<PAGE>
As filed with the Securities and Exchange Commission on September 12, 1997
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------
GLOBAL PHARMACEUTICAL CORPORATION
(Name of small business issuer as specified in its charter)
Delaware 2834 65-0403311
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Castor & Kensington Avenues
Philadelphia, PA 19124-5694
(215) 289-2220
(Address, including zip code, and telephone
number, including area code, of
principal executive offices)
MAX L. MENDELSOHN
President and Chief Executive Officer
GLOBAL PHARMACEUTICAL CORPORATION
CASTOR & KENSINGTON AVENUES
PHILADELPHIA, PA 19124-5694
(215) 289-2220
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------------
Copies of all communications, including all communications sent to
the agent for service, should be sent to:
SHELDON G. NUSSBAUM, ESQ.
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
---------------
Approximate date of proposed sale to the public: From time to time
after the effective date of this Registration Statement.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. |_|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_| ________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| _____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Proposed Proposed Maximum
Title of Shares Amount Maximum Aggregate Amount of
to be Registered to be Registered Aggregate Price Offering Price Registration Fee
Per Unit
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 1,200,000 $5.5625(1) $6,675,000 $2,022.73
par value per share
===================================================================================================================================
</TABLE>
(1) The price is estimated in accordance with Rule 457(g) under the
Securities Act of 1933, as amended, solely for the purpose of calculating
the registration fee and is $5.5625, the average of the high and low
prices of Global Pharmaceutical Corporation Common Shares as reported on
The Nasdaq SmallCap Stock Market on September 8, 1997.
--------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 1997
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
GLOBAL PHARMACEUTICAL CORPORATION
1,200,000 Shares
Common Stock
This Prospectus relates to the resale of shares of Common Stock, $.01
par value per share (the "Common Stock"), of Global Pharmaceutical Corporation
(the "Company" or "Global") from time to time for the account of the Selling
Stockholders (the "Selling Stockholders"). The Common Stock registered hereby
is issuable upon the conversion of Series A Convertible Preferred Stock (the
"Series A Preferred") owned by the Selling Stockholders. The Series A
Preferred was issued by the Company in connection with the private placement
of up to 60,000 shares of Series A Preferred for an aggregate consideration to
the Company of up to $6 million (the "1997 Private Placement"). See
"Description of Securities." The Company will not receive any of the proceeds
from the sale of the Common Stock by the Selling Stockholders. See "Use of
Proceeds."
The distribution of the Common Stock by the Selling Stockholders may
be effected from time to time in one or more transactions (which may involve
block transactions) in the over-the-counter market (including the Nasdaq
SmallCap Market) or any exchange on which the Common Stock may then be listed,
in negotiated transactions, through the writing of options on shares (whether
such options are listed on an options exchange or otherwise), or a combination
of such methods of sale, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
Selling Stockholders may effect such transactions by selling shares to or
through broker-dealers, and such broker-dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Selling Stockholders and/or purchasers of shares for whom they may act as
agent (which compensation may be in excess of customary commissions). The
Selling Stockholders may also sell the shares of Common Stock pursuant to Rule
144 promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), or may pledge shares as collateral for margin accounts and such shares
could be resold pursuant to the terms of such accounts. The Selling
Stockholders and any broker-dealers that act in connection with the sale of
Common Stock might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act and any commissions received by them and
any profit on the resale of the shares might be deemed to be underwriting
discounts or commissions under the Securities Act. The Selling Stockholders
may agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the Common Stock against certain liabilities,
including liabilities arising under the Securities Act.
The Company's Common Stock trades on the Nasdaq SmallCap Market under
the symbol "GLPC." On September 8, 1997, the closing sale price of the Common
Stock was $5.50 per share.
All expenses of the registration of securities covered by this
Prospectus are to be borne by the Company, except that the Selling
Stockholders will pay any underwriting discounts, selling commissions, and
fees and the expenses, if any, of counsel or other advisers to the Selling
Stockholders.
---------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" LOCATED ON PAGE 4.
---------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
---------
The date of this Prospectus is ____________, 1997
<PAGE>
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus or a supplement to this Prospectus, and, if given or made,
such other information or representations must not be relied upon as having
been authorized by the Company or any other person. Neither this Prospectus
nor any supplement to this Prospectus constitutes an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus or a supplement to this
Prospectus nor any sale made hereunder or thereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or thereof or that the
information contained herein or therein is correct as of any time subsequent
to its date.
TABLE OF CONTENTS
Page
Available Information........................................................ 2
Information Incorporated by Reference........................................ 3
Risk Factors................................................................. 4
Use of Proceeds.............................................................. 12
The Company...................................................................13
Selling Stockholders......................................................... 17
Description of Securities.................................................... 19
Plan of Distribution......................................................... 21
Legal Matters................................................................ 22
Experts .................................................................... 22
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Proxy
statements, reports and other information concerning the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison
Street, Chicago, Illinois 60661, and copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and its public reference facilities in New York, New
York and Chicago, Illinois, at prescribed rates. Copies of such information
may also be inspected at the reading room of the library of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006. This Prospectus does not contain all of the information set forth in
the Registration Statement of which this Prospectus is a part and exhibits
thereto which the Company has filed with the Commission under the Securities
Act and to which reference is hereby made. The Commission maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding the Company
and other registrants that file electronically with the Commission.
This Prospectus constitutes a part of a Registration Statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as
the "Registration Statement") filed by the Company with the Commission under
the Securities Act. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of
such contract, agreement or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference. Copies of the
Registration Statement together with exhibits may be
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inspected at the offices of the Commission as indicated above without charge
and copies thereof may be obtained therefrom upon payment of a prescribed fee.
Private Securities Litigation Reform Act Safe Harbor Statement. This
Prospectus (including the documents incorporated by reference herein) contains
certain forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) and information relating to Global
that are based on the beliefs of the management of Global, as well as
assumptions made by and information currently available to the management of
Global. When used in this Prospectus, the words "estimate," "project,"
"believe," "anticipate," "intend," "expect" and similar expressions are
intended to identify forward-looking statements. Such statements reflect the
current views of Global with respect to future events and are subject to risks
and uncertainties that could cause actual results to differ materially from
those contemplated in such forward-looking statements, including those
discussed under "Risk Factors." Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Global does not undertake any obligation to publicly release any
revisions to these forward looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission by the Company
(File No. 0-27354) pursuant to the Exchange Act are incorporated by reference
into this Prospectus:
(i) The Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1996.
(ii) The Company's Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 1997 and June 30, 1997.
(iii) The Company's Proxy Statement dated May 16, 1997.
All documents and reports subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of the offering of the securities
offered hereby shall be deemed incorporated by reference into this Prospectus
and to be a part hereof from the date of the filing of such documents or
reports. The information relating to the Company in this Prospectus should be
read together with the information in the documents incorporated by reference.
Any statement contained in a document incorporated by reference
herein, unless otherwise indicated therein, speaks as of the date of the
document. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for all purposes to the
extent that a statement contained in this Prospectus modifies or replaces such
statement.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon request, a copy of any or all of the documents
described above, other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference into such documents. Requests
should be addressed to: Global Pharmaceutical Corporation, Castor & Kensington
Avenues, Philadelphia, PA 19124-5694, Attention: President (Tel. No. (215)
289-2220). The Company furnishes its stockholders with an annual report
containing audited financial statements. In addition, the Company may furnish
such other reports as may be authorized, from time to time, by the Board of
Directors.
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<PAGE>
RISK FACTORS
An investment in the Common Stock offered by this Prospectus involves a
high degree of risk. Prospective investors should consider carefully the
following risk factors, as well as the other information set forth in this
Prospectus, in connection with an investment in the Common Stock offered by this
Prospectus. This Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from the results discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors," as well as those discussed elsewhere in
this Prospectus.
Additional Financing Requirements
As of August 31, 1997, the Company had $1,635,000 of cash and cash
equivalents on hand, which is estimated to be sufficient for approximately
three months of operations at current expenditure levels. The Company
therefore requires immediate financing. The Company is proposing to raise $6
million in connection with the 1997 Private Placement of Series A Preferred;
the initial closing of $1,185,000 of the 1997 Private Placement occurred on
August 19, 1997. The Company believes that its existing and anticipated
capital resources, interest earned thereon and estimated anticipated revenues
from operations, will enable it to fund its planned operations through June
30, 1998. The Company has expended substantial funds in connection with the
renovation of its plant, processing equipment and product development. The
Company also expects that it will incur additional expenditures to develop its
manufacturing, sales and marketing capabilities. The Company will require
additional funds for these purposes, and expects to seek to raise them through
subsequent equity or debt financings, collaborative arrangements with
corporate partners or through other sources. No assurance can be given that
additional funds will be available to the Company to finance its development
on acceptable terms, if at all, including the anticipated aggregate of $6
million expected to be raised in the 1997 Private Placement. Additional
financings may result in dilution to existing stockholders. If funds are
needed but are not available in adequate amounts from additional financing
sources or from operations, the Company's business will be materially and
adversely affected.
No Assurance of FDA Approval of Future Products
The preclinical and clinical testing, manufacturing and marketing of
the Company's products are subject to extensive regulation by numerous
government authorities in the United States and other countries, including,
but not limited to, the United States Food and Drug Administration ("FDA").
