories Inc.
Consolidated Statements of Earnings
(in thousands, except per share data)
Fiscal year ended March 31, 2001 2000 1999
---- ---- ----
Net revenues $ 846,696 $ 790,145 $ 721,123
Cost of sales 464,521 369,377 339,342
----------- ----------- ----------
Gross profit 382,175 420,768 381,781
Operating expenses:
Research and development 64,385 49,121 61,843
Selling and administrative 151,212 148,688 122,468
Acquired in-process research and development - - 29,000
Tentative litigation settlement 147,000 - -
---------- ---------- ----------
Earnings from operations 19,578 222,959 168,470
Equity in (loss) earnings of Somerset (1,477) (4,193) 5,482
Other income, net 39,912 23,977 18,342
---------- ---------- ----------
Earnings before income taxes 58,013 242,743 192,294
Provision for income taxes 20,885 88,497 76,885
---------- ---------- ----------
Net earnings $ 37,128 $ 154,246 $ 115,409
========== ========== ===========
Earnings per common share:
Basic $ 0.30 $ 1.19 $ 0.92
========== ========== ===========
Diluted $ 0.29 $ 1.18 $ 0.91
========== ========== ===========
Weighted average common shares outstanding:
Basic 125,788 129,220 125,584
========== ========== ==========
Diluted 126,749 130,224 127,156
========== ========== ==========
See Notes to Consolidated Financial Statements.
38
Mylan Laboratories Inc.
Consolidated Statements of Shareholders' Equity
(in thousands, except share and per share data)
Accumulated
Additional Other Total
Common Stock Paid-In Retained Comprehensive Treasury Stock Shareholders' Comprehensive
Shares Amount Capital Earnings Earnings (Loss) Shares Amount Equity Earnings
------ ------ ---------- -------- -------------- -------------------- ------------- -------------
April 1, 1998 123,050,172 $61,525 $92,405 $594,847 $1,570 (849,858) $(5,882) $744,465 $ -
Net earnings - - - 115,409 - - - 115,409 115,409
Net unrealized loss on
marketable securities - - - - (465) - - (465) (465)
Stock options exercised 1,013,313 507 16,916 (141) (85,270) (2,642) 14,640 -
Reissuance of treasury stock - - - - - 46,550 342 342 -
Cash dividend $.16
per common share - - - (20,112) - - - (20,112) -
Penederm acquisition 5,905,029 2,952 202,674 - - - - 205,626 -
----------- ------ --------- ---------- -------- ---------- -------- ----------- ---------
March 31, 1999 129,968,514 64,984 311,995 690,003 1,105 (888,578) (8,182) 1,059,905 114,944
Net earnings - - - 154,246 - - - 154,246 154,246
Net unrealized gain on
marketable securities - - - - 5,831 - - 5,831 5,831
Stock options exercised 309,054 155 4,398 - - (4,920) (134) 4,419 -
Cash dividend $.16
per common share - - - (20,679) - - - (20,679) -
---------- ------- -------- -------- -------- --------- ------- ----------- -------
March 31, 2000 130,277,568 65,139 316,393 823,570 6,936 (893,498) (8,316) 1,203,722 160,077
Net earnings - - - 37,128 - - - 37,128 37,128
Net unrealized loss on
marketable securities - - - - (3,953) - - (3,953) (3,953)
Stock options exercised 412,194 206 6,492 - - (4,165) (109) 6,589 -
Shares repurchased - - - - - (4,855,100) (91,456) (91,456) -
Reissuance of treasury shares - - 102 - - 20,850 361 463 -
Cash dividend $.16
per common share - - - (19,957) - - - (19,957) -
------------ ------- -------- --------- ------- ----------- -------- ----------- ---------
March 31, 2001 130,689,762 $65,345 $322,987 $840,741 $2,983 (5,731,913) $(99,520) $1,132,536 $33,175
============ ======= ======== ======== ======= =========== ========= =========== ========
See Notes to Consolidated Financial Statements.
39
Mylan Laboratories Inc.
Consolidated Statements of Cash Flows
(in thousands)
Fiscal year ended March 31, 2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net earnings $37,128 $154,246 $115,409
Adjustments to reconcile net earnings to net cash
provided from operating activities:
Depreciation and amortization 42,392 35,706 26,911
Loss on disposal/sale of equipment 919 1,053 2,020
Gain on sale of certain intangible assets (4,367) - -
Deferred income tax benefit (28,222) (23,267) (10,314)
Equity in loss (earnings) of Somerset 1,477 4,193 (5,482)
Cash received from Somerset 363 460 1,089
Adjustments to accounts receivable related to
estimated credits 41,165 33,628 19,300
Write-off of investments and intangibles to
net realizable value 11,131 9,450 11,519
Tentative litigation settlement 147,000 - -
Tentative litigation settlement deposits (135,000) - -
Acquired in-process research and development - - 29,000
Other noncash items (10,044) (3,224) (12,165)
Changes in operating assets and liabilities:
Accounts receivable (78,819) (82,092) (30,411)
Inventories (17,203) (9,534) 11,328
Trade accounts payable 30,947 5,839 (4,282)
Income taxes 29,064 11,389 8,549
Other operating assets and liabilities, net (914) (17,578) 2,998
---------- ---------- ---------
Net cash provided from operating activities 67,017 120,269 165,469
---------- ---------- ---------
Cash flows from investing activities:
Capital expenditures (24,651) (29,841) (18,756)
Proceeds from partial liquidation of investment
in limited partnership 52,207 - -
Proceeds from sale of certain intangible assets 12,800 - -
Additions to other and intangible assets (7,520) (23,779) (7,915)
Purchase of marketable securities (104,029) (200,939) (79,816)
Proceeds from sale of marketable securities 141,782 180,706 50,151
Cash acquired net of acquisition costs - - 1,396
---------- ---------- ----------
Net cash provided from (used in) investing activities 70,589 (73,853) (54,940)
---------- ---------- ----------
Cash flows from financing activities:
Payments on long-term obligations (5,987) (15,696) (14,740)
Cash dividends paid (20,144) (20,663) (19,833)
Repurchase of common stock (91,456) - -
Proceeds from exercise of stock options 5,671 3,587 10,137
---------- --------- ---------
Net cash used in financing activities (111,916) (32,772) (24,436)
---------- --------- ---------
Net increase in cash and cash equivalents 25,690 13,644 86,093
Cash and cash equivalents - beginning of year 203,493 189,849 103,756
---------- ---------- ---------
Cash and cash equivalents - end of year $229,183 $203,493 $189,849
Cash paid during the year for:
Interest $867 $1,418 $1,800
Income taxes $20,052 $100,374 $78,650
========== =========== =========
See Notes to Consolidated Financial Statements.
40
Mylan Laboratories Inc.
Notes to Consolidated Financial Statements
Note 1. Nature of Operations
Mylan Laboratories Inc. and its subsidiaries (the Company or Mylan) are
engaged in the development, manufacture and distribution of pharmaceutical
products for resale by others. The principal markets for these products are
proprietary and ethical pharmaceutical wholesalers and distributors, drug store
chains, drug manufacturers, institutions, and public and governmental agencies
within the United States (U.S.).
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include the
parent and all its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents. Cash equivalents are composed of highly liquid
investments with an original maturity of three months or less.
Marketable Securities. Marketable securities are classified as available for
sale and are recorded at fair value based on quoted market prices, with net
unrealized gains and losses, net of income taxes, reflected in accumulated other
comprehensive earnings as a component of shareholders' equity. Net gains and
losses on sales of securities available for sale are computed on a specific
security basis and included in other income. The carrying value of other
financial instruments approximates their fair value based on other appropriate
valuation techniques.
Concentrations of Credit Risk. Financial instruments that potentially subject us
to credit risk consist principally of interest-bearing investments and accounts
receivable. We perform ongoing credit evaluations of our customers and generally
do not require collateral. Approximately 60% and 62% of the accounts receivable
balances represent amounts due from four customers at March 31, 2001, and 2000.
Total allowances for doubtful accounts were $5,049,000 and $3,614,000 at March
31, 2001, and 2000.
We invest our excess cash in deposits primarily with major banks and other high
quality short-term liquid money market instruments (commercial paper, government
and government agency notes and bills, etc.). These investments generally mature
within twelve months. We maintain deposit balances at banks in excess of
federally insured amounts.
Inventories. Inventories are stated at the lower of cost (first-in, first-out)
or market. Provision for potentially obsolete or slow moving inventory is made
based on our analysis of inventory levels and future sales forecasts.
Property, Plant and Equipment. Property, plant and equipment are stated at cost
less accumulated depreciation. Depreciation, computed on a straight-line basis,
is provided in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives (3 to 10 years for machinery and
equipment and 15 to 39 years for buildings and improvements). Gains or losses
from the sale of these assets are included in other income. Interest related to
the construction of qualifying assets is capitalized as part of the construction
cost, which totaled $614,000 and $1,108,000 for fiscal 2001 and 2000. No
interest was capitalized in fiscal 1999.
41
Intangible Assets. Intangible assets are stated at cost less accumulated
amortization. Amortization is provided on a straight-line basis over estimated
useful lives ranging from 2 to 20 years. We periodically review the original
estimated useful lives of assets and make adjustments when appropriate.
Intangible assets are also periodically reviewed to determine recoverability by
comparing carrying value to expected future cash flows. Adjustments are made in
the event estimated undiscounted net cash flows are less than the carrying
value.
Investments. Our investment in Somerset Pharmaceuticals, Inc. (Somerset) is
accounted for using the equity method of accounting as the investment gives us
the ability to exercise significant influence, but not control, over Somerset
(see Note 5).
All other equity investments, which consist of investments for which we do not
have the ability to exercise significant influence, are accounted for under the
cost method and are included in other assets on the balance sheet. Under the
cost method of accounting, investments in private companies are carried at cost
and are adjusted only for other-than-temporary declines in fair value,
distributions of earnings and additional investments.
Revenue Recognition. We recognize revenue from product sales upon shipment to
customers. Net revenues consist primarily of gross revenues less provisions for
estimated discounts, rebates, price adjustments, returns, chargebacks,
promotional and other potential adjustments. Accounts receivable are presented
net of allowances relating to these provisions, which amounted to $118,377,000
and $77,212,000 at March 31, 2001, and 2000.
Two of our customers accounted for 14% and 11% of net revenues in fiscal 2001.
Four of our customers accounted for 15%, 15%, 11% and 10% of net revenues in
fiscal 2000 and three of our customers accounted for 15%, 14% and 11% of net
revenues in fiscal 1999.
Research and Development. Research and development expenses are charged to
operations as incurred.
Advertising Costs. Advertising costs are expensed as incurred and amounted to
$7,250,000, $6,063,000 and $5,683,000 in fiscal 2001, 2000 and 1999,
respectively.
Income Taxes. Income taxes have been provided for using an asset and liability
approach in which deferred income taxes reflect the tax consequences on future
years of events that we have already recognized in the financial statements or
tax returns. Changes in enacted tax rates or laws will result in adjustments to
the recorded tax assets or liabilities in the period that the new tax law is
enacted.
Earnings per Common Share. Basic earnings per common share is computed by
dividing net earnings by the weighted average common shares outstanding for the
period. Diluted earnings per common share is computed by dividing net earnings
by the weighted average common shares outstanding adjusted for the dilutive
effect of stock options granted, excluding antidilutive shares, under our stock
option plans (see Note 14).
42
A reconciliation of basic and diluted earnings per common share is as
follows:
(in thousands, except per share data)
Fiscal 2001 2000 1999
- -------- ---- ---- ----
Net earnings $37,128 $154,246 $115,409
======= ======== ========
Weighted average common shares outstanding 125,788 129,220 125,584
Assumed exercise of dilutive stock options 961 1,004 1,572
------- -------- --------
Diluted weighted average common shares outstanding 126,749 130,224 127,156
======= ======== ========
Earnings per common share:
Basic $ .30 $ 1.19 $ .92
======= ======== ========
Diluted $ .29 $ 1.18 $ .91
======= ======== ========
Use of Estimates in the Preparation of Financial Statements. The preparation of
financial statements, in conformity with accounting principles generally
accepted in the U.S., requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
Reclassification. The presentation of certain prior year amounts has been
reclassified to conform to the fiscal 2001 presentation.
In fiscal 2001, certain co-promotional expenses were reclassified from selling
and administrative expenses to cost of sales. The reclassification had no impact
on reported net earnings, earnings per share or shareholders' equity. Amounts
previously reported and reclassified were $6,358,000 in fiscal 2001, $7,559,000
in fiscal 2000 and $2,496,000 in fiscal 1999. The effect of this
reclassification was to reduce gross profit as a percent of net revenues and
selling and administrative expenses as a percent of net revenues by
approximately 1% or less in each year.
Fiscal Year. Our fiscal year ends on March 31. All references to fiscal year
shall mean the twelve month period ended March 31.
Recent Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 133, Accounting for Derivative Instruments and Hedging Activities. The
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivatives embedded in other contracts and
hedging activities. It requires an entity to recognize all derivative
instruments as either assets or liabilities on the balance sheet at fair value
and that changes in fair value be recognized currently in earnings, unless
specific hedge accounting criteria are met. In June 1999, the FASB issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133, which delayed the required
adoption of SFAS No. 133 to fiscal years beginning after June 15, 2000. In June
2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment to SFAS No. 133. We
adopted the provisions of SFAS No. 133, as amended, effective April 1, 2001. We
have concluded that there are no transition adjustments to record as of April 1,
2001, to reflect the adoption of SFAS No. 133, as amended.
43
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
SAB No. 101 summarizes certain of the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements. After
giving consideration to the guidance provided by SAB No. 101, we have concluded
that the cumulative effect adjustment for the implementation of SAB No. 101 is
not material.
Note 3. Acquisitions
On October 2, 1998, we acquired 100% of the outstanding stock of Penederm
Inc. (Penederm). Penederm primarily developed and marketed patented topical
prescription products. The business combination has been accounted for under the
purchase method of accounting. Payment of approximately $207,938,000 was made
principally through the non-cash issuance of 5,905,029 shares of our common
stock and the assumption of 877,367 stock options granted prior to the
transaction. Goodwill and various intangible assets acquired totaled
approximately $193,000,000 and are being amortized on a straight-line basis over
periods not to exceed 20 years.
We allocated a portion of the purchase price to in-process research and
development (IPR&D). IPR&D represents ongoing acquired research and development
projects which have not yet been approved by the Food and Drug Administration
(FDA) and would have no alternative future use. We used independent professional
valuation consultants to assess and allocate values to IPR&D.
Five IPR&D projects were acquired, of which two were significant to the
IPR&D valuation. One project is for the treatment of inflammatory fungal
conditions while the other project is for a nail antifungal product. In
assessing the value to be allocated to only these two projects, it was estimated
that they were 42% complete and would require approximately $9,100,000 of
additional funding to complete. Estimated future cash flows for each project
were discounted to their present value using a rate of 31%. These discounted
cash flow projections were then adjusted by the estimated completion percentage
for each project. The total value allocated to all IPR&D projects was
$29,000,000.
At the date of acquisition, we believed that the assumptions used in the
valuation process were reasonable. No assurance can be given, however, that the
underlying assumptions used in the valuation of these projects will be realized.
Pharmaceutical product development has inherent risks in the formulation,
manufacture, approval process and marketplace environment that could affect or
prevent each of these projects from achieving commercial success.
The results of Penederm's operations have been included in our Consolidated
Statements of Earnings from the date of acquisition. Unaudited pro forma
information assuming the acquisition had occurred on April 1, 1998, is as
follows, excluding the one-time charge in fiscal 1999 of $29,000,000 relating to
acquired IPR&D:
(in thousands, except per share data) 1999
----
Net revenues $731,641
Net earnings $140,948
Earnings per common share - diluted $ 1.08
Weighted average common shares outstanding - diluted 130,241
44
The pro forma financial information is presented for comparative purposes
only and does not purport to be indicative of the operating results or financial
position that would have occurred had the acquisition been consummated at the
beginning of the period presented, nor is such information necessarily
indicative of the future operating results of the combined company after the
acquisition.
We have purchased various product and marketing rights, unrelated to the
Penederm acquisition, with an aggregate purchase price of $12,250,000 in fiscal
2000, with no such purchases occurring in fiscal 2001. The purchase agreements
require fixed payments and royalties on product sales in future periods (see
Note 10).
Note 4. Balance Sheet Components
Selected balance sheet components consist of the following at March 31,
2001, and 2000:
(in thousands) 2001 2000
---- ----
Inventories:
Raw materials $ 57,825 $ 66,824
Work in process 23,752 28,459
Finished goods 80,233 3,390
---------- ---------
$ 161,810 $ 148,673
========== =========
Property, plant and equipment:
Land and improvements $ 9,154 $ 7,560
Buildings and improvements 108,056 88,001
Machinery and equipment 165,192 151,308
Construction in progress 9,671 26,712
---------- ---------
$ 292,073 $ 273,581
Less accumulated depreciation 123,677 105,581
---------- ---------
$ 168,396 $ 168,000
========== =========
Other current liabilities:
Payroll and employee benefit plan accruals $ 12,542 $ 14,286
Medicaid 8,216 8,151
Legal and professional 3,991 4,786
Royalties 8,775 8,763
Product license fees 3,715 4,165
Other 13,420 6,712
---------- ---------
$ 50,659 $ 46,863
========== =========
Note 5. Investment in and Advances to Somerset
We own 50% of the outstanding common stock of Somerset and use the equity
method of accounting for our investment.
Equity in loss/earnings of Somerset includes our 50% portion of Somerset's
financial results and expense for amortization of intangible assets resulting
from the acquisition of Somerset. Such intangible assets are amortized over a
period of 15 years. Amortization expense amounted to $924,000 in each of fiscal
2001, 2000 and 1999.
In June 1997, Somerset was notified by the Internal Revenue Service (IRS)
that it had initiated a challenge related to issues concerning Somerset's
Internal Revenue Code Section 936 credit for tax years 1993 through 1995. In
October 2000, this challenge was resolved when Somerset received a no change
letter from the IRS for the three years ended December 31, 1995.
45
Note 6. Marketable Securities
The amortized cost and estimated market values of marketable securities
are as follows:
Gross Gross
(in thousands) Amortized Unrealized Unrealized Market
March 31, 2001 Cost Gains Losses Value
- -------------- ------ -------- -------- -----
Debt securities $ 45,371 $ 698 $ 50 $ 46,019
Equity securities 5,762 4,684 750 9,696
-------- -------- ------- --------
$ 51,133 $ 5,382 $ 800 $ 55,715
======== ======== ======= ========
March 31, 2000
Debt securities $ 81,133 $ 168 $ 405 $ 80,896
Equity securities 7,753 11,508 600 18,661
-------- -------- ------- --------
$ 88,886 $ 11,676 $ 1,005 $ 99,557
======== ======== ======= ========
Maturities of debt securities at market value as of March 31, 2001, are as
follows:
(in thousands)
Mature in one year or less $ 25,853
Mature after one year through five years 3,387
Mature after five years 16,779
--------
$ 46,019
Gross gains of $2,732,000, $4,504,000 and $942,000 and gross losses of
$1,056,000, $1,414,000 and $205,000 were realized during fiscal 2001, 2000 and
1999, respectively. The cost of investments sold is determined by the specific
identification method.
Note 7. Intangible Assets
Intangible assets consist of the following components at March 31, 2001,
and 2000:
(in thousands) 2001 2000
---- ----
Patents and technologies $ 120,739 $ 123,052
License fees and agreements 38,671 49,911
Maxzide(R)intangibles 69,666 69,666
Goodwill 128,008 128,008
Other 28,459 28,462
--------- ---------
$ 385,543 $ 399,099
Less accumulated amortization 89,362 66,957
--------- ---------
$ 296,181 $ 332,142
========= =========
The Maxzide(R) intangibles relate to trademark, tradedress and marketing
rights. Other consists principally of an assembled workforce, non-compete
agreements, customer lists and contracts.
46
During fiscal 2001, we experienced product supply issues resulting from our
contract supplier relating to our brand product Zagam(R), which significantly
impaired our ability to effectively market the product. Accordingly, we reduced
the carrying value of our product license intangible by $11,770,000 of which
$7,770,000 was charged to selling and administrative and $4,000,000 was offset
against the purchase liability.
In connection with certain product license agreements, we recorded
intangible assets and the related obligations, in excess of amounts paid, of
$2,250,000 in a noncash transaction in fiscal 2000.
Note 8. Other Assets
Other assets consist of the following components at March 31, 2001, and
2000:
(in thousands) 2001 2000
---- ----
Pooled asset funds $ 29,065 $ 60,839
Cash surrender value 32,991 33,773
Other investments 32,495 30,269
--------- ---------
$ 94,551 $ 124,881
========= =========
Pooled asset funds primarily include our interest in one limited
partnership fund that consists of common and preferred stocks, bonds and money
market funds. In fiscal 2001, we began to liquidate this fund in an effort to
reduce the impact market fluctuations were having on our quarterly earnings. The
total amount liquidated in fiscal 2001 was $52,207,000. Earnings on the pooled
asset funds included in other income amounted to $14,855,000, $15,378,000 and
$19,530,000 in fiscal 2001, 2000 and 1999, respectively. At March 31, 2001, and
2000, the carrying amounts of these investments approximated fair value.
Cash surrender value is related to insurance policies on certain officers
and key employees and the value of split dollar life insurance agreements with
certain executive officers.
Other investments are comprised principally of investments in non-publicly
traded equity securities and are accounted for under the cost method. Management
periodically reviews the carrying value of these investments for impairment.
