<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1996
---------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ___________ to ___________
Commission file number 33-99310-NY
Global Pharmaceutical Corporation
--------------------------------------------
(Name of small business issuer in its charter)
Delaware 65-0403311
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Castor & Kensington Aves., Philadelphia, PA 19124-5694
------------------------------------------------------
(Address of principal executive officers) (Zip Code)
Issuer's telephone number (215) 289-2220
---------------
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
- ------------------- ------------------
- ------------------- ------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value per share
--------------------------------------
(Title of class)
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
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year. 0
---
The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 25, 1997 (based on the closing price for such shares
on March 25, 1997 as reported by NASDAQ and the assumption for this computation
only that all directors and executive officers of the registrant are affiliates)
was $27,430,120.
------------
As of March 25, 1997, the number of shares outstanding of each of the
issuer's classes of common equity was 4,286,871 shares of common stock, ($.01
par value per share).
Registrant's Proxy Statement to be filed with the Securities and
Exchange Commission in connection with solicitations of proxies for Registrant's
1997 Annual Meeting of Stockholders scheduled to be held on June 24, 1997 is
incorporated by reference in Part III, Items 9, 10, 11 and 12 of this Form
10-KSB.
<PAGE>
PART I
When used in this discussion, the words "believes", "anticipates",
"expects", and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected.
The Company's business and results of operations are affected by a wide
variety of factors that could materially and adversely affect the Company and
its actual results, including, but not limited to, the ability to obtain
governmental approvals, the impact of competitive products and pricing, product
demand and market acceptance, new product development, reliance on key strategic
alliances, availability of raw materials and the regulatory environment. As a
result of these and other factors, the Company may experience material
fluctuations in future operating results on a quarterly or annual basis
(including, to the extent appropriate governmental approvals are not obtained,
the inability to manufacture and sell products), which could materially and
adversely affect its business, financial condition, operating results, and stock
price. An investment in the Company involves various risks, including those
referred to above and those which are detailed from time-to-time in the
Company's other filings with the Securities and Exchange Commission.
These forward-looking statements speak only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Item 1. Description of Business
Introduction
Global Pharmaceutical Corporation (the "Company" or "Global") is a
development stage company that will engage principally in the manufacture and
sale of solid oral generic prescription and over-the-counter ("OTC") drugs. The
Company currently owns 54 previously manufactured and marketed Abbreviated New
Drug Applications ("ANDAs"), New Drug Applications ("NDAs") and New Animal Drug
Applications ("NADAs"), more than 100 previously manufactured and marketed
prescription and OTC formulations not subject to ANDA approval by the United
States Food and Drug Administration ("FDA"), and a renovated 113,000 square foot
manufacturing facility (the "Facility") located in Philadelphia, Pennsylvania.
Those assets were purchased from Richlyn Laboratories, Inc. ("Richlyn"), which
commenced business in 1947 but ceased operations as a generic drug manufacturer
and distributor in 1992 for failure to comply with FDA regulations pertaining to
current Good Manufacturing Practices ("cGMPs"). Many of the generic drugs the
Company has begun to produce as well as those planned for future production are
targeted at niche markets characterized by few, if any, generic competitors. The
Company believes that of the approximately 154 generic drug formulations owned
by the Company, currently 20 products would have no domestic generic competition
and another 16 would have only one generic competitor. Each ANDA, NDA and NADA
represents the government's permission to manufacture a specific drug product
pursuant to specified processes at a specified location.
In addition to its strategy of building upon its base of previously
FDA-approved generic niche market drugs, the Company intends to enter larger,
more competitive generic markets at such times as it believes it can effectively
compete in those markets. Positioning itself to effectuate this strategy, in
January 1997, the Company entered into an agreement (the "Genpharm Agreement")
with Genpharm, Inc. ("Genpharm"), a Canadian corporation and an indirect
subsidiary of Merck KGaA, pursuant to which the Company will package a minimum
of 30% of Genpharm's United States Ranitidine Form I ("Ranitidine") production
requirements based on a five-year cost-plus and percentage of profits
compensation arrangement following Genpharm's receipt of the requisite FDA
Ranitidine approvals. Ranitidine is the generic equivalent of Glaxo Wellcome
plc's ("Glaxo") patented prescription drug Zantac(R), currently one of the
largest selling drugs in the United States with annual U.S. sales of
approximately $1.6 billion. In connection with the settlement of litigation
between Glaxo and Genpharm, challenging the validity of Glaxo's basic Zantac(R)
patent, Glaxo agreed that, commencing July 26, 1997, Genpharm and its licensees
may produce Ranitidine for sale in the United States without being subject to
claims by Glaxo of infringement of that patent. Genpharm filed an ANDA with the
FDA for Ranitidine in 1995, and has the requisite formulation, procedures and
raw material sources to produce Ranitidine. The Company is currently aware of at
least four companies which received tentative approval to market Ranitidine
products in competition with Zantac(R).
1
<PAGE>
In addition to the manufacture and distribution of Ranitidine, the
Genpharm Agreement provides the Company with the opportunity to develop products
with the assistance of Merck KGaA that are marketed outside the U.S. Two
products with total U.S. annual sales of over $150 million, including limited
generic competition, have already been selected. Development is currently
underway with ANDAs anticipated to be filed by the Company by the fourth quarter
of 1997, although no assurance can be given that the Company will be able to
make the requisite filings or produce and distribute these products.
In order to commence manufacturing at its Facility and become "fully
operational," the Company must receive FDA approval of the Facility and at least
one of its ANDA or NDA products. The Company has received FDA certification of
its laboratory, as well as of its packaging, warehousing, shipping, and
receiving operations. The Company is continuing its efforts to obtain FDA
certification of the plant manufacturing area and processes.
See "FDA Approvals" below.
In a series of transactions from 1993 to December 1995, two investor
groups, including one led by venture capital investor Frederick R. Adler,
installed a new management team with generic drug industry experience and,
together with Merck KGaA, have invested approximately $5.2 million to fund the
Company's plant renovation and the commencement of its validation and
certification program. In addition to those investor funds, The Company has
received $1.5 million of low interest rate loans from a combination of the
Pennsylvania Industrial Development Authority ("PIDA") and the Philadelphia
Industrial Development Corporation ("PIDC").
In June 1996, the Company received approval for a $1,000,000 loan with
PIDA at 3.75% annually fixed for 15 years, the proceeds of which must be used
for certain capital projects.
In August 1996, the Company received approval for a $350,000 loan from
the Delaware River Port Authority at 5.00% annually fixed for 10 years, the
proceeds of which must be used for certain capital projects.
On December 19, 1995, the Company completed its initial public offering
("IPO") in which it sold 1,650,000 shares of common stock for net proceeds of
$11,489,000. An additional 247,500 shares of common stock were sold to the
underwriter of the IPO in January 1996, upon the exercise of the underwriters'
over-allotment option, for net proceeds to the Company of $1,835,000.
The proceeds from the IPO and the subsequent over-allotment exercise
were used primarily to fund the ongoing validation process for both the Facility
and the expected products, the expansion of the Company's laboratory and
research and development activities, the repayment of all outstanding
indebtedness incurred in connection with the assets purchased from Richlyn, the
purchase of production equipment and for working capital and other general
corporate purposes.
FDA Approvals
To meet the Company's goal of becoming fully operational, the Company
must first receive Facility approval from FDA and thereafter must receive FDA
approval of at least one of its ANDAs. Facility approval requires that the
Company's laboratory, manufacturing, packaging and warehousing operations must
each pass successfully through a cGMPs validation process, each step of which
requires certification first by an independent consultant retained for this
purpose by the Company and then by FDA, which reviews the consultant's report.
The Company has received FDA certification of its laboratory, as well as of its
packaging, warehousing, shipping, and receiving operations. The Company is
continuing its efforts to obtain FDA certification of the plant manufacturing
area and processes. The Company has recently met with senior officials of FDA
Philadelphia District Office to discuss the most recent in a series of
inspections conducted by FDA as part of this certification process, and has
submitted to FDA a response to certain additional concerns raised by FDA. While
there can be no assurance that FDA certification will be received in the near
future, if at all, the Company believes that it has appropriately responded to
the concerns raised by FDA. The failure of the Company to obtain FDA
certification of the Facility will materially adversely affect the Company.
2
<PAGE>
In addition to the foregoing, the first ANDA selected by the Company for
production must pass through a similar process and must successfully complete a
validation process that includes sample testing of three batches and
multiple-batch stability testing. The sample and stability testing must first be
certified by the Company's independent consultant and then by FDA, which reviews
the consultant's report. Additionally, each ANDA product subsequently selected
by the Company for production must successfully complete a similar validation
process. Furthermore, FDA may request to complete a certification process for
each product. The Company has selected Promethazine Hydrochloride, an
antihistamine, as its first ANDA product for production and sale from its
Facility, and will consider itself to be "fully operational" at the time it is
approved to sell, and sells, that product from the Facility.
Because FDA has either previously approved the Company's 54 ANDAs, NDAs and
NADAs or they were exempt from FDA approval, FDA's reapproval process for those
generic drugs is expected by the Company to take between one and three months
for each acceptably submitted drug. Generally, new ANDA applications for FDA
approval currently take 18 to 24 months, based on published information. FDA
reapproval of each ANDA, NDA and NADA is contingent upon its having first
received approval by an independent consultant retained by the Company for this
purpose.
Products and Product Development
The Company's policy is to develop a broad product line composed of solid
oral (tablets and capsules) prescription and over-the-counter generic drugs,
various products that require isolation during their production, narcotic and
other drug products that are heavily regulated by the United States Drug
Enforcement Agency ("DEA") and dietary supplements. The Company also intends to
seek to develop or license certain brand name pharmaceutical products. Although
most of the Company's products are expected to be dedicated to the treatment of
humans, some products may also be for the treatment of animals.
The Company plans to introduce eighteen to twenty generic drugs in 1997,
including the following ANDA products:
<TABLE>
<CAPTION>
====================================================================================================================
TABLE I
Planned 1997 Generic Drug Introductions
====================================================================================================================
Estimated
1995
Number of Market
Dosage Brand Name Brand Name Prescribed Generic Size
Generic Product Name Form Equivalent(s) Manufacturer(s) Use Competitors(1) ($000)(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chlordiazepoxide Capsule Librium Roche Tranquilizer 1 10,600
- --------------------------------------------------------------------------------------------------------------------
Chloroquine Phosphate Tablet Aralen Sanofi Antimalarial None 3,400
- --------------------------------------------------------------------------------------------------------------------
Cortisone Acetate Tablet Cortone MSD Corticosteroid 1 2,000
Upjohn
- --------------------------------------------------------------------------------------------------------------------
Hydrocortisone Tablet Hydrocortone MSD Corticosteroid 1 4,700
Cortef Upjohn
- --------------------------------------------------------------------------------------------------------------------
Meprobamate Miltown Wallace Tranquilizer 2 4,300
Equanil Wyeth Ayerst
- --------------------------------------------------------------------------------------------------------------------
Methyltestosterone Tablet Oreton, Testred, ICN Androgenic None 10,000
Android Pharmaceutical Steroid
- --------------------------------------------------------------------------------------------------------------------
Piperazine Citrate Vermidol Solvay Antihelmintic None 2,000
- --------------------------------------------------------------------------------------------------------------------
Prednisolone Tablet Meticortilone Schering Corticosteroid 1 2,000
- --------------------------------------------------------------------------------------------------------------------
Promethazine Tablet Phenergan American Home Antihistamine 3 6,000
Hydrochloride
- --------------------------------------------------------------------------------------------------------------------
(Table I continued on following page)
====================================================================================================================
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
TABLE I
(Table I continued from previous page)
Planned 1997 Generic Drug Introductions
===================================================================================================================
Estimated
1995
Number of Market
Dosage Brand Name Brand Name Prescribed Generic Size
Generic Product Name Form Equivalent(s) Manufacturer(s) Use Competitors(1) ($000)(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Propylthiouracil Propylthiourac Lederle Anti-thyroid 2 1,100
therapy
- --------------------------------------------------------------------------------------------------------------------
Tetracycline Capsule Achromycin V Lederle Broad spectrum 4 10,700
Hydrochloride Sumycin Apothecon anti-infective
- --------------------------------------------------------------------------------------------------------------------
(1)Information is to the best of the Company's knowledge as of 12/31/96. The
Company is aware of ANDAs on file with FDA regarding certain of the
products included in the table that are owned by companies that, to the
best of the Company's knowledge, are not competing with respect to those
ANDAs and products at this time. Accordingly, the number of generic
competitors set forth with respect to certain products included in the
table could increase.
(2)Estimated on the basis of information contained in published industry
sources, review of historic sales information, and input from customers
and distributors.
=====================================================================================================================
</TABLE>
The Company has selected certain of the products listed in Table I, above,
to be among its first releases following its renewal of operations, either
because those products are not subject to any generic competition currently or
because they are niche market products that are subject to limited competition
and which the Company believes are not likely to be significant enough to
warrant attention from large potential competitors. The Company also plans to
broaden its product mix to include products that are currently exempt from ANDA
or NDA requirements and for which there is currently limited generic
competition. The total number of these products expected to be introduced in
1997 is between seven and nine with a total current estimated U.S. market value
of approximately $70 million.
The Company also plans to manufacture and sell drugs that are regulated by
DEA such as narcotics, barbiturates and certain tranquilizers, as well as
certain products that require isolated manufacturing facilities, which the
Company has provided by refurbishing and equipping a part of its existing
facility. DEA regulations generally deal with the storage and dissemination of
certain drugs and related raw materials and are designed to protect the security
of those products and their dissemination against receipt by unauthorized
persons. The Company believes that the DEA regulations that will be applicable
to it will not materially increase the scope or expense of its regulatory
compliance requirements.
The Company acquired from Richlyn 54 ANDAs, NDAs and NADAs and more than
100 previously marketed prescription and OTC formulations including
pharmaceutical products not subject to FDA approval that were manufactured and
sold by Richlyn. Table II contains a list of all the Company's ANDAs, NDAs and
NADAs and sets forth certain additional information concerning each of them:
<TABLE>
<CAPTION>
============================================================================================================
TABLE II
The Company's ANDAs, NDAs and NADAs
============================================================================================================
Estimated
Brand Name Dosage Form, Number of Market
Equivalent(s)/ Administration Prescribed Generic Size
Generic Product Name Manufacturer(s) and Strength Use(s) Competitors(1) ($000)(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Human Use Drugs:
- ------------------------------------------------------------------------------------------------------------
CT Bronchodilator None
100mg and 200mg
Aminophylline Aminophylline ECT 100mg Bronchodilator None 400
Searle
ECT 200mg Bronchodilator None
- ------------------------------------------------------------------------------------------------------------
(Table II continued on following page)
============================================================================================================
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
TABLE II
(Table II continued from previous page)
The Company's ANDAs, NDAs and NADAs
============================================================================================================
Estimated
Brand Name Dosage Form, Number of Market
Equivalent(s)/ Administration Prescribed Generic Size
Generic Product Name Manufacturer(s) and Strength Use(s) Competitors(1) ($000)(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Chlordiazepoxide Librium HSC Tranquilizer 1 10,600
Roche 5, 10 and 25mg
- ------------------------------------------------------------------------------------------------------------
Chloroquine Phosphate Aralen CT Anti-malarial None 3,400
Sanofi 250mg
- ------------------------------------------------------------------------------------------------------------
Cortisone Acetate Cortone CT Corticosteroid 1 2,000
MSD and Upjohn 25mg
- ------------------------------------------------------------------------------------------------------------
Dexamethasone Decadron CT Corticosteroid 2 10,400
MSD 0.75mg
- ------------------------------------------------------------------------------------------------------------
Diphenhydramine Benadryl HSC Antihistamine 6 31,000
Parke Davis and 25 and 50mg
Warner Chilcott
- ------------------------------------------------------------------------------------------------------------
Ergocalciferol Drisdol SGC Vitamin D 1 2,300
Sanofi 1.25mg Rickets
Treatment
- ------------------------------------------------------------------------------------------------------------
Folic Acid Folvite CT Folic Acid 5 1,600
Lederle 1mg Supplement
- ------------------------------------------------------------------------------------------------------------
Hydralazine HCL Apresoline CT Antihypertensive 3 5,250
Ciba Geigy 25 and 50mg
- ------------------------------------------------------------------------------------------------------------
Hydrochlorothiazide Hydrodiuril CT Diuretic 4 6,100
MSD 25, 50 and 100mg
- ------------------------------------------------------------------------------------------------------------
Hydrocortisone Hydrocortone Corticosteroid 1 4,700
MSD CT
Cortef 20mg
Upjohn
- ------------------------------------------------------------------------------------------------------------
Isoniazid Nydrazid CT Anti-tuberculin 3 1,000
Apothecon 100mg
- ------------------------------------------------------------------------------------------------------------
Meprobamate Miltown Tranquilizer 2 4,300
Wallace CT
Equanil 200 and 400mg
Wyeth Ayerst
- ------------------------------------------------------------------------------------------------------------
Methocarbamol Robaxin CT Depressant for 3 15,300
American Home 500 and 750mg musculo-skeletal
disorders
- ------------------------------------------------------------------------------------------------------------
Oreton, Testred, SLT 10mg
Methyltestosterone Android CT 10mg Androgenic None 10,000
ICN Pharmaceutical CT 25mg Steroid
- ------------------------------------------------------------------------------------------------------------
Niacin Nicolar Peripheral 2 1,100
Rhone Poulenc CT 500mg Vasodilator
Rorer Armour
- ------------------------------------------------------------------------------------------------------------
<PAGE>
Oxytetracycline HCL Terramycin HSC Antibiotic None 1,000
Pfizer 250mg
- ------------------------------------------------------------------------------------------------------------
Piperazine Citrate Vermidol CT Antihelmintic None 2,000
Solvay 250mg
- ------------------------------------------------------------------------------------------------------------
Prednisolone Meticortilone CT Corticosteroid 1 2,000
Schering 5mg
- ------------------------------------------------------------------------------------------------------------
Prednisone Deltasone CT Corticosteroid 6 20,700
Upjohn 5mg
Orasone
Solvay
- ------------------------------------------------------------------------------------------------------------
Probenecid & Colbenemid CT Uric Acid 2 4,500
Colchicine MSD 500mg Reducer
- ------------------------------------------------------------------------------------------------------------
Promethazine Phenergan CT Antihistamine 3 6,000
Hydrochloride American Home 25mg
- ------------------------------------------------------------------------------------------------------------
Propantheline Bromide Probanthine SCT Anticholinergic 1 4,200
Searle 15mg
- ------------------------------------------------------------------------------------------------------------
Propoxyphene HCL Darvon 65 HSC Analgesic 2 3,950
Lilly 65mg
- ------------------------------------------------------------------------------------------------------------
Propylthiouracil Propylthiouracil CT Anti-thyroid 2 1,100
Lederle 50mg therapy
============================================================================================================
(Table II continued on following page)
============================================================================================================
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
TABLE II
(Table II continued from previous page)
The Company's ANDAs, NDAs and NADAs
============================================================================================================
Estimated
Brand Name Dosage Form, Number of Market
Equivalent(s)/ Administration Prescribed Generic Size
Generic Product Name Manufacturer(s) and Strength Use(s) Competitors(1) ($000)(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Human Drugs Continued:
- ------------------------------------------------------------------------------------------------------------
Pyrilamine Maleate (No brand) CT Antihistamine None 250
25mg
- ------------------------------------------------------------------------------------------------------------
Quinidine Sulfate Quinidine Sulfate CT Cardiac 3 2,850
Parke Davis 200mg Arrhythmia
- ------------------------------------------------------------------------------------------------------------
Rauwolfia Serpentina Raudixin SCT Anti- None N/A
Apothecon 50 and 100mg hypertensive
- ------------------------------------------------------------------------------------------------------------
Reserpine Serpasil CT Anti- 3 1,000
Ciba Geigy 0.1 and 0.25mg hypertensive
- ------------------------------------------------------------------------------------------------------------
Sulfadiazine Microsulfon CT Antibacterial 1 4,000
Consolidated 500mg
Midland
- ------------------------------------------------------------------------------------------------------------
Sulfa-Triple Terfonyl CT Antibacterial None 500
Squibb 500mg
- ------------------------------------------------------------------------------------------------------------
Sulfisoxazole Gantrisin CT Urinary 2 700
Roche 500mg Antiseptic
- ------------------------------------------------------------------------------------------------------------
Tetracycline HCL-Human Achromysin V HSC Broad spectrum 4 10,700
Lederle 100, 250 and anti-infective
Sumycin 500mg
Apothecon
- ------------------------------------------------------------------------------------------------------------
Thyroglobulin Proloid CT Endocrine None 10,000
Parke Davis 64mg Therapeutic
- ------------------------------------------------------------------------------------------------------------
Aristocort CT Corticosteroid 1 1,200
Triamcinolone Lederle 4mg
Kenacort
Squibb
- ------------------------------------------------------------------------------------------------------------
Metahydrin CT Diuretic 1 1,200
Trichlormethiazide MMD 4mg
Naqua
Schering
- ------------------------------------------------------------------------------------------------------------
Tripelennamine HCL PBZ CT Antihistamine 1 2,200
Ciba Geigy 50mg
- ------------------------------------------------------------------------------------------------------------
<PAGE>
Vitamin A Soluble Aquasol-A SGC Vitamin A None 1,700
Astra 50,000 units deficiency
- ------------------------------------------------------------------------------------------------------------
Vitamin A Natural Del-Vi-A SGC Vitamin A 3 100
Del Ray 50,000 units deficiency
- ------------------------------------------------------------------------------------------------------------
Vitamin A Synthetic Various SGC Vitamin A 2 100
50,000 units deficiency
- ------------------------------------------------------------------------------------------------------------
Animal Use Drugs:
- ------------------------------------------------------------------------------------------------------------
Diclorophenal Toluene (No brand) SGC Antihelmetic 1 2,000
- ------------------------------------------------------------------------------------------------------------
n-Butyl Chloride V (No brand) SGC Antihelmetic 1 2,600
1, 2, 5ml.