FDA approval of the Company's products ordinarily will be required before such
products may be marketed in the United States. In order to obtain FDA approval
of a product, the Company must, among other things, demonstrate to the
satisfaction of FDA that the product is safe and effective for its intended
uses and that the Company is capable of manufacturing the product with
procedures that conform to FDA's current Good Manufacturing Practices
("cGMPs") regulations, which must be followed at all times. The approval
process requires submission of an application that, in the case of a generic
drug, includes data showing the Company's product is bioequivalent to, and
therefore is interchangeable with, the FDA-approved brand product. The process
of seeking FDA approvals can be costly, time consuming, and subject to
unanticipated and significant delays. The Company is presently in various
stages of product development with respect to several new products, and
expects to submit applications to FDA seeking approvals for these products.
There can be no assurance, however, that approvals for additional products
will be granted to the Company on a timely basis, or at all. Any delay in
obtaining or any failure to obtain such approvals would adversely affect the
Company's ability to introduce and market products and to generate product
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revenue. At the same time, FDA also has the authority to revoke approvals of
previously approved drug products for cause, to request recalls of products
and to obtain injunctions to close manufacturing plants in response to
violations. Similarly, marketing approval by a foreign governmental authority
is typically required before such products may be marketed in a particular
foreign country. There can be no assurance that any of these enumerated items
will not occur.
Development Stage Company; Operating Losses; Future Profitability Uncertain
Global is a development stage company that acquired certain assets of
Richlyn in 1993. Richlyn halted plant operations in September 1992 as a result
of actions initiated by FDA for failure to comply with cGMPs. Since inception,
the Company has been engaged in a substantial renovation program in order to
modernize its 113,000 square foot manufacturing facility located in
Philadelphia, Pennsylvania (the "Facility") and obtain FDA certification for
its proposed plant operations. The Company has generated no revenues to date
and has experienced operating losses since inception. As of July 31, 1997, the
Company's accumulated deficit was $15,057,000. Additionally, as of August 31,
1997, the Company had outstanding indebtedness in an aggregate principal
amount of $2,350,000 at interest rates ranging from 2% to 5% annually. The
Company's ability to operate its business will require, among other things,
FDA certification of the Company's products based on its Abbreviated New Drug
Applications ("ANDAs"), New Drug Applications ("NDAs") and New Animal Drug
Applications ("NADAs"), including stability and other testing of those
products and their related manufacturing processes; and negotiation of
satisfactory raw material supply contracts with FDA-approved sources. To
remain operational, the Company will also be required to arrange for the
proper receipt, warehousing and storage of raw materials and supplies;
maintain work in progress in compliance with regulatory requirements and
properly store finished goods; properly manufacture various formulations,
dosages and configurations of a line comprised potentially of many products;
meet strict security requirements for virtually every activity undertaken at
the plant; maintain appropriate laboratory, quality control and quality
assurance practices and procedures; and comply with the many complex
governmental regulations that deal with virtually every aspect of the
Company's proposed business activities. There can be no assurance that, once
the Company begins actual manufacturing operations, it will be able to produce
to current regulatory standards all or any portion of the 54 ANDA, NDA and
NADA formulations and the more than 100 other formulations it acquired from
Richlyn Laboratories, Inc. ("Richlyn"). In addition, there can be no assurance
regarding whether or when the Company will successfully implement its business
plan or that its business will ever be profitable. The Company's ability to
operate its business successfully will depend, in part, on a variety of
factors, many of which are outside the Company's control, including:
competition, changes in raw material supplies and suppliers, changes in
governmental programs and requirements or in physician or consumer
preferences, changes in FDA and similar regulatory requirements, and plant and
equipment repair and maintenance requirements.
Government Regulation; Compliance with Applicable Court Order
All pharmaceutical manufacturers, including the Company, are subject
to extensive federal, state and local regulation and the Company cannot
predict the extent to which it may be affected by legislative and other
regulatory actions and developments concerning various aspects of its
operations as well as its products, the health care field generally,
environmental matters and plant zoning. In addition, acts of foreign
governments may affect the price or availability of raw materials needed for
the development or manufacture of generic drugs.
On May 25, 1993, the United States District Court for the Eastern
District of Pennsylvania issued an order against Richlyn that, among other
things, permanently enjoined
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Richlyn from introducing into commerce any drug manufactured, processed,
packed or labeled at its Philadelphia facility unless it met certain
stipulated conditions (the "Richlyn Order"). The Company, having acquired the
facilities and drug applications of Richlyn, became subject to the conditions
in the Richlyn Order. The Richlyn Order requires, in part, that FDA find that
products manufactured, processed and packed at the Richlyn facility conform
with regulations that require compliance with cGMPs before they may be
marketed. FDA's cGMPs regulations establish quality assurance and
qualification criteria for the facilities, equipment, procedures and personnel
used to manufacture, process, and package drug products. Among other critical
requirements is the obligation to demonstrate that the processes used to
manufacture, test and package products have been challenged during all
critical stages in at least three consecutively produced batches and shown to
consistently yield product meeting established specifications; this replicate
testing is referred to as "process validation." FDA has authorized
distribution of one product following an inspection that verified process
validation, and inspections to evaluate approximately six other products are
expected before the end of the year. 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 by the Company in compliance with
cGMPs. The Richlyn Order also requires that the person so retained both will
inspect the Company's manufacturing facilities and its manner of operating
them and will certify to FDA in writing the Company's compliance with related
cGMPs 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. There can be
no assurance that the Company will receive all of the requisite FDA product
approvals in a timely manner, if at all.
In 1988, investigations began into alleged wrongdoings by a number of
generic drug companies other than Richlyn in connection with FDA's drug
approval process. Subsequently, the number of ANDA approvals issued per year
by FDA decreased dramatically. The time required to obtain ANDA approvals also
increased to an average of approximately 36 months. Although the time required
to obtain ANDAs has decreased recently, the approval process became and has
remained more rigorous and costly than in the past. The Company is and will
remain in part dependent on new approvals over time to bring new products to
market and there can be no assurance that the rate and cost of FDA approval
and other federal and state legislative or regulatory developments will not
adversely affect the Company's product introduction plans and its results of
operations.
In addition, the Company's business plan includes the development of
products in dosage forms not previously offered by Richlyn. The Company's
ability to compete effectively with respect to any of these additional forms
will be materially affected by the Company's ability to master the new and
different production techniques related to them and the receipt of all
required governmental approvals.
Health Care Reform
Health care reform proposals have been introduced in Congress and in
various state legislatures. It is currently uncertain whether any health care
reform legislation will be enacted at the federal level, or what actions
physicians or consumers may take in response to the suggested reforms. The
Company cannot predict whether any suggested reforms will have a material
adverse effect on the Company's future results of operations. Such reforms, if
enacted, may affect the availability of third-party reimbursement for products
developed by the Company as well as the price levels at which the Company is
able to sell such products.
Environmental Matters
As an enterprise engaged in the pharmaceutical manufacturing
business, the Company is and will remain subject to comprehensive federal,
state and local environmental laws and regulations ("Environmental Laws")
governing, among other things, air emissions, waste water discharge and solid
and hazardous waste disposal. The Company believes its current facilities are
in compliance in all material respects with applicable Environmental Laws.
Environmental Laws have changed in recent years, however, and the Company may
become subject to increasingly stringent environmental standards in the
future. While the Company anticipates that from time to time it will incur
capital expenditures in connection with environmental
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matters, it is impossible currently to predict the outcome or timing of future
expenditures that may be required in connection with Environmental Law
compliance. There can be no assurance that additional 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 in the future.
Product Cycles
Revenue and gross profit derived from generic drug products tend to
follow a pattern based upon regulatory and competitive factors unique to the
generic drug industry. As patents for brand name products and any related
market exclusivity periods mandated by statute expire, the first generic
manufacturers to receive FDA approval for generic equivalents of related brand
name products usually capture significant market share from the branded
product at higher margins than other, later arriving generic drug
manufacturers. 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. In addition, because of the required advance selection of
drugs for development, there can be no assurance as to the market for or
competition in that product at the time of its commenced sales by the Company.
Furthermore, as other generic drug manufacturers subsequently receive FDA
approval on competing products, prices and revenues typically decline. While a
number of the ANDAs that were acquired by the Company from Richlyn currently
have little or no generic competition, there can be no assurance that other
companies will not receive FDA approval and begin selling competitive
products. The Company's profitability, if any, will be dependent, in part, on
(i) the Company's ability to develop and rapidly introduce new products, (ii)
the timing of FDA approval of the Company's products and (iii) the number and
timing of FDA approval for competing products. There can be no assurance that
the Company will be able to effectively compete in the generic drug industry
based upon the foregoing factors.
Competition
The generic drug industry is highly competitive. Many of the
Company's competitors, including divisions and subsidiaries of large brand
name pharmaceutical companies that market generic drugs, have significantly
greater financial and other resources than the Company and, therefore, are
able to expend more than the Company in areas such as research, marketing and
product development. Although a company with greater resources will not
necessarily receive FDA approval for a particular generic drug before its
smaller competitors, relatively large research and development expenditures
enable a company to support many FDA applications simultaneously, thereby
improving the likelihood of it being among the first to obtain approval of at
least some generic drugs. New drugs, future developments in alternative drug
delivery technologies or other therapeutic techniques may provide therapeutic
or cost advantages to competing products. There can be no assurance that
developments by others will not render the Company's products or technologies
noncompetitive or obsolete.
