<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-27354
Global Pharmaceutical Corporation
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 65-0403311
------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Castor & Kensington Aves., Philadelphia, PA 19124-5694
------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (215) 289-2220
---------------
Not Applicable
------------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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
----- -----
As of April 15, 1996, the number of shares outstanding of the
issuer's class of common equity was 4,286,871 shares of common stock
($0.01 par value).
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
BALANCE SHEET
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 8,337 $ 9,518
Due from related party........................................ -- 2
Interest receivable .......................................... 28 --
Prepaid expenses.............................................. 71 28
------------- ---------------
Total current assets..................................... 8,436 9,548
Property, plant and equipment, net................................. 2,804 2,105
Intangible assets ................................................. 1,177 1,177
Deferred financing costs, net...................................... 38 25
------------- ---------------
$ 12,455 $ 12,855
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable.............................................. $ 426 $ 459
Accrued expenses.............................................. 453 810
Current portion of long-term debt............................. 182 182
------------- ---------------
Total current liabilities................................ 1,061 1,451
Long-term debt..................................................... 1,149 1,280
------------- ---------------
$ 2,210 $ 2,731
============= ===============
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 authorized,
none issued................................................ -- --
Common stock, $.01 par value, 10,000,000 authorized and
4,286,871 and 4,039,392 shares issued and outstanding,
respectively .............................................. 43 40
Additional paid-in capital.................................... 19,407 17,575
Deficit accumulated during the development stage.............. (9,205) (7,491)
------------- ---------------
Total stockholders' equity .............................. 10,245 10,124
------------- ---------------
$ 12,455 $ 12,855
============= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
STATEMENT OF OPERATIONS
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
April 20, 1993
Three Months Ended June 30, Six Months Ended June 30, (inception) to
--------------------------- ------------------------- June 30
1996 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
General and administrative $ 1,239 $ 528 $ 2,072 $ 833 $ 8,099
Debt conversion expense _____ _____ _____ ____ 47
Loss on sale of common
stock and warrants _____ _____ _____ ____ 938
Loss on sale of marketable
securities _____ _____ _____ ____ 50
Interest (income) expense ( 84) 81 (200) 124 229
Other (income) (1) _____ (158) ____ (158)
------------ --------------- ------------ -------------- ----------------
Net profit (loss) $ (1,154) $ (609) $ (1,714) $ (957) $ (9,205)
============= =============== ============ ============== ================
Net profit (loss) per share $ (.27) $ (.26) $ (.40) $ (.41)
============= =============== ============ ==============
Weighted average common
shares outstanding 4,286,871 2,345,257 4,252,877 2,329,456
============= =============== ============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Deficit
Common stock accumulated Total
----------------- Additional during the stockholders'
Number of Par paid-in development equity
shares value capital stage (deficit)
--------- ----- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock and common stock warrants:
Inception (April 20, 1993) and stock and
warrants issued for purchase of Richlyn
facility (August 18, 1993)..................... 1,217 $ 12 $ 42 $ -- $ 54
September 30, 1993 private placement.............. 177 2 498 -- 500
December 15, 1993 sale of stock and warrants...... 356 4 996 -- 1,000
Stock issued for services rendered................ 27 -- 75 -- 75
Warrants issued for services rendered............. -- -- 3 -- 3
Exercise of warrants.............................. 71 -- 250 -- 250
Net loss............................................... -- -- -- (1,040) (1,040)
------- ---------- ---------- ----------- ----------
Balances at December 31, 1993 ....................... 1,848 18 1,864 (1,040) 842
Common stock:
September 1, 1994 private placement............. 84 1 479 -- 480
Stock issued for services rendered.............. 10 -- 50 -- 50
Net loss............................................. -- -- -- (1,988) (1,988)
------- ---------- ---------- ----------- ----------
Balances at December 31, 1994........................ 1,942 19 2,393 (3,028) (616)
Issuance of common stock:
Conversion of stockholder loans ................ 297 4 2,473 -- 2,477
Stock and warrants issued to Merck KA........... 150 1 299 -- 300
Sale of stock to Merck KA....................... -- -- 938 -- 938
Initial public offering ........................ 1,650 16 11,472 -- 11,488
Net Loss............................................. -- -- -- (4,463) (4,463)
------- ---------- ---------- ----------- ----------
Balances at December 31, 1995........................ 4,039 40 17,575 (7,491) 10,124
Issuance of common stock ............................ 247 3 1,832 -- 1,835
Net loss ....................................... -- -- -- (560) (560)
------- ---------- ---------- ----------- ----------
Balances at March 31, 1996........................... 4,286 43 19,407 (8,051) 11,399
Net loss............................................. -- -- -- (1,154) (1,154)
------- ---------- ---------- ----------- ----------
Balances at June 30, 1996 ........................... 4,286 $ 43 $ 19,407 $ (9,205) $ 10,245
======= ========== ========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
April 20,