- ------------------------------------------------------------------------------------------------------------
Tetracycline Achromysin V HSC Antibiotic None 2,000
HCL-Veterinary Lederle 50, 100, 250 and
500mg
- ------------------------------------------------------------------------------------------------------------
Key: Notes:
CT = Compressed tablet (1) Information is to the best of the Company's
CCT = Chewable compressed tablet knowledge as of 12/31/96. The Company is aware of
SGC = Soft gelatin capsules ANDAs on file with FDA regarding certain of the
SLT = Sublingual tablet (Buccal) products included in the table that are owned by
SCT = Sugar coated tablet companies that, to the best of the Company's
HSC = Hard shell capsule knowledge, are not competing with respect to those
ECT = Enteric coated tablet ANDAs and products at this time. Accordingly, the
MLT = Multi-layer tablet number of generic competitors set forth with respect
to certain products included in the table could
increase.
(2) Estimated on the basis of information contained in
published industry sources, review of historic sales
information, and input from customers and distributors.
============================================================================================================
</TABLE>
6
<PAGE>
Before the Company can manufacture and sell any drug product from its
plant, the Company's laboratory, manufacturing, packaging and warehousing
operations at that Facility must each pass successfully through a cGMPs
validation process, each step of which requires certification first by an
independent consultant retained by the Company for this purpose and then by FDA,
which reviews the consultant's report. Thereafter, the Company's selected
products must pass through a similar process and must successfully complete a
validation process that includes sample testing of three batches and
multiple-batch stability testing. There can be no assurance as to whether the
Company's ANDAs, NDAs and NADAs will receive the requisite FDA reapprovals, or
that the Company will be able to successfully manufacture, market and sell its
products. Delays in any part of that process or the inability of the Company to
obtain regulatory approval of its products and Facilities could adversely affect
the Company's quarterly and annual operating results.
Table III sets forth certain information concerning some of the ANDA exempt
products owned by the Company:
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
TABLE III
The Company's ANDA Exempt Drug Products and Dietary Supplements
============================================================================================================
Estimated
Brand Name Dosage Form, Number of Market
Equivalent(s)/ Administration Prescribed Generic Size
Generic Product Name Manufacturer(s) and Strength Use(s) Competitors(1) ($000)(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tylenol regular CCT, HSC Analgesic, 11 690,000
Acetaminophen Tylenol Extra 325mg & Fever Reducer
Strength 500mg
McNeil
- ------------------------------------------------------------------------------------------------------------
Tuinal HSC 100mg Short-term None 120
Amobarbital with Lilly Hypnotic,
Secobarbital Preanesthesia
- ------------------------------------------------------------------------------------------------------------
Tums CCT Antacid 2 45,000
Antacid #2 Smith Kline w/calcium
Beecham
Consumer Brands
- ------------------------------------------------------------------------------------------------------------
Ecotrin ECT Analgesic, 5 28,000
Aspirin E.C. Smith Kline 325mg Fever Reducer
Beecham
Bayer Enteric
Bayer
- ------------------------------------------------------------------------------------------------------------
Bisacodyl Dulcolax SCT Laxative 5 12,800
Boeringer 5mg
- ------------------------------------------------------------------------------------------------------------
Colchicine Colchicine CT Uric Acid 3 1,000
Lilly .01 gr Reducer
- ------------------------------------------------------------------------------------------------------------
Digestozyme Donnazyme ECT Digestive Aid None 10,000
American Home
- ------------------------------------------------------------------------------------------------------------
Digoxin Lanoxin CT Digitalis 1 86,000
Glaxo Wellcome 0.125 & 0.25mg
- ------------------------------------------------------------------------------------------------------------
Ephedrine Sulfate Ephedrine HSC Beta-agonist None 250
Lilly 25 & 50mg
- ------------------------------------------------------------------------------------------------------------
Ergotamine Tartrate Caffergot SCT Migraine & 1 24,700
w/caffeine Sandoz Headache Reliever
- ------------------------------------------------------------------------------------------------------------
Ergotamine, Phenobarbital Bellergal S SCT Anticholinergic 3 18,200
w/Belladonna Sandoz &
Headache Reliever
- ------------------------------------------------------------------------------------------------------------
Ferrous Fumerate Fumiron SCT Iron Supplement 1 300
325mg
- ------------------------------------------------------------------------------------------------------------
Fergon SCT Iron Supplement 4 3,300
Ferrous Gluconate Sterling 325mg
- ------------------------------------------------------------------------------------------------------------
Feosol Spansule
Ferrous Sulfate SKB TDC 150mg Iron Supplement 2 3,000
SKB Tab SCT 325mg 7 8,500
============================================================================================================
(Table III continued on following page)
============================================================================================================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
TABLE III
(Table III continued from previous page)
The Company's ANDA Exempt Drug Products and Dietary Supplements
============================================================================================================
Estimated
Brand Name Dosage Form, Number of Market
Equivalent(s)/ Administration Prescribed Generic Size
Generic Product Name Manufacturer(s) and Strength Use(s) Competitors(1) ($000)(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Levothyroxine Sodium Synthroid CCT Thyroid Therapy 4 270,000
Boots 0.05mg to .3mg
Levothroid
Forrest
- ------------------------------------------------------------------------------------------------------------
Meclizine Chewable Bonine CCT Antivertigo 1 5,000
Pfizer 25mg Lozenge
Dramamine II
Upjohn
- ------------------------------------------------------------------------------------------------------------
Meclizine MLT Antivert MLT Antivertigo 2 17,000
Roerig 12.5 & 25mg
- ------------------------------------------------------------------------------------------------------------
Methenamine Mandelate Mandelamine ECT Urinary 1 2,150
Parke-Davis O.5 & 1.0gm Antiseptic
- ------------------------------------------------------------------------------------------------------------
Phenobarbital Solfoton CT Sedative 4 3,800
ECR 15, 30, 60,
Pharmaceuticals 90mg
- ------------------------------------------------------------------------------------------------------------
Phenobarbital/Belladonna Donnatol CCT Antispasmodic 5 4,000
Alkaloids American Home
- ------------------------------------------------------------------------------------------------------------
Phenyltoloxamine W/APAP Percogesic CT Analgesic 4 8,500
PXG 30 & 325mg
- ------------------------------------------------------------------------------------------------------------
Pseudoephedrine Sudafed SCT 30mg Vasoconstrictor 9 30,000
Glaxo Wellcome CT 60mg None 5,628
- ------------------------------------------------------------------------------------------------------------
Pyridiate Pyridium SCT Urinary 4 7,400
Parke-Davis 100 & 300mg Analgesic
- ------------------------------------------------------------------------------------------------------------
Azostandard SCT 1 5,000
Polymedica 95mg
- ------------------------------------------------------------------------------------------------------------
Quinine Sulfate Quinine Sulfate HSC 95mg Antimalarial 4 12,000
Lilly 325mg
- ------------------------------------------------------------------------------------------------------------
Sodium Fluoride Flouritab CT Anticaries 2 3,200
Flouritab Lozenge 2.2mg
- ------------------------------------------------------------------------------------------------------------
<PAGE>
Theophyline, Ephedrine & Tedral CT Xanthine None 500
Phenobarbital Warner Lambert Combination
- ------------------------------------------------------------------------------------------------------------
Thyroid Armour Thyroid CCT Thyroid 1 18,200
Forrest 0.5, 1, 2, 3 & Therapy
5gr
- ------------------------------------------------------------------------------------------------------------
Tripolidine Actifed CT Antihistamine 4 14,800
Pseudoephedrine Glaxo Wellcome 25mg and 60mg
- ------------------------------------------------------------------------------------------------------------
Uritin Blue Urised SCT Urinary 1 6,000
Polymedica Analgesic
- ------------------------------------------------------------------------------------------------------------
Dietary Supplements:
- ------------------------------------------------------------------------------------------------------------
Lipoid Caps Lipoflavonoid HSC Lipotropics 2 750
Numark
- ------------------------------------------------------------------------------------------------------------
Methacholine (No brand) HSC Lipotropics 2 1,000
- ------------------------------------------------------------------------------------------------------------
Animal Use Drug:
- ------------------------------------------------------------------------------------------------------------
Diethylcarbamazine (No brand) CT Antihelmetic None 5,000
Citrate 100, 200,
300, 400mg
- ------------------------------------------------------------------------------------------------------------
Key: Notes:
CT = Compressed tablet (1) Information is to the best of the Company's
CCT = Chewable compressed tablet knowledge as of 12/31/96. Estimated on the
SGC = Soft gelatin capsules basis of information contained in published
SLT = Sublingual tablet (Buccal) industry sources and the experience of
SCT = Sugar coated tablet management. The number of generic competitors
HSC = Hard shell capsule set forth with respect to certain products
ECT = Enteric coated tablet included in the table could increase.
TDC = Timed disintegrating capsule (prolongsules) (2) Estimated on the basis of information contained
MLT = Multi-layer tablet in published industry sources, review of
historic sales information, and input from
customers and distributors.
============================================================================================================
</TABLE>
8
<PAGE>
In addition, the Company intends to expand its line of generic products
through a combination of a research and development program that is expected to
result in new products owned by the Company and licensing of additional products
owned by others. Generally, it is important that a new generic product be
approved by FDA for marketing by, or shortly after, the patent expiration date
of the equivalent brand name drug (plus any legislatively-granted extensions) in
order to gain significant market share at attractive profit margins. As more
generic products compete in the same market, which customarily occurs
increasingly over time following the brand name product's patent expiration date
(and extensions, if any), unit prices and profit margins decrease. As the
development of a new generic drug product, including its formulation, testing
and FDA approval, generally currently takes approximately three or more years,
development activities may begin several years in advance of the patent
expiration date of the brand name drug equivalent. Consequently, the Company may
select drugs for development several years in advance of their anticipated entry
to market. That program potentially will require that considerable capital be
devoted to activities that do not concurrently provide an immediate return.
Raw Materials
The raw materials that will be essential to the Company's business are
expected to be bulk pharmaceutical chemicals which are generally available and
purchased from numerous sources. Because FDA requires specification of raw
material suppliers in applications for approval of drug products, if raw
materials from a specified supplier were to become unavailable, the required FDA
approval of a new supplier could cause a significant delay in the manufacture of
the drug involved. Although the Company expects to specify more than one raw
materials supplier with respect to each FDA application where that is possible,
some materials are currently available from only one or a limited number of
suppliers, as a result of which the Company would be subject to the special
risks that are associated with limited sources of supply. In addition, all of
the product the Company will require for the packaging of Ranitidine will be
available to it only from Genpharm. The Company plans to institute a policy to
purchase bulk pharmaceutical chemicals pursuant to multi-shipment contracts,
typically of one year's duration, when it believes advance-ordered bulk
purchases are advantageous to assure availability at a specified price. The
Company believes that alternative sources could be found, or new sources would
arise, should any of its sole or limited source raw materials become unavailable
from current suppliers. Nevertheless, any curtailment of raw materials could be
accompanied by production or other delays as well as increased raw materials
costs, with consequent adverse effects on the Company's business and results of
operations. Furthermore, as any new source of raw materials, whether domestic or
foreign, would require FDA approval, any delays in obtaining FDA approval could
also have a material adverse effect on the Company's business and operating
results.
Following a general trend in the pharmaceutical industry, an increasing
portion, anticipated to be a majority over time, of the Company's raw material
supplies may come from foreign sources. Export and import policies of the United
States and foreign countries therefore could also materially affect the
availability and cost to the Company of certain raw materials at any time or
from time to time.
Quality Control
In connection with the manufacture of drugs, FDA requires testing
procedures to monitor the quality of the product as well as the consistency of
its formulation. The Company maintains a state of the art laboratory that
performs, among other things, all analytical tests and measurements required to
control and release raw materials and finished products.
Quality monitoring and testing programs and procedures have been
established by the Company to assure that all critical activities associated
with the production, control and distribution of its drug products will be
carefully controlled and evaluated throughout the process. By following a series
of systematically organized steps and procedures, the Company seeks to assure
that established quality standards will be achieved and built into the product.
The Company's policy is to seek continually to meet the highest quality
standards, with the goal of thereby assuring the purity and safety of each of
its drug products. The Company believes that adherence to high operational
quality standards will also promote more efficient utilization of personnel,
materials and production capacity.
9
<PAGE>
Sales and Marketing
The Company's products are expected to be marketed and sold domestically
directly and through independent distributors and wholesalers as well as
manufacturer's representatives, primarily to independent pharmacies, retail
chains and institutions, including managed health care organizations, hospitals
and governmental agencies. The Company anticipates that, as its operations
eventually reach regular, recurring status, a significant portion of its sales
will be to independent distributors and other wholesalers.
Presently, the Company has agreements with three independent distribution
organizations. In November 1995, the Company entered into an agreement, (the
"Dey Agreement") with Dey Laboratories, Inc. ("Dey"), an indirect subsidiary of
Merck KGaA, pursuant to which Dey has agreed to act as the Company's exclusive
distributor in the United States for specified products and the Company has
agreed to sell those products in the United States only through Dey. Initially,
the Dey Agreement will cover two ANDAs pertaining to methyltestosterone, an
androgenic steroid. The Company anticipates that additional products will be
added by mutual consent of the Company and Dey periodically to the list of
products that are subject to the Dey Agreement. With respect to each covered
product, the Dey Agreement provides for a specific pricing mechanism and minimum
annual volumes which, if not met, could result in the termination of
exclusivity. The Dey Agreement's three-year term commences with the first
delivery of a product by the Company to Dey.
In September 1995, the Company entered into an agreement with The Care
Buying Alliance ("Care"), an association of eleven independent distributors,
pursuant to which Care's member organizations have agreed to distribute mutually
agreed upon specified volumes of selected Company products at prices that equal
the most favorable price at which the same product is sold by the Company to any
similar account. Additionally, the Company and Care have agreed to pay jointly
certain amounts for nationally advertising those products. The Company's
agreement with Care is effective for three years following the delivery of the
Company's first selected product to a Care member.
In September 1996, the Company entered into a two year agreement with
CARACO Pharmaceutical Laboratories, Ltd. ("Caraco") to manufacture the Company's
products under the CARACO label. These private label products will be sold to
previously agreed upon CARACO customers, including McKesson Drug Company, the
largest provider of generic drugs in the U.S. The Company's strategy is to
continue to diversify its sales network by entering into additional marketing
alliances.
Competition
The Company's sales are expected to be primarily directed to the generic
sector of the pharmaceutical market (also known as the "multisource
pharmaceutical market"). Competition in the generic industry is intense. The
Company is in competition with numerous other companies in that industry,
including major pharmaceutical concerns and other exclusively generic
manufacturers.
The originator of a pharmaceutical product generally markets the product
under its own brand name during the life of the product's patent and any
statutory extensions of the patent. Companies introducing a product after the
patent (and any extension) expires may market the product under a brand name and
promote it to physicians and pharmacists to create a market for the product or
may market the product under its generic name and rely on physicians,
pharmacists and customers to specify the lower cost generic product. Producers
of brand name pharmaceutical products are increasingly becoming more involved in
the generic marketplace, due to their concurrent marketing of both generic and
brand name versions of their products after their patents have expired.
Some of the Company's competitors may choose to augment their presence in
the generic drug market through acquisitions and strategic alliances. This
activity could result in consolidation and restructuring within the generic
industry and could impair the Company's ability to compete effectively or
effectively limit the number of new opportunities for the Company's products.
The principal competitive factors in the generic pharmaceutical market are
the ability to introduce generic versions of products promptly after a patent
expires, price, quality of products, customer service (including maintenance of
inventories for timely delivery), breadth of product line and the ability to
identify and market niche products. Approvals for new products may have a
synergistic effect on a company's entire product line as orders for new products
are frequently accompanied by, or bring about, orders for other products
available from the same company. Price is usually the major competitive factor
10
<PAGE>
facing a generic product, but as more generic products enter a given market,
their prices, and hence their profit margins, decrease and competition
thereafter is based primarily on quality of product and service. The Company's
strategy, therefore, is to begin principally by reintroducing approximately
eleven of the ANDAs it acquired from Richlyn that enjoy no or limited generic
product competition. The Company currently owns 20 generic drug formulations
that it believes presently would have no domestic generic competition and
another 16 that are believed to would have only one generic competitor. The
Company also plans to compete by broadening its product mix to include products
not previously manufactured by Richlyn that also serve niche markets.
The Company's principal competitors among currently operating generic drug
companies are initially expected to be Schein Pharmaceutical, Inc., a subsidiary
of Henry Schein, Inc.; Geneva Pharmaceutical, Inc., a wholly-owned subsidiary of
Novartis; West-Ward Pharmaceutical Corp., a subsidiary of Hikma Investment Co.;
and Eon Labs, Inc. Among brand name drug companies, the Company's principal
competitors are initially expected to be Wyeth Ayerst Laboratories (which
distributes product under the Lederle brand name), a division of American Home
Products Corporation, and Roxane Laboratories, Inc., a subsidiary of
Boehringer-Ingelheim Corporation. Entry into the generic field by new
competitors that do not have adequate plant and equipment assets is difficult in
view of the need for substantial capital and regulatory expertise.
Proprietary Rights
The Company does not own any patents and does not believe that patent
protection is material to its business. The Company may in the future be
required or may desire to obtain other licenses to develop, manufacture and
market commercially viable products in the future. There can be no assurance
that any licenses, if needed or desired by the Company, will be obtainable on
commercially reasonable terms or that any licensed patents or proprietary rights
will be valid and enforceable. Further, should the Company become subject to any
claim that it is violating the patent rights of another person, the Company
could be subject to costly litigation and, possibly, material liability. The
Company carefully monitors trademarks used by pharmaceutical companies,
including product trademarks, through regularly published and readily available
sources. Further, as the Company's generic products will only be manufactured
and sold by the Company after their respective brand name products' patents have
expired, and as the Company sells its products under generic, chemical names, it
believes the likelihood of it infringing on the patents of others is and will
continue to be remote.
Government Regulation
Industry Regulation
All pharmaceutical manufacturers are extensively regulated by the federal
government, including the FDA, the DEA and various State agencies. The Federal
Food, Drug, and Cosmetic Act, the Controlled Substances Act, the Generic Drug
Enforcement Act of 1992 and other federal statutes and regulations govern or
influence the manufacture, labeling, testing, storage, recordkeeping, approval,
advertising and promotion of the Company's products. Noncompliance with
applicable requirements can result in fines, recalls, seizure of products,
suspension of production, refusal of the government to enter into supply
contracts or to approve drug applications, and criminal prosecution.
FDA approval is required before any "new drug" may be distributed in
interstate commerce. A "new drug" is one that is not generally recognized by
qualified experts as safe and effective for its intended use. A drug that is the
generic equivalent of a previously approved prescription drug (i.e., the
reference drug), also requires FDA approval. Furthermore, each dosage form of a
specific generic drug is treated as a separate drug product by FDA, and requires
separate approval. Many over-the-counter drugs also require FDA pre-approval if
the OTC drug is not covered by or does not conform with the conditions specified
in an applicable OTC Drug Product Monograph. All facilities engaged in the
manufacture of drug products must be registered with FDA and are subject to FDA
inspection to ensure that drug products are manufactured in accordance with
current Good Manufacturing Practices ("cGMPs").
Generally, two types of applications are used to obtain FDA approval of a
new drug. They include the following:
11
<PAGE>
1. New Drug Application ("NDA"). For drug products with active
ingredients or indications not previously approved by FDA, a prospective
manufacturer must submit a complete application which contains the results
of clinical studies supporting the drug's safety and efficacy. An NDA may
also be submitted for a drug with a previously approved active ingredient
if the abbreviated procedure discussed below is not available. Currently,
FDA approval of an NDA, on average, takes approximately 18 to 20 months.