Brand name drug companies have attempted to prevent generic drug
manufacturers from producing certain products and to prevent competing generic
drug products from being treated as equivalent to their brand name products.
The Company expects efforts of that type to continue. Increasingly, brand name
drug companies have introduced generic versions of their own branded products
prior to the expiration of the patents for those drugs, which may
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result in achieving a greater market share for products produced by those
companies following expiration of the applicable patents. Additionally, the
General Agreement on Trade and Tariffs has increased from 17 years after
patent grant to approximately 20 years after patent filing the patent
protection afforded many brand name drugs, thereby in some instances delaying
the first time at which equivalent generic products can be offered by generic
drug producers such as the Company and also enhancing the possibility that the
brand name manufacturers will develop their own equivalent generic products.
The generic drug industry is currently undergoing a consolidation and
that trend may continue. Consequently, the Company may be faced with stronger
competitors with greater financial and other resources in the future. While
the Company may need to combine with other generic drug companies to meet
increased competition or for other reasons, it has no current plans to do so
and there can be no assurance that it will be able to do so or, if it does,
that the terms of any combination will be favorable to the Company's
stockholders.
Expected Fluctuations in Results of Operations
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. The Company's revenues
and profitability may vary significantly from fiscal quarter to fiscal quarter
as well as in comparison to the corresponding fiscal quarter of the preceding
year. Variations of those types may result from, among other factors, the
timing of FDA reapprovals received by the Company, the timing of process
validation for particular generic drug products, the timing of any significant
initial shipments of newly approved drugs and competition from other generic
drug manufacturers that receive FDA approvals for competing products.
Dependence on a Small Number of Distributors, Products and Suppliers; Near-Term
Dependence on a Small Number of Products
The Company's ability to establish markets for its proposed products
will be substantially dependent on the efforts of independent distributors and
wholesalers. Presently, the Company has distribution agreements with three
distribution organizations. Those agreements are subject, among other things,
to the Company's receipt of the requisite FDA approvals to manufacture and
sell the products in question.
Typically in the generic drug industry, unless a product is protected
by a significant barrier to the entry of competing products (for example, it
is difficult to develop due to its complex structure) or dominance in a niche
market that is less likely to be attractive to larger potential competitors,
profit margins generally diminish over time as competitors enter the market
with equivalent, or even superior, replacement products. The Company believes
its long-term success will be dependent, among other factors, on its ability
to offer and sell a broad line of products, thereby reducing the likelihood
that the Company could be materially adversely affected by diminishing profit
margins or loss of market share as any of its proposed generic products comes
under increasing competitive pressure. Having now received FDA certification
and approval of its manufacturing facility and first ANDA product, the Company
intends to introduce products on a selected basis, with between three and four
generic drugs planned for introduction during the next six months and between
an additional 12 and 15 generic drugs planned for introduction during the 12
months thereafter. Consequently, the Company will be dependent, particularly
in the near term, upon a relatively small number of products to generate
revenues.
-8-
<PAGE>
Some materials used in the Company's products are currently available
from only one or a limited number of suppliers. 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 only from 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. Further, a significant portion of the Company's raw
materials may be available only from foreign sources and it is expected that
the current trend in the generic drug industry towards increasing dependence
on foreign sources of raw materials will continue in the foreseeable future.
Any curtailment in the availability 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 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
results of operations. Additionally, foreign sources can be subject to the
special risks of doing business abroad, which include greater possibility for
disruption due to transportation or communication problems, the relative
instability of foreign governments and economies, interim price volatility
based on labor unrest or materials or equipment shortages and uncertainty
regarding recourse to a dependable legal system for the enforcement of
contracts and other rights.
Potential Additional Dilution
In contemplation of the Genpharm Agreement (as hereinafter defined),
the Company, on November 8, 1995, sold to Merck KGaA 150,000 shares of Common
Stock for $300,000 (which amount was advanced to the Company on October 26,
1995), 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 (as hereinafter defined)
and any other mutually agreed upon products, up to a total of 700,000 shares
of common stock. The per share exercise price for each of the shares
underlying the Merck B Warrants is the IPO offering price of $8.50 per share.
If the Company generates in excess of $17,500,000 in gross profits (as defined
in a warrant agreement between the Company and Merck KGaA, 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 mutually agreed upon
products, Merck KGaA will own and have the right to acquire, in the aggregate,
in excess of 20% of the shares of Common Stock outstanding as of June 1, 1997.
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. In addition, the Company's business
plans include the raising of $6 million in connection with the 1997 Private
Placement of Series A Preferred, the shares of which Preferred Stock are
convertible into shares of the Company's Common Stock, as well as raising
additional funds, possibly through subsequent equity financings. See "--
Additional Financing Requirements" and "Description of Securities."
Effects of Substantial Debt
As of June 30, 1997, the Company had outstanding approximately
$1,242,000 of indebtedness, of which $406,000 principal amount, bearing
interest at the rate of 3.75% annually and due in the year 2000, is owed to
the Philadelphia Industrial Development
-9-
<PAGE>
Corporation ("PIDC") and $836,000 principal amount, bearing interest at the
rate of 2% annually and due in the year 2009, is owed to the Pennsylvania
Industrial Development Authority ("PIDA"). Additionally, at that same date,
the Company had a stockholders' deficit of approximately $14,546,000. On July
29, 1997, the Company received an additional $758,000 loan from PIDA at 3.75%
annually fixed for 15 years and an additional $350,000 loan from the Delaware
River Port Authority via PIDC at 5% annually fixed for 10 years. Among other
things, the Company's ability to produce a broad line of products, and hence
its ability to compete effectively, will be materially adversely affected
unless and until it substantially improves its capital structure. There can be
no assurance that the Company will have or maintain adequate capital at any
given time or from time to time in the future or not be in default under any
of its loan agreements and there is no assurance that additional capital or
waivers in respect of defaulted loans, if needed by the Company, will be
available to it.
Product Liability Litigation and Adequacy of Insurance Coverage
The design, development and manufacture of the Company's products
involve an inherent risk of product liability claims and associated adverse
publicity. Insurance coverage is expensive, difficult to obtain and may not be
available in the future on acceptable terms or at all. Although the Company
currently maintains liability insurance for all its products, there can be no
assurance that the coverage limits of the Company's insurance policies will be
adequate. A claim brought against the Company, whether fully covered by
insurance or not, could have a material adverse effect upon the Company. In
addition, 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
of female children whose mothers took DES during their pregnancy. There have
been numerous claims brought against drug manufacturers in connection with DES
and, 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. No other legal actions have been brought, or to the Company's best
knowledge threatened, against Richlyn or the Company in connection with
DES-related claims. Because, to the Company's best knowledge, all DES-related
legal actions are directed towards individual manufacturers and have not been
embodied in a class action, the Company does not expect to be held liable for
DES-related claims other than claims based on products manufactured by
Richlyn, and, therefore, the Company believes it is not subject to bankruptcy
or other risks that might affect the collectibility of DES-related claims to
which other manufacturers may be or become subject. While Richlyn's insurers
have in the past defended DES claims against Richlyn and paid settlements in
connection therewith, those insurers have reserved the right to discontinue at
any time the defense of claims and the payment of any settlements.
Accordingly, although the insurers have defended all actions and paid all
claims in connection therewith, there can be no assurance that they 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 claims, the Company will
have recourse against the insurers or the Company will not be exposed to the
risk of substantial monetary judgments. Claims settlements to date have been
based on market share and Richlyn's share of the DES market during the
relevant periods is believed by the Company to have been substantially less
than 1%.
Attraction and Retention of Key Personnel
The success of the Company's present and future operations will
depend to a great extent on the collective experience, abilities and continued
service of certain executive officers, including Max L. Mendelsohn, the
Company's President and Chief Executive Officer, Cornel C. Spiegler, the
Company's Chief Financial Officer and Vice President-Administration, Joseph
-10-
<PAGE>
A. Storella, the Company's Vice President-Operations, Marc M. Feinberg, the
Company's Vice President-Quality and Regulatory Affairs, Seymour Hyden, Ph.D.,
the Company's Vice President-Scientific and Technical Affairs, Mitchell
Goldberg, the Company's Vice President-Sales and Marketing, and Pieter J.
Groenewoud, the Company's Vice President-Product Development. All of those
persons joined the Company as executive officers and the loss of the services
of any of them could have a material adverse effect on the Company. Because of
the specialized scientific nature of its business, Global is also highly
dependent upon its ability to continue to attract and retain qualified
scientific and technical personnel. There is intense competition for qualified
personnel in the areas of the Company's activities, and there can be no
assurance that Global will be able to continue to attract and retain the
qualified personnel necessary for the development of its business. Loss of the
services of, or failure to recruit, key scientific and technical personnel
would be significantly detrimental to the Company's product development
programs.
Control of the Company by Significant Stockholders
Upon completion of the initial closing of the 1997 Private Placement,
the Company's present directors, executive officers and their respective
affiliates and related entities will beneficially own approximately 25% of the
Company's common stock and common stock equivalents. As a result, these
stockholders will be able to exercise significant influence over all matters
requiring stockholder approval, including the election of directors and the
approval of significant corporate transactions. These stockholders may also
participate further in the 1997 Private Placement or subsequent equity
financings, although they have made no commitment to do so. The concentration
of ownership may also have the effect of delaying or preventing a change in
control of the Company. See also "--Potential Additional Dilution" and
"--Actual and Potential Issuance of Preferred Stock."