Six Months Ended 1993
June 30, (inception)
----------------- to December 31,
1996 1995 1995
---- ---- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $ (1,714) $ (957) $ (8,051)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization......................... 110 96 425
Expenses paid through issuance of common stock and
warrants ............................................. -- -- 128
Sale of common stock and warrants .................... -- -- 938
Loss on debt conversion............................... -- -- 47
Loss on sale of marketable securities................. -- -- 50
Change in assets and liabilities:
Decrease due from/to related party............... 2 -- --
(Increase) in prepaid expenses and other assets.. (84) -- (161)
Decrease in note receivable from stockholders.... -- -- 264
Increase (decrease) in accounts payable and
accrued expenses ................................ (390) 630 109
------------ ----------- -----------
Net cash used for operating activities....... (2,076) 231 (6,251)
------------ ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment................ (809) (117) (1,864)
Purchases and sales of marketable securities.............. -- -- (50)
------------ ----------- -----------
Net cash used for investing activities....... (809) (117) (1,914)
------------ ----------- -----------
Cash flows from financing activities:
Long-term debt:
Borrowings............................................ -- -- 1,596
Payments.............................................. (131) -- (276)
Payment of financing costs............................ -- -- (30)
Long-term debt, related party:
Borrowings ........................................... -- 439 2,755
Payments.............................................. -- -- (1,777)
Issuance of common stock and warrants:
September 30, 1993 private placement.................. -- -- 500
December 15, 1993 sale of stock and warrants ......... -- -- 1,000
September 1, 1994 private placement................... -- -- 480
November 8, 1995 stock and warrants issued to Merck -- -- 300
KA
December 19, 1995 initial public offering ............ -- -- 11,488
January 29, 1996 sale of common stock................. 1,835 -- 1,835
------------ ----------- -----------
Net cash provided by financing activities.... 1,704 439 17,871
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents........... (1,181) 91 9,706
Cash and cash equivalents, beginning of period................. 9,518 1 --
------------ ----------- -----------
Cash and cash equivalents, end of period....................... $ 8,337 $ 92 $ 9,706
============ ============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 20 $ 124 $ 371
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
Six Months Ended
June 30, 1996 and June 30, 1995
Note 1: The financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations; however, the Company believes that the
disclosures are adequate to make the information presented not misleading. It
is suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's latest
annual report on Form 10-KSB. The results of operations for the six months
ended June 30, 1996, are not necessarily indicative of the results of
operations expected for the year ending December 31, 1996.
In the opinion of management, the information contained in this
report reflects all adjustments necessary, which are of a normal recurring
nature, to present fairly the results for the interim periods presented.
Note 2: On January 29, 1996, the underwriter, Keane Securities Co.,
Inc. exercised its over-allotment option and the Company sold 247,500 shares
of common stock for net proceeds of $1,835,000.
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company has generated no revenues to date and, from inception until
June 30, 1996, the Company accumulated a deficit of $9,205,000.
Since its inception, the Company has devoted substantially all of its
efforts to improving and renovating its manufacturing plant, equipment and
certain related assets (the "Facility"), establishing policies and procedures
to bring the Facility into compliance with Current Good Manufacturing
Practices, and obtaining all government approvals necessary to begin operating
the Facility. The Facility is not currently operating; however, the Company
believes it will receive necessary approvals in order to begin selling one or
6
<PAGE>
more generic products in 1996, although there can be no assurance such
approvals will be obtained. Accordingly, the Company is considered a
development stage company as defined in Financial Accounting Standards No. 7.
The Company's net loss for the second quarter ended June 30, 1996 was
$1,154,000 as compared to $609,000 in the same period in 1995.
General and administrative expenses were $1,239,000 in the second quarter
ended June 30, 1996 as compared to $528,000 during the same period in 1995 due
primarily to increased payroll costs, professional and consulting fees,
utilities, repairs, renovations, materials and insurance expenses.
Interest income (net of interest expense of $8,000) was $84,000 for
the quarter ended June 30, 1996, as compared to interest expense of $81,000
during the quarter ended June 30, 1995, primarily as result of the investment
of the initial public offering ("IPO") proceeds into highly rated money market
funds, U.S. Government securities, treasury bills and short-term commercial
paper.
The Company's net loss for the six months ended June 30, 1996 was
$1,714,000 as compared to $957,000 in the same period in 1995.
General and administrative expenses were $2,072,000 for the six months
ended June 30, 1996 as compared to $833,000 during the same period in 1995 due
primarily to increased payroll costs, professional and consulting fees,
utilities, repairs, renovations, materials and insurance expenses.
Interest income (net of interest expense at $20,000) was $200,000 for the
six months ended June 30, 1996, as compared to interest expense of $124,000
during the six months ended June 30, 1995, primarily as result of the
investment of the IPO proceeds into highly rated money market funds, U.S.
government securities, treasury bills and short-term commercial paper.
