<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-27354
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Global Pharmaceutical Corporation
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(Name of small business issuer in its charter)
Delaware 65-0403311
- -------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Castor & Kensington Aves., Philadelphia, PA 19124-5694
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (215) 289-2220
---------------
Not Applicable
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(Former name, former address, and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- ------
As of July 31, 1998, the number of shares outstanding of each of the
issuer's classes of common equity was 4,465,597 shares of common stock ($0.01
par value).
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
GLOBAL PHARMACEUTICAL CORPORATION
BALANCE SHEET
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 979 $ 4,719
Accounts receivable............................................ 1,136 215
Inventories.................................................... 569 386
Prepaid expenses and other..................................... 100 46
-------- --------
Total current assets....................................... 2,784 5,366
Property, plant and equipment, net................................... 4,223 4,077
Intangible assets, net of accumulated amortization of $118 and $59... 1,000 1,118
Deferred financing costs, net........................................ 33 32
Investments.......................................................... 729 729
------- --------
Total assets................................................ $ 8,769 $ 11,322
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................ $ 158 $ 158
Accounts payable................................................. 625 673
Accrued expenses................................................. 591 649
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Total current liabilities................................... 1,374 1,480
Long-term debt........................................................ 2,050 2,129
------- --------
3,424 3,609
------- --------
Mandatorily redeemable preferred stock:
Series A mandatorily redeemable convertible preferred stock,
12,400 shares and 13,350 shares, respectively, outstanding,
$.01 par value, redeemable at $100 per share................... 1,240 1,335
Series B mandatorily redeemable convertible preferred stock,
46,035 shares and 50,000 shares, respectively, outstanding,
$.01 par value, redeemable at $100 per share ................. 4,603 5,000
------- --------
5,843 6,335
------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 authorized 58,435
and 63,350 shares issued and outstanding ..................... -- --
Common stock, $.01 par value, 10,000,000 authorized and
4,465,597 shares and 4,286,871 shares, respectively, issued
and outstanding................................................ 45 43
Additional paid-in capital........................................ 19,780 19,311
Accumulated deficit............................................... (20,323) (17,976)
------- --------
Total stockholders' equity .................................. (498) 1,378
------- --------
Total liabilities and stockholders' equity................... $ 8,769 $ 11,322
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF OPERATIONS
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
(unaudited) (unaudited)
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 1,020 $ -- $ 1,918 $ --
Cost of sales 1,098 -- 2,255 --
---------- ---------- ---------- --------
Gross margin (loss) (78) -- (337) --
Research and development (see note 2) 655 -- 1,247 --
Selling expenses (see note 2) 254 -- 385 --
General and administrative (see note 2) 400 1,411 789 2,610
Interest expense 17 7 39 20
Interest income (36) (21) (98) (63)
Other income (20) -- (424) (120)
Other expense 10 -- 72 --
---------- ---------- ---------- --------
Net loss $ (1,358) $ (1,397) $ (2,347) $ (2,447)
========== ========== ========== ========
Net loss per share (basic) $ (0.31) $ (0.33) $ (0.54) $ (0.57)
========== ========== ========== ========
Net loss per share (diluted) $ (0.31) $ (0.33) $ (0.54) $ (0.57)
========== ========== ========== ========
Weighted average common shares outstanding $4,451,855 $4,286,871 $4,370,472 4,286,871
========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Common stock Total
------------ Additional stockholders'
Number of Par paid-in Accumulated equity
shares value capital deficit (deficit)
---------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994........................ 1,942 $ 19 $ 2,393 $ (3,028) $ (616)
Issuance of common stock:
Conversion of stockholder loans.................... 297 4 2,473 -- 2,477
Stock and warrants issued to Merck KGaA............ 150 1 299 -- 300
Sale of stock to Merck KGaA........................ -- -- 938 -- 938
Initial public offering on December 31, 1995....... 1,650 16 11,472 -- 11,488
Net loss............................................. -- -- -- (4,463) (4,463)
------ ---- ------- -------- -------
Balances at December 31, 1995........................ 4,039 40 17,575 (7,491) 10,124
Issuance of common stock for over-allotment exercise
on January 29, 1996................................ 248 3 1,832 -- 1,835