No Patents; Protection of Proprietary Rights
The Company owns no patents and believes that patent protection is
not, and likely will not be, an important factor in determining whether it
will be successful in the generic drug field. The Company's success in that
field will, however, depend in part on its ability to preserve its trade
secrets. The Company relies on trade secrets and proprietary know-how that it
seeks to protect, in part, through confidentiality agreements. In that regard,
the Company has obtained confidentiality agreements from each of its officers
and those of its supervising personnel who have access to sensitive
information, and intends to obtain similar agreements from any other employee
who has such access. There can be no assurance that these agreements will not
be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known or be
independently developed by competitors.
The Company currently has no licenses other than its secondary site
packaging arrangement with Genpharm and two licensing agreements with Eurand
America. See "The Company." The Company may in the future be required or may
desire to obtain other licenses to develop, manufacture and market
commercially viable products. There can be no assurance that licenses will be
obtainable on commercially reasonable terms, if at all, or that any licensed
patents or proprietary rights will be valid and enforceable. Although the
Company is not aware of any claim against it of patent infringement, the
Company's ability to commercialize its products will depend on not infringing
the patents of others. Litigation concerning patents and proprietary
technologies can be protracted and expensive.
Actual and Potential Issuance of Preferred Stock
The Company's Board of Directors has the authority to issue up to
2,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares
-11-
<PAGE>
without any further vote or action by the stockholders. In addition, the
Company is proposing to raise $6 million in connection with the 1997 Private
Placement of Series A Preferred; the initial closing of $1,185,000 of the 1997
Private Placement occurred on August 19, 1997. The Series A Preferred has, and
the Board of Directors may authorize and issue other series of Preferred Stock
with, among other things, voting, redemption and conversion rights that could
adversely affect the voting power or other rights of the holders of Common
Stock. Moreover, holders of the Series A Preferred are entitled to a
preference over the holders of Common Stock with regard to the assets or
surplus funds of the Company in the event of its dissolution or liquidation.
The issuance of the Series A Preferred and the potential issuance of other
shares of Preferred Stock may also have the effect of delaying, deferring or
preventing a change in control of the Company, may discourage bids for the
Common Stock at a premium over the market price of the Common Stock and may
adversely affect the market price of the Common Stock. See "--Control of the
Company by Significant Stockholders" and "Description of Securities--Preferred
Stock."
Absence of Dividends
The Company has never paid any dividends on its stock and does not
expect to pay any dividends on its stock in the foreseeable future.
Volatility of Share Price
The market prices for securities of biopharmaceutical companies have
been volatile. Factors such as announcements of technological innovations or
new commercial products by the Company or its competitors, government
regulation, patent or proprietary rights developments, public concern as to
the safety or other implications of biopharmaceutical products and market
conditions in general may have a significant impact on the market price of the
Company's Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares
of Common Stock by the Selling Stockholders.
-12-
<PAGE>
THE COMPANY
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.
Global Pharmaceutical Corporation is a development-stage company formed
to engage principally in the manufacture and sale of solid oral generic
prescription and over-the-counter drugs. The Company currently owns 54
previously manufactured and marketed ANDAs, NDAs and NADAs, more than 100
previously manufactured and marketed prescription and OTC formulations not
subject to ANDA approval by FDA, and the Facility. Each ANDA, NDA and NADA
represents the government's permission to manufacture a specific drug product
pursuant to specified processes at a specified location. These assets were
purchased from 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 cGMPs.
The Company's strategic 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.
Many of the generic drugs the Company will initially produce as well
as those planned for future production are targeted at niche markets
characterized by few, if any, generic competitors. Over the next eighteen
months, the Company plans to introduce fifteen to nineteen generic drugs,
including several ANDA products. The Company believes that of the over 150
generic drug formulations owned by the Company, currently approximately 20
products would have no domestic generic competition and another 16 would have
only one generic competitor. 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
-13-
<PAGE>
that require isolated manufacturing facilities, which the Company has provided
by refurbishing and equipping a part of its existing facility.
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 as well as the
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.
Status of FDA Approval
Among Global's assets are 54 approved applications acquired from
Richlyn. In order to distribute these products, the Company must demonstrate
the validity of its manufacturing processes. This effort entails the
manufacture and testing of multiple batches under highly exacting standards.
On July 11, 1997, the Company was notified that, following an inspection, FDA
has determined that Global's Tetracycline Hydrochloride 250 mg capsules had
been appropriately validated and could be distributed once sufficient data
were available to assign an expiration date to the product's label.
The Company has recently notified the FDA it intends to perform
process validation on an additional two products for which it will seek FDA
inspection and approval for marketing within the next two months.
Strategic Relationship
In addition to the 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, a German corporation, pursuant to which the
Company will package or be compensated for 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. Genpharm filed an ANDA with FDA for Ranitidine in 1995, and has the
requisite formulation, procedures and raw material sources to produce
Ranitidine. On June 17, 1997, Genpharm received tentative ANDA approval for
Ranitidine and was informed by FDA that Genpharm would be the sole supplier of
Ranitidine from July 26, 1997 until August 29, 1997, in accordance with FDA's
determination that Genpharm was the first to file Paragraph IV certification
and is therefore entitled to exclusivity. However, because Genpharm was unable
to produce Ranitidine due to
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<PAGE>
a separate patent dispute with Glaxo, Genpharm entered into a profit-sharing
agreement with Novopharm USA ("Novopharm"), a unit of the Canadian generic
drug maker Novopharm Ltd., which had previously received FDA approval to
market its generic form of Zantac(R). Under the agreement, Genpharm
transferred to Novopharm its exclusive rights to sell Ranitidine in the U.S.
until August 29, 1997. Glaxo's patent infringement suit against Genpharm was
dismissed from a New York federal court on August 15, 1997, clearing a path
for final FDA approval of Genpharm's ANDA, which was received on August 22,
1997. Genpharm is currently shipping Ranitidine into the U.S. market.
In addition to the packaging of Ranitidine, the Genpharm Agreement
provides the Company with the opportunity to develop products that are
marketed outside the U.S. with the assistance of Merck KGaA. Two products with
total U.S. annual sales of over $150 million, including limited generic
competition, have already been selected. Development is currently under way
with respect to these two products, with ANDAs anticipated to be filed by the
Company by the fourth quarter of 1997.
Marketing and Distribution Alliances/Eurand Licensing Agreements
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.
The Company currently has the following agreements with independent
distribution organizations:
o 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. The eleven Care distributors have estimated combined
sales of approximately $500 million per year.
o In May 1997, the Company entered into an agreement, through December
31, 1997, with PREMIER ("PREMIER"), an association of 15 independent
distributors, pursuant to which PREMIER's member organizations have
agreed to distribute Global's products at mutually agreed upon terms.
This agreement can be renewed annually. The 15 PREMIER distributors
have combined sales of approximately $250 million per year.
The Company is no longer operating under a distribution agreement with
Dey Laboratories, Inc.
In addition, in August 1997 the Company signed two exclusive ten-year
licensing agreements with Eurand America ("Eurand") (a unit of American Home
Products), an international drug company that specializes in oral drug
delivery. One agreement provides for Eurand to supply the Company with a
specified dosage of Pancrelipase, a pancreatic enzyme used primarily by cystic
fibrosis patients to aid in digestion, for the generic market. The second
agreement provides for Eurand to develop and manufacture for Global, on an
exclusive
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<PAGE>
basis, several Pancrelipase products using a new Eurand technology, and grants
to the Company an exclusive ten-year license to market and sell the products
in the United States.
1997 Private Placement
In August 1997, the Company completed the initial closing of the 1997
Private Placement, consisting of 11,850 shares of the Series A Preferred for
an aggregate consideration to the Company of $1,185,000. See "Description of
Securities--Preferred Stock."
The Company was founded in Philadelphia, Pennsylvania in April, 1993.
The Company's principal executive offices are at Castor and Kensington
Avenues, Philadelphia, Pennsylvania 19124, and its telephone number is (215)
289-2220.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information as of August 31, 1997
except as otherwise noted, with respect to the number of shares of Common
Stock beneficially owned by each of the Selling Stockholders. The Selling
Stockholders who will beneficially own more than one percent of the outstanding
Common Stock upon consummation of the initial closing of the 1997 Private
Placement are Frederick R. Adler (14.3%), Udi Toledano (4.9%), Max L.
Mendelsohn (3.1%) and Gary Escandon (1.8%).
<TABLE>
<CAPTION>
============================================================================================================================
Number of
Number of Shares of
Number of Shares Shares of Common Stock
of Common Stock Common Stock Beneficially
Beneficially Owned Registered Owned After the
Selling Stockholder (1) Herein(2) Offering(3)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Cap Value 100,000 100,000 0
Portfolio (of Bear Stearns
Asset Management)
- ----------------------------------------------------------------------------------------------------------------------------
Max L. Mendelsohn 135,610 2,400 133,210
(President & Chief
Executive
Officer/Director)
- ----------------------------------------------------------------------------------------------------------------------------
Marc Feinberg (Vice 14,500 2,000 12,500
President--Quality and
Regulatory Affairs)
- ----------------------------------------------------------------------------------------------------------------------------
Seymour Hyden, Ph.D. 2,600 600 2,000
(Vice President--
Scientific and Technical
Affairs)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) Includes shares issuable upon the exercise of stock options and
warrants that are exercisable within 60 days, and shares issuable upon
conversion of the Series A Preferred.