Other income of $158,000 generated during the six months ended June 30,
1996 was due primarily to a renegotiation of previously accrued legal
expenses.
Liquidity and Capital Resources
Following the completion of the IPO on December 19, 1995, the underwriter
exercised the over-allotment option and on January 29, 1996 the Company sold
247,500 shares of Common Stock for net proceeds to the Company of $1,835,000.
In June 1996, the Company received approval for a $1,000,000 loan with
Pennsylvania Industrial Development Authority at 3.75% annually fixed for 15
years, which proceeds will be used for certain capital projects planned for
the balance of 1996 and 1997.
7
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None Applicable.
Item 2. Changes in securities: None Applicable
Item 3. Defaults Upon Senior Securities: None Applicable
Item 4. Submission of Matters to a Vote of Security Holders: None Applicable
Item 5. Other Information: None Applicable
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
10. Material Contracts:
10.1 Employment agreement between Global Pharmaceutical
Corporation and Joseph Storella dated May 1, 1996.
10.2 Employment agreement between Global Pharmaceutical
Corporation and Pieter Groenewoud dated May 10,
1996.
27. Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements 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.
GLOBAL PHARMACEUTICAL CORPORATION
By: /s/ MAX L. MENDELSOHN
-----------------------
President and Chief Executive Officer (Principal Executive
Officer)
By: /s/ CORNEL C. SPIEGLER
------------------------
Chief Financial Officer, (Principal Financial
Vice President--Administration and Accounting Officer)
8
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of May 1, 1996 by and between GLOBAL PHARMACEUTICAL
CORPORATION, a Delaware corporation (hereinafter referred to as the
"Corporation"), and JOSEPH STORELLA (hereinafter referred to as "Executive").
In consideration of the mutual promises set forth herein the parties
hereto agree as follows:
ARTICLE I.
Term of Employment
A. Upon the terms and subject to the conditions set forth herein, the
Corporation will employ Executive on the terms provided in this Agreement from
May 20, 1996 (the "Effective Date"), until the date the employment of
Executive shall terminate pursuant to Article IV or Article V. (The period
during which Executive is employed hereunder is referred to herein as the
"term of employment.") Executive will work for the Corporation during the term
of employment in accordance with, and subject to the terms and conditions of,
this Agreement.
ARTICLE II.
Duties
A. During the term of employment Executive will:
<PAGE>
(a) use his best efforts to promote the interests of the Corporation
and devote his full time and efforts to its business and affairs;
(b) perform such duties consistent with the offices described in
subsection (iii) below as the Corporation may from time to time assign to him;
and
(c) serve as the Vice President-Operations, reporting solely to the
Corporation's Chief Executive Officer and Board of Directors.
B. During the term of employment, the Corporation will not cause
Executive to be physically relocated outside of the Philadelphia, PA
metropolitan area without his prior written consent, which consent will not
unreasonably be withheld.
ARTICLE III
Compensation
A. The Corporation will compensate Executive for the duties performed
by him hereunder by payment of a salary (the "Salary") at the rate $130,000
per annum. The salary shall be payable in equal installments, which the
Corporation shall pay at semi-monthly intervals or, at the Corporation's
election, more frequently, and shall be subject to such payroll deductions as
are required by law.
<PAGE>
ARTICLE IV.
Term; Termination
A. Unless terminated sooner as hereinafter provided, the initial term
of employment of Executive under this Agreement shall be for a period of three
(3) years from the Effective Date hereof (the "Initial Term"). The term of
employment of Executive shall continue thereafter for an additional one year
period commencing on the third anniversary of the Effective Date, unless
either party has notified the other no later than three (3) months prior to
that third anniversary that he or it does not wish to continue the term of
employment of Executive under this Agreement or unless Executive's employment
is terminated sooner as hereinafter provided. Thereafter, Executive's term of
employment under this Agreement shall continue for additional one (1) year
period, unless either party has notified the other no later than three (3)
months prior to the end of any of those additional one (1) year periods that
he or it does not wish to continue Executive's term of employment under this
Agreement or unless Executive's term of employment is terminated sooner as
hereinafter provided.
B. The Corporation may terminate the employment of Executive
hereunder (i) for Cause at any time and without prior notice or (ii) for any
other reason on two (2) weeks notice in writing to Executive.
<PAGE>
1. If the Corporation terminates Executive's employment for "Cause"
(as defined below) or pursuant to Section 4.D hereof then the Corporation
shall, within fifteen (15) days after the termination date, pay Executive all
accrued and unpaid Salary and benefits (including accrued but unused vacation
time) through the termination date.