2. Abbreviated New Drug Application ("ANDA"). The Drug Price
Competition and Patent Term Restoration Act of 1984 (the "Drug Price Act")
established an abbreviated new drug application procedure for obtaining FDA
approval of certain generic drugs. An ANDA is similar to an NDA except that
the FDA waives the requirement for conducting clinical studies to
demonstrate the safety and effectiveness of the drug. Instead, for drugs
that contain the same active ingredient and are for the same route of
administration, dosage form, strength and indication(s) as drugs already
approved for use in the United States, FDA ordinarily only requires
bioavailability data illustrating that the generic drug formulation is
bioequivalent to the previously approved reference drug. "Bioavailability"
indicates the rate of absorption and levels of concentration of a drug in
the blood stream which are needed to produce a therapeutic effect.
"Bioequivalence" compares the bioavailability of one drug product with
another and, when established, indicates that the rate of absorption and
the levels of concentration of a generic drug in the body do not show a
significant difference from those of the previously approved equivalent
drug. According to information published by FDA, it currently takes
approximately two years on average to obtain FDA approval of an ANDA
following the date of its first submission to FDA.
Although antibiotic drugs (as well as veterinary drugs) are classified
separately for purposes of FDA approval, the approval procedure for drugs of
those types conforms substantially to the NDA and ANDA procedures described
above.
The Drug Price Act, in addition to establishing a new ANDA procedure,
created new statutory protections for approved brand name drugs. Prior to
enactment of the Drug Price Act, FDA gave no consideration to the patent status
of a previously approved drug in deciding whether to approve an ANDA. Under the
Drug Price Act, the effective date of approval of an ANDA can depend, under
certain circumstances, on the patent status of the brand name drug.
Additionally, the Drug Price Act, in certain circumstances, can extend the term
of certain patents to cover a drug for up to five additional years. Any such
extension is intended to compensate the patent holder for the reduction of the
effective market life of a patent due to the time involved in federal regulatory
review. With respect to certain drugs that are not covered by patents, the Drug
Price Act sets specified time periods of two to ten years during which ANDAs for
generic drugs cannot become effective or, under certain circumstances, be filed
if the equivalent brand name drug was approved after December 31, 1981.
Among the requirements for new drug approval is the requirement that the
prospective manufacturer's facility, production methods and recordkeeping
practices among other factors conform to current Good Manufacturing Practices
(cGMP's). The current GMP's must be followed at all times when the approved drug
is manufactured. In complying with the standards set forth in the GMP
regulations, the manufacturer must expend time, money and effort in the areas of
production and quality control to ensure full technical compliance. Failure to
comply can result in possible FDA actions such as the suspension of
manufacturing or seizure of finished drug products. The Company also is governed
by federal, state and local laws of general applicability, such as laws
regulating working conditions.
The Company is also subject to the Maximum Allowable Cost Regulations ("MAC
Regulations"), which limit reimbursements for certain multi-source prescription
drugs under Medicare, Medicaid and other programs to the lowest price at which
such drugs are generally available. In many instances, only generic prescription
drugs fall within the MAC Regulations' limits. Generally, the methods of
reimbursement and fixing of reimbursement levels are under active review by
federal, state and local governmental entities as well as by private third-party
reimbursers. The Company cannot predict the results of those reviews or their
impact on the business of the Company.
The Generic Drug Enforcement Act of 1992 establishes penalties for
wrongdoing in connection with the development or submission of an ANDA. FDA is
authorized to temporarily bar companies or temporarily or permanently bar
individuals from submitting or assisting in the submission of an ANDA and to
temporarily deny approval and suspend applications to market off-patent drugs.
FDA must bar companies or individuals convicted of a federal felony for conduct
relating to the development or approval of an ANDA and may debar persons (i.e.,
prohibit them from submitting or assisting in the submission to FDA of any ANDA
and from engaging in the manufacture or sale of an FDA-approved drug product)
12
<PAGE>
convicted of other misconduct. In addition to debarment, FDA has numerous
discretionary disciplinary powers. Among other things, the FDA may refuse to
approve an ANDA (for up to 18 months) if the applicant is under active federal
criminal investigation for bribery or making material false statements in
connection with any ANDA, or if a significant question has been raised regarding
the integrity of the approval process or the reliability of the data in the
ANDA; it may also suspend the distribution of all drugs approved or developed in
connection with certain wrongful conduct; it has authority to withdraw approval
of an ANDA under certain circumstances and to seek civil penalties; and it can
significantly delay the approval of a pending NDA or ANDA under its "Fraud,
Untrue Statements of Material Facts, Bribery, and Illegal Gratuities Policy."
Legislation enacted in 1994, makes the use, offer for sale or sale within
the United States or importation into the United States of a product that was
made either domestically or abroad by a process covered by a U.S. patent, an
infringement of the process patent. The Legislation defines the term "offer for
sale" as that in which the sales will occur before the expiration of the term of
the patent.
Virtually every state as well as the District of Columbia has enacted
legislation permitting the substitution of equivalent generic prescription drugs
for brand name drugs where authorized or not prohibited by the prescribing
physician and currently 13 states mandate generic substitution in Medicaid
programs.
To meet the Company's goal of becoming fully operational during 1997, the
Company must first receive facility approval from FDA and thereafter must
receive FDA approval of at least one of its ANDAs. Facility approval requires
that the Company's laboratory, manufacturing, packaging and warehousing
operations must each pass successfully through current GMP's validation process,
each step of which requires certification by FDA. In addition to the foregoing,
the first ANDA selected by the Company for production must pass through a
similar process and must successfully complete a validation process that
includes sample testing of three batches and multiple-batch stability testing.
The sample and stability testing must be certified by the FDA. Additionally,
each ANDA product subsequently selected by the Company for production must
successfully complete a similar validation process. Furthermore, FDA may request
to complete a certification process for each product.
The Company's laboratory received FDA certification on November 14, 1995,
and its packaging, warehousing, shipping and receiving operations received FDA
certification on February 28, 1995. In order to complete certification of its
facility by FDA, in addition to the foregoing the Company must obtain FDA
certification of the plant manufacturing area and processes (see Item 1.
Description of Business - FDA Approvals). Although FDA approval of an ANDA
customarily takes approximately 24 months, the Company believes its existing
procedures will be validated and that release periods for the ANDAs and NDAs it
currently owns will be approximately three months for each product because those
products had been previously approved by FDA.
Environmental Laws
The Company is and will remain subject to comprehensive federal, state and
local Environmental Laws, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Resource Conservation
and Recovery Act and the Toxic Substance Control Act, which govern, among other
things, all emissions, waste water discharge and solid and hazardous waste
disposal, and the remediation of contamination associated with generation,
handling and disposal activities. The Company is subject periodically to
environmental compliance reviews by various regulatory offices.
A Phase I environmental study was conducted with respect to the Company's
idled plant and operations in 1993 and certain environmental compliance issues
identified at that time, including findings of asbestos in certain areas of the
plant and underground oil storage tanks, have been addressed. Additionally, the
Company will adopt a program pursuant to which it monitors regularly its
compliance with any applicable Environmental Laws. There can be no assurance
that future developments, administrative actions or liabilities relating to
environmental matters will not have a material adverse effect on the Company's
financial condition or results of operations.
Litigation and Product Liability
The Company's operations are subject to an order ("the Richlyn Order")
issued on May 25, 1993, by the United States District Court for the Eastern
District of Pennsylvania. The Richlyn Order, among other things, permanently
enjoined Richlyn from introducing into commerce any drug manufactured,
processed, packed or labeled at Richlyn's manufacturing facility unless Richlyn
13
<PAGE>
met certain stipulated conditions, including successful compliance with the
validation and recertification program described under the caption "Products and
Product Development." The Company, having acquired certain assets of Richlyn, is
obligated by the terms of the Richlyn Order. The Richlyn Order also requires
that the Company hire and retain a person, subject to FDA approval, who, by
reason of training and expertise, is qualified to inspect the Company's drug
manufacturing facilities to determine that its methods, facilities and controls
are operated and administered in compliance with cGMPs. The Richlyn Order
further requires that the person so retained both will inspect the Company's
manufacturing facilities and its manner of operating them and will examine all
drug products manufactured, processed, packed and held at the Company's
Facility; and will certify in writing to FDA the Company's compliance with
related cGMPs. The Company has retained an independent consultant to serve in
respect of the Richlyn Order (see the caption "Government Regulation").
Additionally, the Company has assumed the liabilities of Richlyn in
connection with Diethyl Stilbestrol ("DES"), which was manufactured by Richlyn
and many other drug manufacturers during the late 1950's and early 1960's. DES
was prescribed to pregnant women during that period and has been alleged to
cause birth defects, in particular an increased risk of uterine cancer and
sterility to female children whose mothers took DES during their pregnancy.
There have been numerous claims brought against drug manufacturers in connection
with DES. Since 1987, Richlyn's insurers have paid approximately $117,000 on
Richlyn's and the Company's behalf to settle approximately 130 DES-related
suits. The Company is unaware of any other legal actions having been brought or
threatened against Richlyn or the Company in connection with DES-related claims.
The Company believes that all DES-related legal actions have been directed
towards individual manufacturers and not been embodied in a class action, and,
as such, does not expect to be held liable for DES-related claims other than
claims based on products manufactured by Richlyn. While Richlyn's insurers have
in the past defended those DES claims against Richlyn and paid settlements in
connection therewith to date, those insurers have reserved their right to
discontinue the defense of the claims and the payment of any settlements at any
time. There can be no assurance or guarantee that the insurers will defend
actions or pay claims in the future. Further, there can be no assurance that, if
those insurers fail or refuse to pay any claim, the Company will have recourse
against the insurers with respect thereto. Accordingly, there can be no
assurance that the Company will not be exposed to the risk of substantial
monetary judgments. Claims settlements to date have been based upon market share
and Richlyn's share of the market during the periods in question was
substantially less than 1%. The Company does not believe the Richlyn DES
liabilities will have a material adverse effect on the Company's business.
Product liability claims by customers constitute a risk to all
pharmaceutical manufacturers. The Company carries $1 million of product
liability insurance and plans to increase that amount to $10 million in 1997.
The Company believes that this increased insurance will be adequate for its
foreseeable purposes and is comparable to product liability insurance carried by
similar generic drug companies.
The Company believes there are no other pending or threatened legal
actions, private or governmental, against the Company.
Employees
As of March 31, 1997, the Company employed approximately 58 full-time
persons in connection with its development stage activities. Of those employees,
approximately 25 work the quality area, 22 in operations, 6 in administration, 4
in product development and 1 in sales and marketing. The Company may also employ
part-time personnel from time to time to meet specific demands of its business
should they arise. None of the Company's employees are expected to be subject to
collective bargaining agreements with labor unions. The Company believes that
its relations with its employees are satisfactory.
Executive Officers
The following table sets forth certain information with respect to the
executive officers and significant employees of the company:
14
<PAGE>
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________________
Name Age Position
---- --- --------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Max L. Mendelsohn 63 President, Chief Executive Officer and a Director
_____________________________________________________________________________________________________________
Cornel C. Spiegler 52 Chief Financial Officer and Vice President - Administration.
_____________________________________________________________________________________________________________
Joseph A. Storella 55 Vice President - Operations
_____________________________________________________________________________________________________________
Marc M. Feinberg 47 Vice President - Quality and Regulatory Affairs
_____________________________________________________________________________________________________________
Pieter J. Groenewoud 42 Vice President - Product Development
_____________________________________________________________________________________________________________
Mitchell Goldberg 45 Vice President - Sales and Marketing
_____________________________________________________________________________________________________________
Seymour Hyden, Ph.D. 63 Vice President - Scientific and Technical Affairs
_____________________________________________________________________________________________________________
</TABLE>
Max L. Mendelsohn has been President and Chief Executive Officer since
September 1995 and a director of the Company since December 1993. From 1970 to
1990, Mr. Mendelsohn was President and Chief Executive Officer of
Barre-National, Inc., a manufacturer of liquid pharmaceutical products. From
1991 to 1995, Mr. Mendelsohn served as Vice President - Business Development of
Pharmakinetics Laboratories, Inc., a provider of clinical and analytical
services to United States and Canadian pharmaceutical companies. Mr. Mendelsohn
has been a director of the Generic Pharmaceutical Industry Association since
1987 and was recently elected Secretary-Treasurer of that organization.
Cornel C. Spiegler has been Chief Financial Officer and Vice
President--Administration since September 1995. From 1989 to 1995, Mr. Spiegler
was Chief Financial Officer and Senior Vice President of United Research
Laboratories, Inc. and Mutual Pharmaceutical Company, Inc., companies engaged in
the generic pharmaceutical industry. From 1973 to 1989, Mr. Spiegler held a
number of financial and operational management functions, including Vice
President and Controller of Fischer and Porter, Inc., a manufacturer of process
control equipment. From 1970 to 1973, Mr. Spiegler was employed by the
accounting firm of Arthur Andersen and Co. Mr. Spiegler is a certified public
accountant.
Joseph A. Storella has been Vice President - Operations since May 1996.
From 1986 to 1996, Mr. Storella served as General Manager of Chelsea
Laboratories, formally a division of Rugby-Darby Group Companies which, in 1993
was purchased by Marion Merrell Dow and subsequently purchased by The Hoechst
Company. From 1977 to 1986, Mr. Storella served as Vice President - Operations
of Analytab Products, Inc., a division of Ayerst Laboratories (which itself is a
division of American Home Products). From 1966 to 1977, Mr. Storella held a
number of operational management positions for Ayerst Laboratories.
Marc M. Feinberg has been Vice President - Quality and Regulatory Affairs
since October 1996. Prior to joining the Company, from 1995 to 1996, Mr.
Feinberg served as Vice President - Quality Assurance and Regulatory Affairs for
the JWS Delavau Company, a contract manufacturer and packager of nutritional and
over-the-counter products. From 1989 to 1995, Mr. Feinberg held the position of
Vice President - Quality Assurance for Packaging Coordinators, Inc., a contract
packager for the pharmaceutical industry. From 1985 to 1989, Mr. Feinberg served
as Manager, Quality Assurance for ICI Pharmaceuticals Group. From 1972 to 1985,
Mr. Feinberg served as Senior Drug Investigator for the U.S. Food and Drug
Administration.
Pieter J. Groenewoud has been Vice President - Product Development since
May 1996. From October 1995 to May 1996, Mr. Groenewoud served as Chief
Operating Officer of the Company. From 1992 to 1995, Mr. Groenewoud served as
General Manager of Vintage Pharmaceutical Inc., a manufacturer of generic drug
pharmaceutical products. From 1990 to 1992, Mr. Groenewoud was Project Manager
for Pennex Products Company Inc., a generic drug company. From 1988 to 1990, Mr.
Groenewoud was Vice President of Quality Control at Medicopharma Inc., a
manufacturer of pharmaceutical products, and formerly held the position of Vice
President of Operations from 1986 to 1988.
Mitchell Goldberg has been Vice President - Sales and Marketing since March
1997. From October 1996 until March 1997, Mr. Goldberg served as Vice President
- - Sales and Marketing for Ethex Corporation, a generic manufacturing company.
From 1985 to October 1996, Mr. Goldberg held a number of sales and marketing
management positions with Schein Pharmaceutical, Inc., a major generic
pharmaceutical company. From 1980 to 1985, Mr. Goldberg served in sales
positions for Pharmavite Corporation, a nutritional supplement manufacturer.
15
<PAGE>
Dr. Seymour Hyden has been Vice President - Scientific and Technical
Affairs since March 1997. From November 1993 to March 1997, Dr. Hyden was the
Vice President - Product Development of Chelsea Laboratories. From October 1992
to November 1993, Dr. Hyden was first the Vice President - Business Development
for Interchem Corporation and then the Vice President - Technical Services for
Block Drug Co., Inc. From March 1985 to October 1992, Dr. Hyden was Executive
Vice President - Technical Affairs for Vitarine Pharmaceuticals, Inc. Prior to
joining Vitarine Pharmaceuticals, Inc., Dr. Hyden served in a number of
executive and management positions in the technical and scientific areas with
companies engaged in the branded and generic pharmaceutical field. Dr. Hyden is
the Chairman of the Science Committee of the Generic Pharmaceutical Industry
Association and has a Ph.D. in Organic Chemistry from the New York University.
Item 2. Description of Property
The executive offices and research, warehouse and production facilities of
the Company occupy an aggregate of approximately 113,000 square feet at Castor
and Kensington Avenues in Philadelphia, Pennsylvania. The Company's principal
executive offices are part of that overall facility.
The Company owns its plant, which consists of three three-story brick
interconnected buildings that were constructed between 1900 and 1930. The
buildings are heated and substantially air conditioned. The interior of the
plant has been substantially renovated and modernized since 1993 and includes a
new dust collection system and special environmental control units for humidity
and temperature. The land and the building serve as partial collateral for a
PIDA loan. See Item 6, Management's Discussion and Analysis or Plan of
Operation--Liquidity and Capital Resources.
Of the total 113,000 square foot area of the plant, approximately 25,000
square feet are used for warehousing and storage operations, (including high
security DEA areas and designated areas for raw materials, processed goods,
labels and packaging materials); approximately 17,000 square feet are devoted to
manufacturing operations; approximately 17,000 square feet are for laboratory,
quality assurance and quality control activities, including batch testing and
multiple-batch stability testing operations; approximately 6,000 square feet are
for labeling and packaging activities; approximately 6,500 square feet for
product development; and approximately 10,000 square feet are for administrative
functions. The unused balance of the plant, approximately 31,500 square feet, is
available for future expansion.
The Company maintains an extensive equipment base, much of it new or
recently reconditioned and automated, including manufacturing equipment for the
production of tablets and capsules; packaging equipment, including fillers,
cottoners, cappers and labelers; and a well-equipped, modern laboratory. The
manufacturing equipment includes mixers and blenders for capsules and tablets,
automated capsule fillers, tablet presses, particle reduction, sifting equipment
and tablet coaters. The Company also maintains a broad variety of material
handling and cleaning, maintenance and support equipment. The Company intends to
purchase additional manufacturing equipment, improve its plant facilities and
purchase additional equipment that will be dedicated to research and development
activities.
Management believes that the Company's production facilities are sufficient
for its current and reasonably anticipated operations. The Company owns
substantially all its manufacturing equipment and believes that its equipment is
well maintained and suitable for its requirements. Additionally, the Company
maintains property and casualty and business interruption insurance in amounts
it believes are sufficient and consistent with practices for companies or
comparable size and business.
Item 3. Legal Proceedings
The Company is not a party to, nor is any of its properties the subject of,
any pending legal proceedings. See Item 1, Description of Business--Litigation
and Product Liability for a description of certain legal matters with respect to
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None
16
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on the NASDAQ Small Cap Market under
the symbol "GLPC". The following are the high and low per share bid prices of
the Company's Common Stock on the NASDAQ Small Cap Market since December 19,
1995, the date of the Company's IPO. Such prices represent quotations or prices
between dealers and do not include retail mark-up, mark-down or commission and
may not necessarily represent actual transactions:
Quarter Ended High Low
- ------------- ---- ---
December 31, 1995 $10 $ 9
March 31, 1996 $12 5/8 $11
June 30, 1996 $11 $10 1/8
September 30, 1996 $9 1/4 $8
December 31, 1996 $8 7/8 $6 1/2
March 31, 1997 $9 5/8 $6 7/8
On March 25, 1997, the last reported bid price of the Common Stock on the
NASDAQ Small Cap Market was $8 1/4 per share. As of March 25, 1997, there are
were approximately 64 holders of record of the Common Stock.
The Company has never paid cash dividends on its Common Stock and has no
present plans to do so in the foreseeable future. The Company's current policy
is to retain all earnings, if any, for use in the operation of its business. The
payment of future cash dividends, if any, will be at the discretion of the Board
of Directors and will be dependent upon the Company's earnings, financial
conditions, capital requirements and other factors as the Board of Directors may
deem relevant.
Item 6. Management's Discussion and Analysis or Plan of Operation
General
The Company was formed in April 1993 to acquire the manufacturing plant,
equipment and certain related assets (the "Facility") and the ANDAs, NDAs and
NADAs of Richlyn. Richlyn operated as a generic pharmaceutical business from
1947 to 1992. Operations of the Facility have been idled since September 1992
for failure to comply with FDA regulations concerning cGMPs. See Item 1,
Description of Business.
The Company was the surviving corporation in a merger effected on April 6,
1995 (the "Merger") with a shell acquisition corporation ("Toledex"), which had
been incorporated in Delaware in March 1995.
Effective November 28, 1995, the Company effected a 39.182 -for-1 common
stock split, and increased its authorized capital stock to 10 million common
shares and 2 million shares of undesignated preferred stock.
On December 19, 1995, the Company completed its IPO in which 1,650,000
shares of common stock were sold for net proceeds of $11,489,000. An additional
247,500 shares of common stock were sold to the underwriter of the IPO in
January 1996, upon the exercise of the underwriters' over-allotment option for
net proceeds to the Company of $1,835,000.