(2) In general, at the option of the holder, each share of Series A
Preferred is convertible at any time into such number of fully paid and
nonassessable shares of the Company's Common Stock as is determined
by dividing the liquidation preference (initially set at $100.00 per
share of Series A Preferred) by the lower of (a) $5.00 per share
(subject to adjustment pursuant to the terms of the stock purchase
agreement under which the shares were purchased) or (b) the average
closing price of the Common Stock for the five trading days
immediately preceding the day on which the holder elects to convert
the shares of Series A Preferred, subject in all cases to adjustment
for stock dividends, stock splits and other similar recapitalization
events; but in no event less than $3.00 per share. For purposes of
this registration, a divisor of $5.00 per share has been assumed. See
"Description of Securities -- Preferred Stock."
(3) Assumes the sale of all shares registered herein.
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<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cornel C. Spiegler (Chief 36,019 1,000 35,019
Financial Officer and
Vice President--
Administration)
- ----------------------------------------------------------------------------------------------------------------------------
Joseph A. Storella (Vice 21,500 4,000 17,500
President--Operations)
- ----------------------------------------------------------------------------------------------------------------------------
Frederick R. Adler(4) 625,300 100,000 525,300
(Director)
- ----------------------------------------------------------------------------------------------------------------------------
Gary Escandon 78,227 10,000 68,227
(Director)(5)
- ---------------------------------------------------------------------------------------------------------------------------
Udi Toledano 208,425 10,000 198,425
(Director)(6)
- ----------------------------------------------------------------------------------------------------------------------------
Richard N. Wiener 5,000 5,000 0
(Director)
- ----------------------------------------------------------------------------------------------------------------------------
Raymond A. Lukasik 2,000 2,000 0
============================================================================================================================
</TABLE>
- --------
(4) Includes 136,495 shares of Common Stock held by 1520 Partners, Ltd.,
a limited partnership of which Mr. Adler is the general partner. Mr.
Adler may be deemed to be the beneficial owner of the shares of
Common Stock held by 1520 Partners, Ltd., with respect to which
shares Mr. Adler disclaims beneficial ownership.
(5) Includes 7,500 shares of Common Stock owned by Alvaro P. Escandon
Inc. Money Purchase Pension Plan dated 12/1/80, with respect to which
Mr. Escandon disclaims beneficial ownership.
(6) Includes 68,568 shares of Common Stock owned by Mr. Toledano's wife
and 22,529 shares of Common Stock owned by a trust for the benefit of
minor children of Mr. Toledano, all of which shares Mr. Toledano
disclaims beneficial ownership.
-18-
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 12,000,000 shares,
consisting of 10,000,000 shares of Common Stock, $.01 par value, and 2,000,000
shares of Preferred Stock, $.01 par value, of which 60,000 shares have been
designated Series A Preferred.
As of August 31, 1997, there were 4,286,871 shares of Common Stock
outstanding, which were held of record by approximately 67 stockholders, and
11,850 shares of Series A Preferred authorized and outstanding, which were
held of record by eleven stockholders.
Common Stock
Holders of Common Stock are entitled to one vote for each Share held
of record on all matters submitted to a vote of the stockholders. Holders of
Common Stock are not entitled to cumulative voting rights. Holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and any preferential rights to payment that holders of Series A
Preferred may have. Holders of Common Stock have no preemptive rights and no
right to convert their Common Stock into any other securities. There are no
redemption or sinking fund provisions applicable to the Common Stock. All the
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable.
Preferred Stock
Shares of Preferred Stock may be issued in one or more series and the
Board of Directors of the Company has the power to fix for each such series
such voting powers, full or limited, and such designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof as the Board of Directors
shall deem appropriate, without any further vote or action by the stockholders
of the Company.
Preferred Stock could be issued by the Board of Directors with voting
and conversion rights that could adversely affect the voting power of the
holders of the Common Stock. In addition, because the terms of the Preferred
Stock may be fixed by the Board of Directors of the Company without
stockholder action, the Preferred Stock could be issued quickly with terms
calculated to defeat or delay a proposed takeover of the Company, or to make
the removal of the management of the Company more difficult. Under certain
circumstances, this would have the effect of decreasing the market price of
the Common Stock.
The Company's Board of Directors has authorized for issuance and
sale, and designated, 60,000 shares of Preferred Stock as Series A Preferred.
These shares, priced at $100 per share, are expected to be sold by the Company
during 1997. In August 1997, the Company completed the initial closing of the
1997 Private Placement to certain accredited investors of 11,850 shares of the
Series A Preferred for an aggregate purchase price of $1,185,000. The proceeds
of the 1997 Private Placement are expected to be used for working capital. The
rights and preferences of the Series A Preferred are as follows:
Conversion: At the option of each holder, each share of Series A
Preferred is convertible at any time after the date of the issuance of such
share into such number of fully paid and nonassessable shares of the Company's
Common Stock as is determined by dividing the Liquidation Value (as
hereinafter defined) by the Conversion Price, which is the lower of (a) $5.00
per share (subject to adjustment) or (b) the average closing sale price (or if
such price
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<PAGE>
is expressed as a bid and ask price, the closing bid price) of the Common
Stock for the five trading days immediately preceding the day on which the
holder elects to convert the shares of Series A Preferred, subject in all
cases to adjustment for stock dividends, stock splits and other similar
recapitalization events; provided, however, that in no event shall the
Conversion Price be less than $3.00 per share. Notwithstanding the foregoing,
in the event that the Company, within eighteen months from the initial closing
of the 1997 Private Placement, issues and sells not less than an aggregate of
$1 million of additional shares of Common Stock (or securities convertible
into Common Stock) other than Excluded Stock (as defined in the Certificate of
Designations for the Series A Preferred) to financial investors (whether
individual or institutional) for a consideration per share of Common Stock of
less than $3.00, then and in such event, the Conversion Price in effect with
respect to the Series A Preferred will be reduced, concurrently with such
issue, to a price (calculated to the nearest cent) equal to the consideration
per share for which these additional shares are issued and sold. In addition, if
the Registration Statement of which this Prospectus is a part has not been
declared effective by the Securities and Exchange Commission by October 31,
1997, then the base price for computing the Conversion Price shall be reduced
from $5.00 per share to $4.00 per share; and if the Registration Statement of
which this Prospectus is a part has not been declared effective by November
30, 1997, then such base price shall be reduced from $4.00 per share to $3.00
per share.
Voting Rights: Except as required by Delaware law, holders of the
shares of Series A Preferred vote on an as-converted basis, as a single class
with all other stockholders of the Company, on all matters voted on by the
stockholders of the Company. In addition, the affirmative vote or written
consent of not less than a majority of the outstanding shares of the Series A
Preferred will be required to (a) amend or repeal any provision of, or add any
provision to, the Company's Certificate of Incorporation or By-Laws if such
action would alter or change the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, the Series A Preferred; (b)
reclassify any Common Stock into shares having any preference or priority as
to assets superior to or on a parity with any such preference or priority of
the Series A Preferred; or (c) create or issue any securities of the Company
which have equity features and which rank on a parity with or senior to the
Series A Preferred upon liquidation or other distribution of assets.
Liquidation Preference: Each share of Series A Preferred is entitled
to a liquidation preference equal to $100.00 per share (the "Liquidation
Value") before any distributions to holders of Common Stock or any class of
preferred stock ranking junior to the Series A Preferred.
Redemption Rights: The Company, upon written notice given not less
than twenty (20) nor more than ninety (90) days prior to the date fixed for
redemption, shall have the option to redeem all or any part of the outstanding
shares of the Series A Preferred by paying the Liquidation Value for each
share, provided that the closing sale price (or if such price is expressed as
a bid and ask price, the closing bid price) of the Common Stock is twelve
dollars ($12.00) or more for a consecutive twenty (20)-day trading period
ending not more than ten days prior to the date of the redemption notice. Each
holder of shares of Series A Preferred shall be entitled to redeem any or all
of such holder's shares of Series A Preferred in the event that the Company
breaches or fails to comply with its obligations under the Certificate of
Designations or the Stock Purchase Agreement, to the extent that the breach or
failure is material to or has a material adverse effect on the Company, and is
not cured within thirty (30) days after notice is given to the Company.
Keane Securities Co., Inc. ("Keane") served as exclusive Placement
Agent for the Company in connection with the 1997 Private Placement. As
compensation for its services, Keane receives the following compensation (i) a
selling commission of 8.0% of the gross
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<PAGE>
proceeds to the Company from the sale of the shares of Series A Preferred,
(ii) warrants to purchase, at $8.50 per share, the number of shares of the
Company's Common Stock equal to 10% of the number of shares of Common Stock
issuable upon conversion of the shares of Series A Preferred sold in the 1997
Private Placement and (iii) the reimbursement of up to $20,000 of expenses
incurred in connection with the offering and sale of the shares of Series A
Preferred.