Adjustments of $2,670,000, $9,450,000 and $12,525,000 were made in fiscal 2001,
2000 and 1999, respectively, to reduce the carrying value of these investments
to their estimated fair value and were recorded as reductions to other income.
Note 9. Revolving Line of Credit
In March 2001, we entered into an agreement with a commercial bank to
establish a revolving line of credit. This one-year line of credit allows the
Company to borrow up to $50,000,000 on an unsecured basis, at a monthly adjusted
rate of 0.75% per annum (1.25% per annum should the balance of our trust account
be less than $50,000,000) in excess of the 30-day London InterBank Offered Rate
(LIBOR). The agreement does not contain any significant financial debt
covenants. At March 31, 2001, we had no outstanding borrowings under this line
of credit.
47
Note 10. Long-Term Obligations
Long-term obligations include accruals for deferred compensation pursuant
to agreements with certain key employees and directors of approximately
$16,512,000 and $15,400,000 at March 31, 2001, and 2000. Under these agreements,
benefits are to be paid over periods of 10 to 15 years commencing at retirement.
Our obligation related to our 10.5% senior promissory notes was $2,000,000
and $3,000,000 at March 31, 2001, and 2000. The final payment of $2,000,000 is
due in July 2001. At March 31, 2001, and 2000, we were in compliance with all of
our debt covenants.
The present value of our obligations for product acquisitions was
$3,142,000 at March 31, 2001, and $11,121,000 at March 31, 2000. Future
payments, including minimum royalty payments for these agreements, will be
approximately $3,250,000 in fiscal 2002.
In fiscal 2000, we recorded $9,238,000 in deferred revenue relating to a
license and supply agreement. Revenue recognized in fiscal 2001 relating to this
agreement was $3,393,000. At March 31, 2001, the balance remaining was
$5,845,000 and such amount will be recognized ratably over the next one and a
half years.
Note 11. Income Taxes
Income taxes consist of the following components:
(in thousands)
Fiscal year ended March 31, 2001 2000 1999
- --------------------------- ---- ---- ----
Federal:
Current $ 45,463 $ 97,957 $ 77,546
Deferred (26,100) (21,596) (9,617)
--------- --------- ---------
$ 19,363 $ 76,361 $ 67,929
State:
Current $ 3,772 $ 13,807 $ 9,653
Deferred (2,250) (1,671) (697)
--------- --------- ---------
$ 1,522 $ 12,136 $ 8,956
--------- --------- ---------
Income taxes $ 20,885 $ 88,497 $ 76,885
========= ========= =========
Pre-tax earnings $ 58,013 $ 242,743 $ 192,294
========= ========= =========
Effective tax rate 36.0% 36.5% 40.0%
========= ========= =========
48
Temporary differences and carryforwards that give rise to the deferred tax
assets and liabilities are as follows:
(in thousands)
March 31, 2001 2000
- --------- ---- ----
Deferred tax assets:
Employee benefits $10,239 $ 6,651
Contractual agreements 8,924 7,964
Intangible assets 5,450 2,043
Asset allowances 47,500 31,241
Inventories 3,844 1,084
Investments 7,802 10,481
Tax loss carryforwards 8,773 12,708
Tax credit carryforwards 5,813 5,596
Other 146 --
------- -------
Total deferred tax assets $98,491 $77,768
------- -------
Deferred tax liabilities:
Plant and equipment $ 9,917 $11,017
Intangible assets 39,287 41,205
Investments 8,718 13,862
------- -------
Total deferred tax liabilities $57,922 $66,084
------- -------
Deferred tax asset, net $40,569 $11,684
======= =======
Classification in the consolidated balance sheets:
Deferred income tax benefit - current $59,474 $30,792
Deferred income tax liability - noncurrent 18,905 19,108
------- -------
Deferred tax asset, net $40,569 $11,684
======= =======
Deferred tax assets relating to net operating loss carryforwards and
research and development tax credit carryforwards were acquired in fiscal 1999
with the acquisition of Penederm. Current and future utilization of these assets
is subject to certain limitations set forth in the Internal Revenue Code. In
fiscal 2001, we utilized approximately $10,709,000 of the acquired net operating
loss carryforwards to reduce our current tax liability by approximately
$3,748,000. As of March 31, 2001, we have approximately $24,124,000 of acquired
federal tax loss carryforwards remaining which expire in fiscal years 2010
through 2013 and $2,151,000 of acquired federal tax credit carryforwards which
expire in fiscal years 2002 through 2013.
We also have $1,800,000 of current year federal research and development
tax credits that are deferred until fiscal 2002 based upon recent tax law
changes. A $1,680,000 tax credit against Puerto Rican local income tax is also
available for future years.
49
A reconciliation of the statutory tax rate to the effective tax rate is as
follows:
Fiscal year ended March 31, 2001 2000 1999
- --------------------------- ---- ---- ----
Statutory tax rate 35.0% 35.0% 35.0%
IPR&D - - 5.3%
State and local income taxes, net 2.4% 3.1% 3.1%
Nondeductible amortization 4.0% 1.0% 0.8%
Tax exempt earnings, primarily dividends - - (1.1%)
Tax credits (6.5%) (2.7%) (2.6%)
Other items 1.1% 0.1% (0.5%)
---- ---- ----
Effective tax rate 36.0% 36.5% 40.0%
===== ===== =====
Tax credits result principally from our operations in Puerto Rico and from
qualified research and development expenditures including orphan drug research.
State income taxes are shown net of the federal deduction benefit. Local income
tax is primarily income tax paid to Puerto Rico.
Our operations in Puerto Rico benefit from Puerto Rican incentive grants
which partially exempt us from income, property and municipal taxes. In fiscal
2001, a new tax grant was negotiated with the Government of Puerto Rico
extending our tax incentives until fiscal year 2010. As a result of this new
grant, fiscal 2001 earnings, as well as future earnings, are not subject to
tollgate tax upon repatriation to the U.S. In fiscal 2001, approximately
$109,000,000 of cash was repatriated from Puerto Rico to the U.S. Prepaid
tollgate tax of $1,508,000 was credited to the Government of Puerto Rico to
cover the tax due upon this repatriation. Under Section 936 of the U.S. Internal
Revenue Code, Mylan is a "grandfathered" entity and is entitled to the benefits
under such statute until fiscal 2006.
Our federal income tax returns have been audited by the IRS through fiscal
1996.
Note 12. Preferred Stock
In fiscal 1985, the Board of Directors authorized 5,000,000 shares of $.50
par value preferred stock. No shares of the preferred stock have been issued.
Note 13. Common Stock
In April 1997, the Company's Board of Directors authorized a Stock
Repurchase Program under which the Company may repurchase up to 5,000,000 shares
of our outstanding common stock. In fiscal 2001, we completed the Stock
Repurchase Program. We repurchased 4,855,100 shares on the open market for
$91,456,000.
On August 23, 1996, the Company's Board of Directors adopted a Shareholder
Rights Plan (the Rights Plan). The Rights Plan was adopted to provide our Board
of Directors with sufficient time to assess and evaluate any takeover bid and
explore and develop a reasonable response. Effective November 8, 1999, the
Rights Plan was amended to eliminate the special rights held by continuing
directors. The Rights Plan will expire on September 5, 2006, unless a triggering
event has occurred.
50
Note 14. Stock Option Plans
On January 23, 1997, the Board of Directors adopted the Mylan Laboratories
Inc. 1997 Incentive Stock Option Plan (the Plan), as amended, which was approved
by the shareholders on July 24, 1997. Under the Plan, we may grant up to
10,000,000 shares of the Company's common stock to officers, employees, and
nonemployee consultants and agents as either incentive stock options or
nonqualified stock options. Options, which may be granted at not less than fair
market value on the date of the grant, may be exercised within ten years from
the date of grant. Nonqualified stock options generally vest on the date of
grant. Incentive stock options granted primarily have the following vesting
schedule: 25% two years from the date of grant, 25% at the end of year three and
the remaining 50% at the end of year four. As of March 31, 2001, 4,301,850
shares are available for future grants.
On June 23, 1992, the Board of Directors adopted the 1992 Nonemployee
Director Stock Option Plan (the Directors' Plan) which was approved by the
shareholders on April 7, 1993. A total of 600,000 shares of the Company's common
stock are reserved for issuance upon exercise of stock options which may be
granted at not less than fair market value on the date of grant. Options may be
exercised within ten years from the date of grant. As of March 31, 2001, 360,000
shares have been granted pursuant to the Directors' Plan.
Additional stock options are outstanding from the expired 1986 Incentive
Stock Option Plan and other plans acquired through acquisitions.
The following table summarizes the activity resulting from all stock option
plans:
Weighted average
Number of shares exercise price
under option per share
---------------- ----------------
Outstanding as of April 1, 1998 3,616,486 $ 13.96
Options acquired - Penederm 877,367 15.30
Options granted 186,500 19.74
Options exercised (1,013,313) 12.16
Options cancelled (117,886) 16.96
-----------
Outstanding as of March 31, 1999 3,549,154 15.11
Options granted 1,410,100 25.50
Options exercised (309,054) 12.04
Options cancelled (53,419) 18.34
-----------
Outstanding as of March 31, 2000 4,596,781 18.44
Options granted 3,255,700 24.38
Options exercised (412,194) 13.06
Options cancelled (260,699) 24.40
-----------
Outstanding as of March 31, 2001 7,179,588 21.23
===========
51
The following table summarizes information about stock options
outstanding as of March 31, 2001:
Options outstanding Options exercisable
Range of exercise Number Average Average Number Average
price per share of shares life(1) price(2) of shares price(2)
- --------------- --------- ------- -------- --------- --------
$ 1.18 - $ 12.32 1,083,301 1.53 $ 11.79 1,083,301 $ 11.79
14.75 - 18.20 1,262,717 6.34 16.88 1,054,967 16.88
18.50 - 22.52 1,247,217 8.38 21.25 996,217 21.03
22.88 - 24.69 1,568,800 9.27 24.02 63,001 22.96
24.82 - 26.19 1,067,971 8.93 25.94 61,571 25.09
27.25 - 30.15 949,582 9.23 27.85 149,582 28.57
--------- -------
$ 1.18 - $ 30.15 7,179,588 7.38 21.23 3,408,639 17.25
(1) Weighted average contractual life remaining in years.
(2) Weighted average exercise price per share.
At March 31, 2001, options were exercisable for 3,408,639 shares at a
weighted average exercise price of $17.25 per share. The corresponding amounts
were 2,623,182 shares at $14.76 per share at March 31, 2000, and 2,665,904
shares at $14.12 per share at March 31, 1999.
In accordance with the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, we account for our stock option plans under the
intrinsic-value-based method as defined in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation
expense has been recognized for our existing employee and non-employee director
stock option plans. If we had elected to recognize compensation costs based on
the alternative fair-value-based method prescribed by SFAS No. 123, net earnings
and earnings per share (on both a basic and diluted basis) would have been
reduced by $11,308,000, or $.09 per share, $1,430,000, or $.01 per share and
$1,613,000 or $.01 per share for fiscal 2001, 2000 and 1999, respectively.
The fair value of options granted in fiscal 2001, 2000 and 1999, using the
Black-Scholes option pricing model, and the assumptions used are as follows:
2001 2000 1999
---- ---- ----
Volatility 36% 34% 42%
Risk-free interest rate 5.5% 6.2% 5.0%
Dividend yield 0.6% 0.6% 1.0%
Expected term of options (in years) 5.8 5.2 5.2
Weighted average fair value $ 9.99 $ 9.93 $ 9.37
Certain stock option transactions result in a reduction of income taxes
payable and a corresponding increase in additional paid-in capital. The amounts
for the years ended March 31, 2001, 2000, and 1999 were $1,100,000, $719,000 and
$4,302,000, respectively.
In consideration for the exercise of stock options, we received and
recorded into treasury stock 4,165 shares valued at $109,000 in fiscal 2001,
4,920 shares valued at $134,000 in fiscal 2000 and 85,270 shares valued at
$2,642,000 in fiscal 1999.
52
Note 15. Employee Benefits
We maintain profit sharing and 401(k) retirement plans covering essentially
all of our employees.
Contributions to the profit sharing component of the retirement plans are
made at the discretion of the Board of Directors. Contributions to the 401(k)
plans are based upon employee contributions or service hours. Total employer
contributions to all plans for fiscal 2001, 2000 and 1999 were $4,784,000,
$6,342,000 and $4,776,000, respectively.
In fiscal 1999, we adopted a plan covering substantially all of our
employees to provide for limited reimbursement of supplemental medical coverage.
The plan provides benefits to employees retiring after April 5, 1998, who meet
minimum age and service requirements. We have provided for the costs of these
benefits, which are not material. The future obligation related to these
benefits is insignificant.
We provide supplemental life insurance benefits to certain management level
employees. Such benefits require annual funding and may require accelerated
funding in the event that we would experience a change in control.
Note 16. Segment Reporting
We have two reportable operating segments, our Generic Segment and Brand
Segment, based on differences in products, marketing and regulatory approval.
Additionally, we have the Corporate/Other Segment which includes general and
administrative expenses, such as legal expenditures, IPR&D, litigation
settlements and goodwill amortization, reduced by non-operating income.
Generic pharmaceutical products are therapeutically equivalent to a brand
name product and marketed to pharmaceutical wholesalers and distributors, drug
store chains, group purchasing organizations, institutions and governmental
agencies. These products are approved for distribution by the FDA through the
Abbreviated New Drug Application (ANDA) process.
Brand pharmaceutical products are generally, when new, patent protected
products marketed directly to health care professionals by a single provider.
These products are generally approved by the FDA primarily through the New Drug
Application process. Our Brand Segment also includes off-patent brand products
which have prescriber and customer loyalties and brand recognition, as well as
branded generics that are sensitive to promotion.
The accounting policies of the operating segments are the same as those
described in Note 2. The following table presents segment information for the
fiscal years identified. For the Generic and Brand Segments, segment profit
represents segment gross profit less direct research and development and selling
and administrative expenses. Generic and Brand Segment assets include property,
plant and equipment, trade accounts receivable, inventory and intangible assets
other than goodwill. Corporate/Other Segment assets include consolidated cash
and cash equivalents, marketable securities, our investment in Somerset and
other assets, goodwill and all income tax related assets.
53
The following table provides a reconciliation of segment information to
total consolidated information:
Corporate/
Fiscal Generic Brand Other Consolidated
(in thousands) ------ ------------ ------------ ----------- ---------------
Net revenues 2001 $ 701,435 $ 145,261 $ - $ 846,696
2000 667,808 122,337 - 790,145
1999 638,122 83,001 - 721,123
Segment profit (loss) 2001 208,186 5,076 (155,249) 58,013
2000 261,238 15,630 (34,125) 242,743
1999 226,153 14,941 (48,800) 192,294
Property, plant and equipment
additions 2001 18,883 5,231 537 24,651
2000 24,418 5,168 255 29,841
1999 13,570 4,087 1,099 18,756
Depreciation and
Amortization 2001 19,772 16,037 6,583 42,392
2000 12,919 15,540 7,247 35,706
1999 11,452 10,246 5,213 26,911
At March 31,
Segment assets 2001 $ 627,502 $ 249,401 $ 589,070 $ 1,465,973
2000 464,277 259,196 617,757 1,341,230
1999 396,293 257,860 552,508 1,206,661
Note 17. Commitments
We have entered into various product licensing agreements. In some of these
arrangements, we provide funding for the development of the product or to obtain
rights to the use of the patent, through milestone payments, in exchange for
marketing and distribution rights to the product. In the event all projects are
successful, milestone payments totaling $22,000,000 would be paid over the next
5 years.
We have entered into employment agreements with certain executives that
provide for compensation and certain other benefits. The agreements also provide
for severance payments under certain circumstances.
We entered into an agreement with an investment advisor, which has since
been terminated. Under the terms of the agreement, the former investment advisor
may allege a claim of $12,000,000 upon the consummation of certain business
combinations occurring within a limited period from the termination date.
54
In July 2000, we entered into a three-year agreement, as amended, with an
outside consultant. The consultant received 100,000 vested stock options, a
monthly fee, the potential for a performance bonus, as well as indemnification.
Additionally, under this agreement, we may be liable to pay such consultant a
fee equal to one-tenth of one percent of the aggregate value of any major
business combination for which the consultant participated or provided services.
We estimate approximately $1,200,000 will be recognized over the remaining term
of the agreement.
In October 2000, we entered into a seven-year operating lease, effective
March, 2001, for an administrative and research and development facility in
Raleigh, North Carolina, with an average annual payment of $1,500,000.
Note 18. Related Parties
A director of the Company is the chief executive officer of a bank in
which the Company had on deposit $10,557,000 in a money market account at March
31, 2001. Subsequent to year-end, the deposit was reduced to $4,500,000.
An officer of the Company is the principal owner and officer of a company
that provides services relating to biostudies performed by the Company. Under
the terms of the agreement, the Company is required to provide a first right of
refusal to perform the designated services related to competitive bids for such
services. The agreement also provides for a payment of a minimum monthly fee of
$125,000 to be applied to the services performed. The agreement expires in
fiscal 2010. The officer is also a director of a company that performs registry
services for a product marketed by the Company. The agreement provides for the
reimbursement of services on a cost plus basis and expires in fiscal 2006,
unless previously terminated. The officer is also an investor in a company that
provides on-site medical units to certain subsidiaries and whose son is a
principle officer. Total expenses for all the services provided under these
related party arrangements were $9,405,000, $7,272,000 and $7,411,000 in fiscal
2001, 2000 and 1999, respectively.
Note 19. Contingencies
We had an agreement with Genpharm whereby we benefited from the sale of
ranitidine tablets by Novopharm under a separate agreement between Genpharm and
Novopharm. Based on an independent audit, Genpharm initiated a lawsuit against
Novopharm to resolve contract interpretation issues and collect additional funds
due. In response to Genpharm's suit, Novopharm filed counterclaims against both
Genpharm and the Company. In March 2001, the Company, Genpharm and Novopharm
reached a settlement dismissing all claims between the parties.
In June 1998, we filed suit against American Bioscience, Inc. (ABI),
American Pharmaceutical Partners, Inc. (APP) and certain of their directors and
officers. Our suit sought various legal and equitable remedies. In June 1999,
the defendants filed their answer and a cross-complaint against the Company. The
cross-complaint sought unspecified compensatory and punitive damages.
55
In August 2000, we entered into a settlement agreement with ABI, APP and
certain of their directors and officers. The settlement resulted in the
resolution of all differences, disputes and claims raised in the complaint and
cross-complaint mentioned above. Upon settlement, we received $5,000,000 from
ABI for our equity investment in VivoRx, Inc. In December 2000, as required
under the terms of the settlement, we received payment from ABI for the transfer
to ABI of ABI's common stock owned by us. This payment has been included in
other income, net of expenses, in the amount of $9,200,000.
The Company was involved in a dispute with KaiGai Pharmaceuticals, Co. Ltd.
(KaiGai) relating to a license and supply contract which both parties claim was
breached. KaiGai sought damages in excess of $20,000,000. The dispute was
subject to binding arbitration, and in November 1999, the arbitration panel
denied KaiGai's request for damages. KaiGai appealed the award to the United
States District Court for the Central District of California. In July 2000, our
motion to dismiss KaiGai's appeal was granted.
In December 1998, the FTC filed suit in U.S. District Court for the
District of Columbia against the Company. The FTC's complaint alleges the
Company engaged in restraint of trade, monopolization, attempted monopolization
and conspiracy to monopolize arising out of certain agreements involving the
supply of raw materials used to manufacture two drugs.
The FTC also sued in the same case the foreign supplier of the raw
materials, the supplier's parent company and its United States distributor.
Under the terms of the agreements related to these raw materials, the Company
had agreed to indemnify these parties. The Company is a party to other suits
filed in the same court involving the Attorneys General from all states and the
District of Columbia and more than 25 putative class actions that allege the
same conduct alleged in the FTC suit, as well as alleged violations of state
antitrust and consumer protection laws.
The relief sought by the FTC includes an injunction barring the Company
from engaging in the challenged conduct, recision of certain agreements and
disgorgement in excess of $120,000,000. The states and private parties seek
similar relief, treble damages and attorneys' fees. The Company's motions to
dismiss several of the private actions were granted.
In July 2000, the Company reached a tentative agreement to settle the
actions brought by the FTC and the States Attorneys General regarding raw
material contracts for lorazepam and clorazepate. The Company has agreed to pay
$100,000,000 plus up to $8,000,000 in attorneys' fees incurred by the States
Attorneys General. Based on the FTC commissioners' approval of the tentative
settlement with the FTC and States Attorneys General, in December 2000, the
Company placed into escrow $100,000,000. Settlement papers have been executed
and filed by the parties. The court has preliminarily approved the tentative
settlement. Under the court's current schedule, a hearing with respect to final
approval is scheduled for November 29, 2001.
56
In July 2000, the Company also reached a tentative agreement to settle
private class action lawsuits filed on behalf of consumers and third-party
reimbursers related to the same facts and circumstances at issue in the FTC and
States Attorneys General cases. The Company has agreed to pay $35,000,000 to
settle the third party reimburser actions, plus up to $4,000,000 in attorneys'
fees incurred by counsel in the consumer actions. Based on the FTC
commissioners' approval of the tentative settlement with the FTC and States
Attorneys General, in March 2001, the Company placed into escrow $35,000,000.
The tentative settlement has been preliminarily approved by the court. Under the
court's current schedule, a hearing with respect to final approval is scheduled
for November 29, 2001.
In total, the Company has agreed to pay up to $147,000,000 to settle these
actions brought by the FTC, States Attorneys General, and certain private
parties (Tentative Settlement). The Tentative Settlement also includes three
companies indemnified by the Company - Cambrex Corporation, Profarmaco S.r.l.
and Gyma Laboratories, Inc. Lawsuits not included in this Tentative Settlement
principally involve alleged direct purchasers such as wholesalers and
distributors.