Net loss............................................. -- -- -- (4,608) (4,608)
------ ---- ------- -------- -------
Balances at December 31, 1996........................ 4,287 43 19,407 (12,099) 7,351
Issuance of convertible preferred stock.............. -- -- 2,547 -- 2,547
Accretion of preferred stock dividend................ -- -- (2,547) -- (2,547)
Expenses relating to issuance of Series A and
Series B Preferred Stock........................... -- -- (96) -- (96)
Net loss............................................. -- -- -- (5,877) (5,877)
------ ---- ------- -------- -------
Balances at December 31, 1997........................ 4,287 43 19,311 (17,976) 1,378
Conversion of Series A Preferred Stock into common
stock.............................................. 35 -- 95 -- 95
Issuance of Warrants................................. -- -- 10 -- 10
Conversion of Series B Preferred Stock into common
stock.............................................. 144 2 396 -- 398
Expenses relating to issuance of Series B
Preferred Stock ................................... -- -- (32) (32)
Net loss ............................................ -- -- -- (2,347) (2,347)
------ ---- ------- -------- -------
Balances at June 30, 1998............................ 4,466 $ 45 $19,780 $(20,323) $ (498)
====== ==== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
GLOBAL PHARMACEUTICAL CORPORATION
STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................... $ (2,347) $(2,447)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization ....................................... 358 191
Expenses paid through issuance of warrants .......................... 10 --
Change in assets and liabilities:
(Increase) in accounts receivable.................................. (921) --
(Increase) in inventory............................................ (183) (112)
(Increase) in prepaid expenses and other assets ................... (55) (20)
(Decrease) in accounts payable and accrued expenses ............... (104) (345)
------- ------
Net cash used for operating activities ........................ (3,242) (2,733)
------- ------
Cash flows from investing activities:
Purchases of property, plant and equipment............................ (386) (301)
------- ------
Net cash used for investing activities......................... (386) (301)
------- ------
Cash flows from financing activities:
Long-term debt repayments.............................................. (80) (45)
Issuance of stock and warrants:
Costs associated with issuance of Series B Preferred Stock......... (32) --
------- ------
Net cash used for financing activities ........................ (112) (45)
------- ------
Net (decrease) in cash and cash equivalents................................ (3,740) (3,079)
Cash and cash equivalents, beginning of period............................. $ 4,719 $ 4,044
------- ------
Cash and cash equivalents, end of period................................... 979 965
======= ======
Supplemental disclosure of cash flow information:
Cash paid for interest................................................. $ 39 $ 20
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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GLOBAL PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
Six Months Ended
June 30, 1998 and June 30, 1997
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 and
maintain governmental approvals, the ability to adequately fund its operating
requirements, the impact of competitive products and pricing, product demand and
market acceptance, new product development, reliance on key strategic alliances,
the 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.
Note 1: The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's latest annual report on Form 10-KSB.
The results of operations for the six months ended June 30, 1998, are not
necessarily indicative of the results of operations expected for the year ending
December 31, 1998.
In the opinion of management, the information contained in this report
reflects all adjustments necessary, which are of a normal recurring nature, to
present fairly the results for the interim periods presented.
Note 2: The amount reported as general and administrative expenses for the
three months and six months ended June 30, 1997, when the Company was still a
developmental stage company, was $1,411,000 and $2,610,000, respectively, and
included operational, research and development and selling expenses.
6
<PAGE>
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
During the three months ended June 30, 1998, the Company commenced
shipments of the following new products: Mephobarbital 32 mg, 50 mg and 100 mg
tablets, a sedative, and Lipram (Pancrelipase) 10,000 unit capsules. The Lipram
10,000 unit capsule complements the 4,500 unit strength Lipram product which the
Company began shipping in 1997. Both Lipram products are marketed and sold under
an exclusive agreement with Eurand America, a unit of American Home Products.
During July 1998, the Company has commenced shipments of another new product,
Promethazine Hydrochloride 25 mg tablets, an antihistamine.
Results of Operations
The Company's net loss for the three months ended June 30, 1998 was
$1,358,000, as compared to a net loss of $1,397,000 in the same period in 1997.