Warrants
Merck KGaA owns 150,000 shares of Global's Common Stock and warrants
currently exercisable for another 100,000 shares of Common Stock, or an
aggregate of approximately 5.70% of the total outstanding Common Stock (as of
July 31, 1997) of the Company (on a fully diluted basis) assuming exercise of
the warrants.
Merck KGaA also has the right to acquire warrants to purchase
additional shares of Common Stock at the IPO price of $8.50 per share. These
warrants 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 revenues generated from
Ranitidine and any other products mutually agreed to by the Company and Merck
KGaA, up to a total of 700,000 shares of Common Stock.
In addition, the Company issued to certain of its officers and
directors warrants to purchase an aggregate of 42,000 shares of Common Stock
at an exercise price of $8.50. The Warrants expire on December 19, 2000.
Registration Rights
In connection with the Company's 1997 Private Placement, the Company
executed a Series A Convertible Preferred Stock Purchase Agreement (the
"Purchase Agreement") which contained provisions pertaining to registration
rights. The Purchase Agreement provides that the Company is obligated to
prepare and file, promptly following the Initial Closing Date (as defined in
the Purchase Agreement), a registration statement under the Securities Act to
permit resales of the shares of Common Stock issuable upon the conversion of
the Series A Preferred in the public trading market. The Company is obligated
to use its best efforts to cause the registration statement to become
effective as soon as practicable after such filing and keep the registration
statement effective until the earlier of (i) the redemption by the Company of
all the Series A Preferred and (ii) the sale of all the Registrable Securities
(as defined in the Purchase Agreement); but in no event later than the earlier
to occur of (i) one year after the conversion of all shares of the Series A
Preferred Stock or (ii) July 1, 2000. The Company will bear the expense of the
registration of the shares, except any underwriting discounts and commissions.
The Registration Statement of which this Prospectus is a part satisfies the
Company's obligations under the Purchase Agreement and the demand registration
rights.
PLAN OF DISTRIBUTION
The distribution of the shares of Common Stock by the Selling
Stockholders may be effected from time to time in one or more transactions
(which may involve block transactions) in the over-the-counter market or on
NASDAQ (or any exchange on which the Common Stock may then be listed) in
negotiated transactions, through the writing of options (whether such options
are listed on an options exchange or otherwise), or a combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Selling
Stockholders may effect such transactions by selling shares to or through
broker-dealers, and such broker-dealer may receive compensation in the
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<PAGE>
form of underwriting discounts, concessions or commissions from the Selling
Stockholders and/or purchasers of shares for whom they may act as agent (which
compensation may be in excess of customary commissions). The Selling
Stockholders may also sell such shares pursuant to Rule 144 promulgated under
the Securities Act, or may pledge shares as collateral for margin accounts and
such shares could be resold pursuant to the terms of such accounts. The
Selling Stockholders and any broker-dealers that act in connection with the
sale of the Common Stock might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the shares of Common Stock as principal
might be deemed to be underwriting discounts and commissions under the
Securities Act. The Selling Stockholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of
the shares against certain liabilities, including liabilities arising under
the Securities Act.
Because the Selling Stockholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the Selling
Stockholders will be subject to prospectus delivery requirements under the
Securities Act. Furthermore, in the event of a "distribution" of the shares,
such Selling Stockholders, any selling broker or dealer and any "affiliated
purchasers" may be subject to Rule 10b-6 under the Exchange Act or Regulation
M promulgated thereunder, which prohibits, with certain exceptions, any such
person from bidding for or purchasing any security which is the subject of
such distribution until his participation in that distribution is completed.
In addition, Rule 10b-7 under the Exchange Actor Regulation M promulgated
thereunder, prohibits any "stabilizing bid" or "stabilizing purchase" for the
purpose of pegging, fixing or stabilizing the price of Common Stock in
connection with this offering.
In order to comply with certain state securities laws, if applicable,
the Common Stock will not be sold in a particular state unless such securities
have been registered or qualified for sale in such state or any exemption from
registration or qualification is available and complied with.
The Company will not receive any of the proceeds from the sale of
Common Stock by the Selling Stockholders.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
hereby will be passed upon for the Company by Fulbright & Jaworski L.L.P., New
York, New York.
EXPERTS
The financial statements incorporated in this Prospectus by reference
to the Annual Report on Form 10-KSB for the year ended December 31, 1996, have
been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the Company's estimates (other than
the SEC registration fee) of the expenses in connection with the issuance and
distribution of the shares of Common Stock being registered:
SEC registration fee................................................ $ 2,022.73
Legal fees and expenses............................................. $20,000.00
Accounting fees and expenses........................................ $15,000.00
Miscellaneous expenses.............................................. $ 5,000.00
Total:........................................................... $42,022.73
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL")
empowers a Delaware corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation
or enterprise. A corporation may, in advance of the final disposition of any
civil, criminal, administrative or investigative action, suit or proceeding,
pay the expenses (including attorneys' fees) incurred by any officer,
director, employee or agent in defending such action, provided that the
director or officer undertake to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation. A
corporation may indemnify such person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
A Delaware corporation may indemnify officers and directors in an
action by or in the right of the corporation to procure a judgment in its
favor under the same conditions, except that no indemnification is permitted
without judicial approval if the officer or director is adjudged to be liable
to the corporation. Where an officer or director is successful on the merits
or otherwise in the defense of any action referred to above, the corporation
must indemnify him against the expenses (including attorneys' fees) which he
actually and reasonably incurred in connection therewith. The indemnification
provided is not deemed to be exclusive of any other rights to which an officer
or director may be entitled under any corporation's by-law, agreement, vote or
otherwise.
In accordance with Section 145 of the DGCL, Section TWELFTH of the
Company's Certificate of Incorporation, (the "Certificate") provides that the
Company shall indemnify each person who is or was a director, officer,
employee or agent of the Company (including the heirs, executors,
administrators or estate of such person) or is or was serving at the request
of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, to the
fullest extent permitted. The indemnification provided by the Certificate
shall not be deemed exclusive of any other rights to which any of those
seeking indemnification or advancement of expenses may be entitled under any
by-law,
II-1
<PAGE>
agreement, vote of shareholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person. Expenses (including
attorneys' fees) incurred in defending a civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the indemnified person to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Company. Section ELEVENTH of the Certificate provides that
a director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit. The By-laws of the Company
provide that, to the fullest extent permitted by applicable law, the Company
shall indemnify any person who is a party or otherwise involved in any
proceeding by reason of the fact that such person is or was a director or
officer of the Company or was serving at the request of the Company.
Item 16. Exhibits.
Exhibit Description of Document
Number -----------------------
-------
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)
3.3 Certificate of the Designations, Powers, Preferences and Rights of
the Series A Convertible Preferred Stock of the Company.
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)
5.1 Opinion of Fulbright & Jaworski L.L.P.
23.1 Consent of Price Waterhouse LLP.
24.1 Power of Attorney (included on signature page).
27 Financial Data Schedule. (2)
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).
(2) Previously filed with the Commission as Exhibits to, and incorporated
herein by referenced from, the Registrant's Annual Report on Form
10-KSB for the year 1996.
II-2
<PAGE>
Item 17. Undertakings.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
the Registrant hereby certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing in Form S-3 and has authorized
this Registration Statement to be signed on its behalf by the undersigned, in
the City of Philadelphia and State of Pennsylvania on the 12th day of
September, 1997.
GLOBAL PHARMACEUTICAL
CORPORATION
By: /s/ MAX L. MENDELSOHN
----------------------------------
Max L. Mendelsohn
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Max L. Mendelsohn and Cornel C.
Spiegler, or either of them, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting said
attorney-in-fact and agent, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
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<PAGE>
/s/ MAX L. MENDELSOHN President and Chief Executive September 12, 1997
- --------------------- Officer and Director (Principal
(Max L. Mendelsohn) Executive Officer)
/s/ CORNEL C. SPIEGLER Chief Financial Officer, September 12, 1997
- ---------------------- Vice President--Administration
(Cornel C. Spiegler) (Principal Financial and
Accounting Officer)
/s/ FREDERICK R. ADLER Director September 12, 1997
- ----------------------
(Frederick R. Adler)
/s/ PHILIP R. CHAPMAN Director September 12, 1997
- ---------------------
(Philip R. Chapman)
/s/ GARY ESCANDON Director September 12, 1997
- -------------------
(Gary Escandon)
/s/ GEORGE F. KEANE Director September 12, 1997
- -------------------
(George F. Keane)
/s/ JOHN W. ROWE Director September 12, 1997
- ----------------
(John W. Rowe)
/s/ UDI TOLEDANO Director September 12, 1997
- ----------------
(Udi Toledano)
/s/ RICHARD N. WIENER Director September 12, 1997
- ---------------------
(Richard N. Wiener)
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Description of Document
Number -----------------------
-------
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)
3.3 Certificate of the Designations, Powers, Preferences and Rights of
the Series A Convertible Preferred Stock of the Company.
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)
5.1 Opinion of Fulbright & Jaworski L.L.P.
23.1 Consent of Price Waterhouse LLP.
24.1 Power of Attorney (included on signature page).
27 Financial Data Schedule. (2)
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).
(2) Previously filed with the Commission as Exhibits to, and incorporated
herein by referenced from, the Registrant's Annual Report on Form
10-KSB for the year 1996.