During 1996, the Company incurred substantial costs related to the ongoing
validation process for both the facility and the products, the expansion of its
laboratory and research and development, production, quality and administrative
activities. In September 1996, FDA approved independent consultants certified
the manufacturing facility for FDA site review. Upon the October-November 1996
FDA site review and subsequent additional validation work by the Company, the
FDA approved independent consultants recertified the manufacturing facility in
February 1997. The Company is continuing its efforts to obtain FDA certification
of the plant manufacturing area and processes. The Company has recently met with
senior officials of FDA Philadelphia District Office to discuss the most recent
in a series of inspections conducted by FDA as part of this certification
process, and has submitted to FDA a response to certain additional concerns
raised by FDA. While there can be no assurance that FDA certification will be
received in the near future, if at all, the Company believes that it has
appropriately responded to the concerns raised by FDA. The failure of the
Company to obtain FDA certification of the Facility will materially adversely
affect the Company.
17
<PAGE>
The Company cannot currently predict whether its business will be seasonal
in nature, but to the extent that it manufactures and distributes products that
pertain to seasonal ailments such as allergies or colds, the Company may
experience seasonal patterns in its sales and profitability. There can be no
assurance that the potential seasonality of the Company's business will not have
a material adverse effect on the Company. In addition, when the Company becomes
operational, its revenues, and hence its profitability, if any, may vary
significantly from fiscal quarter to fiscal quarter as well as in comparison to
the corresponding quarter of the previous year as a result, among other factors,
of the timing of process validation for particular generic drug products, the
timing of any significant initial shipments of newly approved drugs and
competitive pressures from other generic drug manufacturers who receive FDA
approvals covering competing products.
In connection with the original agreement with Genpharm, the Company, on
November 8, 1995, sold Merck KGaA 150,000 shares of Common Stock for $300,000,
as well as the Merck A Warrants to purchase 100,000 shares of Common Stock at an
exercise price of $2.00 per share. Simultaneously, the Company sold to Merck
KGaA the Merck B Warrants which are exercisable for 40,000 shares of Common
Stock for each aggregate $1,000,000 in gross profit (as defined in the Genpharm
Agreement), if any, earned by the Company in connection with its sale to
Genpharm of Ranitidine and any other products mutually agreed to by the Company
and Merck KGaA, up to a maximum of 17.33% of the issued and outstanding shares
of Common Stock of the Company immediately following the IPO. The per share
exercise price for each of the shares underlying the Merck B Warrants is $8.50
(the IPO price per share). If the Company generates in excess of $17,500,000 in
gross profit (as defined in a warrant agreement between the Company and Merck
KGaA (the "Merck KGaA Warrant Agreement"), which has the same definition of
gross profit as is set forth in the Genpharm Agreement) from the sale in the
United States of Ranitidine and any other products mutually agreed to by the
Company and Merck KGaA, the aggregate number of shares of Common Stock that
Merck KGaA will own and have the right to acquire will be equivalent to
approximately 23.52% of the shares of Common Stock that are issued and
outstanding immediately following the completion of the Company's IPO. Merck
KGaA has certain registration rights with respect to the shares of Common Stock
it owns and has the right to acquire pursuant to the Merck Warrants. The Merck
Warrants are likely to be exercised only at a time when the exercise price is
below the market price of the Common Stock, at which time the Company could
issue shares and raise additional funds on terms superior to those of the Merck
Warrants.
Results of Operations
The Company has generated no revenues to date and, from inception until
December 31, 1996, the Company accumulated a deficit of $12,099,000.
Since its inception, the Company has devoted substantially all of its
efforts to improving and renovating the Facility, establishing policies and
procedures to bring the Facility into compliance with cGMPs, 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 such that it can begin selling one or more generic products in 1997,
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. See Item 1. "Description of Business - FDA
Approvals".
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company's net loss for the year ended December 31, 1996 was $4,608,000
as compared to $4,463,000 in the same period in 1995.
General and administrative expenses were $5,121,000 in the year ending
December 31, 1996 as compared to $3,236,000 during the same period in 1995 due
primarily to increased infrastructure costs required for the validation process
such as for personnel, renovation and FDA approved consultant fees.
During the year ended December 31, 1996, the Company earned $375,000 in
interest income, primarily as a 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. The interest expense for the year ended
December 31, 1996 was $40,000 as compared to $242,000 incurred in the same
period in 1995.
18
<PAGE>
Other income of $178,000 generated during the year ended December 31, 1996
was due primarily to a renegotiation of previously recognized legal expenses.
Liquidity and Capital Resources
Until the completion of the Company's IPO in December 1995, the Company
financed its activities primarily through the issuance of promissory notes to
the family that previously controlled Richlyn, borrowings from Pennsylvania
Industrial Development Authority ("PIDA") and Philadelphia Industrial
Development Corporation ("PIDC"), proceeds from the private placement of its
equity securities and loans from stockholders.
On December 19, 1995, the Company completed its IPO in which 1,650,000
shares of common stock were sold by the Company for net proceeds of $11,489,000.
An additional 247,500 shares of common stock were sold to the underwriter of the
IPO in January 1996, upon the exercise of the underwriters' over-allotment
option for net proceeds to the Company of $1,835,000.
In June 1996, the Company received approval for a $1,000,000 loan with PIDA
at 3.75% annually fixed for 15 years, the proceeds of which must be used for
certain capital projects.
In August 1996, the Company received approval for a $350,000 loan from the
Delaware River Port Authority at 5.00% annually fixed for 10 years, the proceeds
of which must be used for certain capital projects.
The Company has expended, and will continue to expend funds to purchase
production and laboratory equipment and to develop its manufacturing, sales and
marketing, and product development capabilities. The Company will require
additional funds in 1997 for these purposes and to continue as a development
stage company prior to obtaining the government approvals necessary to begin
operating the Facility. Additional funds are expected to be raised through
subsequent equity or debt financings, collaborative arrangements with corporate
partners, or through other sources. The Company's failure to obtain sufficient
financing, to obtain necessary FDA and government approvals, or to produce and
sell sufficient quantities of its products, would adversely affect its cash
flows and operating and development plans.
Item 7. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this Item begin
on page F-1 of this Annual Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
During the year ended December 31, 1996, the Company neither changed its
accountants nor had any disagreement with its accountants on any matter of
accounting principle or practice, financial statement disclosure or auditing
scope or procedure.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information contained under the heading "Proposal No. 1 - Election of
Directors" in the Company's definitive Proxy Statement (the "Proxy Statement")
relating to the Company's Annual Meeting of Stockholders scheduled to be held on
or about June 24, 1997, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission is incorporated
herein by reference. For information concerning the executive officers and other
significant employees of the Company, see "Business - Executive Officers" in
Item 1 above of this Annual Report.
Item 10. Executive Compensation
The response to this item will be included in the Company's Proxy Statement
to be used in connection with the Annual Meeting of Stockholders scheduled to be
held on June 24, 1997 and is incorporated herein by reference.
19
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The response to this item will be included in the Company's Proxy Statement
to be used in connection with the Annual Meeting of Stockholders scheduled to be
held on June 24, 1997 and is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
The response to this item will be included in the Company's Proxy Statement
to be used in connection with the Annual Meeting of Stockholders scheduled to be
held on June 24, 1997 and is incorporated herein by reference.
Item 13. Exhibits, Lists and Reports on Form 8-K
<TABLE>
<CAPTION>
a) Exhibits
Exhibit
Number Description of Document
------- -----------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger among the Company, Management Stockholders and
Toledex Acquisition Corporation, dated as of April 6, 1995. (1)
2.2 Certification of Merger between Toledex Acquisition Corporation and the Company,
dated April 6, 1995. (1)
3.1 Restated Certificate of Incorporation of the Company. (1)
3.2 By-laws of the Company. (1)
4.1 Specimen Certificate of the Company's Common Stock, par value $.01 per share. (1)
4.2 Form of Representative's Warrant Agreement between the Company and the
Representative, including form of Representative's Warrant Certificate. (1)
10.1 Employment Agreement of Pieter Groenewoud, dated as of October 1, 1995. (1)
10.2 Employment Agreement of Cornel C. Spiegler, dated as of September 27, 1995. (1)
10.3 Employment Agreement of Max L. Mendelsohn, dated as of September 1, 1995. (1)
10.4 Consulting Agreement between the Company and Andromeda Enterprises, Inc., dated as
of April 6, 1995. (1)
10.5 Consulting Agreement between the Company and Gary R. Dubin, dated as of August 9,
1995. (1)
10.6 The Company's 1995 Stock Incentive Plan. (1)
10.7 Distribution Agreement by and between The Care Buying Alliance and the Company,
dated as of October 19, 1995. (1)
10.8 Exclusive Supply Agreement between Dey Laboratories LP and the Company, dated
November 1, 1995. (1)
10.9 Form of Amended Agreement between the Company and Merck Kommanditgesellschaft auf
Aktien regarding the issuance of Common Stock Purchase Warrants, dated as of
November , 1995. (1)
10.10 Form of Amended Manufacturing Agreement between the Company and Genpharm, Inc.,
dated as of November , 1995. (1)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.11 Loan Agreement between the Company, the Toledano Group, the Dubin Group, and
Frederick R. Adler, dated as of April 6, 1995, including forms of Promissory
Notes. (1)
10.12 First Amendment to Loan Agreement, dated November 3, 1995. (1)
10.13 Secured Party Consent and Agreement, among the Company, Adjo, Inc., Sidney
Weinberg and Gertrude Weinberg, dated as of April 6, 1995. (1)
10.14 $50,000 Loan Agreement between American Generics, Inc. and the Company, dated
January 20, 1995. (1)
10.15 Unsecured $70,000 Promissory Note from Global Pharmaceutical Corporation, a
Florida corporation ("GPC Florida"), to Tony Tabatznik, dated March 1, 1995. (1)
10.16 Stockholders' Agreement among the Company and its existing stockholders, dated as
of April 6, 1995. (1)
10.17 Form of First Amendment to Stockholders' Agreement, dated as of November 3, 1995. (1)
10.18 Acquisition Agreement between PIDC-Financing Corporation and GPC Florida, dated
September 17, 1993. (1)
10.19 Security Agreement by and between the Company and PIDC Local Development
Corporation, dated October 15, 1993, with related Note and Commitment, and Waiver
and Consent dated November 13, 1995. (1)
10.20 Promissory Note from GPC Florida in favor of Richlyn Laboratories, Inc. in the
amount of $583,654.44, dated as of August 18, 1993. (1)
10.21 Loan Agreement by and between PIDC Financing Corporation and the Pennsylvania Industrial
Development Authority ("PIDA") for a loan in a principal amount not to exceed $1,026,000,
dated April 18, 1994, with Waiver and Consent dated November 13, 1995. (1)
10.22 Open-End Mortgage between PIDC Financing Corporation and PIDA dated April 18,
1994. (1)
10.23 Mortgage and Financing Statement Subordination Agreement by and among PIDC
Financing Corporation, Sidney Weinberg and Gertrude Weinberg, GPC Florida and the
PIDA, dated as of April 18, 1994. (1)
10.24 Mortgage and Financing Statement Subordination Agreement by and among PIDC
Financing Corporation, Richlyn Laboratories, Inc., GPC Florida and the PIDA,
dated as of April 18, 1994. (1)
10.25 Assignment of Installment Sale Agreement by and among PIDC Financing Corporation,
PIDA and GPC Florida, dated April 18, 1994. (1)
10.26 Installment Sale Agreement by and between PIDC Financing Corporation and GPC
Florida dated April 18, 1994. (1)
10.27 PIDC Financing Corporation Note to the PIDA, dated April 18, 1994. (1)
10.28 Secured $500,000 Note from the Company to PIDC Local Development Corporation. (1)
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.29 Consent, Subordination and Assumption Agreement by and among GPC Florida, PIDC
Financing Corporation and PIDA, dated April 18, 1994. (1)
10.30 Toledano Group Agreement by and among Udi Toledano, the Toledano Group and the
Toledano Family, dated as of April 6, 1995. (1)
10.31 Dubin Loan Group Agreement by and among Gary R. Dubin and the Dubin Loan Group,
dated as of April 6, 1995. (1)
10.32 Restated and Amended Asset Purchase Agreement by and among GPC Florida, and
Richlyn Laboratories, Inc. and Sidney and Gertrude Weinberg, dated June 18, 1993. (1)
10.33 Waiver Agreement by and among the Company, Adjo, Inc., formerly known as Richlyn
Laboratories, Inc., Richard R. Weinberg and various members of the Weinberg family,
dated as of November 7, 1995. (1)
10.34 Forms of Loan Agreements by and between the Company and each of Udi Toledano,
Frederick R. Adler, Gary Escandon, Max L. Mendelsohn and Cornel C. Spiegler, dated
November 23, 1995. (1)
10.35 Employment Agreement of Gabriel Lebovic, dated as of December 1, 1995. (1)
10.36 Letter Agreement, dated December 14, 1993, between Moty Hermon and Frederick R.
Adler. (1)
10.37 Form of Escrow Agreement by and among the Company, the Representative and
Continental Stock Transfer and Trust Company. (1)
10.38 Supply and Marketing Agreement by and between the Company and Caraco Supply and
Pharmaceutical Laboratories Ltd. dated September 20, 1996. (2)
10.39 Employment agreement by and between the Company and Marc M. Feinberg dated
September 30, 1996. (2)
10.40 Technical Collaboration Agreement by and between the Company and Genpharm Inc.
dated January 8, 1997.
10.41 Employment agreement by and between the Company and Dr. Seymour Hyden dated
February 7, 1997.
10.42 Employment agreement by and between the Company and Mitchell Goldberg dated March 13, 1997.
11.1 Statement Regarding Computation of Earnings Per Share. (1)
23.1 Consent of Price Waterhouse LLP. (1)
27 Financial Data Schedule
99.1 Court Order issued May 25, 1993 by the United States District Court for the
Eastern District of Pennsylvania against Richlyn Laboratories, Inc. (1)
(1) Previously filed with the Commission as Exhibits to, and incorporated herein by
reference from, the Registrant's Registration Statement on Form SB-2
(File No. 33-99310-NY)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(2) Previously filed with the Commission as Exhibits to,
and incorporated herein by referenced from, the
Registrant's Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 1996.
b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of
the year ended December 31, 1996.
</TABLE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBAL PHARMACEUTICAL CORPORATION
By /s/Max L. Mendelsohn
---------------------------------------------------------
Max L. Mendelsohn, President and Chief Executive Officer
Date April 11, 1997
----------------------
In accordance with the Exchange Act, 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/ MAX L. MENDELSOHN President and Chief Executive
- ------------------------ Officer and Director
Max L. Mendelsohn) (Principal Executive Officer)
s/ CORNEL C. SPIEGLER Chief Financial Officer, Vice
- ------------------------ President--Administration
(Cornel C. Spiegler) (Principal Financial and Accounting Officer)
/s/ FREDERICK R. ADLER Director
- ------------------------
(Frederick R. Adler)
/s/ PHILIP R. CHAPMAN Director
- ------------------------
(Philip R. Chapman)
/s/ GARY ESCANDON Director
- ------------------------
(Gary Escandon)
/s/ GEORGE F. KEANE Director
- ------------------------
(George F. Keane)
/s/ JOHN W. ROWE Director
- ------------------------
(John W. Rowe)
/s/ UDI TOLEDANO Director
- ------------------------
(Udi Toledano)
/s/ RICHARD N. WIENER Director
- ------------------------
(Richard N. Wiener)
23
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Accountants................................................................... F-2
Balance Sheet at December 31, 1995 and December 31, 1996 ........................................... F-3
Statement of Operations for each of the three years ended December 31, 1996 and for the period
from inception (April 20, 1993) through December 31, 1996........................................ F-4
Statement of Changes in Stockholders' Equity for the period from inception
(April 20, 1993) through December 31, 1996. ..................................................... F-5
Statement of Cash Flows for each of the three years ended December 31, 1996 and for the period from
inception (April 20, 1993) through December 31, 1996............................................. F-6
Notes to Financial Statements....................................................................... F-7 to F-14
All financial statement schedules are omitted because they are not required.
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Global Pharmaceutical Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of changes in stockholders' equity present fairly,
in all material respects, the financial position of Global Pharmaceutical
Corporation (the Company), a development stage company, at December 31, 1995 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996 and for the period from April 20,
1993 (inception) through December 31, 1996, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The Company has not obtained necessary certifications from the United States
Food and Drug Administration to commence its operations, and cannot predict when
such approvals will be obtained. Without such certifications, the Company will
require additional financing. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans with regard
to these matters are described in Note 1. The accompanying financial statements
have been prepared assuming the Company will continue as a going concern, and do
not include any adjustments that might result from the outcome of this
uncertainty.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
April 11, 1997
F-2
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
BALANCE SHEET
(in thousands, except share and share data)
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 9,518 $ 4,044
Prepaid expenses and other.................................... 30 49
------- -------
Total current assets..................................... 9,548 4,093
Property, plant and equipment, net................................. 2,105 4,135
Intangible assets ................................................. 1,177 1,177
Deferred financing costs, net...................................... 25 35
------- -------
Total assets............................................. $12,855 $ 9,440
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Current portion of long-term debt............................. $ 182 $ 90
Accounts payable.............................................. 459 383
Accrued expenses.............................................. 810 419
------- -------
Total current liabilities................................ 1,451 892
Long-term debt..................................................... 1,280 1,197
------- -------
2,731 2,089
------- -------
Commitments and contingencies (Note 10)
Stockholders' equity :
Preferred stock, $.01 par value, 2,000,000 authorized,
none issued................................................ -- --
Common stock, $.01 par value, 10,000,000 authorized and
4,039,392 and 4,286,871 shares issued and outstanding...... 40 43
Additional paid-in capital.................................... 17,575 19,407
Deficit accumulated during the development stage.............. (7,491) (12,099)
------- -------
Total stockholders' equity .............................. 10,124 7,351
------- -------
Total liabilities and stockholders' equity............... $12,855 $ 9,440
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
STATEMENT OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
April 20,1993
(inception) to
Twelve Months Ended December 31, December 31,
----------------------------------------- --------------
1994 1995 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
General and administration. $ 1,781 $ 3,236 $ 5,121 $ 11,148
Debt conversion expense.... -- 47 -- 47
Loss on sale of common
stock and warrants... -- 938 -- 938
Sale of marketable
securities........... 50 -- -- 50
Interest expense........... 157 242 40 469
Interest income............ -- -- (375) (375)
Other income............... -- -- (178) (178)
---------- ---------- ---------- ---------
Net loss................... $ (1,988) $ (4,463) $ (4,608) $ (12,099)
========== ========== ========== =========
Net loss per share............ $ (.92) $ (1.80) $ (1.08)
========== ========== ==========
Weighted average common
shares outstanding..... 2,166,872 2,430,543 4,269,967
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(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
Issuance of 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 KGaA......... 150 1 299 -- 300
Sale of stock to Merck KGaA..................... -- -- 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 for over-allotment exercise
on January 29, 1996............................. 248 3 1,832 -- 1,835
Net loss............................................. -- -- -- (4,608) (4,608)
----- --- ------- -------- --------
Balances at December 31, 1996........................ 4,287 $43 $19,407 $(12,099) $( 7,351)
===== === ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
April 20,
1993
Year Ended December 31, (inception)
------------------------------ to December 31,
1994 1995 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ......................................................... $(1,988) $(4,463) $(4,608) $(12,099)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization................................. 114 214 281 653
Expenses paid through issuance of common stock and warrants 50 -- -- 128
Loss on sale of common stock and warrants..................... -- 938 -- 938
Loss on debt conversion....................................... -- 47 -- 47
Loss on sale of marketable securities......................... 50 -- -- 50
Change in assets and liabilities:
(Increase) decrease due from/to related party............ 14 (13) 2 --
(Increase) decrease in prepaid expenses and other assets 20 24 (21) (45)
Decrease in note receivable from stockholders............. 129 135 -- 264
Decrease in accounts payable and accrued expenses ........ 240 229 (467) 164
------- ------- ------- --------
Net cash used for operating activities................ (1,371) (2,889) (4,813) (9,900)
------- ------- ------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment......................... (929) (345) (2,311) (3,786)
Sales (purchases) of marketable securities......................... 450 -- -- (50)
------- ------- ------- --------
Net cash used for investing activities................ (479) (345) (2,311) (3,836)
------- ------- ------- --------
Cash flows from financing activities:
Long-term debt:
Borrowings..................................................... 1,026 70 -- 1,596
Payments....................................................... (54) (126) (175) (357)
Payment of financing costs..................................... (13) (3) (10) (40)
Long-term debt, related party:
Borrowings .................................................... 72 2,683 -- 2,755
Payments....................................................... (110) (1,667) -- (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 -- -- 480
November 8, 1995 stock and warrants issued to Merck KGaA -- 300 -- 300
December 19, 1995 initial public offering ..................... -- 11,488 -- 11,488
January 29, 1996 over-allotment exercise....................... -- -- 1,835 1,835
------- ------- ------- --------
Net cash provided by financing activities............. 1,401 12,751 1,650 17,780
------- ------- ------- --------
Net increase (decrease) in cash and cash equivalents.................... (449) 9,517 (5,474) 4,044
Cash and cash equivalents, beginning of period.......................... 450 1 9,518 --
------- ------- ------- --------
Cash and cash equivalents, end of period................................ $ 1 $ 9,518 $ 4,044 $ 4,044
======= ======= ======= ========
Cash paid for interest............................................. $ 139 $ 215 $ 40 $ 397
======= ======= ======= ========
</TABLE>
For other supplemental disclosure of non-cash investing and financing
activities, see Notes 2 and 3.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
1. Formation and Operation of the Company
Purpose
Global Pharmaceutical Corporation (the "Company") was formed in April 1993
to acquire the manufacturing plant, equipment and certain related assets and
liabilities (the "Facility") and the Abbreviated New Drug Applications
("ANDAs"), New Drug Applications ("NDAs") and New Animal Drug Applications
("NADAs") of Richlyn Laboratories, Inc. ("Richlyn"). Richlyn operated a generic
pharmaceutical business from 1947 to 1992; operations of the Facility had been
idled since September 1992 for failure to comply with Food and Drug
Administration ("FDA") regulations concerning current Good Manufacturing
Practices ("cGMP").