The net sales for the three months ended June 30, 1998 were $1,020,000, as
compared to zero in the comparable period in 1997, during which time Global was
still a development stage company. Upon receipt of FDA notification indicating
compliance with Current Good Manufacturing Practices ("cGMP's"), the Company
became operational in the quarter ended December 31, 1997.
The cost of sales of $1,098,000 for the three months ended June 30, 1998
had associated cost of goods sold of $461,000 and an unabsorbed manufacturing
overhead of $637,000 representing the under capacity utilization of the plant
and infrastructure. For the three months ended June 30, 1997, the comparable
operational costs were estimated at $835,000 and were reported as part of the
general and administrative expenses.
The research and development costs for the three months ended June 30, 1998
were $655,000; the research and development costs for the three months ended
June 30, 1997 were estimated at $58,000 and were reported as part of the general
and administrative expenses.
The selling expenses for the three months ended June 30, 1998 were
$254,000; the selling expenses for the three months ended June 30, 1997 were
estimated at $68,000 and were reported as part of the general and administrative
expenses.
The general and administrative expenses were $400,000 for the three months
ended June 30, 1998 as compared to an estimated $450,000 for the same period in
1997. The amount reported as general and administrative expenses for the three
months ended June 30, 1997, when Global was still a development stage company,
was $1,411,000, and included operational, research and development and selling
expenses, as previously indicated.
7
<PAGE>
The interest expense was $17,000 for the three months ended June 30, 1998
as compared to $7,000 in the same period of 1997, due to additional borrowings
from the Pennsylvania Industrial Development Authority ("PIDA") and the Delaware
River Port Authority ("DRPA") through the Philadelphia Industrial Development
Corporation ("PIDC").
The interest income was $36,000 for the three months ended June 30, 1998 as
compared to $21,000 in the same period of 1997 due to an increase in investments
in cash equivalents resulting from the Series B Preferred Stock financing.
The Company's net loss for the six months ended June 30, 1998 was
$2,347,000, as compared to a net loss of $2,447,000 in the same period in 1997.
The net sales for the six months ended June 30, 1998 were $1,918,000, as
compared to zero in the comparable period in 1997, during which time Global was
still a development stage company.
The cost of sales of $2,255,000 for the six months ended June 30, 1998 had
associated cost of goods sold of $912,000 and an unabsorbed manufacturing
overhead of $1,343,000 representing the under capacity utilization of the plant
and infrastructure. For the six months ended June 30, 1997, the comparable
operational costs were estimated at $1,544,000 and were reported as part of the
general and administrative expenses.
The research and development costs for the six months ended June 30, 1998
were $1,247,000; the research and development costs for the six months ended
June 30, 1997 were estimated at $108,000 and were reported as part of the
general and administrative expenses.
The selling expenses for the six months ended June 30, 1998 were $385,000;
the selling expenses for the six months ended June 30, 1997 were estimated at
$98,000 and were reported as part of the general and administrative expenses.
The general and administrative expenses were $789,000 for the six months
ended June 30, 1998 as compared to an estimated $860,000 for the same period in
1997. The amount reported as general and administrative expenses for the six
months ended June 30, 1997, when Global was still a development stage company,
was $2,610,000, and included operational, research and development and selling
expenses, as previously indicated.
The interest expense was $39,000 for the six months ended June 30, 1998 as
compared to $20,000 in the same period of 1997 due to additional borrowings from
the PIDA and the DRPA through the PIDC.
The interest income was $98,000 for the six months ended June 30, 1998 as
compared to $63,000 in the same period of 1997 due to an increase in investments
in cash equivalents resulting from the Series B Preferred Stock financing.
8
<PAGE>
The other income of $424,000 for the six months ended June 30, 1998
included payments of $417,000 for the U.S. Ranitidine profit distribution from
Genpharm, Inc. ("Genpharm"). The other income of $120,000 generated during the
six months ended June 30, 1997 was due primarily to an amount received from a
supplier for a claim relating to unacceptable materials purchased from the
supplier.
The other expense of $72,000 for the six months ended June 30, 1998
represents amounts due to a sales organization for a one time non-repeating
profit sharing arrangement for the distribution of one of the Company's
products.