The Company believes that it has meritorious defenses, with respect to the
claims asserted, in those anti-trust suits which are not part of the Tentative
Settlement and will vigorously defend its position. However, an adverse result
in these cases, or if the Tentative Settlement is not given final approval by
the court, the outcome of continued litigation of these cases could have a
material adverse effect on the Company's financial position and results of
operations.
A qui tam action was also commenced by a private party in the U.S. District
Court for the District of South Carolina purportedly on behalf of the United
States alleging violations of the False Claims Act and other statutes. In
January 2001, the District Court granted the Company's motion to dismiss. The
time for filing an appeal has lapsed.
In addition to these cases, in January 1999, a class action suit was filed
by Frank Ieradi on behalf of himself and other similarly situated shareholders
in the U.S. District Court of the Western District of Pennsylvania. In this
suit, the plaintiff alleged violations of federal securities laws by the Company
and certain of its current and former directors and officers and asked for
compensatory damages in an unspecified amount. In December 1999, the U.S.
District Court of the Western District of Pennsylvania granted the Company's
motion to dismiss the case. In August 2000, the U.S. Court of Appeals for the
Third Circuit affirmed the decision of the District Court. No further appeal of
this case has been taken.
57
The Company filed an ANDA seeking approval to market buspirone, a generic
equivalent to Bristol-Myers Squibb's (BMS) BuSpar(R). The Company had filed the
appropriate certifications relating to the patents then listed in the Orange
Book for this product. On November 21, 2000, a new patent claiming the
administration of a metabolite of buspirone (which BMS claims also covers the
administration of buspirone itself) was issued to BMS. The subsequent listing of
this patent in the Orange Book prevented the FDA from granting final approval
for the Company's buspirone ANDA. On November 30, 2000, the Company filed suit
against the FDA and BMS in the United States District Court for the District of
Columbia. The complaint asked the court to order the FDA to immediately grant
final approval of the Company's ANDA for the 15mg buspirone product and require
BMS to request withdrawal of the patent from the Orange Book. Upon the Company
posting a bond in the amount of $25,000,000, the court entered an order granting
the Company's motion for a preliminary injunction. Following a brief stay by the
court of appeals, the FDA granted approval for the Company's ANDA with respect
to the 15mg strength. Upon receiving FDA approval, the Company commenced
marketing and selling the product in March 2001. BMS appealed the preliminary
injunction order to both the Court of Appeals for the Federal Circuit and the
Court of Appeals for the District Court of Columbia Circuit. The Federal Circuit
is hearing the appeal on an expedited basis.
The Company is involved in three other suits related to the buspirone
ANDAs. In November 2000, the Company filed suit against BMS in the United States
District Court for the Northern District of West Virginia. The suit seeks a
declaratory judgement of non-infringement and/or invalidity of the BMS patent
listed in November 2000. In January 2001, BMS sued the Company for patent
infringement in the United States District Court for the District of Vermont and
also in the United States Court for the Southern District of New York. In each
of these cases, BMS asserts the Company infringes BMS' recently issued patent
and seeks to rescind FDA approval of the Company's 15mg ANDA and to block
approval of the 5mg, 10mg and 30mg strengths. It is expected that BMS will seek
to recover damages equal to the profits it has lost as a result of the Company's
sales of this product. While the suits are in the early stages, the Company
believes it has meritorious defenses to the claims and intends to vigorously
defend its position. An adverse outcome could have a material adverse effect on
the Company's operations and/or financial position.
In February 2001, Biovail Corporation (Biovail) filed suit against the
Company and Pfizer Inc. (Pfizer) in United States Federal District Court for the
Eastern District of Virginia alleging anti-trust violations with respect to
agreements entered into between the Company and Pfizer regarding nifedipine. The
Company filed a motion to transfer the case to United States Federal District
Court for the Northern District of West Virginia, which was granted. While this
suit is in its early stages, the Company believes it has meritorious defenses to
the claims asserted by Biovail and intends to vigorously defend its position. An
adverse outcome could have a material adverse effect on the Company's operations
and/or financial position.
We are involved in various legal proceedings that are considered normal to
our business. While it is not feasible to predict the ultimate outcome of such
proceedings, it is the opinion of management that the ultimate outcome will not
have a material adverse effect on the results of our operations or our financial
position.
58
Mylan Laboratories Inc.
Independent Auditors' Report
Board of Directors and Shareholders
Mylan Laboratories Inc.:
We have audited the accompanying consolidated balance sheets of Mylan
Laboratories Inc. and subsidiaries as of March 31, 2001 and 2000, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the three years in the period ended March 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Mylan Laboratories Inc. and
subsidiaries as of March 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2001, in conformity with accounting principles generally accepted in the United
States of America.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 8, 2001
Mylan Laboratories Inc.
Supplementary Financial Information
Quarterly Financial Data
(in thousands, except per share data and notes)
1st 2nd 3rd 4th
Quarter(1) Quarter Quarter Quarter Year(2)
---------- ------- ------- -------- -------
Fiscal 2001
Net revenues $167,255 $207,555 $223,238 $248,648 $846,696
Gross profit 73,753 93,996 102,268 112,158 382,175
Net earnings (76,089) 33,509 37,645 42,062 37,128
Earnings per share:
Basic $ (.59) $ .27 $ .30 $ .34 $ .30
Diluted $ (.59) $ .27 $ .30 $ .33 $ .29
Share prices(3)
High $ 32.25 $ 27.94 $ 30.00 $ 25.85 $ 32.25
Low $ 17.00 $ 18.06 $ 22.50 $ 21.00 $ 17.00
Fiscal 2000
Net revenues $ 177,095 $194,489 $203,877 $214,684 $790,145
Gross profit 95,319 109,057 108,613 107,779 420,768
Net earnings 31,953 37,066 40,434 44,793 154,246
Earnings per share:
Basic $ .25 $ .29 $ .31 $ .35 $ 1.19
Diluted $ .25 $ .28 $ .31 $ .34 $ 1.18
Share prices
High $ 28.38 $ 30.31 $ 25.63 $ 30.00 $ 30.31
Low $ 21.63 $ 17.06 $ 17.19 $ 22.50 $ 17.06
(1) In July 2000, we reached a tentative settlement with the Federal Trade
Commission, States Attorneys General and certain private parties with
regard to lawsuits filed against the Company relating to pricing issues and
raw material contracts on two of our products. As a result, we recognized a
tentative litigation settlement charge of $147,000,000. Excluding the
tentative settlement charge, net earnings for fiscal 2001 were
$131,208,000, or $1.04 per basic and diluted share.
(2) The sum of earnings per share for the four quarters may not equal earnings
per share for the total year due to changes in the average number of common
shares outstanding.
(3) New York Stock Exchange symbol: MYL
For the quarter ended March 31, 2001, certain co-promotional expenses were
reclassed from selling and administrative expenses to cost of sales. The effect
of this reclass was to reduce gross profit and selling and administrative
expenses for each of the prior quarters presented above. The amounts reclassed
are as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ------
Fiscal 2001 $ 1,223 $ 2,313 $ 2,822 $ - $ 6,358
Fiscal 2000 928 1,755 2,539 2,337 7,559
60
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is hereby incorporated by reference
to our 2001 Proxy Statement. Certain executive officers have resigned subsequent
to March 31, 2001, as identified on the current report on Form 8-K filed with
the Securities and Exchange Commission on June 19, 2001.
Item 11. Executive Compensation
The information required by this item is hereby incorporated by reference
to our 2001 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is hereby incorporated by reference
to our 2001 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is hereby incorporated by reference
to our 2001 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Consolidated Financial Statements
The Consolidated Financial Statements listed in the Index to
Consolidated Financial Statements are filed as part of this
report.
2. Financial Statement Schedules
All schedules have been omitted because they are not
required or the information can be derived from the
Consolidated Financial Statements or Notes thereto.
61
3. Exhibits
3.1 Amended and Restated Articles of Incorporation of the
registrant, filed as Exhibit 4.2 to the Form S-8 on December
23, 1997, (registration number 333-43081) and incorporated
herein by reference.
3.2 By-laws of the registrant, as amended to date, filed
herewith.
4.1 Rights Agreement, as amended to date, between the Company
and American Stock Transfer & Trust Co., filed as Exhibit
4.1 to Form 8-K dated August 30, 1996, and incorporated
herein by reference. Amendment is incorporated herein by
reference to Exhibit 1 to Form 8-A/A dated March 31, 2000.
10.1 Mylan Laboratories Inc. 1986 Incentive Stock Option Plan, as
amended to date, filed as Exhibit 10(b) to Form 10-K for
fiscal year ended March 31, 1993, and incorporated herein by
reference.
10.2 Mylan Laboratories Inc. 1997 Incentive Stock Option Plan, as
amended to date, filed herewith.
10.3 Mylan Laboratories Inc. 1992 Nonemployee Director Stock
Option Plan, as amended to date, filed as Exhibit 10(l) to
Form 10-K for the fiscal year ended March 31, 1998, and
incorporated herein by reference.
10.4 Employment contract with Milan Puskar dated April 28, 1983,
as amended to date, filed as Exhibit 10(e) to Form 10-K for
fiscal year ended March 31, 1993, and incorporated herein by
reference.
10.5 Salary Continuation Plan with Milan Puskar, Dana G. Barnett
and C.B. Todd each dated January 27, 1995, and filed as
Exhibit 10(b) to Form 10-K for fiscal year ended March 31,
1995, and incorporated herein by reference.
10.6 Salary Continuation Plan with Louis J. DeBone dated March
14, 1995, filed as Exhibit 10(c) to Form 10-K for fiscal
year ended March 31, 1995, and incorporated herein by
reference.
10.7 Salary Continuation Plan with Patricia Sunseri dated March
14, 1995, filed as Exhibit 10(k) to Form 10-K for the fiscal
year ended March 31, 1997, and incorporated herein by
reference.
10.8 Salary Continuation Plan with Roderick P. Jackson dated
March 14, 1995, as amended to date, filed as Exhibit 10(m)
to Form 10-K for fiscal year ended March 31, 1999, and
incorporated herein by reference.
10.9 Salary Continuation Plan with John P. O'Donnell dated March
14, 1995, as amended to date, filed herewith.
62
10.10Split Dollar Life Insurance Arrangement with Milan Puskar
Irrevocable Trust filed as Exhibit 10(h) to Form 10-K for
the fiscal year ended March 31, 1996, and incorporated
herein by reference.
10.11Split Dollar Life Insurance Arrangement with the Dana G.
Barnett Irrevocable Family Trust filed as Exhibit 10(j) to
Form 10-K for the fiscal year ended March 31, 1997, and
incorporated herein by reference.
10.12Service Benefit Agreement with Laurence S. DeLynn, John C.
Gaisford, M.D., and Robert W. Smiley, Esq. each dated
January 27, 1995, and filed as Exhibit 10(g) to Form 10-K
for fiscal year ended March 31, 1995, and incorporated
herein by reference.
10.13Transition and Succession Agreement dated November 10, 1999,
in the form entered into with Milan Puskar, Patricia
Sunseri, Roderick P. Jackson, Louis J. DeBone, Dana G.
Barnett and John P. O'Donnell, filed herewith.
10.14 Executives' Retirement Savings Plan, filed herewith.
21.1 Subsidiaries of the registrant, filed herewith.
23.1 Consents of Independent Auditors, filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
March 31, 2001.
63
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: June 22, 2001
by /S/ MILAN PUSKAR
Milan Puskar
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/S/ MILAN PUSKAR June 22, 2001 /S/ DANA G. BARNETT June 22, 2001
Milan Puskar Dana G. Barnett
Chairman and Chief Executive Officer Executive Vice President and Director
(Principal executive officer)
/S/ LAURENCE S. DELYNN June 22, 2001 /S/ DOUGLAS J. LEECH June 22, 2001
Laurence S. DeLynn Douglas J. Leech
Director Director
/S/PATRICIA A. SUNSERI June 22, 2001 /S/JOHN C. GAISFORD,M.DJune 22, 2001
Patricia A. Sunseri John C. Gaisford,M.D.
Vice President and Director Director
/S/ C.B. TODD June 22, 2001 /S/ GARY E. SPHAR June 22, 2001
C.B. Todd Gary E. Sphar
Director V.P. - Finance, Mylan Pharmaceuticals Inc.
(Principal financial officer and principal
accounting officer)
64
Exhibit 3.2
MYLAN LABORATORIES INC.
a Pennsylvania corporation
Amended and Restated Bylaws
ARTICLE I
Shareholders
Section 1.01. Annual Shareholders Meetings. The annual meeting of the
shareholders of Mylan Laboratories Inc. (the "Corporation") shall be held on the
last Thursday of July in each year if not a legal holiday, and if a legal
holiday, then on the next succeeding day which is not a legal holiday, at 11:00
a.m., at the principal executive office of the Corporation, or at such other
date, time and place as may be fixed by the Board of Directors (the "Board").
Section 1.02. Special Shareholders Meetings. Special meetings of the
shareholders may be called at any time by the Chairman of the Board (the
"Chairman") or by two-thirds of the Board. Special shareholders meetings shall
be held at the principal executive office of the Corporation in Morgantown, West
Virginia. No business may be transacted at any special meeting other than that
stated in the notice of meeting and business which is germane thereto.
Section 1.03. Organization. The Chairman shall preside and the
Secretary, or in his absence any Assistant Secretary, shall act as secretary, at
all meetings of the shareholders. In the event that the Chairman is absent, the
presiding officer at such meeting shall be the Vice Chairman of the Board (the
"Vice Chairman"). In the absence of the Vice Chairman, the presiding officer at
such meeting shall be such other member of the Board or such officer of the
Corporation as the Chairman may designate. If the Chairman fails to designate
such person, the presiding officer shall be selected by a majority of the Board
in attendance at such meeting. In the absence of the Secretary and an Assistant
Secretary, the presiding officer of the meeting shall designate any person to
act as secretary of the meeting.
1
Section 1.04. Business of Shareholders Meetings
(a) At any annual meeting of the shareholders, only such business will
be conducted or considered as is properly brought before the meeting. To be
properly brought before an annual shareholders meeting, business must be (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (ii) brought before the meeting by the presiding
officer, or (iii) otherwise properly requested to be brought before the meeting
by a shareholder of the Corporation in accordance with Section 1.04(b) of these
Bylaws.
(b) For business to be properly requested by a shareholder to be
brought before an annual shareholders meeting, the shareholder must (i) be a
shareholder of the Corporation of record at the time of the giving of the notice
for such annual meeting, (ii) be entitled to vote at such annual meeting, and
(iii) be in compliance with the notice procedures set forth in this Section
1.04(b) of the Bylaws. To be timely, a shareholder's notice must be received by
the Secretary not less than sixty (60) calendar days prior to the annual
shareholders meeting; provided, however, that in the event a public announcement
of the date of the annual shareholders meeting is not made at least seventy-five
(75) calendar days prior to the date of the annual shareholders meeting, notice
by the shareholder to be timely must be received by the Secretary not later than
the close of business on the tenth (10th) calendar day following the day on
which a public announcement is first made of the date of the annual shareholders
meeting. A shareholder's notice to the Secretary must set forth as to each
matter the shareholder proposes to bring before the annual shareholders meeting
a description in reasonable detail of the business desired to be brought before
the annual shareholders meeting and the reasons for conducting such business at
2
the annual meeting; the name and address, as they appear on the Corporation's
books, of the shareholder proposing such business and the beneficial owner, if
any, on whose behalf the proposal is made; the class and number of shares of the
Corporation that are owned beneficially and of record by the shareholder
proposing such business and the beneficial owner, if any, on whose behalf the
proposal is made; and any material interest of such shareholder proposing such
business and the beneficial owner, if any, on whose behalf the proposal is made.
A shareholder must also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and the rules and
regulations promulgated thereunder with respect to the matters set forth in this
Section 1.04 of the Bylaws. For purposes of these Bylaws, the term "public
announcement" means disclosure in a press release reported by the Dow Jones News
Service, Associated Press, or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Sections 13, 14, or 15(d) of the Exchange Act or furnished to
shareholders. Nothing in this Section 1.04 of the Bylaws will be deemed to
affect any rights of shareholders to request inclusion of proposal in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(c) At a special meeting of shareholders, only such business may be
conducted or considered as is properly brought before the meeting in accordance
with Section 1.02.
(d) The determination of whether any business sought to be brought
before any annual or special meeting of the shareholders is properly brought
before such meeting in accordance with these Bylaws will be made by the
presiding officer of such meeting. If the presiding officer determines that any
business is not properly brought before such meeting, he will so declare to the
meeting and any such business will not be conducted or considered.
3
Section 1.05. Order of Business. The order and conduct of business at
shareholders meetings shall be determined by the presiding officer of the
shareholders meeting. The presiding officer shall have the power to adjourn the
meeting to another place, date and time.
ARTICLE II
Directors
Section 2.01. Number, Election and Term of Office. The number of
Directors which shall constitute the full Board shall be such number, not less
than three, as shall be fixed by the Board or the shareholders; provided,
however, that if all the shares of the Corporation shall be owned beneficially
and of record by either one or two shareholders, the number of Directors may be
less than three but not less than the number of shareholders. The shareholders
shall elect a full Board at each annual meeting of shareholders. Each Director
shall serve until the next annual shareholders meeting, and thereafter until his
successor has been selected and qualified, or until his death, resignation or
removal.
Section 2.02. Filling Vacancies. Any vacancy caused by the death,
resignation or removal of a Director shall be filled by appointment thereto by
the Chairman, or in his absence, by the Vice Chairman at the next meeting of the
Board, and such Director so appointed shall serve for the unexpired term of the
Director causing such vacancy.
Section 2.03. Nominations of Directors: Election.
----------------------------------
(a) Only persons who are nominated in accordance with the
following procedures will be eligible for election at a meeting of shareholders
as Directors of the Corporation.
(b) Nominations of persons for election as Directors of the
Corporation may be made only at an annual meeting of shareholders by or at the
direction of the Board or by any shareholder who (i) is a shareholder of record
at the time of giving of notice provided for in this Section 2.03 of the Bylaws,
(ii) is entitled to vote for the election of Directors at such meeting, and
(iii) is in compliance with the notice procedures set forth in this Section 2.03
of these Bylaws.
4
(c) To be timely, a shareholder's notice must be received by
the Secretary not less than sixty (60) calendar days prior to the annual
shareholders meeting; provided, however, that in the event a public announcement
of the date of the annual shareholders meeting is not made at least seventy-five
(75) calendar days prior to the date of the annual shareholders meeting, notice
by the shareholder to be timely must be received by the Secretary not later than
the close of business on the tenth (10th) calendar day following the day on
which a public announcement is first made of the date of the annual shareholders
meeting. To be in proper written form, such shareholder's notice must set forth
or include the name and address, as they appear on the Corporation's books, of
the shareholder giving the notice and of the beneficial owner, if any, on whose
behalf the nomination is made; a representation that the shareholder giving the
notice is a holder of record of stock of the Corporation entitled to vote at
such annual meeting and intends to appear in person or by proxy at the annual
meeting to nominate the person or persons specified in the notice; the class and
number of shares of stock of the Corporation owned beneficially and of record by
the shareholder giving the notice and by the beneficial owner, if any, on whose
behalf the nomination is made; a description of all arrangements or
understandings between or among any of the shareholder giving the notice, the
beneficial owner on whose behalf the notice is given, each nominee, and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder giving the notice;
5
such other information regarding each nominee proposed by the shareholder giving
the notice as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated, by the Board; and the
signed consent of each nominee to serve as a Director of the Corporation if so
elected. At the request of the Board, any person nominated by the Board for
election as a Director must furnish to the Secretary that information required
to be set forth in a shareholder's notice of nomination which pertains to the
nominee. The presiding officer of any annual meeting will, if the facts warrant,
determine that a nomination was not made in accordance with the procedures
prescribed by this Section 2.03 of the Bylaws, and if he should so determine, he
will so declare to the meeting and the defective nomination will be disregarded.
A shareholder must also comply with all applicable requirements of the Exchange
Act and the Regulations with respect to the matters set forth in this Section
2.03 of the Bylaws.
Section 2.04. Annual Meeting of the Board. The annual meeting of the
Board shall be held immediately after the annual meeting of the shareholders and
shall be the annual organizational meeting of the Directors-elect, at which
meeting the new Board shall be organized, Committees of the Board shall be
established, and the executive officers of the Corporation for the ensuing year
shall be elected.
Section 2.05. Regular Board Meetings: Notice. Regular meetings of the
Board shall be held at such places and times as shall be determined by
resolution of the Board at its annual meeting. Notice of such regular meetings
of the Board shall not be required to be given, except that whenever the time or
place of such regular meetings shall be changed, notice of such action shall be
given promptly by telephone or otherwise to each Director not participating in
such action.
6
Section 2.06. Special Board Meetings: Notice. Special meetings of the
Board may be called at any time by the Chairman or by two-thirds of the
Directors, to be held at such place and times as shall be specified in the
notice or waiver of notice thereof. Notice of every special meeting of the
Board, stating the place, day and hour thereof, shall be given by telephone or
otherwise to each Director at least twenty-four (24) hours before the time at
which the meeting is to be held, unless such notice is waived pursuant to
Section 7.05 of the Bylaws.
Section 2.07. Action by Consent in Writing. Any action required or
permitted to be taken at any meeting of the Board may be taken without a meeting
if all members of the Board shall consent thereto in writing and the writing or
writings shall be filed with the minutes of the proceedings of the Board.