Since its inception, the Company has devoted substantially all of its
efforts to improving and renovating the Facility, establishing policies and
procedures to bring the Facility into compliance with cGMP, 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 to begin selling one or more generic products in 1997, although there
can be no assurance such approvals will be obtained in 1997, or at all.
Accordingly, the Company is considered a development stage company as defined in
Statement of Financial Accounting Standards No. 7.
Organization
The Company was incorporated in Florida on April 20, 1993 ("Inception"). On
March 29, 1995, the Company reincorporated in Delaware through a merger with a
wholly-owned subsidiary of the same name by exchange of the Company's common
stock for 1.814 shares of common stock of the wholly owned subsidiary (the
"Reincorporation").
On April 6, 1995, the Company was the surviving corporation in a merger
(the "Merger") with a shell acquisition corporation ("Toledex") which had been
incorporated in Delaware in March 1995. The Merger was effected to recapitalize
the Company; shareholders of Toledex provided loan commitments of up to $3
million to the Company simultaneously with the Merger (see Note 7). At the time
of Merger, Toledex had no assets or liabilities, and 78% of its common stock was
held by stockholders of the Company; accordingly, the assets and liabilities of
the Company subsequent to the Merger are recorded at historical cost in a manner
similar to a pooling of interests.
Effective November 28, 1995, the Company effected a 39.182-for-one common
stock split, and increased its authorized capital stock to 10 million common
shares and 2 million shares of undesignated preferred stock (collectively, the
"Stock Split").
All references to share and per share amounts of common stock and preferred
stock for all periods presented have been adjusted to give effect to the
Reincorporation, the Merger and the Stock Split.
Funding of Activities
To date, the Company has funded its efforts to engage in the manufacture,
repackaging and sale of solid oral prescription and over-the-counter generic
drugs and dietary supplements through equity and debt financings.
The Company has expended and will continue to expend funds to purchase
production and laboratory equipment and to develop its manufacturing, sales and
marketing and product development capabilities. The Company will require
additional funds in 1997 for these purposes and to continue as a development
stage company prior to obtaining the government approvals necessary to begin
operating the facility. Additional funds are expected to be raised through
subsequent equity or debt financings, collaborative arrangements with corporate
partners, or through other sources.
F-7
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (continued)
The Company's failure to obtain sufficient financing, to obtain necessary
FDA and government approvals, or to produce and sell sufficient quantities of
its products, would adversely affect its cash flows and operating and
development plans.
In June 1996, the Company received approval for a $1,000,000 loan from the
Pennsylvania Industrial Development Authority ("PIDA") at 3.75% annually fixed
for 15 years, the proceeds of which must be used for certain capital projects.
In August 1996, the Company received approval for a $350,000 loan from the
Delaware River Port Authority ("DRPA") at 5.00% annually fixed for 10 years, the
proceeds of which must be used for certain capital projects.
2. Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents are stated at cost which approximates market
value. Cash equivalents include only securities having a maturity of three
months or less at the time of purchase.
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are cash and cash equivalents. The Company limits
its credit risk associated with cash and cash equivalents by placing its
investments with highly rated money market funds, U.S. Government securities,
treasury bills and short-term commercial paper. When operations commence, the
Company plans to limit its credit risk with respect to accounts receivable by
performing ongoing credit evaluations and, when deemed necessary, requiring
letters of credit, guarantees, or collateral.
Property, plant and equipment
Property, plant and equipment are recorded at cost. Maintenance and repairs
are charged to expense as incurred and costs of improvements and renewals are
capitalized. Costs incurred in connection with the construction or major
renovation of facilities, including interest directly related to such projects,
are capitalized as construction in progress. Depreciation is recognized using
the straight-line method based on the estimated useful lives of the related
assets.
Intangible assets
Intangible assets comprise ANDAs, NDAs and NADAs acquired from Richlyn and
are recorded at fair value. Amortization will be recognized on a straight-line
basis over a five year period upon the commencement of operations.
The Company complies with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". Accordingly, the carrying value of long-lived assets
and certain identifiable intangible assets are evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. In performing such review for recoverability, the Company compares
expected future cash flows to the carrying value of long-lived assets and
identifiable intangibles. If the expected future cash flows (undiscounted) are
less than the carrying amount of such assets, the Company recognizes an
impairment loss for the difference between the carrying amount of the assets and
their estimated fair value.
F-8
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (continued)
Deferred financing costs
Deferred financing costs are amortized on a straight-line basis over the
terms of the respective debt instrument.
Income taxes
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
Valuation allowances are provided on deferred tax assets for which it is more
likely than not that some portion or all will not be realized.
Richlyn financial information
On August 18, 1993, the Company acquired certain assets and liabilities
from Richlyn (see Note 1) and from Gertrude and Sidney Weinberg (the
"Weinbergs"), stockholders of Richlyn, for cash of $50,000, notes issued of
$1,500,000 (the "promissory note"), and warrants valued at $3,000 to purchase up
to 5% of the outstanding common stock of the Company for $50,000 for each 1%
acquired, with related transaction costs of $150,000. The acquisition was
accounted for using the purchase method of accounting. Accordingly, the purchase
price was allocated to the assets and liabilities acquired based upon their
estimated fair values at the date of acquisition.
Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingencies at the date of the financial statements and the
reported expenses during the reporting period. Differences from those estimates
are recorded in the period they become known.
Pro forma loss per share
The Company's past capital structure is not indicative of its structure
effective with its December 19, 1995 initial public offering of stock (the
"IPO") due to (i) the conversion of loans from stockholders into common stock
concurrent with the closing of the IPO (see Note 7), and (ii) the shares of
common stock and warrants sold under the November 8, 1995 Genpharm Agreement
(see Note 3). Accordingly, historical net loss per common share for the years
ended December 31, 1994 and 1995 is not considered meaningful and has not been
presented herein; rather, a pro forma net loss per share is presented for these
years in the accompanying statement of operations. The calculation of the shares
used in computing pro forma net loss per share includes the effect of the
conversion of loans from stockholders described in Note 7 into shares of common
stock concurrent with the closing of the IPO if they were converted into common
shares when the loans were made. Also, pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common stock sold or issued at
prices below the anticipated initial public offering price per share in the
twelve months preceding the initial filing (including the common stock and
warrants sold pursuant to the Genpharm Agreement) have been included in the
calculation as if outstanding for all periods presented. Common stock shares
sold, or equivalent shares from stock options and warrants issued, more than
twelve months preceding the initial filing of the IPO are excluded from the
computation as the effect of their inclusion would be antidilutive.
Accounting for stock-based compensation
In October 1995, SFAS No. 123, "Accounting for Stock Based Compensation"
("SFAS 123") was issued. This statement requires the fair value of stock options
and other stock-based compensation issued to employees to either be recognized
as compensation expense in the income statement, or be disclosed as a pro forma
effect on net income in the footnotes to the Company's financial statements. As
of December 31, 1996, the Company adopted SFAS 123 on a disclosure basis only.
F-9
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (continued)
3. Related Party Transactions
On November 8, 1995, the Company entered into an agreement ( the "Genpharm
Agreement") with Genpharm, Inc., a Canadian corporation ("Genpharm"), an
indirect subsidiary of Merck KGaA. Subsequently, in January 1997, the Company
revised its agreement with Genpharm, pursuant to which the Company will package
a minimum of 30% of Genpharm's United States Ranitidine production requirements
based on a five-year cost-plus and percentage of profits compensation
arrangement following the receipt of the requisite FDA Ranitidine approvals.
In addition to the manufacture and distribution of Ranitidine, the Genpharm
Agreement provides the Company with the opportunity to develop products with the
assistance of Merck KGaA that are marketed outside the U.S. Two products with
total U.S. annual sales of over $150 million including limited generic
competition, have already been selected. Development is currently underway with
ANDA anticipated to be filed by the Company by the fourth quarter of 1997,
although no assurance can be given that the Company will be able to make the
requisite filings or produce and distribute these products.
In connection with the Genpharm Agreement in 1995, the Company sold to
Merck KGaA 150,000 shares of common stock for $300,000, and a warrant to
purchase 100,000 shares of common stock at an exercise price of $2.00 per share
(the "A Warrant"). In addition, the Company granted to Merck KGaA additional
warrants to purchase up to 700,000 shares, at an exercise price of $8.50 per
share (the IPO price per share), whose exercise is contingent upon the gross
profit (as defined in the agreement), if any, earned by the Company under the
Genpharm Agreement.
The Company recognized a non-recurring, non-cash expense in 1995 of
$937,500, representing the number of shares of common stock sold and A Warrants
issued to Merck KGaA, multiplied by the difference between the then estimated
market value of the Company's common stock ($5.75) and $2.00 (the price per
share of the common stock sold and the exercise price of the warrants issued).
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
Estimated
useful life December 31,
1993 ---------------------------
(years) 1995 1996
----------- ------- -------
(dollars in thousands)
Land............................... $ 53 $ 53
Building........................... 25 212 212
Building improvements.............. 15 1,263 1,900
Production equipment............... 10 458 1,039
Laboratory equipment............... 7 440 626
Office furniture and equipment..... 5 46 117
Construction in progress........... -- -- 836
------ ------
2,472 4,783
Less: Accumulated depreciation..... 367 648
------ ------
$2,105 $4,135
====== ======
F-10
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (continued)
5. Accrued Expenses
Accrued expenses consist of the following:
December 31,
------------------
1995 1996
---- ----
(in thousands)
Accrued maintenance and repairs........ $145 $ 34
Accrued professional fees ............. 244 195
IPO costs ............................. 251 --
Other accrued expenses................. 170 190
---- ----
$810 $419
==== ====
6. Income Taxes
Due to the Company's losses during its development stage, no provision for
income taxes is recorded for any period. The difference between the federal
statutory tax rate and the Company's effective income tax rate is attributable
to losses and future tax deductions for which no tax benefits have been
recognized.
Deferred tax assets consist of the following:
December 31,
------------------
1995 1996
---- ----
(in thousands)
Net operating losses.......................... $ 286 $ --
Deferred start-up and organization costs...... 2,474 4,734
Depreciation and amortization................. 159 281
------ ------
Gross deferred tax assets.................. 2,919 5,015
Deferred tax asset valuation allowance........ (2,919) (5,015)
------ ------
$ -- $ --
====== ======
Due to historical losses incurred by the Company and limitations on the
future use of net operating losses due to changes in the Company's ownership, a
full valuation allowance for net deferred tax assets has been provided. If the
Company achieves profitability, certain of these net deferred tax assets would
be available to offset future income taxes.
7. Long-Term Debt
December 31,
------------------
1995 1996
---- ----
(in thousands)
2% loan payable in 180 monthly installments of $6,602
commencing June 1, 1994 through May 1, 2009............. $ 923 $ 867
3.75% loan payable in 84 monthly installments of $3,672
commencing January 1, 1994, with a balance of $304,000
due on December 1, 2000................................. 445 420
6% notes payable to vendors in three annual installments
commencing August 1, 1994............................... 24 --
8% note payable due on February 28, 1996................... 70 --
------ ------
1,462 1,287
Less: Current portion of long-term debt.................... (182) (90)
------ ------
$1,280 $1,197
====== ======
On October 15, 1993, the Company received a $500,000 loan from the
Philadelphia Industrial Development Corporation, ("PIDC"). The loan is secured
by the Company's equipment. On April 18, 1994, the Company received a $1,026,000
loan from the Pennsylvania Industrial Development Authority, ("PIDA"). The loan
is secured by land, building and building improvements.
F-11
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (continued)
The PIDA and PIDC loans contain financial and non-financial covenants,
including certain covenants regarding levels of employment which are not
effective until the Company commences operations. The Company received a waiver
with respect to a non-financial covenant.
Scheduled maturities of long-term debt as of December 31, 1996 were as
follows:
1997................. $ 90,000
1998.................... 93,000
1999................. 95,000
2000................. 399,000
2001................. 67,579
Thereafter........... 542,421
----------
Total ............ $1,287,000
==========
A mortgage note payable was issued to the Weinbergs on August 18, 1993 as
consideration for the purchase of the land and buildings of the Richlyn Facility
(the "Weinberg Note"). The mortgage note, and the promissory note, (collectively
"Richlyn Notes"), were issued on August 18, 1993 as consideration for the
purchase of certain assets from Richlyn (see Notes 1 and 2). Upon completion of
the IPO, the Company repaid the Weinberg and Richlyn Notes.
In connection with the Merger, the Toledex stockholders entered into loan
agreements, pursuant to which the stockholders committed to make loans to the
Company on a monthly basis up to an aggregate maximum amount outstanding at any
time of $3 million, at an interest rate of 8%. At December 19, 1995, the amount
of principal and accrued interest outstanding on these loans of $2,383,000 was
converted into 280,301 shares of common stock at the IPO price of $8.50 per
share and commitments to make additional loans were terminated.
Other stockholder advances of $47,000 were made in 1995 and, as a result of
inducements offered by the Company, were converted into common stock having a
value of $94,000 in 1995. Debt conversion expense of $47,000 was recognized as a
result of this induced conversion. On November 23, 1995, the Company borrowed an
aggregate of $300,000 from certain stockholders of the Company. In consideration
of these loans, which were repaid in full with interest at the rate of prime
plus 2% per annum from the proceeds of the IPO, the Company issued 5-year
warrants exercisable in the last four years of the warrants' term at the IPO
price per share for an aggregate of 42,000 shares of Common Stock.
8. Stockholders' Equity
Preferred Stock
The Company authorized 2,000,000 shares of preferred stock, $.01 par value
per share (the "Preferred Stock"). No shares of Preferred Stock have been
issued.
Common Stock
On December 19, 1995, the Company completed its IPO in which 1,650,000
shares of common stock were sold for net proceeds to the Company of $11,488,000.
In connection with the IPO, the underwriter received an option to purchase up to
247,500 shares of common stock at $8.50 per share (the "over-allotment"). The
underwriter exercised this option on January 29, 1996 and the Company sold
247,500 shares of common stock for net proceeds of $1,835,000.
F-12
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (continued)
9. Stock Options
The Company's 1995 Stock Incentive Plan was adopted by the Company's
Board of Directors on November 9, 1995 for the purpose of securing for the
Company and its stockholders the benefits arising from the ownership of Company
stock options by non-employee directors and key employees who are expected to
contribute to the Company's future growth and success.
During September and October 1995, the Company committed to grant
non-qualified stock options to purchase an aggregate of 37,500 shares of common
stock at $5.75 per share, the then estimated market value of the Company's
common stock. In addition, immediately prior to the IPO, the Company granted to
each of two directors options to purchase 30,000 shares of common stock at an
exercise price equal to the IPO price.
The exercise price of the outstanding options at December 31, 1996
ranges from $5.75 to $11.25. Options vest over a three to four year period and
have a maximum term of ten years. The weighted average fair value of options
granted during 1996 and 1995 was $3.37 and $3.36, respectively. The fair value
of each option was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: (i) no expected dividend
yield in 1995 and 1996, (ii) expected stock price volatility of 30% in 1995 and
1996, (iii) weighted average risk free interest rate of 5.5% in 1995 and 6% in
1996, and (iv) expected life of options of five years in 1995 and 1996.
Stock option transactions were:
<TABLE>
<CAPTION>
1995 1996
------------------------------------ -----------------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
-------- -------------- -------- ---------------
<S> <C> <C> <C> <C>
Options outstanding at January 1 -- -- 236,000 $8.07
Granted 236,000 $8.07 111,700 $8.87
Canceled -- -- (50,000) $7.13
------- -------
Options outstanding at December 31 236,000 $8.07 297,700 $8.53
======= =======
Options exercisable at December 31 0 75,306
Options available for grant at December 31 164,000 252,300
</TABLE>
Had compensation cost for the Company's 1995 and 1996 grants for
stock-based compensation plans been recognized under the provisions of SFAS 123,
the Company's net loss, and net loss per common share for 1995 and 1996 would
approximate the pro forma amounts below (in thousands, except for per share
data):
<TABLE>
<CAPTION>
For the Year Ended For The Year Ended
December 31, 1995 December 31, 1996
------------------------------------ -----------------------------------
As Reported Pro Forma As Reported Pro Forma
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net loss ($4,463) ($4,469) ($4,608) ($4,817)
Net loss per common share ($ 1.80) ($ 1.80) ($ 1.08) ($ 1.13)
</TABLE>
The pro forma results may not be representative of the effect on
reported operations for future years.
F-13
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (continued)
The following table summarizes information concerning currently
outstanding and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------ ---------------------------------
Weighted
Average
Remining Weighted Weighted
Range of Exercise Number Contractural Average Number Average
Prices Outstanding Life Exercise Price Exerciseable Exercise Price
- ----------------- ----------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$5.75 to $ 8.50 251,900 9.2 $8.34 75,306 $8.30
$9.13 to $11.25 45,800 9.4 $9.57 -- --
------- ------
297,700 9.3 $8.53 75,306 $8.30
======= ======
</TABLE>
10. Commitments and Contingencies
Richlyn Order
The Company is in compliance with a May 25, 1993 order, which was entered
by the United States District Court for the Eastern District of Pennsylvania
(the "Richlyn Order"). The Richlyn Order, among other things, permanently
enjoined Richlyn from introducing into commerce any drug manufactured,
processed, packed or labeled at its manufacturing facility unless it met certain
stipulated conditions. The Company, as a purchaser of the Richlyn facility,
remains obligated by the terms of the Richlyn Order.
Product liability and insurance
The Company assumed the liabilities of Richlyn in connection with
Diethyl Stilbestrol ("DES"), which was manufactured by Richlyn during the late
1950's and early 1960's. DES was prescribed to pregnant women during that period
and has been alleged to cause birth defects. There have been numerous claims
brought against drug manufacturers in connection with DES. While Richlyn's
insurers have in the past defended those DES claims against Richlyn and paid all
settlements in connection therewith to date, the insurers have reserved their
right to discontinue the defense of the claims and the payment of settlements at
any time. Claims settlements to date have been based upon market share, and
Richlyn's share of the market during the periods in question was less than 1%.
While there can be no assurance as to the ultimate resolution of these matters,
in the opinion of Management, the ultimate liabilities resulting from such
lawsuits and claims will not materially adversely affect the financial position,
operating results or cash flow of the Company.
F-14
<PAGE>
TECHNICAL COLLABORATION AGREEMENT
THIS TECHNICAL COLLABORATION AGREEMENT (the "Agreement") is
entered into as of this day of January, 1997, by and between
(Global Pharmaceutical Corporation ("Global"), a Delaware
corporation with its principal place of business at Castor and
Kensington Avenues, Philadelphia, Pennsylvania 19124-5694, and
Genpharm, Inc., a Canadian corporation ("Genpharm"), with its
principal place of business at 37 Advance Road, Etobicoke, Ontario,
Canada M8Z 2S6.
WITNESSETH:
WHEREAS, Global and Genpharm are parties to that certain
Agreement, dated as of December 15, 1995 (as amended, the "Genpharm
Agreement"), providing for, among other things, the manufacture by
Global of Ranitidine on behalf of Genpharm; and
WHEREAS, both Global and Genpharm have mutually agreed that
as a result of the occurrence of certain events subsequent to the
execution of the Genpharm Agreement, it is in their respective best
interests for the Genpharm Agreement to be terminated, effective
upon and conditioned upon execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth and other good and valuable consideration,
receipt of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I
TERMINATION OF GENPHARM AGREEMENT
Section 1.01. Each of Genpharm and Global hereby agrees
that, effective upon the execution of this Agreement, and
notwithstanding the provisions of Article 12 of the Genpharm
Agreement, the Genpharm Agreement shall be terminated, with neither
party thereto having any further responsibilities or liabilities
thereunder. No prior or existing default on the part of either
Genpharm or Global with respect to the performance of any of its
responsibilities, duties or obligations under the Genpharm
Agreement shall be deemed to have occurred, with any such default
being hereby waived in all respects. Notwithstanding the foregoing,
it is understood and agreed that the Merck Warrant (as such term is
defined in Section 4.09 hereof) shall be unaffected by the
termination of the Genpharm Agreement and shall continue in full
force and effect in accordance with its terms, except as and to the
extent modified by Section 4.09 hereof.