Liquidity and Capital Resources
On December 19, 1995, the Company completed its initial public offering
("IPO") of common stock, in which 1,650,000 shares of common stock were sold by
the Company for net proceeds of $11,488,000. An additional 247,500 shares of
common stock were sold to the underwriter of the IPO in January 1996, upon the
exercise of the underwriters' over-allotment option for net proceeds to the
Company of $1,835,000.
On July 29, 1997 the Company received a $758,000 loan from PIDA at 3.75%
annually fixed for 15 years and a $350,000 loan from the DRPA via PIDC at 5%
annually fixed for 10 years. These loans were partially used to fund capital
projects, and are secured by land, building and building improvements. The
remaining proceeds of $729,000 were invested in interest bearing Certificates of
Deposit owned by the Company and pledged as additional collateral for these
loans.
The Company completed an initial closing of approximately $1.2 million of
its Series A Mandatorily Redeemable Convertible Preferred Stock on August 19,
1997 and a subsequent closing of $150,000 on September 24, 1997. The Company
filed a S-3 Registration Statement covering an aggregate of 1,200,000 shares of
common stock, which became effective on October 22, 1997. In addition, the
Company completed the closing of $5 million of its Series B Mandatorily
Redeemable Convertible Preferred Stock on December 1, 1997. The Company filed a
S-3 Registration Statement covering an aggregate of 1,818,182 shares of common
stock, which became effective on February 9, 1998.
On July 23, 1998, the Company entered into a revolving credit facility with
GE Capital, providing funding to the Company of up to $5 million based on levels
of accounts receivable and inventory. This credit facility is for 3 years and is
expected to be used for working capital needs.
The Company believes that it may require additional financing to fund the
expansion of product development activities. The Company expects to be able to
obtain such financing through equity financing, collaborative arrangements with
corporate partners, or through other sources, although no assurance can be given
that any financing will be available to the Company on acceptable terms, if at
all.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None Applicable.
Item 2. Changes in securities: None Applicable
Item 3. Defaults Upon Senior Securities: None Applicable
Item 4. Submission of Matters to a Vote of Security Holders:
At the Company's Annual Meeting of Stockholders held on May 12, 1998, the
following actions were approved, by the votes indicated:
1. Seven directors were elected:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Philip R. Chapman 5,625,847 For 1,900 Against/Withheld 0 Abstaining
--------- ----- -
Gary Escandon 5,625,847 For 1,900 Against/Withheld 0 Abstaining
--------- ----- -
George F. Keane 5,624,847 For 2,900 Against/Withheld 0 Abstaining
--------- ----- -
Michael Markbreiter 5,623,847 For 3,900 Against/Withheld 0 Abstaining
--------- ----- -
Max L. Mendelsohn 5,625,847 For 1,900 Against/Withheld 0 Abstaining
--------- ----- -
John W. Rowe, M.D. 5,624,847 For 2,900 Against/Withheld 0 Abstaining
--------- ----- -
Udi Toledano 5,625,847 For 1,900 Against/Withheld 0 Abstaining
--------- ----- -
</TABLE>
2. The Company's 1995 Stock Incentive Plan was amended to increase the number of
shares of Common Stock issuable thereunder and to provide for an annual grant of
stock options to certain non-employee directors.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
5,321,437 For 305,010 Against/Withheld 1,300 Abstaining
- --------- ------- -----
</TABLE>
3. The appointment of Price Waterhouse LLP as the Company's independent
accountants for the year ending December 31, 1998 was ratified.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
5,627,547 For 200 Against/Withheld 0 Abstaining
- --------- --- -
</TABLE>
Item 5. Other Information: None Applicable
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
10.45 Employment agreement by and between the Company and Barry
Edwards dated March 25, 1998.
27. Financial Data Schedule
10
<PAGE>
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBAL PHARMACEUTICAL CORPORATION
By: /s/ MAX L. MENDELSOHN
-------------------------------------
President and Chief Executive Officer (Principal
Executive Officer)
By: /s/ CORNEL C. SPIEGLER
-------------------------------------
Chief Financial Officer, (Principal Financial
Vice President--Administration and Accounting
Officer)
11
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of March 25, 1998 by and between GLOBAL
PHARMACEUTICAL CORPORATION, a Delaware corporation (hereinafter referred to as
the "Corporation"), and Barry Edwards (hereinafter referred to as "Executive").