<PAGE>
CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES AND RIGHTS
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
(Par Value $.01 Per Share)
of
GLOBAL PHARMACEUTICAL CORPORATION
--------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
--------------------
Global Pharmaceutical Corporation, a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Corporation"), by its President and Secretary,
DOES HEREBY CERTIFY:
FIRST: That, pursuant to authority expressly vested in the
Board of Directors of said corporation by the provisions of its Certificate of
Incorporation, as amended, the said Board of Directors duly adopted the
following resolution providing for the designation and issuance of sixty
thousand (60,000) shares of Series A Convertible Preferred Stock, $.01 par
value:
RESOLVED, that this Board of Directors, pursuant to
authority expressly vested in it by the provisions of the Certificate of
Incorporation of the Corporation, hereby authorizes the issue from time to
time of a series of Preferred Stock of the Corporation and hereby fixes the
designation, preferences and the relative, participating, optional or other
rights, and the qualifications, limitations or restrictions thereof, in
addition to those set forth in said Certificate of Incorporation, to be in
their entirety as follows:
Section 1. Number of Shares and Designation. Sixty thousand
(60,000) shares of the preferred stock, $.01 par value, of the Corporation are
hereby constituted
<PAGE>
as a series of preferred stock of the Corporation designated as "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock").
Section 2. Liquidation Rights. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of each share of Series A Preferred Stock outstanding
on the date of such liquidation, dissolution or winding up of the affairs of
the Corporation shall be entitled to receive, prior to and in preference to
any distribution of any of the assets or surplus funds of the Corporation to
the holders of the Common Stock of the Corporation, par value $.01 per share
(the "Common Stock"), or any other class of Preferred Stock of the
Corporation, by reason of their ownership thereof, an amount equal to one
hundred dollars ($100.00) per share (the "Liquidation Value") of each share of
Series A Preferred Stock held by the holders (subject to adjustment for stock
splits, combinations, reclassifications or similar events affecting such
shares).
All of the preferential amounts to be paid to the holders of
the Series A Preferred Stock under this Section 2 shall be paid or set apart
for payment before the payment or setting apart for payment of any amount for,
or the distribution of any assets of the Corporation to, the holders of the
Common Stock or any other class of Preferred Stock in connection with such
liquidation, dissolution or winding up. After the payment or the setting apart
for payment to the holders of the Series A Preferred Stock of the preferential
amounts so payable to them and the preferential amounts payable to any other
classes of Preferred Stock, the holders of the Series A Preferred Stock shall
be entitled to receive, pro rata with the Common Stock, as if the Series A
Preferred Stock is converted into the number of shares of Common Stock into
which the Series A Preferred Stock is then convertible pursuant to Section
4(a), all remaining assets of the Corporation. If the assets or surplus funds
to be distributed to the holders of the Series A Preferred Stock are
insufficient to permit the payment to such holders of their full preferential
amount, the assets and surplus funds legally available for distribution shall
be distributed ratably among the holders of the Series A Preferred Stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive.
Section 3. Merger, Consolidation, Sale of Assets. Any merger
or consolidation of the Corporation with or into another corporation in which
the Corporation shall not survive, or the sale or transfer of all or
substantially all of the assets of the Corporation to another entity, or a
merger or consolidation in which the Corporation is the survivor but its
Common Stock is exchanged for stock, securities or property of another entity
shall be treated as a liquidation, dissolution or winding up of the
Corporation and shall entitle the holder of Series A Preferred Stock to
receive at the closing, in cash, securities or other property, amounts as
specified in Section 2.
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<PAGE>
Section 4. Conversion into Common Stock. The holder of any
shares of the Series A Preferred Stock shall have conversion rights as follows
(the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, without the payment of any additional consideration by
the holder thereof and at the option of the holder thereof, at any time after
the date of issuance of such share, at the office of the Corporation or any
transfer agent for the Series A Preferred Stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing the
Liquidation Value by the Conversion Price, determined as hereinafter provided,
with respect to such shares. The Conversion Price shall be the lower of (a)
$5.00 per share (subject to adjustment pursuant to Section 7.2 of that certain
Series A Convertible Preferred Stock Purchase Agreement, dated August 12, 1997
(the "Purchase Agreement"), by and among the Corporation and the Purchasers
named therein) or (b) the average closing sale price (or if such price is
expressed as a bid and ask price, the closing bid price) of the Common Stock
for the five trading days immediately preceding the day on which the holder
elects to convert the Series A Preferred Stock; provided, however, that in no
event shall the Conversion Price be less than $3.00 per share. Notwithstanding
the foregoing, in the event that the Corporation, within eighteen months from
the Initial Closing (as such term is definedin the Purchase Agreement), issues
and sells not less than an aggregate of $1 million of additional shares of
Common Stock (or securities convertible into Common Stock) other than Excluded
Stock (as hereinafter defined) to financial investors (whether individual or
institutional) for a consideration per share of Common Stock of less than
$3.00, then and in such event, the Conversion Price in effect with respect to
the Series A Preferred Stock shall be reduced, concurrently with such issue,
to a price (calculated to the nearest cent) equal to the consideration per
share for which such additional shares are issued and sold. As used in this
Section 4(a), "Excluded Stock" shall mean (i) shares of Common Stock (or
securities convertible into Common Stock) or options for the purchase of
Common Stock issued, sold or granted by the Corporation to any of its
employees, directors or consultants pursuant to a bona fide employee stock
purchase, option or similar benefit plan or incentive program or other
compensation arrangement approved by the Board of Directors of the Corporation
or (ii) shares of Common Stock (or securities convertible into Common Stock)
issued, sold or granted to joint venturers, partnering entities or other
companies with which the Corporation has a relationship involving or
pertaining to product development, or the manufacturing, development,
marketing or repackaging of products or any analogous relationship. The
Conversion Price at which shares of Common Stock shall be deliverable upon
conversion of Series A Preferred Stock without the payment of any additional
consideration by the holder thereof, shall be subject to adjustment, in order
to adjust the number of shares of Common Stock into which the Series A
Preferred Stock is convertible, as provided in this Section 4.
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<PAGE>
(b) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of the Series A Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then fair
market value of the Common Stock as determined by the Board of Directors in
good faith. Before any holder of Series A Preferred Stock shall be entitled to
receive certificates representing shares of Common Stock issuable upon
conversion of the Series A Preferred Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred Stock, and
shall give written notice to the Corporation at such office in the manner
specified in the Purchase Agreement (which notice shall be irrevocable once
tendered) that such holder elects to convert the same, and shall state therein
such holder's name or the name or names of such holder's nominees in which
such holder wishes the certificate or certificates for shares of Common Stock
to be issued. The Corporation shall, as soon as practicable after receipt of
the certificate(s) representing Series A Preferred Stock, issue and deliver at
such office to such holder of Series A Preferred Stock, or to such holder's
nominee or nominees, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled as aforesaid, together
with cash in lieu of any fraction of a share, and a certificate or
certificates for such shares of Series A Preferred Stock as were represented
by the certificates surrendered and not converted. Conversions pursuant to
Section 4(a) shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Preferred
Stock to be converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on
such date.
(c) Adjustment to Conversion Price for Stock Splits,
Combinations, Dividends and Distributions.
(i) Stock Splits and Combinations. In the event the
Corporation shall at any time or from time to time effect a
subdivision of the outstanding Common Stock, the Conversion
Price then in effect immediately before that subdivision
shall be proportionately decreased, and, conversely, in the
event the Corporation shall at any time or from time to time
combine the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any
adjustment pursuant to this Section 4(c)(i) shall become
effective at the close of business on the date the
subdivision or combination becomes effective.
(ii) Dividends and Distributions of Common Stock.
In the event the Corporation at any time or from time to
time shall make or issue, or fix a record date for the
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determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such
event the Conversion Price then in effect shall be decreased
as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of
business on such record date, by multiplying the Conversion
Price then in effect by a fraction:
(x) the numerator of which shall be the
total number of shares of Common Stock issued and
outstanding immediately prior to the time of such
issuance or the close of business on such record
date, and
(y) the denominator of which shall be the
total number of shares of Common Stock issued and
outstanding immediately prior to the time of such
issuance or the close of business on such record
date plus the number of shares of Common Stock
issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed
and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Conversion
Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the Conversion
Price shall be adjusted pursuant to this Section 4(c)(ii) as
of the time of actual payment of such dividends or
distributions.
(iii) Other Dividends and Distributions. In the
event the Corporation at any time or from time to time shall
make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation
other than shares of Common Stock, then and in each such
event provision shall be made so that the holders of the
Series A Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the
Corporation that they would have received had their Series A
Preferred Stock been converted into Common Stock on the date
of such event and had thereafter, during the period from the
date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid
during such period giving application to all adjustments
called for during such period under this Section 4 with
respect to the rights of holders of the Series A Preferred
Stock.
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(d) Adjustment for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon the conversion of the Series A
Preferred Stock shall be changed into the same or a different number of shares
of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for in Section 4(c), or a reorganization,
merger, consolidation or sale of assets provided for in Section 3, then and in
each such event the holder of each share of Series A Preferred Stock shall
have the right thereafter to convert such share into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which such shares of Series A Preferred Stock
might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided in
this Section 4.