2. If the Corporation terminates Executive's employment other than
for Cause, then the Corporation shall, subject to the Executive's compliance
with Section 5 hereof, pay Executive, as liquidated damages and not as a
penalty, (a) within 15 days after the termination date, all accrued and unpaid
Salary and benefits (including accrued but unused vacation time) through the
termination date and (b) continued Salary and benefits during the six-month
period following the termination date.
3. The phrase "Cause" means any of the following:
(a) breach by Executive of Section V. of this Agreement;
(b) material breach of any other provision of this Agreement by
Executive (other than any such breach resulting
<PAGE>
from Executive's incapacity due to physical or mental illness), if that breach
is not remedied within 30 days after written notice to Executive describing
the acts alleged to constitute Cause;
(c) any act of fraud, misappropriation, embezzlement or similar
willful and malicious conduct by Executive against the Corporation; or
(d) indictment of Executive for a felony or any conviction of, or
guilty plea by Executive to, a crime involving moral turpitude if that crime
of moral turpitude tends or would reasonably tend to bring the Corporation
into disrepute.
C. Executive my terminate his employment hereunder at any time for
any reason on two (2) weeks written notice in writing to the Corporation.
1. If Executive terminates his employment without
"Good Reason" (as defined below), then the Corporation shall, within
fifteen (15) days after the termination date, pay Executive all
accrued and unpaid Salary and benefits (including accrued but unused
vacation time) through the termination date.
2. If Executive terminates his employment with
"Good Reason", then the Corporation shall, subject to Executive's
compliance with Section 5 hereof, pay Executive (i) within fifteen
(15) days after the termination date, all accrued
<PAGE>
and unpaid Salary and benefits (including accrued but unused
vacation time) through the termination date and (ii) continued
Salary and benefits during the six-month period following the
termination date.
3. The phrase "Good Reason" means a material
breach of this Agreement by the Corporation which has not been cured
within thirty (30) days after written notice thereof from the
Executive.
D. If Executive dies or becomes incapacitated, his employment
hereunder shall terminate on the date of his death or incapacitation, as the
case may be. For purposes hereof, the term "incapacitated" shall mean such
mental or physical illness as shall render Executive incapable of
substantially performing his duties hereunder on a regular basis at the
Company's offices for a period of three (3) consecutive months or for a period
of six (6) months in any twelve-month period, all as determined by a physician
or psychiatrist, as the case may be, selected by the Company and reasonably
acceptable to Executive.
ARTICLE V.
Covenants
A. While Executive is employed hereunder by the Corporation, he shall
not, without the prior written consent of
<PAGE>
the Corporation, engage, directly or indirectly, in any other trade, business
or employment, or have any interest, direct or indirect, in any other
business, firm or corporation; provided however, that he may continue to own
or may hereafter acquire any securities of any class of any publicly-owned
company as well as passive investments in privately held entities which are
not engaged in the pharmaceutical business.
B. Executive shall treat as confidential and keep secret the affairs
of the Corporation (including specifically the terms and conditions of this
Agreement) and shall not at any time during the term of employment or
thereafter, without the prior written consent of the Corporation, or unless
required by law, divulge, furnish or make known or accessible to, or use for
the benefit of, anyone other than the Corporation and its subsidiaries and
affiliates any information of a confidential nature related in any way to the
business of the Corporation or its subsidiaries or affiliates or their
clients. Executive shall be entitled to disclose the terms of this Agreement
to potential employers of Executive after the expiration of the term of
employment and to lending institutions from whom Executive seeks to borrow.
C. All records, papers and documents kept or made by Executive
relating to the business of the Corporation or its
<PAGE>
subsidiaries or affiliates or their clients shall be and remain the property
of the Corporation.
D. All articles invented by Executive, processes discovered by him,
trademarks, designs, advertising copy and art work, display and promotion
materials and, in general everything of value conceived or created by him
pertaining to the business of the Corporation or any of its subsidiaries or
affiliates during the term of employment, and any and all rights of every
nature whatever thereto, shall immediately become the property of the
Corporation, and Executive shall assign, transfer and deliver all patents,
copyrights, royalties, designs and copy, and any and all interests and rights
whatever thereto and thereunder to the Corporation, without further
compensation, upon notice to him from the Corporation.
E. Following the termination of Executive's employment hereunder for
any reasons, Executive shall not, for a period of two (2) years from such
termination solicit any employee of the Corporation to leave such employ to
enter the employ of Executive or of any corporation or enterprise with which
Executive is then associated or solicit any customers of the Corporation to
terminate its relationship with the Corporation.