Section 2.08. Organization. The Chairman shall preside at each meeting
of the Board and the Secretary, or in his absence any Assistant Secretary, shall
act as secretary at all meetings of the Board. In the event that the Chairman is
absent, the presiding officer at such meeting shall be the Vice Chairman. In the
absence of the Vice Chairman, the presiding officer at such meeting shall be
such other member of the Board as the Chairman may designate. If the Chairman
fails to designate such person, the presiding officer shall be selected by a
majority of the Board in attendance at such meeting. In the absence of the
Secretary or any Assistant Secretary, the presiding officer of the meeting shall
designate any person to act as secretary of the meeting.
Section 2.09. Board Meetings by Telephone. One or more of the Directors
may participate in any regular or special meeting of the Board by telephone
conference or similar communications equipment by means of which all persons
participating in the meeting are able to hear each other.
7
Section 2.10. Resignations. Any Director may resign at any time by
delivering his letter of resignation to the Chairman with a copy to the
Secretary. Any such resignation shall take effect at the time specified therein,
or, if the time when it shall become effective shall not be specified therein,
then it shall take effect immediately upon its receipt by the Chairman, and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 2.11. Qualification of Directors. It shall be a
qualification for membership on the Board that a Director not be a member of
the board of directors or an officer or employee of a competitor (or an
affiliate of a competitor) of the Corporation.
Section 2.12. Limitation of Director Liability. A Director of the
Corporation shall not be personally liable for monetary damages as such for any
action taken, or any failure to take any action, unless the Director has
breached or failed to perform the duties of his office under Subchapter B of
Chapter 17 of the Business Corporation Law of Pennsylvania ("BCL"), including
Section 1712 thereof (relating to standard of care and justifiable reliance) and
the breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness; provided, however, that the limitation of liability provided in
this Section 2.12 shall not apply to the responsibility or liability of a
director pursuant to any criminal statute or the liability of a director for
payment of taxes pursuant to local, state or federal law. Neither the amendment
nor the repeal of this Section 2.12 shall eliminate or reduce the effect of this
Section 2.12 with respect to any matter occurring, or any cause of action, suit
or claim that, but for this Section 2.12, would accrue or arise, prior to such
amendment or repeal. If Subchapter B of Chapter 17 of the BCL is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by Subchapter B
of Chapter 17, or any successor thereto under the BCL, as amended from time to
time.
8
ARTICLE III
Committees
Section 3.01. Executive Committee: How Constituted and Powers. The
Board may elect such Directors then in office, to constitute an Executive
Committee (herein called the "Executive Committee"), provided, however, that the
Chairman shall be a member of said Committee. During the intervals between
meetings of the Board, the Executive Committee may exercise such powers of the
Board as may be delegated to the Executive Committee by the Board.
Section 3.02. Organization. The Chairman shall act as chairman at all
meetings of the Executive Committee and the Secretary shall act as secretary
thereof. In the event that the Chairman is absent, the chairman at such meeting
shall be such other member of the Executive Committee as the Chairman may
designate. If the Chairman fails to designate such person, the chairman of such
meeting shall be selected by a majority of the members of the Executive
Committee in attendance at such meeting. In the absence of the Secretary, the
chairman of the Executive Committee meeting shall designate a person to act as
secretary of the meeting.
Section 3.03. Other Committees. The Board shall form an Audit
Committee, a Compensation Committee, a Finance Committee, a Governance and
Nominating Committee and such other committees as it may determine, which shall
in each case consist of Directors elected by the Board. Committees may exercise
such powers as the Board may by resolution determine and specify in their
respective charters and such other resolutions as the Board may adopt.
9
Section 3.04. Procedures. A majority of all the members of any
Committee of the Board may fix its rules of procedure, determine its action and
fix the time and place of its meetings and specify what notice thereof, if any,
shall be given, unless the Board shall otherwise by resolution provide.
Section 3.05. Action by Consent in Writing. Any action required or
permitted to be taken at any meeting of any Committee may be taken without a
meeting if all members of the Committee shall consent thereto in writing and the
writing or writings shall be filed with the minutes of proceedings of the
Committee.
Section 3.06. Meetings by Telephone. One or more members of a Committee
may participate in any Committee meeting by telephone conference or similar
communications equipment by means of which all persons participating in the
meeting are able to hear each other.
Section 3.07. Resignations; Removal; Vacancies. Any member of a
Committee of the Board may resign therefrom at any time by delivering a letter
of resignation to the Chairman with a copy to the Secretary. Any such
resignation shall take effect at the time specified therein, or, if the time
when it shall become effective shall not be specified therein, then it shall
take effect immediately upon its receipt by the Chairman; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. The Board may remove a member of any Committee of the Board.
Any vacancy in a Committee of the Board shall be filled by the vote of the Board
and shall be effective upon delivery of a written designation of such
appointment to the Secretary.
10
ARTICLE IV
Officers
Section 4.01. Officers. The Corporation may have the following officers
as determined by the Board: a Chairman, a Vice Chairman, a Chief Executive
Officer, a President, a Chief Operating Officer, a Chief Financial Officer, a
General Counsel, one or more Vice Presidents (one or more of whom may be
designated an Executive Vice President or a Senior Vice President), one or more
Assistant Vice Presidents, a Treasurer, one or more Assistant Treasurers, a
Secretary and one or more Assistant Secretaries, a Controller and one or more
Assistant Controllers, and such other officers, if any, as the Board, or the
Chairman upon the approval of the Board, may from time to time designate and
appoint. Any two or more of the offices may be held by the same person, except
that neither the Chairman, Vice Chairman, Chief Executive Officer, Chief
Operating Officer, President nor the Chief Financial Officer can hold the office
of the Secretary. The Board shall elect the Chairman, the Chief Executive
Officer, the President, the Chief Financial Officer and the General Counsel and
the Board may elect, or delegate authority to the Chairman to appoint, other
officers of the Corporation. Each officer elected by the Board shall hold office
until the next succeeding annual meeting of the Board and thereafter until his
successor shall have been selected and shall qualify, or until his death,
resignation or removal.
Section 4.02. Removal. The Board may remove, either with or without
cause, at any time, any officer elected by the Board; provided, however, that
the removal shall be without prejudice to the contract rights, if any, of the
person so removed. The Board may delegate to the Chairman the right to remove,
either with or without cause, at any time, any officer the Chairman has
appointed; provided, however, that the removal shall be without prejudice to the
contract rights, if any, of the person so removed.
Section 4.03. Resignations. Any officer may resign at any time by
delivering a letter of resignation to the Chairman with a copy to the Secretary.
Any such resignation shall take effect at the time specified therein, or, if the
time when it shall become effective shall not be specified therein, then it
shall take effect immediately upon its receipt by the Chairman; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
11
Section 4.04. Vacancies. A vacancy caused by the death, resignation or
removal of any officer elected by the Board shall be filled by an election by
the Board, and such officer so elected by the Board shall serve for the
unexpired portion of the term of the officer causing such vacancy. The Board may
delegate to the Chairman the right to fill any vacancy caused by the death,
resignation or removal of an officer appointed by the Chairman.
Section 4.05. Chairman. The Chairman shall have such powers and perform
such duties as from time to time may be assigned to him by the Board. The
Chairman shall, if present, preside at all meetings of the shareholders and at
all meetings of the Board, and shall have full control over the meeting and
procedures. The Chairman shall make a report of the state of the business of the
Corporation at each annual meeting of the shareholders and from time to time the
Chairman shall report to the shareholders and to the Board those corporate
matters, which, in the Chairman's judgment, are required to be brought to their
attention. If no other person is designated as the Chairman, the Chief Executive
Officer shall have the duties of the Chairman.
Section 4.06. Vice Chairman. The Vice Chairman shall have such
powers and perform such duties as from time to time may be assigned to him by
the Board or by the Chairman.
Section 4.07. Chief Executive Officer. The Chief Executive Officer
shall have such powers and perform such duties as from time to time may be
assigned to him by the Board or by the Chairman. The Chief Executive Officer
shall have general and active supervision and control of the over-all business
and affairs of the Corporation. Unless otherwise directed by the Board, the
Chief Executive Officer shall be the officer authorized to execute documents or
take actions on behalf of the Corporation in its capacity as a shareholder or
equity owner of any other entity. The Chief Executive Officer may sign, execute
12
and deliver in the name of the Corporation all contracts or other instruments
requiring execution by the Corporation, except in cases where the signing,
execution or delivery thereof shall be expressly delegated by the Board or by a
duly authorized Committee of the Board to some other officer or agent of the
Corporation or where any of them shall be required by law to be signed, executed
or delivered by a person other than the Chief Executive Officer. The Chief
Executive Officer may appoint from time to time such agents as may be deemed
advisable for the prompt and orderly transaction of the business of the
Corporation, prescribe their duties and the terms of their engagements, fix
their compensation and dismiss such agents so appointed.
Section 4.08. Chief Operating Officer. The Chief Operating Officer
shall have such powers and perform such duties as from time to time may be
assigned to him by the Board or by the Chief Executive Officer. The Chief
Operating Officer shall be charged with the supervision of the day-to-day
operations of the Corporation.
Section 4.09. President. The President shall have such powers
and perform such duties as from time to time may be assigned to him by the
Board or by the Chief Executive Officer.
Section 4.10. Chief Financial Officer. The Chief Financial Officer
shall have such powers and perform such duties as from time to time may be
assigned to him by the Board or by the Chief Executive Officer. The Chief
Financial Officer shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of the Corporation, using appropriate
accounting principles; have supervision over and be responsible for the
financial affairs of the Corporation; cause to be kept at the principal
executive office of the Corporation and preserved for review as required by law
or regulation all financial records of the Corporation; be responsible for the
establishment of adequate internal control over the transactions and books of
account of the Corporation; and be responsible for rendering to the proper
officers and the Board upon request, and to the shareholders and other parties
as required by law or regulation, financial statements of the Corporation.
13
Section 4.11. General Counsel. The General Counsel shall have such
powers and perform such duties as from time to time may be assigned to him by
the Board. The General Counsel shall be the chief legal officer of the
Corporation and shall have general and active supervision and direction over the
legal affairs of the Corporation.
Section 4.12. Vice Presidents. Each of the Vice Presidents (including
each of the Executive Vice Presidents and Senior Vice Presidents) shall have
such powers and perform such duties as from time to time may be assigned to him
by the Board or by the Chief Executive Officer.
Section 4.13. The Secretary and Assistant Secretaries.
(a) The Secretary shall record all the proceedings of the
meetings of the shareholders and the Board in one or more minute books kept for
that purpose; see that all notices shall be duly given in accordance with the
provisions of these Bylaws or as required by law; be custodian of the seal of
the Corporation, and shall see that such seal, or, if authorized by the Board, a
facsimile thereof, shall be affixed to any documents the execution of which on
behalf of the Corporation shall be duly authorized and may attest such seal when
so affixed; have charge, directly or through the transfer agent or transfer
agents and registrar or registrars duly appointed, of the issue, transfer and
registration of certificates for stock of the Corporation and of the records
thereof; upon request, exhibit or cause to be exhibited at all reasonable times
to the Board, at the place where they shall be kept, such records of the issue,
transfer and registration of the certificates for stock of the Corporation; and
in general, perform all duties incident to the office of Secretary and such
duties as from time to time may be assigned to him by the Board or the Chief
Executive Officer.
14
(b) At the request of the Secretary, or in his absence or
inability to act, the Assistant Secretary, or if there be more than one, any of
the Assistant Secretaries, shall perform the duties of the Secretary, and, when
so acting, shall have the powers of, and be subject to all the restrictions
upon, the Secretary. Each of the Assistant Secretaries shall perform such duties
as from time to time may be assigned to him by the Board, the Chief Executive
Officer or the Secretary.
Section 4.14. The Treasurer and Assistant Treasurers.
(a) The Treasurer shall have charge and custody of, and be
responsible for, all funds, corporate securities and investments, notes and
valuable effects of the Corporation; receive and give receipt for money due and
payable to the Corporation from any sources whatsoever; deposit all such money
to the credit of the Corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of Section
6.02 hereof, cause such funds to be disbursed by checks or drafts on the
authorized depositories of the Corporation signed as provided in Section 6.01
hereof; and be responsible for the accuracy of the amounts of, and cause to be
preserved proper vouchers for all moneys so disbursed; render to the Chief
Executive Officer, the Chief Financial Officer, or the Board, whenever they,
respectively, shall request the Treasurer so to do, an account of the financial
condition of the Corporation and of all the Treasurer's transactions as such
officer; upon request, exhibit or cause to be exhibited at all reasonable times,
at the place where they shall be kept, the Treasurer's cash books and other
records to the Board, the Chief Executive Officer or the Chief Financial
Officer; and have such powers and perform such duties as from time to time may
be assigned to him by the Board, the Chief Executive Officer or the Chief
Financial Officer.
15
(b) At the request of the Treasurer, or in his absence or inability to
act, the Assistant Treasurer, or if there be more than one, any of the Assistant
Treasurers, shall perform the duties of Treasurer, and, so acting, shall have
all the powers of, and be subject to all of the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform such duties as from time to
time may be assigned to him by the Board, the Chief Executive Officer, the Chief
Financial Officer and the Treasurer.
Section 4.15. The Controller and Assistant Controllers.
(a) The Controller shall keep or cause to be kept correct records of
the business and transactions of the Corporation and shall, upon request, at all
reasonable times exhibit or cause to be exhibited such records to the Board at
the place where such records shall be kept. The Controller shall have such
powers and perform such duties as from time to time may be assigned to him by
the Board, the Chief Executive Officer or the Chief Financial Officer.
(b) At the request of the Controller, or in case of his absence or
inability to act, the Assistant Controller, or, if there be more than one, any
of the Assistant Controllers, shall perform the duties of the Controller, and,
when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the Controller. Each of the Assistant Controllers shall
perform such duties as from time to time may be assigned to him by the Board,
the Chief Executive Officer, the Chief Financial Officer or the Controller.
16
ARTICLE V
Shares of Capital Stock
Section 5.01. Share Certificates. Every owner of stock of the
Corporation shall be entitled to have a certificate registered in such owner's
name in such form as the Board shall prescribe, certifying the number of shares
of stock of the Corporation owned by such owner. The certificates representing
shares of stock shall be numbered in the order in which they shall be issued and
shall be signed in the name of the Corporation by the Chairman, the Chief
Executive Officer, the President or a Vice President, duly authorized, and by
the Secretary or an Assistant Secretary. Any or all of the signatures on any
such certificate may be facsimiles. In case any officer or officers or transfer
agent or registrar of the Corporation who shall have signed, or whose facsimile
signature or signatures shall have been placed upon any such certificate shall
cease to be such officer or officers or transfer agent or registrar before such
certificate shall have been issued, such certificate may be issued by the
Corporation with the same effect as though the person or persons who shall have
signed such certificate, or whose facsimile signature or signatures shall have
been placed thereupon, were such officer or officers or transfer agent or
registrar at the date of issue. Records shall be kept of the amount of the stock
of the Corporation issued and outstanding, the manner in which and the time when
such stock was paid for, the respective names, alphabetically arranged, and the
addresses of the persons, firms or corporations owning of record the stock
represented by certificates for stock of the Corporation, the number, class and
series of shares represented by such certificates, respectively, the time when
each became an owner of record thereof, and the respective dates of such
certificates, and in case of cancellation, the respective dates of cancellation.
Every certificate surrendered to the Corporation for exchange or transfer shall
be canceled and a new certificate or certificates shall not be issued in
exchange for any existing certificate until such existing certificate shall have
been so canceled except in cases provided for in Section 5.02 hereof.
17
Section 5.02. Lost, Stolen, Destroyed or Mutilated Certificates. New
certificates for shares of stock may be issued to replace certificates lost,
stolen, destroyed or mutilated upon such conditions as the Board may from time
to time determine. If the registered owner of any stock of the Corporation
notifies the Corporation of any loss, theft, destruction or mutilation of the
certificate therefor the Corporation may, in its discretion, require the
registered owner of the lost, stolen or destroyed certificate or his legal
representatives to give the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Corporation
shall in its uncontrolled discretion determine, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate, or the issuance of such new
certificate. The Corporation may, however, in its discretion refuse to issue any
such new certificate except pursuant to legal proceedings under the laws of the
Commonwealth of Pennsylvania.
Section 5.03. Regulations Relating to Shares. The Board shall have
power and authority to make all such rules and regulations not inconsistent with
these Bylaws as it may deem expedient, concerning the issue, transfer and
registration of certificates representing shares of stock of the Corporation.
Section 5.04. Holders of Record. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder and
owner in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by the laws of Commonwealth of Pennsylvania.
18
ARTICLE VI
Execution of Instruments;
Deposit and Withdrawal of Corporate Funds
Section 6.01. Execution of Instruments Generally. The authority to sign
any contracts and other instruments requiring execution by the Corporation may
be conferred by the Board upon an authorized officer of the Corporation or upon
any other person or persons designated by the Board. Any person having authority
to sign on behalf of the Corporation may delegate, from time to time, by
instrument in writing, all or any part of such authority to any other person or
persons so authorized by the Board.
Section 6.02. General and Special Bank Accounts. The Board may from
time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select, or as may be selected by any officer or officers or agent or agents of
the Corporation to whom power in that respect shall have been delegated by the
Board. The Board may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these Bylaws, as it
may deem expedient.
ARTICLE VII
General Provisions
Section 7.01. Offices. The principal executive office of the
Corporation shall be located at such place within or without the Commonwealth of
Pennsylvania as the Board from time to time designates. The registered office of
the Corporation shall be located at 1030 Century Building, 130 Seventh Street,
Pittsburgh, Pennsylvania 15222 or at such other place within the Commonwealth of
Pennsylvania as the Board from time to time designates.
19
Section 7.02. Corporate Seal. The Board shall prescribe the form
of a suitable corporate seal, which shall contain the full name of the
Corporation and the year and state of incorporation.
Section 7.03. Fiscal Year. The fiscal year of the Corporation
shall commence on the first day of April and end on the thirty-first day of
March in each year.
Section 7.04. Financial Reports to Shareholders. The Board shall cause
the preparation of financial statements reflecting the financial condition and
results of operations of the Corporation as of and for the period ending upon
the close of each fiscal year, and shall engage independent certified public
accountants to audit such financial statements. The Board shall cause such
financial statements and reports of auditors to be furnished to the
shareholders, and shall cause such other financial statements, if any, as it
deems advisable to be furnished to the shareholders.
Section 7.05. Waiver of Notices. Whenever notice shall be required to
be given by these Bylaws or by the Articles of Incorporation of the Corporation
or by the BCL, a written waiver thereof, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to notice.
Section 7.06. Facsimile Signatures. In addition to the provisions for
use of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board or a Committee thereof.
Section 7.07. Reliance Upon Books, Reports and Records. Each Director,
each member of any Committee designated by the Board, and each officer of the
Corporation shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or other records of the
Corporation, including reports made to the Corporation by any of its officers,
by an independent certified public accountant, by independent legal counsel, or
by an appraiser.
20
Section 7.08. Gender. Any words in the masculine gender in these
Bylaws shall be deemed to include the feminine gender.
ARTICLE VIII
Indemnification of Officers and Directors
Section 8.01. Right to Indemnification. Each person who was or is made
a party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative action, suit or proceeding (hereinafter a "proceeding"), whether
brought by or in the name of the Corporation or otherwise, by reason of the fact
that he is or was a Director or an officer of the Corporation or is or was
serving at the request of the Corporation as a Director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a Director, officer, employee or agent or in
any other capacity while serving as a Director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by law, including, but not limited to the BCL, as the same exists or
may hereafter be amended (but, in the case of such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the
Board.
21
Section 8.02. Right to Payment of Expenses. The right to
indemnification conferred in Section 8.01 shall include the right to be paid by
the Corporation the expenses (including attorneys' fees) incurred in defending
any such proceeding prior to its final disposition (hereinafter a "payment of
expenses"). The rights to indemnification and to the payment of expenses
conferred in Sections 8.01 and 8.02 shall be contract rights and such rights
shall continue as to an indemnitee who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
Section 8.03. Right of Indemnitee to Bring Suit. If a claim under
Section 8.01 or 8.02 of this Article is not paid in full by the Corporation
within sixty (60) days after a written claim has been received by the
Corporation, except in the case of a claim for a payment of expenses, in which
case the applicable period shall be twenty (20) days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, the indemnitee
also shall be entitled to be paid the expense of prosecuting or defending such
suit, including attorney's fees.
Section 8.04. Non-Exclusivity of Rights. The rights to indemnification
and to the payment of expenses shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Articles of Incorporation, Bylaws, any agreement, any vote of shareholders or
disinterested directors or otherwise.
Section 8.05. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the BCL.
22
Section 8.06. Indemnification of Employees, Assistants and Agents. The
Corporation may, to the extent authorized from time to time by the Board, grant
rights to indemnification and to the payment of expenses to any employee,
assistant or agent of the Corporation to the fullest extent of the provisions of
this Article with respect to the indemnification and payment of expenses of
Directors and officers of the Corporation.
Section 8.07. Constituent Corporations. For the purposes of this
Article, references to "the Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation, so that any person who is or was a Director, officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent corporation as a Director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this Article with respect to
the resulting or surviving corporation as if he had served the resulting or
surviving corporation in the same capacity.
Section 8.08. Other Enterprises, Fines, Serving at Corporation's
Request. For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
tax assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a Director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such Director, officer, employee, or
agent with respect to any employee benefit plan, its participants, or
beneficiaries.
23
Section 8.09. Effect of Amendment. Any amendment, repeal or
modification of any provision of this Article by the shareholders or the
Directors shall not adversely affect any right or protection of a Director or
officer existing at the time of such amendment, repeal or modification.