(e) No Impairment. The Corporation shall not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed under this Section 4 by the
Corporation but shall at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of
the holders of the Series A Preferred Stock that by its terms is convertible
against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price of the Series A
Preferred Stock pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of the Series A Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of such
Series A Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii)
the Conversion Price at the time in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of the Series A Preferred Stock.
(g) Notices of Record Date. In the event of any taking by
the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid
in previous quarters) or other distribution, the Corporation shall mail to
each holder of Series A Preferred Stock, at least ten (10) days prior to the
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date specified herein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend or distribution.
(h) Common Stock Reserved. The Corporation shall reserve and
keep available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Series A Preferred Stock. If the Conversion Price of the
Series A Preferred Stock is at any time less than the par value of the Common
Stock, the Corporation shall cause to be taken such action (whether by
lowering the par value of the Common Stock, by converting the Common Stock
from par value to no par value, or otherwise) as will permit the conversion of
the Series A Preferred Stock without any additional payment by the holder
thereof and the issuance of the Common Stock, which Common Stock, upon
issuance, will be fully paid and nonassessable.
Section 5. Redemption.
(a) Redemption at the Option of the Corporation. The
Corporation, at the option of the Board of Directors, may, at any time and
from time to time upon written notice (which notice shall specify the date and
place of redemption and the number of shares and the certificate numbers
thereof which are to be redeemed) given not less than twenty (20) nor more
than ninety (90) days prior to the date fixed for redemption, redeem all or
any part of the outstanding shares of the Series A Preferred Stock by paying
therefor in cash the Liquidation Value for each share, provided that the
closing sale price (or if such price is expressed as a bid and ask price, the
closing bid price) of the Common Stock for a consecutive twenty (20)-day
trading period ending not more than ten (10) days prior to the date of such
notice is twelve dollars ($12.00) or more. At least two business days prior to
the redemption date specified in such notice, each holder of the Series A
Preferred Stock may give the Corporation written instructions with respect to
the application of funds legally available for redemption of such holder's
shares of the Series A Preferred Stock.
(b) Redemption at the Option of the Holder. In the event
that the Corporation breaches or fails to comply with its obligations under
this Certificate of Designations or the Purchase Agreement, which breach or
failure is material or has a material adverse effect on the business or
prospects of the Corporation, and such breach or failure of compliance
continues for a period of thirty (30) days after notice thereof has been given
to the Corporation, then each holder of shares of the Series A Preferred Stock
shall be entitled to compel the Corporation to redeem any or all of such
holder's shares of the Series A Preferred Stock; provided that such redeeming
holder shall have given written notice thereof to the Corporation at least
forty-five (45) days prior to the requested date of redemption. Such notice
shall state the number of shares of the Series A Preferred Stock to be
redeemed. On or after the redemption date, as specified in such notice, the
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holder requesting redemption shall surrender such holder's certificate for the
number of shares to be redeemed as stated in the notice to the Corporation. On
such redemption date, to the extent the Corporation shall have funds legally
available therefor, the Corporation shall redeem the shares of the Series A
Preferred Stock requested to be redeemed at the Liquidation Value. To the
extent there are insufficient funds legally available for redemption of all
shares of the Series A Preferred Stock requested to be redeemed, legally
available funds shall be applied to each holder's shares of the Series A
Preferred Stock pro rata in accordance with the number of shares requested to
be redeemed by each holder of shares of the Series A Preferred Stock, and each
holder's shares shall be redeemed in accordance with the instructions received
from such holder or, if no instructions are received from a holder, such
holder's shares of the Series A Preferred Stock shall be redeemed pro rata in
accordance with the number of shares of the Series A Preferred Stock held by
such holder. As soon as practicable, the Corporation shall give written notice
to each holder of shares of the Series A Preferred Stock redeemed or to be
redeemed indicating the number of shares redeemed or to be redeemed and the
certificate numbers thereof. If less than all of the shares of the Series A
Preferred Stock requested to be redeemed are redeemed, all unredeemed shares
shall remain outstanding and shall be entitled to all the rights and
preferences of outstanding shares of the Series A Preferred Stock hereunder.
In case less than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.
(c) Legally Available Funds. For the purpose of determining
whether funds are legally available for redemption of shares of the Series A
Preferred Stock as provided herein, the Corporation shall value its assets at
the highest amount permissible under applicable law. If on any redemption date
funds of the Corporation legally available therefor shall be insufficient to
redeem all the shares of the Series A Preferred Stock required to be redeemed
as provided herein, funds to the extent legally available shall be used for
such purpose and the Corporation shall apply such funds to each holder's
shares of the Series A Preferred Stock pro rata according to the number of
shares held by each holder of the Series A Preferred Stock and each holder's
shares shall be redeemed in accordance with the instructions received from
such holder or, if no instructions are received from a holder, such holder's
shares of the Series A Preferred Stock shall be redeemed pro rata in
accordance with the number of shares of the Series A Preferred Stock held by
such holder.
(d) Failure to Redeem. In the event the Corporation fails to
redeem any shares of the Series A Preferred Stock pursuant to Section 5(a)
because it does not have funds legally available for such redemption, the
shares for which redemption is required but which are not redeemed shall
remain outstanding, and shall be entitled to all the rights and preferences of
outstanding shares of the Series A Preferred Stock hereunder. In such event,
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the Corporation shall use its best efforts to effect the required redemption
and the Corporation's redemption obligation shall be discharged as soon as the
Corporation is able to discharge such obligation.
(e) Termination of Conversion. In the event the Corporation
has mailed written notice of redemption to the holders of record of shares of
the Series A Preferred Stock in accordance with the terms of Section 5(a)
hereof, the holder's right to convert such shares called for redemption shall
cease at the close of business on the redemption date, unless the Corporation
defaults in the payment of the redemption price.
Section 6. Voting Rights. In addition to the voting rights
required by the laws of the State of Delaware and by Section 7, the holders of
shares of Series A Preferred Stock shall vote, as a single class with all
other stockholders of the Corporation, on all matters voted on by the
stockholders of the Corporation, with each such holder of Series A Preferred
Stock entitled to the number of votes equal to the number of shares of Common
Stock into which such holder's shares would then be convertible. Except as set
forth herein, or as otherwise provided by law, holders of Series A Preferred
Stock shall have no special voting rights and their consent shall not be
required for taking any corporate action.
Section 7. Covenants. So long as any of the shares of Series
A Preferred Stock authorized hereby shall be outstanding, the Corporation
shall not, without first obtaining the affirmative vote or written consent of
not less than a majority of such outstanding shares of Series A Preferred
Stock:
(a) amend or repeal any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or
By-laws if such action would alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit
of, the Series A Preferred Stock;
(b) reclassify any Common Stock into shares having
any preference or priority as to assets superior to or on a parity
with any such preference or priority of the Series A Preferred Stock;
or
(c) create or issue any securities of the
Corporation which have equity features and which rank on a parity
with or senior to the Series A Preferred Stock upon liquidation or
other distribution of assets.
Section 8. Status of Converted or Reacquired Stock. Any
shares of Series A Preferred Stock purchased, redeemed or otherwise acquired
by the Corporation in any manner whatsoever, and any shares of Series A
Preferred Stock converted pursuant to Section 4 hereof shall be retired and
cancelled promptly after the acquisition or conversion thereof. All such
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shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in
the Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
SECOND: That said determination of the designation,
preferences and the relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, relating to said Series A
Convertible Preferred Stock, was duly made by the Board of Directors pursuant
to the provisions of the Certificate of Incorporation of the Corporation, as
amended, and in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, as amended.
IN WITNESS WHEREOF, Global Pharmaceutical Corporation has
caused this Certificate of Designations to be executed this 12th day of
August, 1997.
Attest: Global Pharmaceutical Corporation
By: /s/ Cornel C. Spiegler By: /s/ Max L. Mendelsohn
-------------------------- -------------------------
Name: Cornel C. Spiegler Name: Max L. Mendelsohn
Title:Secretary Title: President/Chief Executive Officer
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EXHIBIT 5.1
[LETTERHEAD OF FULBRIGHT & JAWORSKI LLP]
September 12, 1997
Global Pharmaceutical Corporation
Castor & Kensington Avenues
Philadelphia, PA 19124-5694
Dear Sirs:
We refer to the Registration Statement on Form S-3 (the "Registration
Statement"), filed by Global Pharmaceutical Corporation (the "Company") on
behalf of certain selling stockholders with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), relating
to 1,200,000 shares of the Company's Common Stock, $.01 par value (the
"Shares") issuable upon conversion of the Company's Series A Convertible
Preferred Stock, $.01 par value (the "Series A Preferred").
As counsel for the Company, we have examined such corporate records,
documents and such questions of law as we have considered necessary or
appropriate for the purposes of this opinion and, upon the basis of such
examination, advise you that in our opinion the Shares issuable upon the
conversion of the Series A Preferred have been duly and validly authorized
and, subsequent to the conversion of the Series A Preferred, will be legally
issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the prospectus contained therein and elsewhere in the Registration
Statement and prospectus. This consent is not to be construed as an admission
that we are a party whose consent is required to be filed with the
Registration Statement under the provisions of the Act.
Very truly yours,
/s/ Fulbright & Jaworski L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
April 11, 1997 appearing on page F-2 of Global Pharmaceutical Corporation's
Annual Report on Form 10-KSB for the year ended December 31, 1996. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Philadelphia, PA
September 12, 1997