<PAGE>
Section 1.02. (a) During the term of this Agreement, at
Genpharm's option, Global shall supply to Genpharm or any of its
affiliates packaging with respect to Ranitidine. If Global does
supply such packaging, Genpharm shall pay to Global "Global's
Cost" (as hereinafter defined) within thirty (30) calendar days of
the date of Global's invoice for such amounts, notwithstanding the
terms of Section 4.03(c) hereof. Global's Cost shall mean all
direct costs of the packaging of that quantity of Ranitidine
requested by Genpharm to be packaged by Global limited solely to
supplies and labor costs (including costs of handling, quality
assurance, quality control, packaging mechanics and packaging
personnel) used to package such Ranitidine, plus an additional
twenty percent (20%) with respect to amounts packaged by Global,
if any, constituting the Excess (as defined in Section 4.03
hereof). In no event shall costs include depreciation or costs
associated with the sales department, research and development,
administration or plant overhead (which is limited to utilities,
insurance and real estate taxes). Global's agreement to provide
such packaging shall be subject to the applicable terms of Section
4.03 hereof.
(b) Genpharm shall provide to Global in writing a twelve
(12) month rolling forecast of Genpharm's packaging requirements
for Ranitidine (the "Forecast"). The first Forecast shall be
delivered to Global at least sixty (60) days prior to the first
scheduled shipment date pursuant to a purchase order for
Ranitidine packaging, and the first such scheduled shipment date
will begin the commencement of Year 1. On or before the same
numerical day in each of the other calendar months of each year (a
"Forecast Date") throughout the term of this Agreement, Genpharm
will provide a written Forecast (i) by quarter, for each of the
next four (4) quarters commencing on such applicable Forcast Date
and (ii) by month, for each of the next three months commencing on
such applicable Forecast Date. The initial quarterly and monthly
forecasts will be provided to Global by Genpharm at the same time
as the delivery of the first Forecast. If Genpharm elects to have
Global provide packaging, Genpharm shall provide to Global, not
less than once per calendar month, with a purchase order which
shall represent a firm order (a "Firm Order") for the packaging of
Ranitidine. Each Firm Order shall be accompanied (or preceded) by
a sufficient supply of Ranitidine in order for Global to satisfy
the packaging requirements of such Firm Order. Global shall have
sixty (60) days from the date of its receipt of the Firm Order and
such sufficient supply of Ranitidine to fulfill the packaging
requirements of such Firm Order
Global will not be deemed in default of the terms of this
Agreement if it fails to meet Geripharm's packaging requirements
for a specified month which either (x) exceed ten (10) percent of
the original forecast for that month included in the monthly
forecast delivered pursuant to subsection (ii) of the preceding
paragragraph (y) exceed by ten (10) percent the original forecast
for the month preceding that month, included in the monthly
forecast delivered pursuant to subsection (ii) of the preceding
paragraph; provided, however, Global shall use its commercially
reasonable efforts to fulfill the
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packaging requirements of each Firm Order which are in excess of
the forecasted requirements.
ARTICLE II
RESPONSIBILITIES OF GENPHARM
Section 2.01. Genpharm shall continue to render to Global
all available information in Genpharm's possession or, to the
extent Genpharm has not heretofore commenced to render to Global
such information, promptly following the execution of this
Agreement shall render to Global all available information in its
possession, in all instances to help Transfer to Global Genpharm's
"know-how" relating to the manufacturing process of producing the
Products set forth on Schedule I hereto (the "Products", which
term shall include the Additional Products provided for in Section
2.02 below) in solid dosage form. This "know-how" shall include,
but not be limited to, to the extent in Genpharm's possession, all
biological, chemical, pharmacological, toxicological,
pharmaceutical, physical, analytical, safety, quality control,
manufacturing and clinical data and information, if any, and all
instructions, processes, formulae, files, raw material sources
expert opinions, bio-equivalent study results and information, if
any, relating to the manufacture, use, sale or marketing of any of
the Products.
Section 2.02. Genpharm and Global shall each use its
respective good faith efforts to mutually agree upon at least two
additional products (the "Additional Products") to be designated
as "Products" hereunder and included in Schedule I hereto, by not
later January 15, 1997.
Section 2.03. Genpharm shall use its good faith efforts to
provide Global with true, correct and complete information and
know-how with respect to the Products; provided, however, that
subject to the foregoing, Genpharm makes no representations or
warranties whatsoever with respect to the Products or the factual
accuracy or completeness of any of the files or other information
given by Genpharm to Global with respect to the Products. Genpharm
shall have no further obligation other than delivering the
aforementioned information to Global.
ARTICLE III
RESPONSIBILITIES OF GLOBAL
Section 3.01. Based upon the information provided to it
pursuant to Article II above, Global shall be responsible for, and
shall pay the financial cost associated with, the further
(development of the Products and for the cost of regulatory
submissions including the bio-equivalence studies relating to the
Products. Global shall
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use its good faith commercially reasonable efforts to pursue such
development and submit such studies is promptly as practicable.
Section 3.02. Based upon the information provided to it
pursuant to Article II above and such further development of the
Products by Global as provided in Section 3.01 hereof, Global shall
use its good faith efforts to file with the United States Food and
Drug Administration (the "FDA") not less than the following number
of Abbreviated New Drug Applications ("ANDAs") for approval to
manufacture and sell Products within the time periods set forth
below:
(a) the first ANDA to be filed by not later than
November 30, 1997;
(b) the second ANDA to be filed by not later than
December 31, 1997;
(c) the third ANDA to be filed by not later than May 31,
1998; and
(d) the fourth ANDA to be filed by not later than
December 31, 1998.
Global shall provide written notice to Genpharm on or prior
to the date six (6) months before each of the respective dates on
which ANDAs must, be filed with the FDA, as provided in subsections
(a) through (d) above, indicating the Product with respect to which
such ANDA will be filed (the "Product Notice").
In the event Global fails to file an ANDA by the required
date indicated, then the following percentages of profits to Global
generated by the sale of Ranitidine shall be lost:
Missed Filing Date Percentage of Profit Lost
------------------ -------------------------
(i) one ANDA by November 30, 1997 and
one ANDA by December 31, 1997 75%
(ii) May 31, 1998 50%
(ii) December 31, 1998 25%
Thus, for example, Global's profit from sales of Ranitidine
shall be reduced by 75% unless both the first ANDA is filed by
November 30, 1997 and the second ANDA is filed by December 31,
1997. As a further example, if the first two ANDAs are not filed by
November 30, 1997 and December 31, 1997, respectively and the third
or fourth ANDA is not filed by its required date, then Global shall
not be entitled to any profits from sales of Ranitidine. Or, for
example, if the first two ANDAs are timely filed and the third ANDA
is not filed by May 31, 1998, then Global's profit from sales of
Ranitidine shall be reduced by 50%.
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Notwithstanding anything to the contrary contained in this
Section 3.02 or Section 3.03 hereof, in the event the Additional
Products are not so designated by January 15, 1997, then (i) the
"May 31, 1998" date referred to in this Section 3.02 and the
"June 30, 2001" date referred to in Section 3.03 below shall be
extended by one day for each day beyond January 15, 1997 that
occurs until the first Additional Product is so designated, and
(ii) the "December 31, 1998" date referred to in this Section
3.02 and the "July 31, 2001" date referred to in Section 3.03
below shall be extended by one day for each day beyond January
15, 1997 that occurs until the second Additional Product is so
designated. Thus, for example, if the first Additional Product is
agreed upon and designated as such on January 31, 1997 and the
second Additional Product is agreed upon and designated as such
on February 15, 1997, then the dates May 31, 1998 and December
31, 1998 appearing in this Section 3.02 shall instead refer to
June l6, 1998 and January 31, 1999, respectively, and the dates
June 30, 2001 and July 31, 2001 appearing in Section 3.03 below
shall instead refer to July 16, 2001 and August 31, 2000,
respectively.
Section 3.03. Global shall use its good faith reasonable
efforts to secure approvals from the FDA ("Regulatory Approvals")
for the first two ANDAs (as provided for above in Section 3.02)
by April 30, 2000 and May 31, 2000, respectively, and the third
and fourth ANDA approvals (as provided for above in Section 3.02)
by June 30, 2001 and July 31, 2001, respectively (collectively
the "Approval Dates," which term shall refer to the applicable
extended date, if any, in accordance with the provisions of the
last paragraph of Section 3.02 hereof). In this regard, Global
shall use its good faith commercially reasonable efforts to
conduct such preparations, validations, testings and analysis and
to make such reports to the FDA in order to enable Global to
obtain such approval of the FDA.
Section 3.04. Upon receipt of such Regulatory Approval for
a Product, Global shall manufacture such Product for sale in the
United States (the "Territory") in accordance with the Regulatory
Approval, the good manufacturing practices prescribed from time
to time by the FDA and all other requirements of the FDA to
ensure that such Product may be marketed in the Territory. Global
shall deliver to Genpharm copies of all notices and
correspondence between Global and the FDA regarding good
manufacturing practice inspections of any and all manufacturing
facilities operated by Global within ten (10) days of receipt or
delivery thereof, as the case may be.
Section 3.05. Upon receipt of Regulatory Approval for a
Product, Global agrees to use its commercially reasonable good
faith efforts to promote the sale of, solicit orders for, and
stimulate interest in such Product in the Territory, such efforts
to be not less than those that it uses to promote the sale of
similar product marketed by it.
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Section 3.06. Global agrees that it shall not, during the
term of this Agreement, use any, of the know-how transferred
hereunder to obtain Regulatory Approval to market any of the
Products outside of the Territory nor will it, during the term of
this Agreement, sell the Products outside of the Territory or to
anyone inside the Territory if Global reasonably expects that
person to sell or export the Product outside of the Territory. If
Global is notified by Genpharm that one of its customers is
exporting a Product outside of the Territory in any material
respect (unless such customer is a branch of the United States
government or a branch of any state or local government thereof),
Global shall either cease to supply such customer or obtain (and
enforce, if necessary) an undertaking from such customer not to
sell such Product outside of the Territory. In the event the
foregoing provisions are or become unenforceable or are unlawful
in the Territory, then the unenforceable or unlawful provisions
thereof shall be deemed replaced by the most restrictive
comparable provision on marketing or sale of the Product
outside of the Territory as is lawful and enforceable in the
Territory. Genpharm acknowledges that Global will use reasonable
efforts to prevent its customers from exporting the Product out
of the Territory, but shall not be held responsible if, despite
such efforts, it is unsuccessful in so doing (subject to Global's
obligations to cease to supply or to obtain and enforce the
undertakings as contemplated above).
Section 3.07. Global shall comply with all applicable
laws, rules and regulations relating to the manufacturing,
labelling, advertising and marketing of the Products within the
Territory as well as to the packaging of Ranitidine, if requested
to do so under Section 1.02 hereof, and shall assume sole
responsibility for all credit risks and collection of receivables
with respect to the Products sold by it or by any third party
selling the Products pursuant to contractual arrangements with
Global (hereafter referred to as a "Distributor" and collectively
as "Distributors") and in respect of all dealings between Global
and its customers and any third parties from whom Global sources
any goods, or services required by it in connection with the
manufacture, marketing or sale of the Products. Global shall be
solely responsible for conducting all quality control tests as it
deems necessary prior to the sale or other release of the
Products in the Territory.
Section 3.08. Global shall not specifically discount the
price of the Product for the benefit of Global's other products
or otherwise use the Product as a loss leader or incentive to
procure the sale of Global's other products. Rebate programs
generally available to customers of Global on the purchase of
pharmaceutical products shall not be prohibited by this Section
3.08.
ARTICLE IV
PROFITS
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Section 4.01. In connection with the commercial sale of
any Products, Global and Genpharm shall allocate the gross
profits on any such sales between them ("Percentage Royalty") at
the rate of 80% for Global and 20% for Genpharm, respectively. As
used herein, the terms "gross profit" shall mean with respect to
a particular quantity of Product sold, net revenue received from
the sale of that quantity of Product less the Production cost for
that quantity of Product; "net revenue" shall mean gross revenue
less, without duplication, (i) bona fide allowances (excluding
allowances for uncollected receivables), rebates, credits and
returns accepted or made in the ordinary course of business and
(ii) all taxes and delivery fees charged to the customer and
shown separately on the invoices; and "production cost" shall
mean with respect to a particular quantity of Product, all direct
costs of producing and packaging that quantity of Product plus an
allocation of indirect costs of producing that quantity of
Product limited solely to labor cost (wages and overtime for
personnel directly involved in manufacturing the Product),
supplies used in the manufacturing of the Product and maintenance
of equipment used in the manufacture of the Product. In no event
shall indirect costs include depreciation or costs associated
with sales department, research and development or
administration. For avoidance of doubt, there shall be no
deduction for sales and marketing costs in determining "gross
profit".
Section 4.02. In addition to the profit participation
provided for in Section 4.01 above, to the extent Genpharm or any
of its affiliates (i) directly purchases for the purpose of resale
any Product and (ii) such Products are shipped directly to
Genpharm or any of its affiliates, Global shall pay to Genpharm a
commission for sales and distribution of 12.5% of such net sales
of Products sold to Genpharm or any of its affiliates for further
resale. The term "net sales" shall mean gross sales less, without
duplication, (x) bona fide allowances (excluding allowances for
uncollected receivables), rebates, credits and returns accepted or
made in the ordinary course of business and (y) all taxes and
delivery fees charged to Genpharm or any of its affiliates and
shown separately on the invoices. Genpharm shall provide Global,
not less than monthly, with a list of all sales made during the
preceding month of Products purchased hereunder from Global
claimed to have been sold and distributed by Genpharm or any of
its affiliates, together with specific detailed information to
support such claim. Global shall have thirty (30) days from
receipt of such list to dispute that any such sales were directly
sold and distributed by Genpharm or any of its affiliates. Neither
Genpharm nor any of its affiliates shall specifically discount
the price of any Products so sold for the benefit of any of
Genpharm's or any of its affiliates' other products, or otherwise
use any such Product as a loss leader or incentive to procure the
sale of any of Genpharm's or any of its affiliates' other
products; it being understood and agreed that rebate programs
generally available to customers of Genpharm or any of its
affiliates on the purchase of pharmaceutical products shall not be
prohibited by the provisions of this sentence. All costs incurred
in connection with such sales and distribution, other than the
direct cost of producing and packaging the Product sold, shall be
borne by Genpharm. All commissions due to Genpharm pursuant to
this Section 4.02 shall be payable quarterly.
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Section 4.03. (a) Until the date six months after the date
of the initial United States shipment of Ranitidine by other than
Glaxo Wellcome plc. (the "Initial Shipment"), but in no event
before December 31, 1997, Global shall be entitled to receive its
"Applicable Percentage" (as defined in Section 4.03(d) hereof of
"Genpharm's Gross Profits of Ranitidine" herein defined as (i) the
monies actually received by Genpharm and its affiliates (solely
for the purposes of this Section 4.03, collectively, "Genpharm")
in connection with the United States sales of Ranitidine by
Genpharm, or by third parties authorized by Genpharm to sell
Ranitidine, less (ii) production costs (as defined in 4.01
above). For avoidance of doubt, there shall be no deduction for
sales and marketing costs in determining "Genpharm's Gross Profits
of Ranitidine".
(b) Commencing on the date six months after the date of the
Initial Shipment, but in no event before December 31, 1997, and
thereafter, Global shall be entitled to receive its Applicable
Percentage of Genpharm's Gross Profits of Ranitidine.
(c) All amounts to be received by Global hereunder shall be
paid, and the record keeping requirements of the applicable party
shall be performed, in the same manner and on the same timing as
set forth in this Article IV for Products. Notwithstanding the
foregoing (except as provided in Section 1.02 hereof), until and
through September 30, 1997, all such amounts due to Global from
Genpharm shall accrue and shall not be payable to Global, with all
such accrued payments to be made by Genpharm to Global in a lump
sum on October 1, 1997. All sales (including pricing terms) of
Ranitidine in the United States by Genpharm to any of its
affiliated entities shall be made on no more favorable terms than
those given to any entity not affiliated with Genpharm. In
addition, Genpharm shall not specifically discount the price of
Ranitidine sold by it in the United States for the benefit of
Genpharm's other products or otherwise use Ranitidine as a loss
leader or incentive to procure the sale of Genpharm's other
products.
(d) The Applicable Percentage under 4.03(a) shall be as
follows:
(i) Provided Global in any given calendar year
provides packaging for 30% or less of Ranitidine sold in the
United States which generated Genpharm's Gross Profits of
Ranitidine during such calendar year, Global shall be entitled to
receive an amount equal to 5% of 30% of Genpharm's Gross Profit of
Ranitidine in such calendar year (or part thereof);
(ii) Provided Global in any given calendar year
provides packaging for more than 30% of Ranitidine sold in the
United States which generated Genpharm's Gross Profits of
Ranitidine during such calendar year (the "Excess"), Global shall
be entitled to receive in amount equal to 5% of 30% of Genpharm's
Gross Profit of Ranitidine in such calendar year (or part thereof)
plus, with respect to the Excess only in such calendar year (or
part thereof), an amount equal to (x) 2% of the Excess over 30% of
Genpharm's Gross Profits of Ranitidine resulting from sales of
Ranitidine for
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which Global actually provided packaging and (y) an overhead
recovery on the Excess packaged limited to no more than $3.00 per
1,000 tablets packaged.
The Applicable Percentage under 4.03(b) shall be as follows:
(iii) Provided Global in any given calendar year
provides packaging for 30% or less of Ranitidine sold in the
United States which generated Genpharm's Gross Profits of
Ranitidine during such calendar year, Global shall be entitled to
receive an amount equal to 10% of 30% of Genpharm's Gross Profit
of Ranitidine in such calendar year.
(iv) Provided Global in any given calendar year
provides packaging for more than 30% of Ranitidine sold in the
United States which generated Genpharm's Gross Profits of
Ranitidine during such calendar year (the "Excess"), Global shall
be entitled to receive an amount equal to 10% of 30% of
Genpharm's Gross Profit of Ranitidine in such calendar year plus,
with respect to the Excess only in such calendar year, an amount
equal to (x) 2% of the excess over 30% of Genpharm's Gross
Profits of Ranitidine resulting from sales of Ranitidine for
which Global actually provided packaging and (y) an overhead
recovery on the Excess packaged limited to no more than $3.00 per
1,000 tablets packaged.
Notwithstanding anything to the contrary contained herein,
in the event Global shall fail to supply at least 80% of a Firm
Order for packaging pursuant to the provisions of Section 1.02
hereof after Genpharm's election to require Global to provide
such packaging, Global shall not be entitled to share in any
portion of Genpharm's Gross Profits of Ranitidine with respect
to such Firm Order, and in the event that Global supplies at
least 80% of a Firm Order but fails to supply 100% of such Firm
Order, Global's right to share in Genpharm's Gross Profits of
Ranitidine with respect to such Firm Order shall be reduced by 1%
for each 1% of the Firm Order not supplied; provided, however,
that Global will not be in default under this Agreement and the
foregoing will not apply to the extent that Global fails to
supply packaging in excess of the amounts presented in the
Forecast, subject to the terms of Section 1.02(b) hereof. For
example, if Genpharm requests packaging for 1,000,000 bottles
and Global packages 900,000 bottles, and Genpharm's Gross Profit
of Ranitidine for the sale of that 1,000,000 bottles of
Ranitidine is $2,000,000, at a time when Global is entitled to
receive 10% of 30% of Genpharm's Gross Profit of Ranitidine,
Global shall receive $54,000 (as opposed to $60,000), assuming no
Excess.
By way of examples:
If Genpharm's Gross Profits of Ranitidine prior to the date
which is six months after the date of the Initial Shipment is $5
million, and Global packaged
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30% or less of Ranitidine manufactured by Genpharm for sale in the
United States, Global is entitled to receive from Genpharm
$75,000;
(2) If Genpharm's Gross Profit of Ranitidine
subsequent to the date which is six months after the date of the
Initial Shipment is $20 million, and Global packaged 30% or less
of Ranitidine manufactured by Genpharm for sale in the United
States. Global is entitled to receive from Genpharm $600,000.
(3) If Genpharm's Gross Profits of Ranitidine
subsequent to the date which is six (6) months after the date of
the Initial Shipment is $5 million, and Global packaged 40% of
Ranitidine manufactured by Genpharm for sale in the United States,
Global is entitled to receive from Genpharm $160,000 ($150,000
plus $10,000) plus overhead recovery on the Excess packaged
limited to no more that $3.00 per 1,000 tablets packaged.