In consideration of the mutual promises set forth herein the parties
hereto agree as follows:
ARTICLE I.
Term of Employment
A. Upon the terms and subject to the conditions set forth herein, the
Corporation will employ Executive on the terms provided in this Agreement from
April 20, 1998 (the "Effective Date") until the date the employment of the
Executive shall terminate pursuant to Article IV hereof. (The period during
which Executive is employed hereunder is referred to herein as the "term of
employment.") Executive shall work for the Corporation during the term of
employment in accordance with, and subject to the term and conditions of, this
Agreement.
ARTICLE II.
Duties
During the term of employment Executive will:
(a) use his best efforts to promote the interests of the Corporation,
and shall devote his full time and efforts to its business and affairs;
(b) serve as the Executive Vice President, reporting solely to the
Corporation's Chief Executive Officer and Board of Directors; and
(c) perform such duties consistent with, and customarily provided in
connection with, the office described in subsection (b) above which will include
but not be
<PAGE>
limited to responsibility for preparing and implementing a Business Development
plan, launching new products, acquisition and licensing of new products and/or
technologies, and other sales, marketing and business development activities as
the Corporation may from time to time assign to him, and Executive shall not
engage in any duties or pursuits which may interfere with or be inimical or
contrary to the best interest of the Corporation.
ARTICLE III.
Compensation
A. The Corporation will compensate Executive for the duties performed
by him hereunder by payment of a salary (the "Salary") at the rate of $145,000
per annum. The Salary shall be payable in equal installments, which the
Corporation shall pay at semi-monthly intervals or, at the Corporation's
election, more frequently, and shall be subject to such payroll deductions as
are required by law. The Salary paid to the Executive will be reviewed annually
by the Board of Directors in conjunction with the recommendation of the
President, and may be increased at the discretion of the Corporation's Board of
Directors or Compensation Committee, which shall take into account the
performance of the Executive, the productivity of the Corporation and other
factors which it deems relevant.
ARTICLE IV.
Term: Termination
A. Unless terminated sooner as hereinafter provided, the initial term
of employment of Executive under this Agreement shall be for a period of three
(3) years from the Effective Date hereof (the "Initial Term"). The term of
employment of Executive shall continue thereafter for an additional one (1) year
period commencing on the third anniversary of the Effective Date, unless either
party has notified the other no later than three (3) months prior to
2
<PAGE>
that third anniversary that he or it does not wish to continue the term of
Executive under this Agreement or unless Executive's employment is terminated
sooner as hereinafter provided. Thereafter, Executive's term of employment under
this Agreement shall continue for additional one (1) year periods, unless either
party has notified the other no later than three (3) months prior to the end of
any of those additional one (1) year periods that he or it does not wish to
continue Executive's term of employment under this Agreement or unless
Executive's term of employment is terminated sooner as hereinafter provided.
B. The Corporation may terminate the employment of Executive hereunder
(i) for Cause (as defined below) at any time and without prior notice or (ii)
for any other reason on two (2) weeks notice in writing to Executive.
1. If the Corporation terminates Executive's employment for Cause or
pursuant to Article IV.D. hereof, then the Corporation shall, within fifteen
(15) days after the termination date, pay Executive all accrued and unpaid
Salary and benefits (including accrued but unused vacation time) through the
termination date.
2. If the Corporation terminates Executive's employment other than for
Cause or pursuant to Article IV.D. hereof, then in lieu of any other payments
otherwise required hereunder, the Corporation shall, subject to Executive's
compliance with Article V hereof, pay Executive, as liquidated damages and not
as a penalty, (a) within fifteen (15) days after the termination date, all
accrued and unpaid Salary and benefits (including accrued but unused vacation
time) through the termination date and (b) the lesser of (i) an amount equal to
his Salary payments at the time of the termination, in accordance with the
Corporation's then payment policy, and benefits provided for herein during the
six-month period following the termination date, and (ii) the entire amount of
the Salary remaining due and payable from the date of such termination to the
scheduled expiration of this Agreement; provided, however, that if such
termination occurs prior to the first anniversary of the Effective Date, then in
addition to the items referred to in subsections (a) and (b) above, Executive
shall be entitled to continue to receive, in accordance with the Corporation's
then payment policy, an amount equal to his Salary payments and, to the extent
Executive is not otherwise employed, health benefits, until the first
anniversary of the Effective Date.