F. During the one-year period following Executive's termination of
employment by Executive without Good Reason or by the Corporation for Cause
(the "Restricted Period"), Executive shall not render any services, directly
or indirectly, as an
<PAGE>
employee officer, consultant or in any other capacity, to any individual,
firm, corporation or partnership engaged in the generic pharmaceutical
business, or any other activities competitive with any activities in which the
Corporation or any of its affiliates is engaged at any time during the
Restricted Period (such activities being herein called the "Corporation's
Business"). During the Restricted Period, Executive shall not, without the
prior written consent of the Corporation, hold an equity interest in any firm,
partnership or corporation which competes with the Corporation's Business,
except that beneficial ownership by Executive (including ownership by any one
or more members of his immediate family and any entity under his direct or
indirect control) of less than five (5%) percent of the outstanding shares of
capital stock of any corporation which may be engaged in any of the same lines
of business as the Corporation's Business, if such stock is listed on a
national securities exchange or publicly traded in over-the-counter market,
shall not constitute a breach of the covenants contained in this Section V.
The provisions contained in this Section V. as to the time periods, scope of
activities, persons or entities affected, and territories restricted shall be
deemed divisible so that, if any provision contained in this Section V. is
determined to be invalid or unenforceable, such provisions shall be deemed
modified so as to be valid and enforceable to the full extent lawfully
permitted.
<PAGE>
ARTICLE VI.
Bonuses
A. The Board of Directors of the Corporation will consider, and
nothing herein shall preclude the Corporation's Board of Directors from,
awarding Executive bonuses based on performance as they may, at any time or
from time to time determine.
ARTICLE VII.
Stock Award
A. The Corporation will grant to Executive an option to purchase
36,000 shares of the Corporation's common stock at a price per share equal to
the fair market value of the Corporation's common stock (the "Award") on the
date the Compensation Committee of the Board of Directors grants this Award,
which, so long as Executive remains in the employ of the Corporation on a
given vesting date, shall vest in Executive in accordance with the following
schedule: (i) one-third of the Award shall vest on May 20, 1997, and (ii) the
remaining two-thirds of the Award shall vest in increments of one-twenty
fourth per month for the following twenty four (24) months.
B. The option shall be granted pursuant to, and shall be subject to
the terms of the stock option plan adopted by the Corporation.
<PAGE>
ARTICLE VIII.
Other Employment Benefits
A. The Corporation shall provide Executive with medical and
hospitalization insurance coverage and retirement plans which in each case are
no less favorable to Executive than those plans provided to the Corporation's
senior executive officers generally. The Corporation shall also provide
Executive with life insurance coverage having a death benefit payable to a
beneficiary selected by Executive equal to $250,000 and disability insurance
which provides salary replacement benefits, not to exceed $250,000 in the
aggregate, in the event Executive becomes incapacitated.
B. During the term of employment, Executive shall be entitled to
three weeks of paid vacation each year and to participate in or receive
benefits under any other employee benefit plan, arrangement or perquisite made
available by the Corporation now or in the future to its senior executive
officers generally, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans, arrangement and
perquisites.
C. The Corporation shall reimburse Executive for all reasonable
expenses for promoting the business of the Corporation, including expenses for
travel and similar items,
<PAGE>
from time to time upon presentation by Executive of any itemized account of
such expenditures in accordance with the Corporation's policies.
D. The Corporation shall pay the reasonable lodging costs of the
Executive in the Philadelphia, PA metropolitan area for a period not to exceed
four (4) months at a mutually agreed upon location and the reasonable
transportation costs of the Executive between Charlotte, NC and Philadelphia,
PA until the Executive makes a permanent move to the Philadelphia, PA
metropolitan area. Such a permanent move shall occur within a reasonable time
from the date hereof.
E. The Corporation shall reimburse Executive up to $12,000 for
expenses incurred pursuant to the Executive's permanent move to the
Philadelphia, PA metropolitan area. These expenses must be supported by the
appropriate documentation and may include expenses such as moving, title
closing and real property taxes due and owing upon the title closing.
ARTICLE IX.
Key Man Insurance
A. The Corporation may, in its sole and absolute discretion, at any
time after the date hereof, apply for and procure as owner for its own benefit
life insurance on Executive, in such amount and in such form or forms as the
Corporation may determine. Executive shall, at the Corporation's request,
<PAGE>
subject to such medical examinations, supply such information and execute such
documents as may be required by the insurance company or companies to whom the
Corporation has applied for such insurance.
ARTICLE X.
Assignment
A. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the Corporation. Neither this
Agreement nor any rights hereunder shall be assignable by Executive and any
such purported assignment by him shall be void.
ARTICLE XI.
Entire Agreement
A. This Agreement constitutes the entire understanding between the
Corporation and Executive concerning his employment by the Corporation or any
of its subsidiaries and supersedes any and all previous agreements between
Executive and the Corporation or any of its subsidiaries concerning such
employment. This Agreement may not be changed orally.
<PAGE>
ARTICLE XII.
Applicable Law
A. The Agreement shall be governed by and construed in accordance
with the laws of the State of Pennsylvania.