Section 4.04. Percentage Royalty shall be payable
quarterly, within thirty (30) days after the end of each calendar
quarter with respect to the sales of the Product in the applicable
calendar quarter. Said quarters shall terminate on the last day of
March, June, September and December. Each Percentage Royalty
payment to Genpharm shall be accompanied by the following:
(a) a sales summary reasonably satisfactory to Genpharm
showing all sales of the Product during the months
in the immediately preceding calendar quarter;
(b) a detailed statement showing all returns and all
credits, rebates, allowances and other debits and
credits relevant to the calculation of gross
profits for the months in the immediately preceding
calendar quarter, or any prior quarter to the extent
not previously accounted for, together with copies
of all documentation to support allowable
adjustments used in computing gross profits during
the period in question;
(c) a certificate signed by the Chief Financial Officer
of Global certifying that, to the best of his
knowledge, information and belief, after reasonable
investigation, the foregoing statements contemplated
in (a) and (b) above are true and correct and do not
omit any material information required to be
provided pursuant to this Section 4.04; and
(d) a summary of the calculation of the Percentage
Royalty payable to Genpharm on such date.
For purposes of this Agreement a sale shall be considered
to have been made at the time the Product is shipped to the
customer.
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Section 4.05. Global shall provide to Genpharm, promptly
following a request therefor, additional information concerning any
sales (including, without limitation, in respect of any sale, the
date of the shipment, the name of the customer or code number
designated by Global for such purpose if it does not wish to reveal
the name of such customer to Genpharm, the number of units of the
Product in each strength involved and the invoice price charged by
Global), credits, returns, allowances and other credits and debits
previously reported to Genpharm pursuant to Section 4.04 hereof.
Section 4.06. The obligation to pay Percentage Royalty
contained herein and to provide the reports and information
contemplated herein and the right of Genpharm to have access to the
records and to conduct audits or investigations pursuant to Section
4.07 hereof shall survive the expiration or termination of this
Agreement and shall apply to the Products sold by Global on or
prior to the effective date of the termination or expiration of
this Agreement and to the Products sold following such effective
(date of termination or expiration of this Agreement in respect of
which Global received orders prior to such effective date of
termination of this Agreement.
Section 4.07. (a) Global shall keep complete and accurate
records and books of account containing all information required
for the computation and verification of the "production cost" and
the amounts to be paid to Genpharm hereunder as well as records
and information relating to Global's cost of packaging Ranitidine
and shall, upon reasonable written notice from Genpharm, make
available or, at Genpharm's request, supply to Genpharm copies of
such records. Global further agrees that at the request of
Genpharm, it will permit one or more accountants selected by
Genpharm, except any to whom Global has some reasonable
objection, on not less than two (2) business days' notice, to
have access during ordinary working hours to such records as may be
necessary to audit, with respect to any payment report period
ending prior to such request, the correctness of any report or
payment made under this Agreement, or to obtain information as to
the payments due for any such period in the case of failure (of
Global to report or make payment pursuant to the terms of this
Agreement.
(b) Should any such accountant discover information
indicating inaccuracy in any of Global's reports or payments or
non-compliance by Global with any of such terms and conditions, and
should Global fail to acknowledge in writing to Genpharm the
deficiency or non-compliance discovered by such accountant within
ten (10) business days of being advised of same in writing by the
accountant, the accountant shall have the right to make and
retain copies (including photocopies) of any pertinent portions of
the records and books of account which relate to or disclose the
claimed deficiency or non-compliance (to the extent not
acknowledged by Global). Global shall provide full and complete
access to the accountant to Global's Pertinent books and records.
In the event that the accountant shall have questions which are
not in its judgment answered
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by such books and records, the accountant shall have the right to
confer with officers of Global, including Global's Chief Financial
Officer, upon reasonable notice and during reasonable working
hours. The accountant shall use his good faith efforts to minimize
any disruption to the business activities of Global. Genpharm
shall be solely responsible for all costs and expenses relating to
such investigation/audit, except in the event, any audit under
this Section shall reveal an underpayment or understatement of the
amount payable to Genpharm by more than five percent (5%) for the
period in question, in which case Global shall reimburse Genpharm
for all costs and expenses relating to such investigation/audit.
It is understood and agreed that Genpharm shall only have the
right to audit such books and records of Global pursuant to this
Section 4.07 no more often than one time in any contract year
unless earlier in such contract year or prior contract year such
investigation revealed a discrepancy of more than five percent
(5%) w1th respect to any reporting period, as aforesaid, in which
case Genpharm shall have the right to audit such books and records
three times in such contract year. For purposes of this Agreement,
a contract year shall be a period of twelve (12) months commencing
on either the date of this Agreement or on an anniversary thereof.
Unless the disclosure of same is reasonably required by Genpharm
in connection with any litigation or arbitration arising out of
such audit, the accountant shall not reveal to Genpharm the name
or address (or other information reasonably tending to identify
the location of a customer) of any customer of Global but shall
identify such customer to Genpharm, if necessary, by the customer
code number used by Global in its reporting obligations to
Genpharm. Global may, as a condition to providing any accountant
access to its books and records, require such accountant to
execute a reasonable confidentiality agreement consistent with the
terms of this Section 4.07.
(C) Genpharm shall keep full and accurate books and
records, in accordance with good accounting practice, and
relating to Ranitidine and the transactions described in this
Agreement. Global shall have the right, by its authorized
representative, to, at its expense, inspect, copy and make
excerpts from Genpharm's books and records relating to the
transactions described in this Agreement on reasonable notice and
at reasonable times.
Section 4.08. If any payment is not made within ten (10)
days of its due date hereunder, then such overdue payments shall
bear interest from the date the same is due until paid, calculated
at the floating rate of two percent (2%) above Chemical Bank's
announced prime rate in the United States or the highest rate
permitted by law, whichever is less. Any adjustment to the prime
rate as quoted by Chemical Bank from time to time shall result in
a corresponding adjustment to the rate of interest payable
hereunder, the rate of interest quoted by Chemical Bank at the
close of business on each day to be the rate applicable for such
date. In the event such prime rate quoted by Chemical Bank is not
available, then Genpharm and Global shall jointly in good faith
select, in lieu thereof, the prime rate (or its equivalent) quoted
by any other bank located in New York City.
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Section 4.09. In the event an FDA approval referred to in
Section 3.03 hereof is not obtained on or before the Approval Date
specified therefor, then, solely for purposes of computing the
number of shares of common stock, $.01 par value, of Global
issuable in connection with that certain Common Stock Purchase
Warrant, Series B, dated November 8, 1995 (the "Merck Warrant"),
issued to Merck KGaA (in accordance with the second paragraph of
the textual portion of such warrant), all profits Global receives
hereunder from that missed Approval Date and forward that are
generated by sales of Ranitidine and all other Products as to
which Genpharm transferred its substansive know-how relating to
the manufacturing process of producing the Products in solid
dosage form (pursuant to Article II hereof) shall be multiplied by
two. The provisions of this Section 4.09 shall survive any
termination of this Agreement.
ARTICLE V
CUSTOMERS
Section 5.01. Upon approval of each ANDA by the FDA, Global
and Genpharm shall each have the right to market and sell Products
to their existing customers. In the event any existing customer of
Global or Genpharm is not also an existing customer of the other,
such other party shall not sell any Products to such customer for
so long as this Agreement is in effect. Each of Genpharm and
Global shall furnish to the other a list of their respective
existing customers with respect to proposed sales of the Products.
This list shall be updated monthly by each of Genpharm and Global.
Section 5.02. If at the time of an approval by the FDA both
Global and Genpharm are selling products to the same customer,
then Global and Genpharm agree to negotiate in good faith a
mutually satisfactory resolution with respect to sales of Products
to the customer. If no resolution is reached, each of Global and
Genpharm shall be allowed to continue to sell Products to that
customer.
Section 5.03. Should a conflict occur as to whether
Genpharm or Global shall sell to a particular customer that
neither is currently selling, then the parties shall alternate as
to which of them shall have the right to sell to such prospective
customer; provided that the first party to sell each such
prospective customer shall be that party that Genpharm and Global
shall mutually agree would be the one most likely to generate the
greatest sales; provided, further, that in the event Genpharm or
Global is not in a position to supply the Product to such
customer on the terms and conditions customarily required by that
customer (e.g., manufacturer's label vs. private label), and it
is that party's "turn" to have the right to sell to such
prospective customer, then the other party shall be given the
right to sell the Product to that customer, with the party who
has foregone on the opportunity to sell to the prospective
customer receiving a
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"credit" to be applied to the next prospective customer as to
which such party can supply product as required.
ARTICLE VI
CONFIDENTIALITY
Section 6.01. Under the terms of this Agreement, Genpharm
or Global (either one, in such capacity, being referred to as the
"Disclosing Party") may disclose or reveal to Global or Genpharm
(in such capacity, the "Receiving Party") either orally, in
writing, or by inspection, information that may be non-public,
proprietary or confidential in nature. Such information, simply
referred to herein as "Information", might include, but is not
limited to, files, raw material sources, processes, formulations,
manufacturing techniques, trade secrets, bio-equivalence study
results and other information that is not ascertainable from
public or published information or trade sources. The Receiving
Party shall treat the Information received by it as confidential,
and neither the Receiving Party, nor any affiliate or any other
entity controlled by the Receiving Party, nor, any officer, agent
or employee of any of them shall disclose such Information to any
third party, or use such Information for any purpose unrelated to
the matters contemplated by this Agreement, except Information
which (a) the Receiving Party can show was in the Receiving
Party's possession or was known to the public or in the published
literature prior to disclosure or the availability of such
Information to the Receiving Party, or (b) subsequent to the time
of disclosure or the availability of such Information to the
Receiving Party, the Information becomes known to the public or
finds its way into the published literature through no fault of
the Receiving Party, its officers, agents or employees, or (c) is
lawfully acquired by the Receiving Party from a third party who
is not under confidentiality agreement with the Disclosing Party
with respect to such Information.
Section 6.02. All Information received by the Receiving
Party from the Disclosing Party shall remain the property of the
Disclosing Party, and all written Information, with all copies
and extracts thereof, shall forthwith be delivered to the
Disclosing Party upon its request.
Section 6.03. The parties hereto agree that the
restrictions on the Receiving Party contained herein are
necessary for the protection of the Disclosing Party and any
breach thereof could possibly cause the Disclosing Party
irreparable damage for which there is no adequate remedy at law.
Accordingly, if the Disclosing, Party has reason to believe that
the Receiving Party is about to breach or is breaching this
Agreement in such a manner as to cause the Disclosing Party
irreparable harm and, if the Disclosing Party has so notified the
Receiving Party and the Receiving Party has not indicated a
willingness to refrain from taking the action which the
Disclosing Party claims would constitute or is a breach on the
Receiving Party's part and that
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would cause the Disclosing Party irreparable harm, then the
Disclosing Party may file suit with a court of competent
jurisdiction in order to seek an injunction in favor of enjoining
such threatened or continued breach of the Receiving Party's
obligations hereunder. The right of the Disclosing Party to obtain
injunctive relief shall not be considered a waiver of the
Disclosing Party's rights to pursue any other remedies it may have
at law or in equity.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF GLOBAL
Section 7.01. Global represents and warrants to Genpharm as
follows: Global is a corporation, duly authorized and existing
under the laws of Delaware; Global has the corporate power and
authority to execute, deliver and perform this Agreement and the
transactions contemplated hereby and the execution and delivery of
this Agreement have been duly authorized by Global; the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and
will not violate or conflict with any provision of Global's
Certificate of Incorporation or Bylaws or, to the best knowledge
of the individuals signing this Agreement, any agreement,
instrument, law or regulation to which Global is a party or by
which Global is bound; except as provided herein, no other
governmental approval or authorization of this Agreement or the
acts or transactions contemplated hereby is required by law or
otherwise in order to make this Agreement binding upon Global; and
this Agreement and all other instruments required hereby to be
executed and delivered to Genpharm by Global are, or when
delivered to Genpharm in accordance herewith, will be, legal,
valid and binding instruments of Global enforceable in accordance
with their respective terms. GLOBAL MAKES NO REPRESENTATIONS OR
WARRANTIES EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF GENPHARM
Section 8.01. Genpharm represents and warrants to Global
as follows: Genpharm is a corporation duly authorized and existing
under the laws of Canada; Genpharm has the power and authority to
execute, deliver and perform this Agreement and the transactions
contemplated hereby, and the execution and delivery of this
Agreement have been duly authorized by Genpharm; the execution,
delivery and performances of this Agreement and the consummation
of the transactions contemplated hereby do not and will not
violate or conflict with any provision of Genpharm's Certificate
of Incorporation or Bylaws (or other organizational and governing
documents) or, to the best of the knowledge of the individuals
signing this Agreement,
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any agreement, instrument, law or regulation to which Genpharm is
a party or by which Genpharm is bound; except as provided herein,
no other approval or authorization of this Agreement or the acts
or transactions contemplated hereby is required by law or or
otherwise in order to make this Agreement binding upon Genpharm;
and this Agreement, and all other instruments required hereby to
be executed and delivered to Global by Genpharm are, or when
delivered will be, legal, valid and binding instruments of
Genpharm enforceable in accordance with their respective terms.
GENPHARM MAKES NO REPRESENTATIONS OR WARRANTIES EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT.
ARTICLE IX
WARRANTIES AND INDEMNIFICATION
Section 9.01. With respect to its activities and obligations
hereunder, each party warrants and covenants that it will use its
best efforts to fully comply with all federal, state and local
laws, regulations, standards and guidelines, and those of any
other governmental body (including foreign laws, regulations,
standards, and guidelines, if any) having jurisdiction over the
conduct of such tests and activities that are required under the
terms of this Agreement.
Section 9.02. Global shall defend, indemnify and hold
Genpharm and its affiliates and the officers, directors and
employees of Genpharm and its affiliates harmless from and against
any and all claims, demands, loss, damage, liability, settlement
amounts costs or expenses whatsoever (including reasonable
attorneys' fees and cost) arising from or related to any claim,
action or proceeding made or brought against such party by a
third party as a result of any breach of representation or
warranty by Global hereunder, or as a result of any act or
omission by Global hereunder, unless such liability arises from a
breach of this Agreement or the act or omission by Genpharm.
Section 9.03, Genpharm shall defend, indemnify and hold
Global and the officers, directors and employees of Global
harmless from and against any and all claims, demands, loss,
damage, liability, settlement amounts, costs of expenses
whatsoever (including reasonable attorneys' fees and costs)
arising from or related to any claim, action or proceeding made or
brought against such party by a third party as a result of any act
or omission by Genpharm in connection with the manufacture and
sale of Ranitidine, unless such liability arises from a breach of
this Agreement or the act or ommission by Global.
Section 9.04. In the event of any claim, action or
proceeding for which a party is entitled to indemnity hereunder,
the party seeking indemnity ("Claimant") shall notify the other
party ("Indemnitor") of such matter in writing, providing copies
of all
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relevant documents. Indemnitor shall promptly assume
responsibility for and shall have full control of the defense of
such matter, including settlement negotiations and any legal
proceedings. Claimant shall fully cooperate in Indemnitor's
handling and defense thereof.
ARTICLE X
TERM
Section 10.01. The rights and duties under this Agreement
shall commence on signing of this Agreement and shall continue in
effect until July 26, 2002. This Agreement may be terminated only
as expressly provided in this Agreement or upon the mutual
written agreement of the parties hereto.
Section 10.02. Notwithstanding anything herein to the
contrary, the obligations of the parties under Articles VI and IX
shall survive any termination of this Agreement.
ARTICLE XI
DEFAULT AND TERMINATION
Section 11.01. (a) Subject to the terms of Section 3.02
hereof, Genpharm may terminate this Agreement as to a specific
Product if Global does not submit an ANDA for such Product to the
FDA on or prior to the date nine (9) months following the date
such Product is proposed to be filed as indicated in the
respective Product Notice. At such time as Genpharm elects to
terminate this Agreement with respect to a Product pursuant to
this Section 11.01(a), Global shall transfer to Genpharm all the
"know-how" with respect to such Product in Global's possession.
(b) Genpharm may terminate this Agreement as to a specific
Product if Global does not obtain the Regulatory Approval for
such Product by the respective date set forth in Section 3.03 (as
such date is determined by reference to the respective Product
Notice); provided, however, that Genpharm may not terminate this
Agreement as to such Product if failure to receive the Regulatory
Approval with respect to such Product is the result of delays
caused solely by the FDA. The burden of proof with respect to the
cause of delays in receipt of any Regulatory Approval shall be on
Global, and such burden of proof as to the delay being caused
solely by the FDA shall be satisfied if Global can demonstrate
that it has timely filed and diligently prosecuted the ANDA with
respect to such Product. At such time as Genpharm elects to
terminate this Agreement with respect to a Product pursuant to
this Section 11.01(b), Global shall
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transfer to Genpharm all the "know-how" with respect to such
Product in Global's possession,
Section 11.02. Genpharm shall have the right to terminate
this Agreement upon written notice to Global in the event that
any one or more of the following events shall become applicable
to Global:
(a) and order is made or a resolution or other action of
Global is taken for the dissolution, liquidation, winding
up or other termination of its corporate existence;
(b) Global commits an act of bankruptcy, becomes
insolvent, makes an assignment for the benefit of its
creditors or proposes to its creditors a reorganization,
arrangement, composition or re-adjustment of its debts or
obligations or otherwise proposes to take advantage of or
shelter under any statute in force in the United States
for the protection of debtors;
(c) if any proceeding is taken with respect to a
compromise or arrangement, or to have Global declared
bankrupt, or to have a receiver appointed in respect of
Global or a substantial portion of its property, and such
proceeding is instituted by Global or is not opposed by
Global or if such proceeding is instituted by a person
other than Global and Global does not proceed diligently
and in good faith to have such proceeding withdrawn
forthwith;
(d) a receiver or a receiver and manager of any of the
assets of Global is appointed and such receiver or
receiver and manager is not removed within sixty (60) days
of such appointment unless Global diligently contests, in
good faith, the valdity of the appointment of such
receiver or receiver and manager; or
(e) Global ceases or takes steps to cease to carry on its
business;
provided, however, that Genpharm shall not have the right to
terminate this Agreement upon the occurrence of the events set
forth in subsections (a) through (e) hereof as long as, following
the occurrence of any such events, Global continues to operate
its business with respect to the transactions described herein.
Section 11.03. In the event that Global is unable to
produce a Product at any time following receipt of a Regulatory
Approval with respect to such Product (the "Terminating
Product"), Global shall provide written notice to Genpharm (the
"Terminating Notice") stating that it is unable to produce the
Terminating Product and Global shall use its commercially
reasonable good faith efforts to appoint a substitute
manufacturer for the Terminating Product reasonably acceptable to
Genpharm. On the date six (6) months after the date of the
Terminating Notice, if Global has neither resumed production of
the Terminating Product nor appointed a substitute
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manufacturer reasonably acceptable to Genpharm, Genpharm shall
have the right to terminate this Agreement with respect to the
Terminating Product and upon such termination Global shall
transfer the "know-how" in its possession with respect to the
Terminating Product to Genpharm. Thereafter, Genpharm or its
affiliates may either endeavor to manufacture the Terminating
Product or Genpharm may designate another manufacturer for the
Terminating Product (Genpharm or its affiliates, if any of them
propose to manufacture the Terminating Product, or such substitute
manufacturer designated by Genpharm are hereinafter referred to as
the "Alternate Manufacturer"). Global shall have the right to
purchase the Terminating Product from the Alternate Manufacturer
upon the same terms as set forth in Sections 4.01, 4.02 and 4.04
hereof, except that references in such Sections to "Genpharm"
shall mean "Global" and references to "Global" in such Sections
shall mean "Genpharm".
Section 11.04 Nothing contained in this Article XI shall be
construed or interpreted to diminish or in any way limit any other
rights which may be provided for elsewhere in this Agreement,
including without limitation those set forth in Section 4.09
hereof, nor shall such rights limit the provisions hereof.
ARTICLE XII
INSURANCE
Section 12.01. (a) Genpharm and Global shall each maintain
insurance in at least the following amounts prior to the first
shipment of any Products as contemplated by this Agreement:
(i) Commercial General Liability insurance, including
premises, products, operations, and contractual coverage,
in the total amount of not less than $1,000,000 per claim
and annual aggregate; and
(ii) Workers' Compensation insurance in the amount required
by law.
(b) Genpharm and Global shall each maintain insurance in at
least the following amounts subsequent to the first shipment of
any Products as contemplated by this Agreement:
(i) Commercial General Liability insurance, including
premises, products, operations, and contractual coverage,
in the total amount of not less than $2,000,000 per claim
and annual aggregate;
(ii) Umbrella insurance, including premises, products,
operations, and contractual coverage, in the total amount
of not less than $5,000,000 per occurrence and annual
aggregate; and
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(iii) Workers' Compensation insurance in the amount
required by law.