Section 8.10. Savings Clause. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each indemnitee as to costs,
charges and expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, to the fullest extent
permitted by any applicable portion of this Article that shall not have been
invalidated and to the fullest extent permitted by applicable law.
ARTICLE IX
Amendments
Section 9.01. Amendments. These Amended and Restated Bylaws may be
amended, altered and repealed, and new Bylaws may be adopted, by the
shareholders or the Board at any regular or special meeting.
ARTICLE X
Inapplicable Subchapters of Business Corporation Law of Pennsylvania
Section 10.01. Subchapter E. The provisions of Subchapter E to Chapter
25 of the BCL (successor to Section 910 of the BCL) shall not be applicable to
this Corporation.
24
Section 10.02. Subchapter G. The provisions of Subchapter G to Chapter
25 of the BCL, as approved April 27, 1990, shall not be applicable to this
Corporation.
Section 10.03. Subchapter H. The provision of Subchapter H to Chapter
25 of the BCL, as approved April 27, 1990, shall not be applicable to this
Corporation.
25
TABLE OF CONTENTS
ARTICLE I
Shareholders
Section 1.01.Annual Shareholders Meetings....................................1
Section 1.02.Special Shareholders Meetings...................................1
Section 1.03. Organization...............................................1
Section 1.04.Business of Shareholders Meetings...............................2
Section 1.05.Order of Business...............................................4
ARTICLE II
Directors
Section 2.01.Number, Election and Term of Office.............................4
Section 2.02.Filling Vacancies...............................................4
Section 2.03.Nominations of Directors: Election..............................4
Section 2.04.Annual Meeting of the Board.....................................6
Section 2.05.Regular Board Meetings: Notice..................................6
Section 2.06.Special Board Meetings: Notice..................................7
Section 2.07.Action by Consent in Writing....................................7
Section 2.08.Organization....................................................7
Section 2.09.Board Meetings by Telephone.....................................7
Section 2.10.Resignations....................................................8
Section 2.11.Qualification of Directors......................................8
Section 2.12.Limitation of Director Liability................................8
ARTICLE III
Committees
Section 3.01.Executive Committee: How Constituted and Powers.................9
Section 3.02.Organization....................................................9
Section 3.03.Other Committees................................................9
Section 3.04.Procedures.....................................................10
Section 3.05.Action by Consent in Writing...................................10
Section 3.06.Meetings by Telephone..........................................10
Section 3.07.Resignations; Removal; Vacancies...............................10
ARTICLE IV
Officers
Section 4.01. Officers......................................................10
Section 4.02. Removal......................................................11
Section 4.03.Resignations...................................................11
Section 4.04. Vacancies.....................................................12
Section 4.05. Chairman......................................................12
Section 4.06.Vice Chairman..................................................12
Section 4.07.Chief Executive Officer........................................12
Section 4.08.Chief Operating Officer........................................13
Section 4.09 President.....................................................13
Section 4.10.Chief Financial Officer........................................13
Section 4.11.General Counsel................................................14
Section 4.12.Vice Presidents................................................14
Section 4.13.The Secretary and Assistant Secretaries........................14
Section 4.14.The Treasurer and Assistant Treasurers.........................15
Section 4.15.The Controller and Assistant Controllers.......................16
ARTICLE V
Shares of Capital Stock
Section 5.01.Share Certificates.............................................17
Section 5.02.Lost, Stolen, Destroyed or Mutilated Certificates..............18
Section 5.03.Regulations Relating to Shares.................................18
Section 5.04.Holders of Record..............................................18
ARTICLE VI
Execution of Instruments;
Deposit and Withdrawal of Corporate Funds
Section 6.01.Execution of Instruments Generally.............................19
Section 6.02.General and Special Bank Accounts..............................19
ARTICLE VII
General Provisions
Section 7.01. Offices......................................................19
Section 7.02.Corporate Seal.................................................20
Section 7.03.Fiscal Year....................................................20
Section 7.04.Financial Reports to Shareholders..............................20
Section 7.05.Waiver of Notices..............................................20
Section 7.06.Facsimile Signatures...........................................20
Section 7.07.Reliance Upon Books, Reports and Records.......................20
Section 7.08. Gender.......................................................21
ARTICLE VIII
Indemnification of Officers and Directors
Section 8.01.Right to Indemnification.......................................21
Section 8.02.Right to Payment of Expenses...................................22
Section 8.03.Right of Indemnitee to Bring Suit..............................22
Section 8.04.Non-Exclusivity of Rights......................................22
Section 8.05. Insurance.....................................................22
Section 8.06.Indemnification of Employees, Assistants and Agents............23
Section 8.07.Constituent Corporations.......................................23
Section 8.08.Other Enterprises, Fines, Serving at Corporation's Request.....23
Section 8.09.Effect of Amendment............................................24
Section 8.10.Savings Clause.................................................24
ARTICLE IX
Amendments
Section 9.01.Amendments....................................................24
ARTICLE X
Inapplicable Subchapters of Business Corporation Law of Pennsylvania
Section 10.01.Subchapter E.................................................24
Section 10.02.Subchapter G.................................................25
Section 10.03.Subchapter H.................................................25
MYLAN LABORATORIES INC.
1997 INCENTIVE STOCK OPTION PLAN
(AS AMENDED AND RESTATED EFFECTIVE JULY 26, 2000)
MYLAN LABORATORIES INC.
1997 INCENTIVE STOCK OPTION PLAN
1. PLAN NAME
This Plan shall be known as the "MYLAN LABORATORIES INC. 1997 Incentive
Stock Option Plan" (the "Plan").
2. EFFECTIVE DATE
The effective date of the Plan shall be January 23, 1997; provided,
however, that if the shareholders of MYLAN LABORATORIES INC. (the
"Corporation") do not approve the Plan by January 22, 1998, no Options (as
defined in paragraph 3) granted under the Plan shall constitute Incentive
Stock Options (as defined in paragraph 5(c)(ii)(A)). Certain provisions of
this Plan have been amended from time to time. Generally Options (as
defined in paragraph 3) granted under this Plan are governed by the
provisions of the Plan in effect at the date of the grant of such Option.
This Amended and Restated version of the Plan incorporates all Plan
amendments adopted through July 26, 2000.
3. PURPOSE
The purpose of this Plan is to provide a means whereby the Corporation may,
through the grant of options to purchase Class A Common Stock, par value
$.50 per share ("Common Stock") of the Corporation ("Options") to employees
(including officers and directors who are also employees) and nonemployee
consultants, agents and advisors, attract, retain and motivate these
persons to exert their best efforts on behalf of the Corporation and its
subsidiaries. Collectively, these persons are called "key employees."
4. NUMBER OF SHARES AVAILABLE UNDER PLAN
(a) Options may be granted by the Corporation from time to time to key
employees of the Corporation and its subsidiaries to purchase an
aggregate of Ten Million (10,000,000) shares of Common Stock of the
Corporation and Ten Million (10,000,000) shares of Common Stock shall
be reserved for Options granted under the Plan (subject to adjustment
as provided in paragraph 6(j)).
1
(b) Shares issued upon exercise of Options granted under the Plan may be
authorized and unissued shares or shares held by the Corporation in
its treasury.
(c) If any Option granted under the Plan shall terminate, expire or be
canceled as to any shares, new Options may thereafter be granted under
the Plan covering those shares, subject to the limitations imposed
under paragraph 5(a)(vi).
5. ADMINISTRATION
(a) Except as further provided in this paragraph 5(a), the Plan shall be
administered by a Stock Option Committee ("Committee") consisting of
at least two members of the Board of Directors of the Corporation who
shall be appointed by, and serve at the pleasure of, the Board of
Directors. The composition of the Committee shall be controlled by the
following provisions of this paragraph 5(a).
(i) Each member of the Committee must be a "non-employee director"
within the meaning of Rule 16b-3, as that Rule may be amended
from time to time ("Rule 16b-3"), under the Securities Exchange
Act of 1934, as amended, when the Committee is acting to grant
Options to those key employees who are also directors or
officers. Those actions which require a Committee of non-employee
directors include:
(A) Selecting the directors or officers to whom Options may be
granted;
(B) Deciding or determining the timing, price, number or other
terms and conditions of, or shares subject to, each Option
made to a key employee who is also a director or officer;
and
(C) Interpreting the Plan or Option agreements with regard to
Options granted to a director or officer.
(ii) Each member of the Committee must be an "outside
director" within the meaning of Regulation
ss.1.162-27(e)(3), as that Regulation may be amended
from time to time ("Regulation"), under the Internal
Revenue Code of 1986, as amended ("Code"), when the
Committee is acting to grant Options to those key
employees who have the following employment status with
the Corporation:
(A) The chief executive officer of the corporation or the
individual acting in that capacity;
2
(B) One of the four highest compensated officers (other
than the chief executive officer) of the Corporation;
or
(C) In the judgment of the Board of Directors, is deemed
reasonably likely to become an employee described in
clause (A) or (B) of this paragraph 5(a)(ii) within the
exercise period of any contemplated option.
(iii)An Officer or director who also has an employment
status described in clause (A), (B) or (C) of paragraph
5(a)(ii), shall also be limited to a maximum number of
Options under the Plan as provided under paragraph
5(a)(vi).
(iv) Those actions which require a Committee of outside
directors include the same actions as is described in
the immediately preceding paragraph except that the
employment relationships described in clauses (A), (B)
and (C) of paragraph 5(a)(ii) shall be substituted for
the references to director or officer. In addition, the
provisions of paragraph 5(a)(vi) shall apply.
(v) If an individual who is being considered for a grant of
Options is an officer or director and also has an
employment status described in clause (A), (B) or (C)
of paragraph 5(a)(ii), the members of the Committee
shall consist of whichever of the following director
categories is the more restrictive: non-employee
directors as defined in Section 5(a)(i), or of outside
directors as defined in Section 5(a)(ii).
(vi) In addition to any other limitation, the Committee
shall not award to any Optionee options in any calendar
year to purchase more than three hundred thousand
(300,000) shares of Common Stock. Further, any Options
awarded to such an employee which are thereafter
canceled shall continue to count against the yearly
maximum number of Options which may be awarded to that
employee, and any Option of such an employee which is
later repriced shall be deemed to be the cancellation
of the original Option and the grant of a new Option
for purposes determining the number of Options awarded
to that employee.
(b) The Committee shall act in accord with the following:
(i) A majority of the members of the Committee shall
constitute a quorum, and the action of a majority of
the members present at a
3
meeting at which a quorum is present or authorized in
writing by all members, shall be the action of the
Committee.
(ii) A member participating in a meeting by telephone or
similar communications equipment shall be deemed
present for this purpose of establishing a quorum if
the member or members who are present in person can
hear him and he can hear them.
(c) The Committee shall have the power:
(i) to determine and designate in its absolute discretion
from time to time those employees of the Corporation,
its subsidiaries, independent agents, consultants and
attorneys who by reason of the nature of their duties,
their present and potential contributions to the
success of the Corporation and other factors, who are
eligible to participate in the Plan and to whom Options
are to be granted; provided, however, no Option shall
be granted after January 23, 2007, the tenth (10th)
anniversary of the original adoption date of the Plan:
(ii) to grant options:
(A) which qualify as Incentive Stock Options within the
meaning of Code Section 422 ("Incentive Stock Option");
provided that only employees of the Corporation may be
granted Incentive Stock Options: and
(B) which do not qualify under Code Section 422
("Nonqualified Stock Option"); provided that only
Nonqualified Stock Options may be granted to persons
who are not employees, but who are otherwise eligible
for grant of options: and
(iii)to determine the number of shares for each Option,
subject to paragraph 5(a)(vi);
(iv) to determine the time or times and the manner when each
Option shall be exercisable and the duration of the
exercise period.
(d) The Committee may interpret the Plan, prescribe, amend
and rescind any rules and regulations necessary or
appropriate for the administration of the Plan and make
other determinations and take other action as it deems
necessary or advisable. Without limiting the generality
of the foregoing sentence the Committee may, in its
discretion, treat all or any portion of any period
during which an Optionee is on military or an approved
leave of
4
absence from the Corporation as a period of employment of
the Optionee by the Corporation, as the case may be, for the
purpose of accrual of rights under an Option. An
interpretation, determination or other action made or taken
by the Committee shall be final, binding and conclusive.
(e) In addition to other rights that they may have as
Directors or as members of the Committee, the members
of the Committee shall be indemnified by the
Corporation against the reasonable expenses, including
attorney's fees actually and reasonably incurred in
connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein,
to which they or any of them may be a party by reason
of any action taken or failure to act under or in
connection with the Plan or any Option granted
thereunder, and against all amounts paid by them in
settlement thereof or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except
in relation to matters as to which it shall be adjudged
in the action, suit or proceeding that the Committee
member's action or failure to act constituted
self-dealing, willful misconduct or recklessness;
provided that within sixty (60) days after institution
of any action, suit or proceeding a Committee member
shall in writing offer the Corporation the opportunity,
at its own expense, to handle and defend the same.
6. TERMS AND CONDITIONS
(a) Each Option granted under the Plan shall be evidenced by an agreement
between the Company and the Optionee.
(b) The Agreement shall be in a form approved by the Committee and
executed by the Optionee and a member of the Committee, or an officer
of the Company to whom the Committee has delegated such authority.
(c) The Option shall be subject to the following expressed terms and
conditions and to such other terms and conditions as the Committee may
deem appropriate, including those imposed by Section 8 following
amendment of the Plan requiring shareholder approval:
(i) Each Option agreement shall specify the period for which the
Option hereunder is granted (which in no event shall exceed ten
(10) years from the date of the grant of the Option) and shall
provide that the Option shall expire at the end of that period.
(ii) The Option price per share shall be determined by the Committee
at the time any Option is granted, and shall not be less than the
fair market value (but in no event less than the par value if
any) of the
5
Common Stock of the Corporation on the date the Option is
granted, as determined by the Committee.
(iii)The aggregate fair market value (determined at the time the
Option is granted) of the stock with respect to which Incentive
Stock Options are exercisable for the first time by an Optionee
during any calendar year (under all plans of the Corporation and
its subsidiaries and parents) shall not exceed $100,000.
(iv) Subject in each case to the provisions of paragraphs (i), (ii),
(iii) and (v) of this Section 6(c), any Option meeting the
requirements of Code Section 422 may be exercised, to the extent
exercisable by its terms, at the time or times as may be
determined by the Committee at the time of grant; subject,
however, to the following limitations:
(A) No portion of an Option granted to an employee of the
Corporation or its subsidiaries shall be exercisable unless
the Optionee has been employed by the Corporation or its
subsidiaries until the second anniversary of the date of the
grant of the Option;
(B) Between the second anniversary and the third anniversary of
the date of the grant of the Option, if the Optionee is
still employed by the Corporation or its subsidiaries, the
Optionee may exercise up to twenty-five percent (25%) of the
Option;
(C) Between the third anniversary and the fourth anniversary of
the date of the grant of the Option, if the Optionee is
still employed by the Corporation or its subsidiaries, the
Optionee may exercise cumulatively up to fifty percent (50%)
of the Option; and
(D) On and after the fourth anniversary of the date of the grant
of the Option (but in no event longer than the period
provided in paragraph 6(c)(i)), if the Optionee is still
employed by the Corporation or its subsidiaries, the
Optionee may exercise cumulatively up to one hundred percent
(100%) of the Option.
(v) The Committee, in its sole discretion, however, may reduce or
eliminate the limitations set forth in paragraph 6(c)(iv) (A),
(B), (C) and (D) for Options granted to any employee having at
least two years of continuous service with the Corporation or its
subsidiaries.
6
The provisions of this paragraph 6(c) shall apply to options granted
on and after July 26, 2000.
(d) (i) Options, to the extent that the Options have vested on the date of
any termination of the employment of the Optionee by the Corporation,
shall be exercisable at any time, or from time to time, but in no
event later than the expiration date specified in paragraph 6(c)(i),
so long as the employment of the Optionee by the Corporation has not
been voluntarily terminated by the Optionee and so long as that
employment was not terminated by the Corporation for cause. Options
held by Optionees who voluntarily terminate employment or whose
employment is terminated for cause shall in any event expire on the
Optionee's last day of employment.
The provisions of this paragraph 6(d)(1) shall apply to options
granted on and after January 26, 2000 but shall not apply to options
grant on or after July 26, 2000.
(ii) Notwithstanding the limitations on vesting set forth above, if an
Optionee's employment is terminated due to death, Permanent
Disability (as defined in paragraph 6(f)(i)(B)), or Retirement
(as defined in paragraph 6(f)(v)), one hundred percent (100%) of
the Optionee's Option may be exercised in accordance with the
provisions of paragraph 6(f). Vesting provisions substantially
similar to those set forth above may be imposed upon any Option
granted to a nonemployee Optionee (or to an employee who is
granted a Nonqualified Stock Option) at the sole and absolute
discretion of the Committee.
The provisions of this paragraph 6(d) shall apply to options granted
on or after July 26, 2000.
(e) The purchase price of Common Stock as to which an Option shall be
exercised and any employment taxes arising therefrom shall be paid to
the Corporation at the time of exercise in cash or, at the discretion
of the Committee, in stock of the Corporation; payment in stock of the
Corporation shall include the right of an Optionee to elect to receive
the shares of Common Stock issuable upon exercise of an Option reduced
by that number of shares of Common Stock necessary to satisfy the
purchase price and/or the minimum statutory withholding requirements
for employment taxes (hereinafter "Net Exercise").
7
(f) (i) If an Optionee who is an employee of the Corporation or its
subsidiaries shall die:
(A) while an employee of the Corporation or its subsidiaries or
(B) within three (3) months after termination of the Optionee's
employment with the Corporation or its subsidiaries because the
Optionee is permanently and totally disabled (within the meaning
of Code Section 22(e)(3)) ("Permanent Disability"),
any Option of the Optionee may be exercised by the person or persons
to whom the Optionee's rights under the Option pass by will or
applicable law or if no person has the right, by the Optionee's
executors or administrators, at any time or from time to time, within
one (1) year after the date of the death, or in the instances to which
paragraph (f)(i)(B) of this Section 6 applies, one (1) year after the
date of termination of employment, but in no event later than the
expiration date specified in paragraph (c)(i) of this Section 6.
(ii) If an Optionee's employment by the Corporation or its subsidiaries
shall terminate because of Permanent Disability, the Optionee may
exercise any Option of the Optionee at any time, or from time to time,
within one (1) year of the date of the termination of employment, but
in no event later than the expiration date specified in paragraph
(c)(i) of this Section 6.
(iii)Unless a date of re-employment is identified at the time of a
termination of employment that is the result of a reduction in force,
the Optionee may exercise any Option to the extent that the Optionee
may be entitled to do so, at any time, or from time to time, within
three (3) months of the effective date of the reduction in force, but
in no event later than the expiration date specified in paragraph
(c)(i) of this Section 6.
(iv) If an Optionee's employment by the Corporation or its subsidiaries
shall terminate because of Retirement, any Option of the Optionee may
be exercised by the Optionee at any time, or from time to time, during
the balance of the ten (10) year exercise period as set forth in
paragraph (c)(1) of this Section 6, but in no event later than the
expiration date specified in paragraph (c)(i) of this Section 6. If
such an Optionee dies after Retirement but before such Optionee's
Options have either been exercised or otherwise expired, such Options
may be
8
exercised by the person to whom such options pass by will or
applicable law or, if no person has that right, by the Optionee's
executors or administrators at any time, or from time to time, during
the balance of the (10) year exercise period set forth in paragraph
(c)(i) of this Section 6, but in no event later than the expiration
date specified in paragraph (c)(i) of this Section 6. In the event
that such Optionee's Options were granted as Incentive Stock Options
and they are not exercised within three (3) months after the
termination of employment, such Options shall thereafter be deemed and
become Nonqualified Stock Options.
(v) Retirement for purposes of exercising any Option(s) granted hereunder
is defined as:
(A) the Optionee has reached age 55 and has accumulated at least ten
(10) years of continuous service with the Company; or
(B) the Committee, in its sole discretion, has determined that the
Optionee has retired regardless of age and service with the
Company.
(vi) Except as provided by subparagraphs (i) through (iv) of this paragraph
(f) of Section 6, if an Optionee's employment shall cease by reason of
a voluntary or involuntary termination, either with or without cause,
any Option of the Optionee shall terminate immediately.
The provisions of this paragraph 6(f) shall apply to options granted on or
after July 26, 2000.
(g) Each Nonqualified Stock Option shall be for a term of 10 years, subject to
earlier termination as provided in paragraph 6(f), unless the Nonqualified
Stock Option Agreement expressly provides for a different term, not in
excess of ten (10) years, and/or expressly provides that the provisions of
any or all of paragraph 6(f) shall not apply to cause the Nonqualified
Stock Option to terminate earlier. A Nonqualified Stock Option shall not be
exercisable after the expiration of its term. Except as otherwise provided
in the Nonqualified Stock Option Agreement, if an Optionee is not an
employee of the Corporation or its subsidiaries when the Optionee is
granted an Option, that Option shall terminate one (1) year after the date
of the Optionee's death, but in no event later than the expiration date
specified in paragraph (c)(i) of this Section 6. If such an Optionee dies,
any Option of the Optionee may be exercised by the person to whom the
Optionee's rights under the Option pass
9
by will or applicable law or if no person has that right, by the Optionee's
executors or administrators, at any time, or from time to time within one
(1) year after the date of the death, but in no event later than the
expiration date specified in paragraph (c)(i) of this Section 6.
The provisions of this paragraph 6(g) shall apply to options granted on or
after July 26, 2000.