GLOBAL PHARMACEUTICAL CORPORATION
By: /s/ Max L. Mendelsohn
-------------------------------------
Max L. Mendelsohn, President & CEO
/s/ Joseph Storella
-------------------------------------
Joseph Storella
<PAGE>
Item 6(a)
Exhibit 10.2
EMPLOYMENT AGREEMENT
AGREEMENT made as of May 10, 1996 by and between GLOBAL
PHARMACEUTICAL CORPORATION, a Delaware corporation (hereinafter referred to as
the "Corporation"), and PIETER GROENEWOUD (hereinafter referred to as
"Executive").
WHEREAS, the Corporation and the Executive are parties to that
certain Employment Agreement, dated October 1, 1995 (the "Prior Agreement");
and
WHEREAS, the Corporation and the Executive mutually desire to
terminate the Prior Agreement, and replace such agreement with this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, and in consideration of the
mutual promises set forth herein the parties hereto agree as follows:
ARTICLE I.
Term of Employment
A. Upon the terms and subject to the conditions set forth herein, the
Corporation will employ Executive an the terms provided in this Agreement from
May 20, 1996 (the "Effective Date"), until the date the employment of
Executive shall terminate pursuant to Article IV or Article V. (The period
during which Executive is employed hereunder is referred to
<PAGE>
herein as the "term of employment.") Executive will work for the
Corporation during the term of employment in accordance with, and
subject to the terms and conditions of, this Agreement.
ARTICLE II.
Duties
A. During the term of employment Executive will: (a) use his best
efforts to promote the interests of the Corporation and devote his full time
and efforts to its business and affairs;
(b) perform such duties consistent with the offices described in
subsection (c) below as the Corporation may from time to time assign to him;
and
(c) serve as the Vice President-Product Development reporting to the
Corporation's Vice President-Operations, Chief Executive Officer and Board of
Directors.
B. During the term of employment, the Corporation will not cause
Executive to be physically relocated outside of the Philadelphia, PA
metropolitan area without his prior written consent, which consent will not
unreasonably be withheld.
ARTICLE III
Compensation
A. The Corporation will compensate Executive for the duties performed
by him hereunder by payment of a salary (the
<PAGE>
"Salary") at the rate of $90,000 per annum. The salary shall be
payable in equal installments, which the Corporation shall pay at
semi-monthly intervals or, at the Corporation's election, more
frequently, and shall be subject to such payroll deductions as are
required by law.
ARTICLE IV.
Term; Termination
A. Unless terminated sooner as hereinafter provided, the initial term
of employment of Executive under this Agreement shall be for a period of three
(3) years from the Effective Date hereof (the "Initial Term"). The term of
employment of Executive shall continue thereafter for an additional one year
period commencing on the third anniversary of the Effective Date, unless
either party has notified the other no later than three (3) months prior to
that third anniversary that he or it does not wish to continue the term of
employment of Executive under this Agreement or unless Executive's employment
is terminated sooner as hereinafter provided. Thereafter, Executive's term of
employment under this Agreement shall continue for additional one (1) year
periods, unless either party has notified the other no later than three (3)
months prior to the end of any of those additional one (1) year periods that
he or it does not wish to continue Executive's term of employment under this
Agreement or
<PAGE>
unless Executive's term of employment is terminated sooner as
hereinafter provided.
B. The Corporation may terminate the employment of Executive
hereunder (i) for "Cause" as defined below at any time and without prior
notice or (ii) for any other reason on two (2) weeks notice in writing to
Executive.
1. If the Corporation terminates Executive's employment for Cause or
pursuant to Article IV.D hereof then the Corporation shall, within fifteen
(15) days after the termination date, pay Executive all accrued and unpaid
Salary and benefits (including accrued but unused vacation time) through the
termination date.
2. If the Corporation terminates Executive's employment other than
for Cause, then the Corporation shall, subject to the Executive's compliance
with Article V hereof, pay Executive, as liquidated damages and not as a
penalty, (a) within 15 days after the termination date, all accrued and unpaid
Salary and benefits (including accrued but unused vacation time) through the
termination date and (b) continued Salary and benefits during the six-month
period following the termination date.
3. The phrase "Cause' means any of the following:
(a) breach by Executive of Article V of this Agreement;
<PAGE>
(b) material breach of any other provision of this Agreement by
Executive (other than any such breach resulting from Executive's incapacity
due to physical or mental illness), if that breach is not remedied within 30
days after written notice to Executive describing the acts alleged to
constitute Cause;
(c) any act of fraud, misappropriation, embezzlement or similar
willful and malicious conduct by Executive against the Corporation; or
(d) indictment of Executive for a felony or any conviction of, or
guilty plea by Executive to, a crime involving moral turpitude if that crime
of moral turpitude tends or would reasonably tend to bring the Corporation
into disrepute.
C. Executive my terminate his employment hereunder at any time for
any reason on two (2) weeks written notice in writing to the Corporation.