3
<PAGE>
3. The phrase "Cause" means any of the following:
(a) breach by Executive of any provision of Article V of this
Agreement;
(b) breach of any other provision of this Agreement by
Executive (other than any such breach resulting from Executive's incapacity due
to physical or mental illness, which shall be governed by Article IV.D. hereof),
including without limitation the failure to satisfactorily perform his duties as
provided herein, if that breach is not remedied within thirty (3) days after
written notice to Executive describing the acts alleged to constitute Cause;
(c) any act of fraud, misappropriation, embezzlement or
similar willful and malicious conduct by Executive against the Corporation; or
(d) indictment of Executive for a felony or any conviction of,
or guilty plea by Executive to, a crime involving moral turpitude if that crime
of moral turpitude tends or would reasonably tend to bring the Corporation into
disrepute.
C. Executive may terminate his employment hereunder at any time for any
reason upon two (2) weeks notice to the Corporation.
4
<PAGE>
1. If Executive terminates his employment without "Good
Reason" (as defined below), then the Corporation shall, within fifteen (15) says
after the termination date, pay Executive all accrued and unpaid Salary and
benefits (including accrued but unused vacation time) through the termination
date.
2. If Executive terminates his employment with "Good Reason",
then the Corporation shall, subject to Executive's compliance with Article V
hereof, (i) pay Executive, within fifteen (15) days after the termination date,
all accrued and unpaid Salary and benefits (including accrued but unused
vacation time) through the termination date and (ii) continue to pay Executive
an amount equal to Executive's Salary and benefits, in accordance with the
Corporation's then payment policy, during the six-month period following the
termination date.
3. The phrase "Good Reason" means a material breach of this
Agreement or the intentional disregard or violation of the Food, Drug and
Cosmetic Act as amended in any material respect (other than through the actions
of the Executive) by the Corporation, which has not been cured within thirty
(30) days after written notice thereof from the Executive.
D. If Executive dies or becomes incapacitated, his employment hereunder
shall terminate on the date of his death or incapacitation, as the case may be.
For purposes hereof, the term "incapacitated" shall mean such mental or physical
illness as shall render Executive incapable of substantially performing his
duties hereunder on a regular basis at the Corporation's offices for a period of
three (3) consecutive months or for a period of six (6) months in any
twelve-month period, all as determined by a physician or psychiatrist, as the
case may be, selected by the Corporation.
5
<PAGE>
ARTICLE V.
Covenants
A. While Executive is employed hereunder by the Corporation and during
any time thereafter that the Corporation shall continue to pay to Executive his
Salary and benefits, he shall not, without prior written consent of the
Corporation, engage, directly or indirectly, in any other trade, business or
employment, or have any interest, direct or indirect, in any other business,
firm or corporation; provided, however, that he may continue to own or may
hereafter acquire (i) any securities of any class of any publicly-owned company
or (ii) any passive investment in a privately held entity which is not engaged
in the pharmaceutical business.
B. Executive shall treat as confidential and keep secret the affairs of
the Corporation (including specifically the terms and conditions of this
Agreement) and shall not at any time during the term of employment or
thereafter, without prior written consent of the Corporation, or unless required
by law, divulge, furnish, or make known or accessible to, or use for the benefit
of, anyone other than the Corporation and its subsidiaries and affiliates any
information of a confidential or proprietary nature related in any way to the
business of the Corporation or its subsidiaries or affiliates or their clients.
Executive shall be entitled to disclose the terms of this Agreement to potential
employers of Executive and to lending institutions from whom Executive seeks to
borrow.
C. All records, papers and documents kept or made by Executive relating
to the business of the Corporation or its subsidiaries or affiliates or their
clients shall be and remain the property of the Corporation.