(h) Options granted under the Plan shall be transferrable by will or by the
laws of descent and distribution. In addition, Nonqualified Stock Options
granted under the Plan can be transferred during the lifetime of the
Optionee only if all of the following conditions are satisfied:
(i) the Stock Option Committee has approved the proposed transfer in
writing;
(ii) the proposed transfer is to be made without consideration;
(iii)the proposed transferee is a member or members of the Optionee's
immediate family (i.e., a child, or children, a grandchild or
grandchildren, or the Optionee's spouse) and/or to a trust established
for the benefit of an immediate family member or members, or a family
limited partnership which includes the Optionee and/or members of the
Optionee's immediate family, or a trust established for the benefit of
the Optionee, and/or an immediate family member or members and a
charity exempt from taxation under Code ss.501(c)(3); and
(iv) after transfer, each option transferred by the Optionee shall remain
subject to the provisions of the Plan under which it was granted.
(i) Each Option agreement shall provide that upon demand by the Committee, the
Optionee (or any person acting under paragraph 6(f)) shall deliver a
written representation to the Committee at the time of any exercise of an
Option that the shares to be acquired upon the exercise are to be acquired
for investment and not for resale or with a view to the distribution
thereof. Upon demand, delivery of the representation prior to the delivery
of any shares to be issued upon exercise of an Option and prior to the
expiration of the Option period shall be a condition precedent to the right
of the Optionee or other person to purchase any shares.
(j) In the event of any change in the Common Stock of the Corporation by reason
of any stock dividend, recapitalization, reorganization, merger,
consolidation,
10
split-up, combination, or exchange of shares, or rights offering to
purchase Common Stock at a price substantially below fair market value, or
any similar change affecting the Common Stock, the number and kind of
shares which thereafter may be optioned and sold under the Plan and the
number and kind of shares subject to option in outstanding Option
agreements and the purchase price per share thereof shall be appropriately
adjusted consistent with the change in a manner as the Committee may deem
equitable to prevent substantial dilution or enlargement of the rights
granted to, or available for, participants in the Plan.
(k) Each Option agreement which provides for the grant of an Incentive Stock
Option to an employee shall contain terms and provisions as the Committee
may determine to be necessary or desirable in order to qualify the Option
as an Incentive Stock Option within the meaning of Code Section 422, or
successor thereto and to meet the requirement of Rule 16b-3.
(l) No Optionee shall have any rights as a shareholder with respect to any
shares subject to an Option prior to the date of issuance to the Optionee
of a certificate or certificates for the shares.
(m) The Plan and any Option granted under the Plan shall not confer upon any
Optionee any right with respect to continuance of employment by the
Corporation or any subsidiary of the Corporation, nor shall they interfere
in any way with the right of the Corporation to terminate the Optionee's
employment at any time.
7. COMPLIANCE WITH OTHER LAWS AND REGULATIONS
(a) The Plan, the grant and exercise of Options thereunder, and the obligation
of the Corporation to sell and deliver shares under Options, shall be
subject to all applicable Federal and state laws, rules and regulations and
to required approvals of any government or regulatory agency.
(b) The Corporation shall not be required to issue or deliver any certificates
for shares of Common Stock prior to the completion of any registration or
qualification of the shares under any Federal or state law, or any ruling
or regulation of any government body which the Corporation shall, in its
sole discretion, determine to be necessary or advisable.
8. AMENDMENT AND DISCONTINUANCE
11
(a) The Board of Directors of the Corporation may from time to time amend,
suspend or discontinue the Plan; provided, however, that subject to the
provisions of paragraph 6(c)(i) or the approval of the Corporation's
shareholders no action of the Board of Directors or of the Committee may:
(i) extend the period during which Options may be granted as provided in
paragraph 6(c)(i);
(ii) increase the number of shares reserved for Options pursuant to Section
4;
(iii)permit the granting of any Option at an Option price less than that
determined in accordance with paragraph 6(c)(ii);
(iv) permit the granting of Options which expire beyond the period provided
for in paragraph 6(c)(i);
(v) materially increase the benefits accruing to participants in the Plan;
(vi) materially modify the requirements for eligibility for participation
in the Plan; or
(vii)otherwise cause Rule 16b-3 or the requirements for Incentive Stock
Options to become inapplicable.
(b) Without the written consent of an Optionee, no amendment or
suspension of the Plan shall diminish or impair any Option
previously granted to the Optionee under the Plan.
(c) Notwithstanding any other provision of the Plan, if an amendment
to the Plan requires the approval of the Corporation's
shareholders, every Option granted after that amendment and
before approval of the shareholders (and the Optionee's or other
person's rights in every share issued upon an exercise of an
Option granted during that time) shall be conditional and
contingent upon the approval of the Corporation's shareholders.
Further, those Options (and shares issued under those options)
shall not be subject to sale or transfer unless and until
shareholder approval is obtained. The Committee shall implement
procedures for compliance with these restrictions when
applicable.
12
RETIREMENT BENEFIT AGREEMENT
This Retirement Benefit Agreement (the "Agreement") is entered into on this
14th day of March, 1995 (the "Effective Date") by and between:
Mylan Laboratories Inc.,
a Pennsylvania Corporation,
with offices located at
781 Chestnut Ridge Road,
Morgantown, WV 26505
(hereinafter referred to as
"Mylan" or "Company").
and
John P. O'Donnell,
an employee of Mylan
who resides at
24 Heather Drive
Morgantown, WV 26505
(hereinafter referred to as
"Employee" or "O'Donnell").
WHEREAS the Company and Employee, in recognition of Employee 's long and
valuable contribution to the success of the Company, entered into a Salary
Continuation Agreement on April 1, 1989; and
WHEREAS Employee continues to perform valuable services for the Company;
and
WHEREAS in recognition of his continuing service to Mylan, the Company
wishes to provide Employee with financial assistance with respect to certain
Contingencies, in addition to that provided for in said April 1, 1989 Agreement;
and
WHEREAS the Company and Employee wish to RESCIND, and to REPLACE said
Salary Continuation Agreement with this Agreement;
WITNESSETH THEREFORE that in consideration of the additional benefits
provided for hereunder, the premises and covenants set forth herein, and other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Company and Employee, intending to be legally bound, agree as
follows:
I. DEFINITIONS
Whenever used in the Agreement the following terms shall be defined as
follows:
(a) "Advisor" or "Advisors" shall mean with respect to Employee any person
including lawyers, accountants, estate planners and others, with whom
he may wish to review and discuss the matters set forth herein.
(b) "Agreement" shall mean this Retirement Benefit Agreement which is
entered into on the 14th day of March, 1995.
(c) "At-Will" shall mean with respect to the period of DeBone's employment
with Mylan, that the Company is under no obligation to continue to
employ DeBone for any period of time, and can terminate his employment
at any time without notice, subject to certain statutory and
regulatory requirements; and that Employee is under no obligation to
remain employed by the Company, and can terminate his employment with
Mylan at any time, without notice.
(d) "Change of Control" shall mean:
(1) The acquisition (other than from the Company) by any person,
entity or "group", within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange
Act"), excluding, for this purpose, the Company or its
subsidiaries, or any employee benefit plan of the Company or its
subsidiaries which acquires beneficial ownership of voting
securities of the Company (within the meaning of Rule 13d-3
promulgated under the Exchange Act), or legal ownership of 20% or
more of either the then outstanding shares of common stock or the
combined voting power of the Company's then outstanding voting
securities entitled to vote generally in the election of
directors; or
(2) Individuals who, as of the date hereof, constitute the Board (as
of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the date hereof whose
election, or nomination for election, by the Company's
shareholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption
of office is in connection with an actual or threatened election
contest relating to the election of the Directors of the Company,
as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall be, for purposes of
this Agreement, considered as though such person were a member of
the Incumbent Board; or
(3) Approval by the shareholders of the Company of a reorganization,
merger, consolidation, or other action with respect to which
persons who were the shareholders of the Company immediately
prior to such reorganization, merger or consolidation, or other
action do not, immediately thereafter, own more than 50% of the
combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's
then outstanding voting securities, or of the sale of all or
substantially all of the assets of the Company.
(e) "Contingency" shall mean Retirement or death.
(f) "Mylan" or "Company" shall mean Mylan Laboratories Inc., its
subsidiaries and affiliates.
(g) "Net Present Value" ("NPV") shall mean the present value at any given
time of the benefit to be paid, discounted at seven percent (7%) per
annum.
(h) "Party" or "Parties" shall mean the Company or Employee, or both the
Company and Employee depending upon which term is required by the
context in which it is used.
(i) "Retire" or "Retirement" shall mean the day and date on which DeBone's
employment with the Company is terminated by either Party for any
reason other than death of the Employee.
(j) "Successor" shall mean any person, partnership, limited partnership,
joint-venture, corporation, trust or any other entity or organization
who, subsequent to the Effective Date, comes into possession of or
acquires, either directly or indirectly, all or substantially all of
the Company's business, assets or voting stock, or the right to direct
the business activities and practices of the Company. B
II. RESCISSION OF PRIOR AGREEMENT
The Salary Continuation Agreement entered into by the Parties on April 1,
1989 and any and all other agreements, express or implied, which may have been
entered into by them prior to the execution of this Agreement, including by way
of example and not of limitation, any agreement which addresses or is related to
salary continuation, deferred compensation, employment, or similar matters
(excluding agreements related to stock options) are hereby RESCINDED by the
mutual consent of the Parties hereto upon execution of this Agreement.
THEREFORE THE PARTIES ACKNOWLEDGE THAT ANY RIGHTS AND
OBLIGATIONS SET FORTH IN ANY SUCH AGREEMENT, WHETHER
EXPRESS OR IMPLIED, ARE FOREVER WAIVED, NULL AND VOID, AND
UNENFORCEABLE AT LAW OR IN EQUITY.
III. RETIREMENT
3.1 Upon his Retirement from the Company, and if he is eligible to receive
payments as provided for elsewhere herein, Employee shall receive an
annual retirement benefit equal to the amount set forth below.
3.2 Should Employee Retire after the Effective Date but on or before March
31, 1996 he shall receive thirty six thousand dollars ($36,000.00)
each year for ten (10) years.
3.3 Should Employee Retire after March 31, 1996 but on or before March 31,
1997 he shall receive seventy thousand dollars ($70,000.00) each year
for ten (10) years.
3.4 Should Employee Retire after March 31, 1997 but on or before March 31,
1998 he shall receive eighty thousand dollars ($80,000.00) each year
for ten (10) years.
3.5 Should Employee Retire after March 31, 1998 but on or before March 31,
1999 he shall receive ninety thousand dollars ($90,000.00) each year
for ten (10) years.
3.6 Should Employee Retire after March 31, 1999 he shall receive one
hundred thousand dollars ($100,000.00) each year for ten (10) years.
3.7 Should Employee become unable to perform the material and substantial
duties of his position prior to March 31, 1999, he shall receive,
pursuant to 4.1, one hundred thousand dollars ($100,000.00) each year
for ten (10) years in lieu of any benefit specified in Sections 3.2
through 3.6 hereof.
3.8 The Company shall pay the amount due hereunder in equal or
substantially equal monthly installments. The first of any such
payments shall be made on the first day of the month following the
month in which Employee Retires, and each subsequent payment shall be
made on the first day of each successive month until Mylan's
obligations with respect to such payments have been satisfied.
3.9 However, upon the written request of the Employee, Mylan may pay to
Employee the NPV of any amount, or of the balance of any such amount,
to which he is entitled hereunder in a lump-sum payment. If the
Company grants the request for a lump sum payment, said payment shall
be paid within thirty (30) days of the date of Employee's request.
IV. CAPACITY TO PERFORM DUTIES
4.1 The certification of a licensed physician selected by the Company as
to Employee's inability to perform the material and substantial duties
of his position shall be conclusive with respect to his status
regarding the application of 3.7 hereof.
V. DEATH BENEFIT
5.1 The Company shall maintain for Employee's benefit during his
employment with the Company life insurance policies in the aggregate
amount of one million two hundred fifty thousand dollars
($1,250,000.00).
5.2 If the Employee's death occurs after Retirement, but before having
received the entire benefit provided for under Article III hereof, the
balance of the payments due thereunder shall be paid to Employee's
beneficiary in a lump-sum payment equal to the NPV of the remaining
payments.
VI. EFFECT OF CHANGE OF CONTROL
6.1 Upon a Change of Control DeBone shall receive, in lieu of the annual
payments provided for under Article III, the NPV of One Hundred
Thousand Dollars ($100,000.00) per year for ten (10) years; provided
DeBone is employed by the Company at or immediately prior to the
Change of Control.
6.2 If a Change of Control occurs after his retirement, but before having
received the entire benefit provided for under Article III hereof, the
balance of the payments due thereunder shall be paid to Employee in a
lump-sum payment equal to the NPV of the remaining payments.
VII. SUCCESSORSHIP
This Agreement in its entirety shall be binding upon and enforceable
against the Company and its Successors.
VIII. NO DUPLICATION OF PAYMENTS
Notwithstanding anything to the contrary which may be set forth
elsewhere herein, under no circumstances is Employee or his beneficiary
entitled to take benefits under more than any one article included in this
Agreement.
IX. EMPLOYEE CONDUCT WITH RESPECT TO COMPETITORS
9.1 Employee agrees that he will not, without the prior written consent of
the Company, directly or indirectly, whether as an employee, officer,
director, independent contractor, consultant, stockholder, partner or
otherwise, engage in or assist others to engage in or have any
interest in any business which competes with the Company in any
geographic area in which the Company markets or has marketed its
products during the year preceding termination of DeBone's employment
for the greater of:
(a) the period during which Employee receives monthly payments under
this Agreement; or
(b) three (3) years following his receipt of a lump-sum payment
hereunder.
9.2 Notwithstanding anything to the contrary set forth elsewhere herein,
stock ownership in a competing business shall not be a breach of this
Agreement, provided such stock is traded on a national exchange.
9.3 The Parties agree and acknowledge that the time, scope and geographic
area and other provisions of this Agreement have been specifically
negotiated by the Parties, and Employee specifically hereby agrees
that such time, scope and geographic area and other provisions are
reasonable under these circumstances. Employee further agrees that if,
despite the express agreement of the Parties to this Agreement, a
court should hold any portion of this Agreement unenforceable for any
reason, the maximum restrictions of time, scope and geographic area
reasonable under the circumstances, as determined by the court, will
be substituted for the restrictions herein which such court may find
to be unreasonable or unenforceable.
9.4 The Parties acknowledge that the breach of 10.1 will be such that the
Company will not have an adequate remedy at law because the rights of
the Company under this Agreement are of a specialized and unique
character, and that immediate and irreparable damage will result to
the Company if Employee breaches his obligations under 10.1. The
Company may, in addition to any other remedies and damages available,
seek an injunction in the courts of the State of West Virginia and the
United States District Court for the Northern District of West
Virginia to restrain any such breach. Employee represents and warrants
that his expertise and capabilities are such that his obligations
under 10.1 will not prevent him from earning a living.
X. CONSULTING SERVICES
10.1 During the five (5) year period beginning on the day following
Employee's Retirement he shall, at the request of the Company, act in
the capacity of a consultant for the Company, performing such services
as may be consistent with those performed by him during his Employee's
employment. These services may be designated by the President of the
Company, or his authorized representative, and shall be reasonable in
scope duration and frequency.
10.2 The Company shall pay the Employee for such consulting services an
hourly rate to be determined by the Parties at such time, but not less
than one hundred fifty dollars ($150.00) per hour, payable monthly.
10.3 In addition to the foregoing, the Company shall reimburse the Employee
monthly for any and all out-of-pocket expenses incurred by the
Employee directly for the benefit of the business of the Company.
XI. ELIGIBILITY FOR PAYMENT
11.1 Any and all payments due hereunder, may be denied if not already
begun, or terminated if they have begun, if in the Company's sole
judgment Employee is either not eligible for such payments, or once
such payments have begun is found to be or found to have been
ineligible.
11.2 Employee shall not be eligible for any payments hereunder if the
Company, in its sole discretion, finds that during or subsequent to
his employment with the Company he:
(a) breaches, or has breached any term, provision or obligation
enumerated herein;
(b) committed any act by commission or omission which materially and
substantially adversely affects the Company's business or
reputation; or
(c) is convicted of any violation of the Federal Food, Drug and
Cosmetic Act, or the violation of any other statute of material
relevance to the Company's business.
11.3 Should Employee be paid any benefits hereunder and thereafter be found
ineligible, or to have been ineligible, he must return to the Company
that portion of the benefit paid to him for the period of his
ineligibility.
XII. RIGHT TO CONFER
12.1 Employee shall have the right, but not the obligation to:
(a) Confer with any Advisor of his choice prior to signing the
Agreement; and
(b) Provide his Advisors with a true and complete copy of the
Agreement, and any other pertinent documents which may be of
assistance to his Advisors.
12.2 Should Employee decline the right to confer with his Advisors prior to
executing this Agreement he shall execute an acknowledgement of same
which shall then be incorporated herein by reference. (See Exhibit A)
XIII. NO PROMISE OF CONTINUED EMPLOYMENT
13.1 Employee acknowledges his employment with the Company is AT-WILL.
13.2 Nothing set forth herein shall constitute or be construed as a
contract of employment except in so far as provided for under 13.1
hereof.
XIV. RESTRICTION OF ALIENABILITY
Benefits payable to the Employee or beneficiary shall not be subject
to assignment, transfer, attachment, execution, garnishment, sequestration,
or any other seizure under any legal or equitable process, whether on
account of the Employee's or beneficiary's act or by operation of the law.
XV. CONTRACT ADMINISTRATOR
The Director of Taxation and Accounting of the Company, or other
officer of Mylan designated by the Executive Committee of the Company is
hereby named the Contract Administrator for purposes of assuring compliance
with the terms and conditions set forth herein.
XVI. MODIFICATION
This Agreement may not be changed, amended or otherwise modified other
than by a written statement; Provided, such statement is signed by both
Parties, expresses their intent to change the Agreement, and specifically
describes such changes.
XVII. HEADINGS
Except when referenced in the body of this Agreement article headings
are set forth herein for the purpose of convenience only. Such headings
shall not be considered or otherwise referred to when any question or issue
arises with respect to the application or interpretation of any term or
condition set forth herein.
XVIII. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which is to be considered an original, and taken together as one and the
same document.
XIX. GOVERNING LAW
Any an all actions between the Parties regarding the interpretation or
application of any term or provision set forth herein shall be governed by
and interpreted in accordance with the substantive laws, and not the law of
conflicts, of the State of West Virginia. The Company and Employee each do
hereby respectively consent and agree that the courts of the State of West
Virginia shall have jurisdiction, and venue shall properly lie with the
courts of the State of West Virginia, with respect to any and all actions
brought hereunder.
XX. SINGULAR OR PLURAL
The singular form of any noun or pronoun shall include the plural when
the context in which such word is used is such that it is apparent the
singular is intended to include the plural and vice versa.
XXI. ASSIGNMENT
The Agreement may not be assigned by either Party, without the written
authorization of the other Party. A Successor shall not be considered an
assignee for purposes of this Article.
XXII. ENTIRE AGREEMENT
The terms and conditions set forth herein contain the entire agreement
between the Company and Employee, and supersede any and all prior
agreements or understandings (whether express or implied) between the
Parties with respect to the matters set forth herein.
XXIII. SURVIVAL
Articles I, II, IX, X, XI, XIX, and XXIII shall survive any expiration
or termination of this Agreement.
XXIV. TERM
The term of this Agreement shall begin on the Effective Date and shall
end on the date on which Mylan makes the last payment to which it is
obligated hereunder.
IN WITNESS of their agreement to the terms and conditions set forth
herein the Company and Employee have caused the following signatures to be
affixed hereto:
MYLAN LABORATORIES INC. John P. O'Donnell
BY:________________________ BY:________________________
TITLE:_____________________ DATE:______________________
DATE:______________________
ACKNOWLEDGEMENT
I, John P. O'Donnell, hereby acknowledge and understand that I have
been given the opportunity to review and discuss the terms of the Agreement
with an Advisor of my choice prior to signing the Agreement. I have decided
that it is not necessary for me to discuss this matter with an Advisor, and
therefore I decline the opportunity to do so.
No one has discouraged me or otherwise attempted to influence me with
regard to my decision to decline the opportunity to discuss this matter
with my Advisors. My refusal of this offer is entirely my own and is made
without any reservation or conditions whatsoever.
WITNESSED BY:
__________________ DATE:_________ BY:__________________ DATE:________
__________________ DATE:_________
Exhibit 10.13
TRANSITION AND SUCCESSION AGREEMENT
This Transition and Succession Agreement (hereinafter referred to as
"Agreement" or "the Agreement") is entered into as of the 10th day of November,
1999, by and between:
Mylan Laboratories Inc.,
a Pennsylvania Corporation,
with offices located at
1030 Century Building
Pittsburgh, Pennsylvania 15222
(hereinafter referred to as "Mylan" or "Company")
and
------------------------,
an employee of Mylan,
who resides at the address
set forth under the employee's signature
(hereinafter referred to as "Employee" or "You")
RECITALS
WHEREAS, the Board of Directors of Mylan (the "Board") considers it
essential to the best interests of the shareholders to promote a stable
employment environment which minimizes distractions that could interfere with
the ability of employees of the Company, particularly certain key employees, to
discharge their duties in a responsible and efficient manner;
WHEREAS, the Board recognizes the inherent uncertainties and
distractions among its key employees which can arise with respect to
continuation of employment with the Company under circumstances in which the
Company might receive a proposal, whether solicited by the Company, or
otherwise, concerning possible Change of Control;
WHEREAS, the Company wishes to promote and perpetuate a work
environment in which distractions and uncertainties, particularly those
resulting from a Potential Change of Control or a Change of Control, are
minimized; and
WHEREAS, Employee has been identified as a key employee whose continued
and dedicated service to the Company is considered to be in the best interests
of the shareholders.