1. If Executive terminates his employment for other than "Good
Reason" (as defined below), then the Corporation shall, within fifteen (15)
days after the termination date, pay Executive all accrued and unpaid Salary
and benefits (including accrued but unused vacation time) through the
termination date.
2. If Executive terminates his employment with "Good Reason", then
the Corporation shall, subject to
<PAGE>
Executive's compliance with Article V hereof, pay Executive (i)
within fifteen (15) days after the termination date, all accrued and
unpaid Salary and benefits (including accrued but unused vacation
time) through the termination date and (ii) continued Salary and
benefits during the six-month period following the termination date.
3. The phrase "Good Reason" means a material breach of this Agreement
by the Corporation which has not been cured within thirty (30) days after
written notice thereof from the Executive.
D. If Executive dies or becomes incapacitated, his employment
hereunder shall terminate on the date of his death or incapacitation, as the
case may be. For purposes hereof, the term "incapacitated" shall mean such
mental or physical illness as shall render Executive incapable of
substantially performing his duties hereunder on a regular basis at the
Company's offices for a period of three (3) consecutive months or for a period
of six (6) months in any twelve-month period, all as determined by a physician
or psychiatrist, as the case may be, reasonably selected by the Company.
ARTICLE V.
Covenants
A. While Executive is employed hereunder by the Corporation, he shall
not, without the prior written consent of
<PAGE>
the Corporation, engage, directly or indirectly, in any other trade,
business or employment, or have any interest, direct or indirect, in
any other business, firm or corporation; provided however, that he
may continue to own or may hereafter acquire up to 2% of the
outstanding securities of any class of any publicly-owned company as
well as passive investments in privately held entities which are not
engaged in the pharmaceutical business.
B. Executive shall treat as confidential and keep secret the affairs
of the Corporation (including specifically the terms and conditions of this
Agreement) and shall not at any time during the term of employment or
thereafter, without the prior written consent of the Corporation, or unless
required by law, divulge, furnish or make known or accessible to, or use for
the benefit of, anyone other than the Corporation and its subsidiaries and
affiliates any information of a confidential nature related in any way to the
business of the Corporation or its subsidiaries or affiliates or their
clients. Executive shall be entitled to disclose the terms of this Agreement
to potential employers of Executive after the expiration of the term of
employment and to lending institutions from whom Executive seeks to borrow.
C. All records, papers and documents kept or made by Executive
relating to the business of the Corporation or its
<PAGE>
subsidiaries or affiliates or their clients shall be and remain
the property of the Corporation.
D. All articles invented by Executive, processes discovered by him,
trademarks, designs, advertising copy and art work, display and promotion
materials and, in general everything of value conceived or created by him
pertaining to the business of the Corporation or any of its subsidiaries or
affiliates during the term of employment, and any and all rights of every
nature whatever thereto, shall immediately become the property of the
Corporation, and Executive shall assign, transfer and deliver all patents,
copyrights, royalties, designs and copy, and any and all interests and rights
whatever thereto and thereunder to the Corporation, without further
compensation, upon notice to him from the Corporation.
E. Following the termination of Executive's employment hereunder
(including the expiration of this Agreement) for any reason, Executive shall
not, for a period of two (2) years from such termination solicit any employee
of the Corporation to leave such employ or to enter the employ of Executive or
of any corporation or enterprise with which Executive is then associated or
solicit any customers of the Corporation to terminate its relationship with
the Corporation.
F. During the one-year period following Executive's termination of
employment by Executive for other than Good Reason or by the Corporation for
Cause (the "Restricted Period") (or
<PAGE>
following the expiration of this Agreement), Executive shall not
render any services, directly or indirectly, as an employee,
officer, consultant or in any other capacity, to any individual,
firm, corporation or partnership engaged in the generic
pharmaceutical business, or any other activities competitive with
any activities in which the Corporation or any of its affiliates is
engaged at any time during the Restricted Period (such activities
being herein called the "Corporation's Business"). During the
Restricted Period, Executive shall not, without the prior written
consent of the Corporation, hold an equity interest in any firm,
partnership or corporation which competes with the Corporation's
Business, except that beneficial ownership by Executive (including
ownership by any one or more members of his immediate family and any
entity under his direct or indirect control) of less than five (5%)
percent of the outstanding shares of capital stock of any
corporation which may be engaged in any of the same lines of
business as the Corporation's Business, if such stock is listed on a
national securities exchange or publicly traded in over-the-counter
market, shall not constitute a breach of the covenants contained in
this Article V. The provisions contained in this Article V as to the
time periods, scope of activities, persons or entities affected, and
territories restricted shall be deemed divisible so that, if any
provision contained in this Article V is determined to be invalid or
unenforceable, such provisions shall be deemed
<PAGE>
modified so as to be valid and enforceable to the full extent
lawfully permitted.
ARTICLE VI.