Section 12.02. Genpharm shall have its insurance carrier or
carriers furnish to Global certificates that all insurance
required under this Agreement is in force, such certificates to
indicate any deductible and/or self-insured retention, and the
effective expiration dates of policies, and such certificates to
stipulate that Global shall be given thirty (30) days' written
notice of any cancellation, non-renewal or material change in the
policy.
Global shall have its insurance carrier or carriers furnish
to Genpharm certificates that all insurance required under this
Agreement is in force, such certificates to indicate any
deductible and/or self-insured retention, and the effective
expiration dates of policies, and such certificates to stipulate
that Genpharm shall be given thirty (30) days' written notice of
any cancellation, non-renewal or reduction in insurance coverage
below the amounts specified in Section 12.01 above or other
material change in the policy.
Section 12.03. Global shall name Genpharm, and Genpharm
shall name Global, as additional insured parties under their
respective Commercial General Liability and umbrella insurance
policies described in Section 12.01 hereof.
ARTICLE XIII
MISCELLANEOUS
Section 13.01. Each of Global and Genpharm is solely
responsible for the safety and health of its employees and
compliance with the federal, state, provincial and local safety
and health regulations governing their respective facilities,
including but not limited to providing its employees with all
required information and training concerning any potential hazards
involved in the manufacture, receipt, storage, handling and supply
of the Products and Ranitidine, as applicable, and taking any
precautionary measures to protect its employees from such hazards.
Section 13.02. This Agreement embodies the entire agreement
of the parties on the subject matter herein. All prior
understandings, writings, discussions, and agreements relating to
the subject matter of this Agreement are hereby expressly
superseded by this Agreement.
Section 13.03 Nothing in this Agreement or in the
performance hereof shall have the effect of making Global and
Genpharm partners, joint venturers or each other's agents, and
neither shall have the right to act on behalf of or bind the other
except as expressly provided hereunder or otherwise expressly
agreed in writing.
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Section 13.04. All section headings used in this Agreement
are solely for the convenience of the parties and shall not affect
the meaning or interpretation of the provisions thereof.
Section 13.05. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (not
including its choice of law principles). The parties hereto submit
to the exclusive jurisdiction and venue of the Supreme Court of the
State of New York and the Federal District Court for the Southern
District of New York for purposes of any legal action arising out
of this Agreement.
Section 13.06. This Agreement, and any of the terms hereof,
shall not be modified, amended or waived except by a written
instrument executed by the parties or, in the case of a waiver, by
the waving party. The failure of either party at any time to
require performance of any term hereof shall not affect its right
at a later time to enforce the term. The waiver by either party of
any condition or term hereof in any one or more instances shall not
be construed as a further or continuing waiver of such condition or
term.
Section 13.07. If any provision of this Agreement is, or
becomes or is deemed to be invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be deemed amended
to conform to applicable laws so as to be valid and enforceable or,
if it cannot be so amended without materially altering the
intention of the parties, it shall be stricken and the remainder
of this Agreement shall remain in full force and effect. In case
any one or more of the provisions contained in this Agreement shall
be held invalid, illegal or unenforceable in any respect in any
jurisdiction, the validity, legality and enforceability of such
provision or provisions shall not in any way be affected or
impaired thereby in any other jurisdiction; and the validity,
legality and enforceability of the remaining provisions contained
herein shall not in any way be otherwise affected or impaired
thereby.
Section 13.08. Any notice or other communication required
or permitted hereunder shall be in writing and shall be deemed to
have been duly given on the date of service if served personally or
three (3) days after the date of mailing if mailed, by registered
or certified mail, postage prepaid, or on the date of transmission
if by fax, or one day after delivery to an established overnight
courier service, in all instances to the respective addresses set
forth below:
To Global: Global Pharmaceutical Corporation
Castor & Kensington Avenues
Philadelphia, PA 19124
Attn: Max Mendelsohn,
President
FAX: (215) 289-2223
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With a copy to: Sheldon G. Nussbaum
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
FAX: (212) 752-5958
To Genpharm: Genpharm,Inc.
37 Advance Road
Etobicoke, Ontario, Canada M8Z 2S6
Attn: Neil Tabaznik
FAX: (416) 236-2940
With a copy to: Richard N. Wiener
Stern, Wiener & Levy LLP
930 Third Avenue
New York, New York 10022
FAX: (212) 371-3215
Any party may change such party's address for notices by
notice duly given pursuant to this Section 13.08.
Section 13.09. Neither this Agreement nor any right or
obligation arising hereunder may be assigned by Global in whole or
in part, without the prior written consent of Genpharm, which
consent may be withheld in the absolute discretion of Genpharm.
This Agreement shall be binding upon any assignee and, subject to
the restrictions on assignment herein set forth, inure to the
benefit of the successors and assigns of each of Genpharm.
Section 13.10. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original; but such
counterparts shall together constitute but one and the same
instrument.
Section 13.11. No right or license shall be deemed to have
been granted under this Agreement to either party under any patents
or proprietary information of the other, except as expressly set
forth herein. Upon expiration or termination of this agreement,
each party shall return to the other any samples received from the
other party as well as any documents embodying or containing
confidential information of the other party, or provide the other
party with assurances that all such samples and documents and any
copies, extracts or digests thereof have been destroyed, except
that one archival copy of documents received from the other may be
retained to show what was received.
Section 13.12. (a) Words importing the singular shall
include the plural and vice versa; words importing a person shall
include an individual, corporation, partnership, association,
cooperation, joint venture or any other form of business or social
entity recognized under law.
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(b) "Affiliate" of a party hereto shall mean an entity
which controls, is controlled by, or its under common control with
such party. For the purposes of this definition, an entity shall
be deemed to control another entity if it owns or controls,
directly, or indirecty, at least twenty percent (20%) of the
voting equity of such other entity (or other comparable ownership
interest for any entity other than a corporation); provided,
however, that with respect to Section 4.02 hereof, an entity shall
be deemed to control another entity if it owns or controls,
directly or indirectly, at least fifty percent (50%) of the voting
equity of such other entity (or other comparable ownership
interest for any entity other than a corporation).
(C) Terms parenthetically defined elsewhere in this
Agreement shall, throughout this Agreement, have the meaning
therein provided.
Section 13.13. All disputes arising out of, or in relation
to, this Agreement (other than disputes arising out of any claim
by a third party in an action commenced against a party), shall be
referred for decision forthwith to a senior executive of each
party not involved in the dispute. If no agreement can be reached
through this process within thirty (30) days of request by one
party to the other to nominate a senior executive for dispute
resolution, than either party hereto shall be entitled to refer
such dispute to a single arbitrator for arbitration to be held in
New York, New York on an expedited basis in accordance with the
rules and regulations of the American Arbitration Association for
the resolution of international disputes. Any party demanding
arbitration shall, with service of its demand for arbitration,
propose a neutral arbitrator selected by it. In the event that the
parties cannot agree upon a neutral arbitrator within thirty (30)
days after the demand for arbitration, an arbitrator shall be
appointed by the American Arbitration Association who shall be a
partner in a New York, New York law firm having at least ten (10)
partners.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized representatives,
intending to be legally bound hereby, as of the day and year
first written.
GLOBAL PHARMACEUTICAL CORPORATION
By: /s/ Max L. Mendelsohn
------------------------------
Name: Max L. Mendelsohn
Title: President
GENPHARM, INC.
By: /s/ J. N. Tabatznik
------------------------------
Name: J. N. Tabatznik
Title: Chairman
By: /s/ H. Koziarski
------------------------------
Name: H. Koziarski
Title: CEO
AGREED TO WITH RESPECT
TO SECTION 4.09 ONLY:
MERCK KGaA
By: /s/ Richard N. Wiener
-------------------------
Name: Richard N. Wiener
Title: Authorized Agent
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SCHEDULE I
PRODUCTS
- --------
Oxybutinin
Minocycline
Additional Products to be mutually agreed upon
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EMPLOYMENT AGREEMENT
AGREEMENT made as of February 7, 1997 by and between GLOBAL
PHARMACEUTICAL CORPORATION, a Delaware corporation (hereinafter referred to as
the "Corporation"), and SEYMOUR HYDEN (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
March 31, 1997 (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:
(a) use his best efforts to promote the interests of the
Corporation, and shall devote his full time and efforts to its business and
affairs;
<PAGE>
(b) serve as the Vice President, Scientific & Technical Affairs
reporting solely to the Corporation's Chief Executive Officer and Board of
Directors; and
(c) perform duties which will include but not be limited to
responsibility for product development including supervision of pilot plant
operations; analytical methods; managing new projects and establishing
priorities for the introduction of products; responsibility for the oversight of
all biostudies in conjunction with ANDA and NDA filings and the oversight of the
regulatory activities of the Corporation as they pertain to submissions to FDA
which would include: NDA's, ANDA's, supplements and associated labeling; and
other duties as the Corporation may from time to time assign to him.
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 of $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. The salary paid to the Executive will be reviewed annually
by the Board of Directors in conjunction with the recommendation of the
President, and may be increased at the discretion of the Company's Board of
Directors or Compensation Committee, which shall take into account the
performance of the Executive, the productivity of the Company and other factors
which it deems relevant.
ARTICLE IV.
Term: Termination
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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 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 Section 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 in lieu of any other payments otherwise required hereunder, the
Corporation shall, subject to the Executive's compliance with Article V hereof,
pay Executive, as liquidated
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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) an amount equal to his Salary
payments at the time of the termination, in accordance with the Corporation's
then payment policy, and benefits during the six-month period following the
termination date; provided, however, that if such termination occurs prior to
the first anniversary of the Effective Date, then in addition to the items
referred to in subsection (a) and (b) above, Executive shall be entitled to
continue to receive, in accordance with the Corporation's then payment policy,
an amount equal to his Salary payments and, to the extent Executive is not
otherwise employed, health benefits, until the first anniversary of the
Effective Date.
3. The phrase "Cause" means any of the following:
(a) breach by Executive of Article V of this Agreement;
(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 which shall be governed by IV.D. hereof), if that
breach is not remedied (or the remedy commences and is diligently continued
until actually 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, it crime involving moral turpitude if that crime of
moral turpitude tends or would reasonably tend to bring the Corporation into
disrepute.
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C. Executive may 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 V hereof,
(i) pay Executive 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) continue to pay Executive an amount
equal to Executive's Salary and benefits, in accordance with the Corporation's
then payment policy, during the six-month period following the termination date.
3. The phrase "Good Reason" means a material breach of this
Agreement or the intentional disregard or violation of the Food, Drug and
Cosmetic Act as amended in any material respect (other than through the actions
of the Executive) in any case 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
-5-
<PAGE>
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.
ARTICLE V.
Covenants
A. While Executive is employed hereunder by the Corporation, he shall
not, without the prior written consent of 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 (i) any securities
of any class of any publicly-owned company or (ii) any passive investment in a
privately held entity which is 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, any one other than the Corporation and its subsidiaries and
affiliates any information of a confidential or proprietary 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 and to lending institutions from
whom Executive seeks to borrow.
-6-
<PAGE>
C. All records, papers and documents kept or made by Executive relating
to the business of the Corporation or its 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 of any of its subsidiaries or
affiliates during the term of employment, and any and all rights of every nature
whatever relating 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 customer 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 Reasons or by the Corporation for Cause
(the "Restricted Period"), 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 any business or
activities which is competitive with any activities or
-7-
<PAGE>
business engaged in by the Corporation during his employment by the Corporation
(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.
G. The provisions contained in this Article V as to the time periods,
scope of activities, persons of 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
modified so as to be valid and enforceable to the full extent lawfully
permitted.
H. During the term of this Agreement, the Corporation shall maintain a
D & O policy providing such coverage for the Directors and Officers of the
Corporation as the Corporation's Board of Directors shall reasonably determine.
-8-
<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 continuous 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 March 31, 1998, and (ii) the remaining
two-thirds of the Award shall vest in increments of one-twenty fourth per month
for the twenty four (24) months then following.
B. The option shall be granted pursuant to, and shall be subject to the
terms of the stock option plan adopted by the Corporation.
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 (it being
-9-
<PAGE>
understood that to the extent the plans provide coverage for dependents of
employees, Executive shall be entitled to such coverage for his dependents under
the same terms as senior executives 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 incurred by Executive for promoting the business of the Corporation,
including expenses for travel and similar items, from time to time upon
presentation by Executive of an itemized account of such expenditures, all in
accordance with the Corporation's policies for incurrence and reimbursement.
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 Cincinnati, OH and Philadelphia,
PA as are mutually agreed to by Executive and the Corporation, until Executive
makes a permanent move to the Philadelphia, PA metropolitan area.
-10-
<PAGE>
Such a permanent move shall occur within a reasonable time from the date hereof,
but in no event later than one (1) year from the Effective Date.
E. The Corporation shall reimburse Executive up to $12,000 for expenses
incurred pursuant to 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 requests
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. The 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
-11-
<PAGE>
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.
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
and CEO
/s/ Seymour Hyden
-------------------------------
Seymour Hyden
-12-
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of March 13, 1997 by and between GLOBAL
PHARMACEUTICAL CORPORATION, a Delaware corporation (hereinafter referred to as
the "Corporation") and MITCHELL GOLDBERG (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
March 17, 1997 (the "Effective Date") until the date the employment of Executive
shall terminate pursuant to Article IV hereof. (The period during which
Executive is employed hereunder is referred to herein as the "term of
employment.") Executive shall 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
During the term of employment Executive will:
(a) use his best efforts to promote the interests of the
Corporation, and shall devote his full time and efforts to its business and
affairs;
(b) serve as the Vice President, Sales & Marketing, reporting
solely to the Corporation's Chief Executive Officer and Board of Directors; and
<PAGE>
(c) perform such duties consistent with, and customarily
provided in connection with, the office described in subsection (b) above as the
Corporation may from time to time assign to him, and Executive shall not engage
any duties or pursuits which may interfere with or be inimical or contrary to
the best interests of the Corporation.
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 of
$110,000 per annum. The Salary shall be payable in equal installments, which
the Corporation shall pay at semi-month1y intervals or, at the Corporation's
election, more frequently, and shall be subject to such payroll deductions as
are required by law. The Salary paid to the Executive will be reviewed annually
by the Board of Directors in conjunction with the recommendation of the
President, and may be increased at the discretion of the Corporation's Board of
Directors or Compensation Committee, which shall take into account the
performance of the Executive, the productivity of the Corporation and other
factors which it deems relevant.
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 (1) year
period commencing
-2-
<PAGE>
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 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 or pursuant to Article IV.D. hereof, then in lieu of any other
payments otherwise recurred hereunder, the Corporation shall, subject to
Executive's compliance with Article V hereof, pay Executive, as liquidated
damages and not as a penalty, (a) 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 (b) the lesser of (i) an amount
equal to his Salary payments at the time of the
-3-
<PAGE>
termination in accordance with the Corporation's then payment policy, and
benefits provided for herein during the six-month period following the
termination date, and (ii) the entire amount of the Salary remaining due and
payable from the date of such termination to the scheduled expiration of this
Agreement; provided however, that if such termination occurs prior to the first
anniversary of the Effective Date, then in addition to the items referred to in
subsections (a) and (b) above, Executive shall be entitled to continue to
receive, in accordance with the Corporation's then payment policy, an amount
equal to his Salary payments and, to the extent Executive is not otherwise
employed, health benefits, until the first anniversary of the Effective Date.
3. The phrase "Cause" means any of the following:
(a) breach by Executive of any provision of Article V
of this Agreement;
(b) 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, which shall be governed by Article IV.D.
hereof), including without limitation the failure to satisfactorily perform his
duties as provided herein, if that breach is not remedied within thirty (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.
-4-
<PAGE>
C. Executive may terminate his employment hereunder at any time for any
reason upon two (2) weeks written notice 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 Article V
hereof, (i) pay Executive, with 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) continue to pay Executive
an amount equal to Executive's Salary and benefits, accordance with the
Corporation's then payment policy during the six-month period following the
termination date.
3. The phrase "Good Reason" means a material breach of this
Agreement or the intentional disregard or violation of the Food, Drug and
Cosmetic Act as amended in any material respect (other than through the actions
of the Executive) 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 Corporation's offices for a period of
three (3)
-5-
<PAGE>
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 Corporation.
ARTICLE V.
Covenants
A. While Executive is employed hereunder by the Corporation and during
any time thereafter that the Corporation shall continue to pay to Executive his
Salary and benefits, he shall not, without the prior written consent of 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 (i) any securities of any class of any publicly-owned company
or (ii) any passive investment in a privately held entity which is 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 or proprietary 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 and to lending institutions from
whom Executive seeks to borrow.
-6-
<PAGE>
C. All records, papers and documents kept or made by Executive relating
to the business of the Corporation or its 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 relating 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 customer 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 employee, officer, consultant or in any other capacity, to any
individual, firm, corporation or partnership engaged in any business or activity
which is competitive
-7-
<PAGE>
with any activity or business engaged in by the Corporation during his
employment by the Corporation (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 percent (5%) 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 an over-the-counter market, shall not
constitute a breach of the covenants contained in this Article V.
G. 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
modified so as to be valid and enforceable to the full extent lawfully
permitted.
H. During the term of this Agreement, the Corporation shall maintain a
Directors' and Officers' insurance policy providing such coverage for the
Directors and Officers of the Corporation as the Corporation's Board of
Directors shall reasonably determine.
-8-
<PAGE>
ARTICLE VI.
Bonuses
A. The Corporation shall pay Executive a $10,000 sign-on bonus,
one-half of which shall be paid thirty (30) days from the Effective Date and
one-half of which shall be paid sixty (60) days from the Effective Date;
provided, however, that in the event Executive's employment hereunder terminates
at any time within the first year of his term of employment (other than by the
Executive for Good Reason or by the Corporation without Cause), Executive shall
repay to the Corporation (pro rated based on a twelve month term and calculated
on a monthly basis) the dollar amount of the sign-on bonus that had been paid
that represents the amount of time during that first year that Executive will
not be employed by the Corporation.
B. During 1997, the Corporation shall pay Executive a bonus of $5,000
per quarter in any quarter in which Executive reaches the projected sales
numbers that have been established by the Corporation. In the event Executive
exceeds such projected sales numbers in any quarter by a factor of 1.25, the
bonus for such quarter shall be $6,250,
C. During 1998, the Corporation shall pay Executive a bonus of $10,000
per quarter in any quarter in which Executive reaches the projected sales and
gross margin numbers that have been established by the Corporation.
D. The Board of Directors of the Corporation may consider, and nothing
herein shall preclude the Corporation's Board of Directors from, awarding
Executive any other bonuses based on performance as they may, at any time or
from time to time, determine.
-9-
<PAGE>
ARTICLE VII
Stock Option Award
A. The Corporation will grant to Executive an option to purchase 36,000
shares of the Corporation's common stock (the "Award") at a price per share
equal to the fair marker value of the Corporation's common stock on the date the
Compensation Committee of the Board of Directors grants this Award, which so
long as Executive remains in the continuous 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 the date one (1) year from
the Effective Date, and (ii) the remaining two-thirds of the Award shall vest in
increments of one-twenty fourth per month for the twenty four (24) months then
following.
B. The option shall be granted pursuant to, and shall be subject to the
terms of, the stock option plan adopted by the Corporation.
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 offices generally (it being understood that to the extent the
plans provide coverage for dependents of employees, Executive shall be entitled
to such coverage for his dependents under the same terms as senior executives
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
-10-
<PAGE>
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, arrangements and perquisites; provided, however,
that Executive shall not be entitled to carry over unused vacation time in any
given year to subsequent years.
C. The Corporation shall reimburse Executive for all reasonable
expenses incurred by Executive for promoting the business of the Corporation,
including expenses for travel and similar items (such as automobile mileage at
the Corporation's standard rates), from time to time upon presentation by
Executive of an itemized account of such expenditures, all in accordance with
the Corporation's policies for incurrence and reimbursement. To the extent
permitted by law, the Corporation will not withhold Philadelphia city wage taxes
for the days Executive travels out of town on business.
D. The Corporation will provide Executive with a cellular telephone and
a lap-top computer for use in performing his duties hereunder during the term of
employment.
-11-
<PAGE>
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 successor 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.
-12-
<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 Max L. Mendelsohn
------------------------------
Max L. Mendelsohn, President,
and CEO
/s/ Mitchell Goldberg
-----------------------------
Mitchell Goldberg
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,044
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,093
<PP&E> 4,783
<DEPRECIATION> 648
<TOTAL-ASSETS> 9,440
<CURRENT-LIABILITIES> 892
<BONDS> 0
0
0
<COMMON> 43
<OTHER-SE> 7,308
<TOTAL-LIABILITY-AND-EQUITY> 9,440
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> (4,608)
<INCOME-TAX> 0
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<CHANGES> 0
<NET-INCOME> (4,608)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