WITNESSETH, therefore, that in consideration of the promises and
covenants set forth herein, the obligations assumed hereunder, and other good
and valuable consideration, the sufficiency and receipt of all which are hereby
acknowledged, the Company and Employee, intending to be legally bound, agree as
follows:
I. DEFINITIONS
Wherever used in this Agreement, capitalized terms shall be defined as
stated in this Article, and words, phrases, and terms parenthetically defined
elsewhere in the body of the Agreement shall throughout the Agreement be defined
by the meanings therein provided.
1.1 "Affiliate" shall mean any person, partnership, corporation,
organization, or entity ("Person") that; (a) directly or indirectly
controls, (b) is directly or indirectly controlled by, or (c) is under
common control with the Company. A Person shall be regarded as
controlling an entity, if; (i) it owns fifty percent (50%) or more of
the voting stock or other ownership interest of such other entity; or
(ii) it directly or indirectly possesses sufficient authority to direct
the adoption and execution of the policies, management, and operations
of such Party by any means whatsoever.
1.2 "Cause" shall mean only Your willful and substantial misconduct with
respect to the business and affairs of the Company; Your gross neglect
of duties, dishonesty or deliberate disregard of any material rule or
policy of the Company; Your commission of an act involving embezzlement
or fraud or a felony pertaining to antitrust, taxes, medicare/medicaid
fraud or abuse or the development, approval, manufacturing,
distribution or sale of prescription drug products or medical devices
or Your commission of a similar felony.
1.3 Change Of Control shall mean a change of control of a nature that would
be required to be reported in response to Item 6 (e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirement; provided that, without
limitation, such a Change of Control shall be deemed to have occurred
if (a) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as
determined for purposes of Regulation 13D-G under the Exchange Act as
currently in effect), other than a Company-sponsored employee benefit
plan, directly or indirectly, of securities of the Company representing
twenty percent (20%) or more of the combined voting power of the
Company's then outstanding securities; or (b) during any period of two
consecutive years, individuals who at the beginning of such period
constitute the Board and any new director, whose election to the Board
or nomination for election to the Board by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election to the Board or nomination for election to the
Board by the Company 's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board; or (c) the stockholders
of the Company approve (i) a merger or consolidation of the Company
with any corporation or other entity other than a merger or
consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
immediately thereafter securities representing more than eighty percent
(80%) of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation (ii) a plan of complete liquidation of the
Company or an (iii) agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; PROVIDED,
HOWEVER, that if such a merger, consolidation, plan of liquidation or
sale of substantially all assets is not consummated following such
stockholder approval and the transaction is abandoned, then the Change
of Control shall be deemed not to have occurred. Notwithstanding the
foregoing, in no event shall a Change of Control be deemed to occur as
the result of the formation of a Holding Company.
1.4 "Company" shall mean Mylan and its Subsidiaries and Affiliates.
1.5 "Contract Payment(s)" shall mean any payment or benefit to be received
by You pursuant to the terms of this Agreement.
1.6 "Date of Termination of Employment" shall mean: the date Your
employment with the Company is terminated, which, if such termination
occurs during a Potential Change of Control Period or after a Change of
Control and (i) if Your employment is terminated by the Company for any
reason other than Cause, or (ii) by You for anything other than Good
Reason, other than those described in Section 8.1 hereof shall not be
less than thirty (30) days from the date such Notice of Termination of
Employment is given.
1.7 "Disability" shall mean Your permanent and total disability as such
term is defined under Section 22(e) (3) of the Internal Revenue Code of
1986, as amended (the "Code"). Any question as to the existence of Your
Disability upon which You and the Company cannot agree shall be
determined by a qualified independent physician selected by You (or, if
You are unable to make such selection, such selection shall be made by
any adult member of Your immediate family or Your legal
representative). The determination of such physician made in writing to
the Company and to You shall be final and conclusive for all purposes
addressed or contemplated pursuant to or under this Agreement.
1.8 "Effective Date" shall mean the day and date first hereinabove entered.
1.9 "Employee" shall mean the name of the employee appearing on page one
(1) of this Agreement.
1.10 "Good Reason" shall mean the occurrence, without Your express written
consent, with respect to subparagraphs (a) through (g), (i), and (j) of
any of the following circumstances unless, in the case of paragraphs
(a), (e), (f), (g), or (h) hereof, such circumstances are fully
corrected prior to the Date of Termination of Employment specified in
the Notice of Termination of Employment given in respect thereof:
(a) the assignment to You of any duties or responsibilities
inconsistent with Your status as an employee of the Company,
Your removal from that position, or a substantial diminution
in the nature or status of Your responsibilities and authority
from those in effect immediately prior to the Change of
Control, or during a Potential Change of Control;
(b) a reduction in Your annual base salary in effect on the date
of this Agreement, as increased thereafter and prior to the
Change of Control, or failure to pay You annual wages in an
amount equal to the average annual amount of wages (base
salary plus bonus) paid to you during each of the three (3)
calendar years ending immediately prior to the Change of
Control;
(c) the relocation of the office in which You are based at the
commencement of a Potential Change of Control or at the time
of a Change of Control to a location more than thirty (30)
miles from its location as of the Effective Date;
(d) the failure by the Company to pay to You any portion of any
installment of deferred compensation, or lump sum under any
deferred compensation program of the Company within seven (7)
days after you give the Company written notice of the failure
to pay such compensation when it is due;
(e) the failure by the Company to continue in effect any incentive
compensation plan in which You participate prior to the Change
of Control, unless an equitable alternative compensation
arrangement (embodied in an ongoing substitute or alternative
plan) has been provided for You, or the failure by the Company
to continue Your participation in any such incentive plan on
the same basis, both in terms of the amount of benefits
provided and the level of Your participation relative to other
participants, as existed at the time of the Change of Control;
(f) except as required by law, (i) the failure by the Company
to continue to provide You with benefits at least as
favorable as those enjoyed by You under the employee benefit
and welfare plans of the Company including, without
limitation, profit sharing, life insurance, medical, dental,
health and accident, disability, deferred compensation,
retirement and savings plans, in which You were participating
at the time of a Potential Change of Control or a Change of
Control, (ii) the taking of any action by the Company
which would directly or indirectly materially reduce any
of such benefits or deprive You of any material fringe benefit
enjoyed by You at the time of a Potential Change of Control
or a Change of Control, or the failure by the Company to
provide You with the number of paid vacation days and holidays
to which You are entitled at the time of the Change of
Control;
(g) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this
Agreement;
(h) any purported termination of Your employment which is not
effected pursuant to a Notice of Termination of Employment
satisfying the requirements set forth herein for such notice
(for purposes of this Agreement, no such purported termination
shall be effective);
(i) if the Company continues to exist and be a company registered
under the Securities Exchange Act of 1934, as amended,
after the Change of Control and continues to have in effect
the Stock Option Plan, or a stock option plan substantially
similar to the Stock Option Plan, the failure of the Company
to grant to You options for a number of shares of Common
Stock of the Company that as a percentage of the
outstanding stock of the Company is at least as great as
the average annual percentage of the outstanding Common
Stock of the Company with respect to which you received
options during the three calendar years immediately
prior to the Change of Control, which options are on terms,
including pricing relative to the market price at the time
of grant, that are at least as favorable as the terms of
grant last made to you prior to the Change of Control;
(j) failure to include You in any program or plan of benefits
(including, but not limited to stock option and defined
compensation plans), and in like amounts or coverage, which is
provided or otherwise offered to other employees of like or
similar positions, duties, responsibilities, or status
following a Change of Control;
(k) Your Disability.
1.11 "Holding Company" shall mean a company that as the result of a
reorganization, merger, consolidation or other transaction holds all of
the outstanding voting securities of the Company, if immediately
following the transaction all or substantially all of the individuals
or entities who were beneficial owners of voting securities of the
Company immediately prior to the transaction hold voting securities of
the Holding Company having substantially the same rights and in
substantially the same proportions as they held in the Company
immediately prior to the transaction.
1.12 "Mylan" shall mean Mylan Laboratories Inc.
1.13 "Notice of Termination of Employment" shall mean a notice which shall
state the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Your employment under the
provision so indicated.
1.14 "Other Payment" shall mean any payment or other benefit received or, to
be received, by You in connection with termination of Your employment
or contingent upon a Change of Control pursuant to any plan, or
arrangement or agreement with the Company other than this Agreement.
1.15 "Party" shall mean either the Company or You.
1.16 "Payments" shall mean Contract Payments and/or Other Payments.
1.17 "Potential Change of Control" shall be deemed to have occurred if: (a)
the Company enters into an agreement, the consummation of which would
result in the occurrence of a Change of Control; (b) any person
(including the Company) publicly announces an intention to take or to
consider taking actions, which if consummated, would constitute a
Change of Control; (c) any person becomes the beneficial owner,
directly or indirectly, of securities of the Company representing ten
percent (10%) or more of the combined voting power of the Company's
then outstanding securities; or (d) the Board adopts a resolution to
the effect that, for purposes of this Agreement, a Potential Change of
Control of the Company has occurred. A Potential Change of Control, and
the "Potential Change of Control Period" relating thereto, shall be
deemed to end, when the agreement referred to in clause (a) of the
immediately preceding sentence is terminated; when the person making a
public announcement described in clause (b) announces the termination
of his previously announced intention or effort or has made no further
such announcements or efforts for a period of six months; six months
after a person who becomes the beneficial owner of securities as
described in clause (c) of the immediately preceding sentence last
increases the percentage ownership of the combined voting power of the
Company's outstanding voting securities he beneficially owns; or the
Board withdraws the resolution described in clause (d) of the
immediately preceding sentence or six months after the Board last took
action with respect to the subject matter of such resolution.
1.18 "Retirement" shall mean Your voluntary termination of employment with
the Company in accordance with the Company's retirement policy
(excluding early retirement) generally applicable to its salaried
employees or in accordance with any retirement arrangement established
by the Company with Your consent with respect to You.
1.19 "Separation Period" shall mean the period commencing on the first
anniversary of a Change of Control and ending ninety (90) days
thereafter.
1.20 "Stock Option Plan" shall mean the Mylan Laboratories Inc. 1997
Incentive Stock Option Plan and any successor thereto implemented
prior to a Change of Control.
1.21 "Subsidiary" shall mean any corporation, partnership, limited
partnership, or other entity in which the Company owns more than
one-half (1/2) of the equity interest, assets, or voting stock or
voting control of such entity.
1.22 "Voluntary Termination" shall mean Your resignation from employment
with the Company for anything other than Good Reason.
1.23 "You" or "Your" shall refer to Employee.
II. SCOPE
As an inducement for You to remain employed by the Company during a
Potential Change of Control and for a period of two (2) years after a Change of
Control, the Company agrees, subject to the rights of each Party during the
Separation Period, to provide the benefits as set forth in Article VIII of this
Agreement in the event of a Change of Control.
III. TERM OF AGREEMENT
3.1 The term of this Agreement shall begin on the Effective Date and shall
continue in full force and effect unless and until it is terminated as
set forth elsewhere herein.
3.2 This Agreement may be terminated at any time, other than during a
Potential Change of Control Period or following a Change of Control, by
the Company upon the giving of at least twelve (12) months prior
written notice of termination.
IV. TERMINATION OF THE AGREEMENT
The term of this Agreement shall expire on the first to occur of the
following events:
(i) termination of this Agreement pursuant to Section 3.2 hereof;
(ii) termination of Your employment by either You or the Company
other than during a Potential Change of Control Period or
following a Change of Control; and
(iii) the second anniversary of a Change of Control.
V. CONTINUATION OF EMPLOYMENT
You agree that, subject to the terms and conditions of this Agreement,
in the event of a Potential Change of Control occurring after the Effective
Date, You; (i) will not Voluntarily terminate Your employment with the Company
for a period of six (6) months from the date on which such Potential Change of
Control occurs; and (ii) for a period of two (2) years following a Change of
Control, subject to the terms set forth elsewhere herein. If more than one
Potential Change of Control occurs during the term of this Agreement, the
provisions of the preceding sentence shall be applicable to each such Potential
Change of Control occurring prior to the occurrence of a Change of Control.
VI. TERMINATION FOLLOWING CHANGE OF CONTROL
6.1 If a Change of Control shall have occurred, You shall be entitled to
the benefits provided for herein upon the subsequent termination of
Your employment with the Company during the term of this Agreement
unless such termination is a result of; (a)Your Retirement; or (b)
Voluntary Resignation without Good Reason; or (c) by the Company for
Cause.
6.2 Notwithstanding anything set forth to the contrary in Section 6.1
above, if You Voluntarily Terminate Your Employment for any reason
during the Separation Period, You shall be entitled to receive the
Contract Payments.
VII. NOTICE OF TERMINATION OF EMPLOYMENT
Any purported termination of Your employment during a Potential Change
of Control Period or after a Change of Control by: (i) the Company; or (ii) by
You shall be communicated by written Notice of Termination of Employment to the
other Party.
VIII. COMPENSATION UPON TERMINATION
During a Potential Change of Control and following a Change of Control,
upon termination of Your employment, under the circumstances contemplated below,
You shall be entitled to the following benefits:
8.1 If Your employment is terminated by the Company for Cause, or by You
other than for Good Reason, the Company shall pay You Your full base
salary and bonus, if any, through the Date of Termination of Employment
at the rate in effect at the time Notice of Termination of Employment
is given, and shall also pay to You any Other Payments due and payable
to you, if any.
8.2 If Your employment with the Company is terminated; (i) by the Company
for other than Cause; (ii) by You for Good Reason; or (iii) as a result
of Your death during the period beginning with the first anniversary of
a Change of Control, and ending on the second anniversary of the Change
of Control, or if Your employment with the Company is terminated by You
for any reason during the Separation Period (any of the foregoing
events being "Qualifying Events"), You shall receive the Contract
Payments as provided for elsewhere herein, and Other Payments, if any.
In addition:
(a) Upon the occurrence of a Qualifying Event, the
Company shall pay to You in a lump sum on a date that
is not later than the fifth (5th) day following the
Date of Termination of Employment as severance pay
(a) an amount equal to 2.99 times the amount of base
salary and cash bonus paid by the Company as
reflected on Your Wage and Tax Statement (Form W-2)
for the tax year immediately preceding the date of
the Qualifying Event which resulted in the Company's
obligation to pay the amounts provided for herein.
(b) You, together with Your dependents, will continue
following such termination of employment to
participate fully, with no contribution to the cost
required of You or them, in all accident,
hospitalization, medical and health and life
insurance plans maintained or sponsored by the
Company immediately prior to the Change of Control or
the beginning of the Potential Change of Control
Period, as the case may be, or receive substantially
the equivalent coverage (or the full value thereof in
cash) from the Company, until the third anniversary
of such termination.
(c) The Contract Payments to be made to You pursuant to
this Article shall not be reduced by the amount of
any Other Payments or the value of any benefit
received or to be received by You in connection with
Your termination of employment or contingent upon a
Change of Control of the Company (whether payable
pursuant to the terms of this Agreement or any other
agreement, plan or arrangement with the Company, or
predecessor or successor of the Company, or any
person whose actions result in a Change of Control of
the Company).
8.3 Anything in this Agreement to the contrary notwithstanding, if it is
determined that any payment or distribution by the Company to or for
Your benefit (whether paid or payable or distributed or distributable
under the terms of this Agreement or otherwise) (a "Payment") would be
nondeductible by Company for Federal income tax purposes because of
Section 280G of the Code, then the aggregate present value of amounts
payable to or distributable to or for Your benefit under this Section
("Agreement Payments") or, if You so elect, the aggregate present value
of other Payments (exclusive of any other Payments under this
Agreement) shall be reduced (but not below zero) to the Reduced Amount.
8.4 For purposes of this Agreement, the "Reduced Amount" shall be the
amount which maximizes the aggregate present value of Agreement
Payments or Payments, as the case may be, without causing any Payment
to be nondeductible because of Section 280G of the Code. The
determination to be made under this Agreement shall be binding upon the
Company and You and shall be made within twenty (20) days after the
Your Date of Termination by Deloitte and Touche LLP (the "Accounting
Firm"), which shall be compensated by the Company and shall provide
detailed calculations thereof to the Company and to You. However, You
shall elect which and how much of the Agreement Payments or other
Payments shall be reduced consistent with the calculations. Present
value, for purposes of the calculations under this Agreement, shall be
determined in accordance with Section 280G(d)(4) of the Code.
8.5 As a result of the uncertainty in the application of Section 280G of
the Code at the time of the initial determination by the Accounting
Firm under this Agreement, it is possible that Agreement Payments may
be paid or distributed by the Company which should not be paid or
distributed ("Overpayment") or that additional Agreement Payments which
have not been paid or distributed by the Company should be paid or
distributed ("Underpayment"), in each case, consistent with the
calculation of the Reduced Amount under this Agreement. If the
Accounting Firm determines that an Overpayment has been made, any of
the Overpayment shall be treated for all purposes as a loan to You
which You shall repay to Company, together with interest at a rate
equal to one hundred twenty percent (120%) of the applicable Federal
rate provided for in Section 7872(f)(2) of the Code. However, no amount
shall be payable by You to the Company (or if paid by You to the
Company shall be returned to the Executive) if and to the extent the
payment would not reduce the amount which is subject to taxation under
Section 4999 of the Code. If the Accounting Firm determines that an
Underpayment has occurred, any of the Underpayment shall be paid
promptly by the Company to or for Your benefit together with interest
at a rate equal to one hundred twenty percent (120%) of the applicable
Federal rate provided for in Section 7872(f)(2) of the Code.
8.6 You shall not be required to mitigate the amount of any payment
provided for herein by seeking other employment or otherwise, nor shall
the amount of any payment or benefit provided for herein be reduced by
any compensation earned by You as the result of employment by another
employer or by retirement benefits received after the Date of
Termination or otherwise.
IX. DATE OF TERMINATION OF EMPLOYMENT
Within thirty (30) days after any Notice of Termination of Employment
is received, the recipient of such notice shall have ten (10) days to notify the
Party providing said notice that a dispute exists with respect to such notice.
The Date of Termination of Employment shall then become null and void, and the
actual Date of Termination of Employment shall become the date on which the
dispute is resolved, either by mutual written agreement of the Parties, by a
binding arbitration award, or the decision of a court of competent jurisdiction,
from which no appeal is or can be taken; provided further that the Date of
Termination of Employment shall be extended by a notice of dispute only if such
notice is given in good faith and the Party giving such notice pursues the
resolution of such dispute with reasonable diligence. Notwithstanding the
pendency of any such dispute, the Company will continue to pay Your full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary and bonus) and continue You as a
participant in all incentive compensation, benefit and insurance plans in which
You were participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with this Article. Amounts
paid under this Article are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
X. SUCCESSOR; BINDING AGREEMENT
10.1 The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to expressly assume
and agree to perform this Agreement in the same manner and to the same
extent that the Company is required to perform it. Failure of the
Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this
Agreement and shall entitle You to compensation from the Company in the
same amount and on the same terms as You would be entitled hereunder if
You had terminated Your employment for Good Reason following a Change
of Control, except that for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the
Date of Termination of Employment. As used in this Agreement, "Company"
shall mean the Company as hereinabove defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
10.2 This Agreement shall inure to the benefit of and be enforceable by Your
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If You should
die while any amount would still be payable to You hereunder if You had
continued to live, all such amount, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to Your
devisee, legatee or other designee or, if there is no such designee, to
Your estate.
10.3 Within twenty (20) days after a Change of Control Date, the Company
shall deposit in a trust designed in accordance with Revenue Procedure
92-64 or any successor thereto having a trustee independent of the
Company and any successor thereto an amount equal to the total amount
necessary to make the payments contemplated by Section 8.2. The
Executive shall be entitled to receive funds held in such trust from
the trustee upon the Executive's delivery to the trustee of a written
certification by the Executive that a termination of his employment has
occurred and that, as a result, the Executive is entitled to payment
under Article VIII of this Agreement. Any funds which the Executive so
receives shall be credited against the amount owed by the Company to
the Executive pursuant to this agreement. The Company shall pay any and
all expenses of establishing and maintaining the trust.
XI. NONCOMPETITION AGREEMENT
11.1 In consideration, among other things, for the provisions of Section 8.2
hereof, You agree that during a period commencing on the Date of
Termination of Employment relating to a termination that entitles you
to the Contract Payments and ending one year thereafter (the "Covenant
Period"), You will not, directly or indirectly, own, manage, operate,
control or participate in the ownership, management, operation or
control of, or be connected as an officer, employee, partner, director
or otherwise with, or (other than through the ownership of not more
than five percent (5%) of the voting stock of any publicly held
corporation) have any financial interest in, or aid or assist anyone
else in the conduct of, a business which at the time of such
termination competes in the United States with a business conducted by
the Company or by any group, division or subsidiary of the Company
(collectively with the Company, the "Company Group") on the Date of
Termination. Notwithstanding the foregoing, Your employment by a
business that competes with the business of the Company, or retention
of You as a consultant by any such business shall not violate this
paragraph if Your duties and actions for the business are solely for
groups, divisions or subsidiaries that are not engaged in a business
that competes with a business conducted by the Company. No business
shall be deemed to be a business conducted by the Company unless the
Company was engaged in the business at the Date of Termination of
Employment and continues to be engaged in the business and at least
twenty-five percent (25%) of the Company's consolidated gross sales and
operating revenues, or net income, is derived from, or at least
twenty-five percent (25%) of the Company's consolidated assets are
devoted to, such business and no business shall be deemed to compete
with a business conducted by the Company unless at least twenty-five
percent (25%) of the consolidated gross sales and operating revenues,
or net income, of any consolidated group that includes the business, is
derived from, or at least twenty-five percent (25%) of the consolidated
assets of any such consolidated group are devoted to, such business.