Bonuses
A. The Board of Directors of the Corporation will consider, and
nothing herein shall preclude the Corporation's Board of Directors from,
awarding Executive bonuses based on performance as they may, at any time or
from time to time determine.
ARTICLE VII.
Stock Award
A. Pursuant to Section 7.1.2 of Article VII of the Prior Agreement,
the Corporation has granted to Executive an option to purchase 50,000 shares
of the Corporation's common stock at a price per share equal to $8.50 (the
"Prior Award"). It is agreed that the number of shares of common stock which
may be purchased upon the exercise of the Prior Award shall be reduced to
25,000 shares, with the option for the remaining 25,000 shares being
cancelled. In accordance with the terms of the Prior Award, such remaining
option shall continue to vest, for so long as the Executive shall remain in
the employ of the Corporation, in accordance with the following schedule: (i)
one-third (1/3) of the remaining option shall vest on October 1, 1996
<PAGE>
and (ii) the remaining two-thirds (2/3) of the remaining option
shall vest in increments of one-twenty fourths (1/24) per month for
the 24 months following October 1, 1996.
B. The remaining portion of the Prior Award shall continue to be
subject to the terms of the stock option plan adopted by the Corporation.
C. The option to purchase 25,000 shares of the Corporation's common
stock provided for in Section 7.1.1 of Article VII of the Prior Agreement
shall be terminated effective immediately, and shall no longer be exercisable,
in whole or in part.
ARTICLE VIII.
Other Employment Benefits
A. The Corporation shall provide Executive with medical and
hospitalization insurance coverage and retirement plans which in each case are
no less favorable to Executive than those plans provided to the Corporation's
senior executive officers generally. The Corporation shall also provide
Executive with life insurance coverage having a death benefit payable to a
beneficiary selected by Executive equal to $250,000 and disability insurance
which provides salary replacement benefits, not to exceed $250,000 in the
aggregate, in the event Executive becomes incapacitated.
<PAGE>
B. During the term of employment, Executive shall be entitled to
three weeks of paid vacation each year and to participate in or receive
benefits under any other employee benefit plan, arrangement or perquisite made
available by the Corporation now or in the future to its senior executive
officers generally, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans, arrangement and
perquisites.
C. The Corporation shall reimburse Executive for all reasonable
expenses for promoting the business of the Corporation, including expenses for
travel and similar items, from time to time upon presentation by Executive of
any itemized account of such expenditures in accordance with the Corporation's
policies.
D. The Corporation shall pay the reasonable lodging costs of the
Executive in the Philadelphia, PA metropolitan area at a mutually agreed upon
location and the reasonable transportation costs of the Executive between
Charlotte, NC and Philadelphia, PA until the Executive makes a permanent move
to the Philadelphia, PA metropolitan area. Such a permanent move shall occur
within a reasonable time from the date hereof but in no event later than July
31, 1996.
E. The Corporation shall reimburse Executive up to $12,000 for
expenses incurred pursuant to the Executive's permanent move to the
Philadelphia, PA metropolitan area. These
<PAGE>
expenses must be supported by the appropriate documentation and may
include expenses such as moving, title closing and real property
taxes due and owing upon the title closing.
ARTICLE IX.
Key Man Insurance
A. The Corporation may, in its sole and absolute discretion, at any
time after the date hereof, apply for and procure as owner for its own benefit
life insurance on Executive, in such amount and in such form or forms as the
Corporation may determine. Executive shall, at the Corporation's request,
subject to such medical examinations, supply such information and execute such
documents as may be required by the insurance company or companies to whom the
Corporation has applied for such insurance.
ARTICLE X.
Assignment
A. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the Corporation. Neither this
Agreement nor any rights hereunder shall be assignable by Executive and any
such purported assignment by him shall be void.
<PAGE>
ARTICLE XI.
Entire Agreement
The Executive and Corporation hereby agree that, effective upon the
execution of this Agreement, and notwithstanding any provision in the Prior
Agreement to the contrary, the Prior Agreement shall be null and void in all
respects, and that this Agreement shall supersede in its entirety the Prior
Agreement, except as specifically provided in Article VII hereof.
ARTICLE XII.
Applicable Law
A. The Agreement shall be governed by and construed in accordance
with the laws of the State of Pennsylvania.
GLOBAL PHARMACEUTICAL CORPORATION
By: /s/ Max L. Mendelsohn
-------------------------------------
Max L. Mendelsohn, President & CEO
/s/ Pieter Groenewoud
-------------------------------------
Pieter Groenewoud
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET (UNAUDITED) AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,337
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,436
<PP&E> 3,280
<DEPRECIATION> 476
<TOTAL-ASSETS> 12,455
<CURRENT-LIABILITIES> 1,061
<BONDS> 0
0
0
<COMMON> 43
<OTHER-SE> 10,202
<TOTAL-LIABILITY-AND-EQUITY> 12,455
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> (1,714)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,714)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