11.2 During the Covenant Period, You shall not solicit on behalf of himself
or any other person the services, as employee, consultant or otherwise,
of any person who on the Date of Termination of Employment is employed
by the Company Group, whether or not such person would commit any
breach of his contract of service in leaving such employment, except
for any employee (a) whose employment is terminated by the Company or
any successor thereof prior to such solicitation of such employee, (b)
who initiates discussions regarding such employment without any
solicitation by You, (c) who responds to any public advertisement
unless such advertisement is designed to target, or has the effect of
targeting, employees of the Company, or (d) who is initially solicited
for a position other than by You and without any suggestion or advice
from You. Nothing herein shall restrict businesses which employ You or
retain You as an executive from soliciting from time to time employees
of the Company, if (x) such solicitation occurs in the ordinary course
of filling the business's employment needs, and (y) the solicitation is
made by persons at the business other than You who have not become
aware of the availability of any specific employees as a result of the
advice of You.
11.3 Sections 11.1 and 11.2 shall be of no force or effect if Your
employment is terminated and You are not as a result thereof entitled
to any payments or benefits under Section 8.2 hereof or if, within
twenty (20) days after the date of the termination of his employment,
he waives his right to such payments and benefits in writing.
XII. ENFORCEMENT OF RIGHTS
12.1 Should it become necessary for You in Your sole discretion to retain
legal counsel to represent You with respect to any dispute which may
arise between You and the Company regarding the interpretation,
application, or enforcement (an "Action") of any term or provision set
forth in this Agreement, the Company will pay to You an amount equal to
any legal fees and expenses ("Expenses") incurred by You with respect
to any such Action.
12.2 Payment to You of the Expenses shall be made within fifteen (15) days
of receipt by the Company of an invoice(s) by Your counsel. The Company
shall not require a detailed statement of Expenses before paying the
invoice, but reserves the right to demand and receive detailed invoices
at the conclusion of the Action.
12.3 If the Company fails to timely make any payment to the You that is
required to be made hereunder, the amount not timely paid shall bear
interest after the date it is due hereunder at the rate of 18% per
annum until it is paid.
XIII. EMPLOYMENT STATUS
Except as expressly set forth herein, this Agreement does not create
any new, or enlarge, Your employment rights beyond those of an at-will employee.
As such, You are not obligated to remain employed with the Company for any
particular period of time and the Company is not required to employ You for any
specified period. Unless otherwise specifically provided for herein, You may
terminate Your employment with the Company at any time and for any reason, and
likewise, the Company may terminate Your employment at any time for any reason.
XIV. NOTICE
For the purpose of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, or by Federal Express or other
recognized overnight delivery service, addressed to the address set forth on the
first page of this Agreement with respect to the Company and on the signature
page with respect to You, provided that all notices to the Company shall be
directed to the attention of the Vice President and General Counsel of the
Company, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
XV. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
XVI. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original, but all of which together will constitute one
and the same instrument.
XVII. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator' s award in any court having jurisdiction; provided,
however, that You shall be entitled to seek specific performance of Your right
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
XVIII. OTHER DUTIES
Each of the Parties shall perform all other duties and acts, execute
and deliver all other documents, and provide all other information and
assistance, whether or not specifically provided for herein, as may be
reasonably necessary, beneficial or appropriate to further the purposes and
carry out the intent of this Agreement.
XIX. WAIVER
19.1 The waiver by either Party to this Agreement of a breach of any
provision of the Agreement or of any right contained herein shall not
operate as or be construed as a waiver of any subsequent breach or
right granted herein.
19.2 Your continued employment shall not constitute consent to or be
construed as a waiver of any rights with respect to any facts or
circumstances regarding or constituting Good Reason.
XX. DOCUMENT PREPARATION
The Parties acknowledge that this Agreement is a product of
negotiations and that no inference should be drawn regarding the drafting of
this document.
XXI. HEADINGS
Article headings are set forth herein for the purpose of convenience
only. Such headings shall not be considered or otherwise referred to when
interpreting or applying any term, provision or condition set forth herein.
XXII. SINGULAR AND PLURAL
The singular form of any noun or pronoun shall include the plural when
the context in which such a word is used is such that it is apparent the
singular is intended to include the plural.
XXIII. GOVERNING LAW
The laws of the State of West Virginia shall be determinative of any
controversies arising hereunder as to the application or interpretation of any
term or provision set forth herein.
XXIV. MODIFICATION
This Agreement may be changed, amended, or otherwise modified by, and
only by, a written statement or amendment executed by You and the Company that
expresses their intent to change the Agreement and specifically describes such
change(s).
IN WITNESS of their Agreement to the terms and conditions contained
herein Mylan and Employee have caused the following signatures to be affixed
hereto as of the day and year first set forth above.
EMPLOYEE MYLAN LABORATORIES INC.
___________________________________ BY:
TITLE:
ADDRESS: __________________________
__________________________
PREAMBLE
Mylan Laboratories Inc. (the "Company") hereby establishes the Mylan
Laboratories Inc. Executives' Retirement Savings Plan (the "Plan"), effective as
of the date specified herein. The Company intends to establish and maintain the
plan as an unfunded retirement plan for a select group of management or highly
compensated employees.
The purpose of the Plan is to permit designated executives of the
Company to accumulate additional retirement income through a nonqualified
deferred compensation plan that enables them to make elective deferrals
ARTICLE ONE
DEFINITIONS
As used in this Plan, the following capitalized words and phrases have
the meanings indicated, unless the context requires a different meaning:
1.01 "Account" means amounts credited to a Participant under the
Plan.
1.02 "Allocation Date" means the last day of any Plan Year.
1.03 "Beneficiary" means the person or persons designated by a
Participant, or otherwise entitled, to receive any amount credited to his
Account that remains undistributed at his death.
1.04 "Board of Directors" or "Board" means the board of directors
of the Mylan Laboratories Inc.
1.05 "Company" means, Mylan Laboratories Inc. a Pennsylvania
corporation, and such of its subsidiaries and affiliates as determined by the
Board of Mylan Laboratories Inc. and any successors thereto.
1.06 "Compensation" means the aggregate compensation paid to a
Participant by the Company for a Plan Year, including salary, overtime pay,
commissions, bonuses and all other items that constitute wages within the
meaning of IRC ss.3401(a) or are required to be reported under IRC ss.6041(d),
ss.6051(a)(3) or ss.6052. Compensation also includes Salary Reduction Accruals
under this Plan and any elective deferrals under cash-or-deferred arrangements
or cafeteria plans that are not includible in gross income by reason of IRC
ss.125 or ss.402(a)(8), but does not include any other amounts contributed
pursuant to, or received under, this Plan or any other plan of deferred
compensation.
1.07 "Effective Date" means April 1, 2000, or if later, the date on
which the Board of Directors adopts this Plan.
1.08 "Eligible Employee" means any officer of the Company who is
determined by the Board to be eligible to participate.
1.09 "Participant" means any Eligible Employee who satisfies the
conditions for participation in the Plan set forth in Section 2.01.
1.10 "Plan" means the Mylan Laboratories Inc. Executives'
Retirement Savings Plan, as set forth herein and as from time to time amended.
1.11 "Plan Administrator" means the person or committee appointed in
accordance with Section 7.01 to administer the Plan.
1.12 "Plan Year" means the accounting year of the Plan, which ends
on March 31.
1.13 "Salary Reduction Accrual" means an amount credited to the
Account pursuant to a Salary Reduction Agreement.
1.14 "Salary Reduction Agreement" means an agreement between a
Participant and the Company, under which the Participant agrees to a reduction
in his Compensation and the Company agrees to credit him with Salary Reduction
Accruals under this Plan.
1.15 "Termination of Employment" means a Participant's or former
Participant's separation from the service of the Company (including all
affiliates of the Company) by reason of his resignation, retirement, discharge
or death.
1.16 "Trust" or "Trust Fund" means any trust established to hold
amounts set aside by the Company in accordance with Section 4.04.
1.17 "Trustee" means the trustee of the applicable Trust or Trust Fund
and any additional or successor trustees of such Trust Fund.
1.18 "Valuation Date" means any Allocation Date and any other date as
of which the value of Participants' Accounts is determined.
ARTICLE TWO
Participation in the Plan
2.01 Commencement of Participation: An employee of the Company
becomes a Participant on the date on which he satisfies both of the following
conditions:
(a) he is an Eligible Employee, and
(b) he has executed a valid Salary Reduction Agreement
that is still in effect.
2.02 Cessation of Participation: If a Participant ceases to satisfy
either of the conditions set forth in Section 2.01, his participation in this
Plan terminates immediately, except that his Account will continue to be held
for his benefit and will be distributed to him in accordance with the provisions
of Article Six. He may resume participation as of any date on which he again
satisfies the conditions of Section 2.01.
ARTICLE THREE
Accounts Under the Plan
3.01 Establishment of Accounts: Accounts are established under the Plan
to record the liability of the Company to Participants. All Accounts are
maintained on the books of the Company, and unless otherwise required because of
the establishment of a separate Trust Fund, the Company is under no obligation
to segregate any assets to provide for these liabilities.
3.02 Valuation of Accounts: All Accounts are valued as of each
Allocation Date and as of any other Valuation Date fixed by the Plan
Administrator.
3.03 Method of Valuing Account: The value of an Account as of any
Valuation Date is equal to the fair market value of the Account as determined on
the books and records of the Company or, if a Trust Fund is otherwise
established, the fair market value of the Account's interest in the Trust Fund.
ARTICLE FOUR
Accrual of Benefits
4.01 Type of Contribution: For any Plan Year, Salary Reduction Accruals
are credited to each Participant to the extent specified in his Salary Reduction
Agreement in effect for the Plan Year.
4.02 Timing of Accruals: Salary Reduction Accruals are deemed to accrue
on the date on which the Participant would otherwise have received the
Compensation that he elected to defer.
4.03 Salary Reduction Agreements:
(a) Authorization of Salary Reduction Accruals: By executing a
Salary Reduction Agreement with respect to a Plan Year, a
Participant may elect to have Salary Reduction Accruals
credited under the Plan on his behalf. The current salary and
bonus of a Participant who executes a Salary Reduction
Agreement are reduced by the amounts specified in his
election, and an equal amount is accrued under the Plan in
accordance with Section 4.01. A Salary Reduction Agreement may
specify either a dollar amount or a percentage reduction and
may specify whether the reduction is applied to regular
salary, to bonus or to both. Salary Reduction Agreements may
not be made with respect to Compensation other than salary and
bonuses.
(b) Timing of Salary Reduction Agreements: A Salary Reduction
Agreement with respect to any Plan Year beginning after 2000
must be executed no later than the last day of the preceding
Plan Year. A Salary Reduction Agreement for the Plan Year
beginning during 2000 must be executed on or before the
original date of execution of this Plan. No Salary Reduction
Agreement may be amended or revoked after the last day on
which it could have been executed, except that an agreement is
automatically revoked if the Participant who executed it
ceases to be eligible to participate in the Plan.
4.04 Contributions to Trust Fund: The Company shall establish a Trust
Fund and make contributions to it corresponding to any or all amounts accrued
under Section 4.01. These contributions are credited with income, expense, gains
and losses in accordance with the investment experience of the Trust Fund. The
Plan Administrator may direct the Trustee to establish investment funds within
the Trust Fund and to permit Participants to direct the allocation of their
Account balances among these funds in accordance with rules prescribed by the
Plan Administrator. The Plan Administrator may alter the available funds or the
procedures for allocating Account balances among them at any time.
4.05 Status of the Trust Fund: Notwithstanding any other provision of
this Plan, all assets of the Trust Fund remain the property of the Company and
are subject to the claims of its creditors. No Participant has any priority
claim on Trust assets or any security interest or other right in or to them
superior to the rights of general creditors of the Company.
4.06 Nonalienability: A Participant's rights under this Plan may not be
voluntarily or involuntarily assigned or alienated. If a Participant attempts to
assign his rights or enters into bankruptcy proceedings, his right to receive
payments personally under the Plan will terminate, and the Plan Administrator
may apply them in such manner as will, in its judgment, serve the best interests
of the Participant.
ARTICLE FIVE
Distributions to Participants
5.01 Election of Distribution Date and Manner of Distribution: Each
Salary Reduction Agreement must specify when and in what form benefits accrued
under the Plan while the agreement is in effect will be distributed to the
Participant or his Beneficiary. A Participant may elect any date and form of
distribution that is acceptable to the Plan Administrator. The Participant and
the Plan Administrator may agree to change the time or manner of distribution
specified in a Salary Reduction Agreement, but only with respect to benefits
accrued after the date on which the change becomes effective.
5.02 Type of Property to be Distributed: All distributions from the
Plan to Participants and Beneficiaries are made in cash, unless the Plan
Administrator determines that other property should be distributed.
5.03 Manner of Distribution to Minors or Incompetents: If at any time
any distributee is, in the judgment of the Plan Administrator, legally,
physically or mentally incapable of receiving any distribution due to him, the
distribution may, if the Plan Administrator so directs, be made to the guardian
or legal representative of the distributee, or, if none exists, to any other
person or institution that, in the Plan Administrator's judgment, will apply the
distribution in the best interests of the intended distributee.
5.04 Election of Beneficiary:
(a) Designation or Change of Beneficiary by Participant: When an
Eligible Employee qualifies for participation in the Plan, the
Plan Administrator will send him a Beneficiary designation
form, on which he may designate one or more Beneficiaries and
successor Beneficiaries. A Participant may change his
Beneficiary designation at any time by filing the prescribed
form with the Plan Administrator. The consent of the
Participant's current Beneficiary is not required for a change
of Beneficiary, and no Beneficiary has any rights under this
Plan except as are provided by its terms. The rights of a
Beneficiary who predeceases the Participant who designated him
immediately terminate, unless the Participant has specified
otherwise.
(b) Beneficiary if No Election is Made: Unless a different
Beneficiary has been elected, the Beneficiary of any
Participant who is lawfully married on the date of his death
is his surviving spouse. The Beneficiary of any other
Participant who dies without having designated a Beneficiary
is his estate.
ARTICLE SIX
AMENDMENT OR TERMINATION OF THE PLAN
6.01 Company's Right to Amend Plan: The Board of Directors may, at any
time and from time to time, amend, in whole or in part, any of the provisions of
this Plan or may terminate it as a whole or with respect to any Participant or
group of Participants. Any such amendment is binding upon all Participants and
their Beneficiaries, the Trustee, the Plan Administrator and all other parties
in interest.
6.02 When Amendments Take Effect: A resolution amending or
terminating the Plan becomes effective as of the date specified therein.
6.03 Restriction on Retroactive Amendments: No amendment may be
made that retroactively deprives a Participant of any benefit accrued before
the date of the amendment.
ARTICLE SEVEN
PLAN ADMINISTRATION
7.01 The Plan Administrator: The Plan is administered by the
Company, which may appoint an individual or a committee to administer the Plan.
Mr. Michael Goode, Corporate Director of Human Resources for the Company, is
hereby appointed to administer the Plan to serve in such capacity until he
either resigns or his successor is appointed by the Board of Directors.
7.02 Powers of the Administrator: In carrying out its duties with
respect to the general administration of the Plan, the Plan Administrator has,
in addition to any other powers conferred by the Plan or by law, the following
powers:
(a) to determine all questions relating to eligibility to
participate in the Plan;
(b) to compute and certify to the Trustee the amount and kind
of distributions payable to Participants and their
Beneficiaries;
(c) to maintain all records necessary for the administration of
the Plan that are not maintained by the Company or the
Trustee;
(d) to interpret the provisions of the Plan and to make and
publish such rules for the administration of the Plan as are
not inconsistent with the terms thereof;
(e) to establish and modify the method of accounting for the Plan
or the Trust;
(f) to employ counsel, accountants and other consultants to
aid in exercising its powers and carrying out its duties
hereunder; and
(g) to perform any other acts necessary and proper for the
administration of the Plan, except those that are to be
performed by the Trustee.
7.03 Indemnification:
(a) Indemnification of Individuals Appointed by the Company: The
Company agrees to indemnify and hold harmless any individual
appointed to administer the Plan against any and all expenses
and liabilities arising out of his action or failure to act in
such capacity, excepting only expenses and liabilities arising
out of his own willful misconduct or gross negligence. This
right of indemnification is in addition to any other rights to
which any such individual may be entitled.
(b) Liabilities for Which Members of the Committee are
Indemnified: Liabilities and expenses against any individual
appointed to administer the Plan is indemnified hereunder
include, without limitation, the amount of any settlement or
judgment, costs, counsel fees and related charges reasonably
incurred in connection with a claim asserted or a proceeding
brought against him or the settlement thereof.
(c) Company's Right to Settle Claims: The Company may, at its own
expense, settle any claim asserted or proceeding brought
against any individual appointed to administer the Plan when
such settlement appears to be in the best interests of the
Company.
7.04 Claims Procedure: If a dispute arises between the Plan
Administrator and a Participant or Beneficiary over the amount of benefits
payable under the Plan, the Participant or Beneficiary may file a claim for
benefits by notifying the Plan Administrator in writing of his claim. The Plan
Administrator will review and adjudicate the claim. If the claimant and the
Administrator are unable to reach a mutually satisfactory resolution of the
dispute, it will be submitted to arbitration under the rules of the American
Arbitration Association. Each Participant, for himself, his Beneficiaries, his
heirs, successors and assigns, agrees, by the execution of a Salary Reduction
Agreement, that arbitration will be the sole means of resolving disputes arising
under the Plan and waives any right, at law or equity, to litigate any such
dispute in a court of law.
The costs of arbitration, including the costs of the arbitrator, shall
be borne equally by the parties, except that each such party shall bear the
costs of its own legal representation including attorney's fees and expenses and
the costs of witnesses.
7.05 Expenses of the Administrator: The Administrator shall
serve without compensation for services as such. All expenses shall be paid
by the Company.
ARTICLE EIGHT
MISCELLANEOUS
8.01 Plan Not a Contract of Employment: The adoption and maintenance of
the Plan does not constitute a contract between the Company and any Participant
and is not a consideration for the employment of any person. Nothing herein
contained gives any Participant the right to be retained in the employ of the
Company or derogates from the right of the Company to discharge any Participant
at any time without regard to the effect of such discharge upon his rights as a
Participant in the Plan.
8.02 No Rights Under Plan Except as Set Forth Herein: Nothing in this
Plan, express or implied, is intended, or shall be construed, to confer upon or
give to any person, firm, association, or corporation, other than the parties
hereto and their successors in interest, any right, remedy, or claim under or by
reason of this Plan or any covenant, condition, or stipulation hereof, and all
covenants, conditions and stipulations in this Plan, by or on behalf of any
party, are for the sole and exclusive benefit of the parties hereto.
8.03 "Rules of Construction"
(a) Governing Law: The construction and operation of this
Plan are governed by the laws of the Commonwealth of
Pennsylvania except as such laws are preempted by the Employee
Retirement Income Security Act of 1974, as amended.
(b) Headings: The headings of Articles, Sections and Subsections
are for reference only and are not to be utilized in
construing the Plan.
(c) Gender: Unless clearly inappropriate, all pronouns of
whatever gender refer indifferently to persons or objects of
any gender.
(d) Singular and Plural: Unless clearly inappropriate, singular
terms refer also to the plural number and vice versa.
(e) Severability: If any provision of this Plan is held illegal or
invalid for any reason, the remaining provisions are to remain
in full force and effect and to be construed and enforced in
accordance with the purposes of the Plan as if the illegal or
invalid provision did not exist.
IN WITNESS WHEREOF, Mylan Laboratories Inc. has caused these presents
to be executed by its duly authorized officer and its corporate seal to be
hereunto affixed by authority of its Board of Directors this ______ day of 2000.
MYLAN LABORATORIES INC.
Corporate Seal
By _______________________________
CONSENT TO SERVE
I, Michael Goode, in my capacity as Corporate Director of Human Resources for
Mylan Laboratories Inc., hereby agree to serve as the Plan Administrator of the
Mylan Laboratories Inc. Employees' Retirement Savings Plan.
Dated: -------------------
- --------------------------- -----------------------------------
Witness Michael Goode
MYLAN LABORATORIES INC.
EXECUTIVES' RETIREMENT SAVINGS PLAN
MYLAN LABORATORIES INC.
EXECUTIVES' RETIREMENT SAVINGS PLAN
Table of Contents
Article Page
Preamble 1
1 Definitions 2
2 Participation in Plan 4
3 Accounts Under the Plan 5
4 Accrual of Benefits 6
5 Distributions to Participants 8
6 Amendment or Termination of the plan 9
7 Plan Administration 10
8 Miscellaneous 12
Execution 13
EXHIBIT 21.1
Subsidiaries
Name State of Incorporation
Milan Holding, Inc. Delaware
Mylan Inc. Delaware
Mylan Pharmaceuticals Inc. West Virginia
Mylan Caribe Inc. Vermont
Bertek Pharmaceuticals Inc. Texas
Mylan Technologies, Inc. West Virginia
American Triumvirate Insurance Company Vermont
UDL Laboratories, Inc. Illinois
Bertek Pharmaceuticals Inc. Research
and Development Division Delaware
65
INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-65329, 333-65327, 333-35887, 333-43081, 33-65916, 33-65918 of Mylan Laboratories Inc. on Form S-8 of our report dated May 8, 2001, appearing in this Annual Report on Form 10-K of Mylan Laboratories Inc. for the year ended March 31, 2001. DELOITTE & TOUCHE LLP Pittsburgh, Pennsylvania June 22, 2001