6
<PAGE>
D. All articles invented by Executive, processes discovered by him,
trademarks, designs, advertising copy and art work, display and promotion
materials and, in general, everything of value conceived or created by him
pertaining to the business of the Corporation or any of its subsidiaries or
affiliates during the term of employment, and any and all rights of every nature
whatever relating thereto, shall immediately become the property of the
Corporation, and Executive shall assign, transfer and deliver all patents,
copyrights, royalties, designs and copy, and any and all interests and rights
whatever thereto and thereunder to the Corporation, without further
compensation, upon notice to him from the Corporation.
E. Following the termination of Executive's employment hereunder
(including the expiration of this Agreement) for any reason, Executive shall
not, for a period of two (2) years from such termination solicit any employee of
the Corporation to leave such employ or to enter the employ of Executive or of
any corporation or enterprise with which Executive is then associated or solicit
any customer of the Corporation to terminate its relationship with the
Corporation.
F. During the one-year period following Executive's termination of
employment by Executive without Good Reason or by the Corporation for Cause (the
"Restricted Period"), Executive shall not render any services, directly or
indirectly, as an employee, officer, consultant or in any other capacity, to any
individual, firm, corporation or partnership engaged in any business or activity
which is competitive with any activity or business engaged in by the Corporation
during his employment by the Corporation (such activities being herein called
the "Corporation's Business"). During the Restricted Period, Executive shall
not, without prior written consent of the Corporation, hold an equity interest
in any firm, partnership or corporation which competes with the Corporation's
Business, except that beneficial ownership by Executive (including ownership by
any one or more members of his immediate family and any entity under his direct
or indirect control) of less than five percent (5%) of the outstanding shares of
capital stock of any corporation which may be engaged in any of the same lines
of business as the Corporation's Business, if such stock is listed on a national
securities exchange or publicly traded in an over-the-counter market, shall not
constitute a breach of the covenants contained in this Article V.
7
<PAGE>
G. The provisions contained in this Article V as to the time periods,
scope of activities, persons or entities affected, and territories restricted
shall be deemed divisible so that, if any provision contained in this Article V
is determined to be invalid or unenforceable, such provisions shall be deemed
modified so as to be valid and enforceable to the full extent lawfully
permitted.
H. During the term of this Agreement, the Corporation shall maintain a
Directors' and Officers' insurance policy providing such coverage for the
Directors and Officers of the Corporation as the Corporation's Board of
Directors shall reasonably determine,
ARTICLE VI.
Bonuses
A. The Corporation shall pay Executive a $10,000 sign-on bonus, which
shall be paid thirty (30) days from the Effective Date.
B. The Executive is eligible to participate in an Incentive Bonus
Program of up to 24% of the Executive's base salary in accordance with
pre-established individual, corporate and business goals. Fifty percent (50%) of
the Incentive Bonus will be paid for the Executive achieving Net Profit Before
Taxes objectives and fifty percent (50%) of the Incentive Bonus will be paid for
the Executive achieving Net Sales and Gross Margin goals established by the
Corporation.
8
<PAGE>
C. The Board of Directors of the Corporation may consider, and nothing
herein shall preclude the Corporation's Board of Directors from, awarding
Executive any other bonuses based on performance as they may, at any time or
from time to time, determine.
ARTICLE VII.
Stock Option Award
A. The Corporation will grant to Executive an option to purchase 50,000
shares of the Corporation's common stock (the "Award") at a price per share
equal to the fair market value of the Corporation's common stock on the date of
acceptance of the employment offer by Executive, which so long as Executive
remains in the continuous employ of the Corporation on a given vesting date,
shall vest in Executive in accordance with the following schedule: (i)
one-fourth of the Award shall vest on the Effective date, and (ii) one-fourth of
the Award shall vest on the date one (1) year from the Effective Date, and (iii)
the remaining one-half of the Award shall vest in increments of one-twenty
fourth per month for the twenty-four (24) months then following.
B. The option shall be granted pursuant to, and shall be subject to the
terms of, the stock option plan adopted by the Corporation.
ARTICLE VIII.
Other Employment Benefits
A. The Corporation shall provide Executive with medical and
hospitalization insurance coverage and retirement plans which in each case are
no less favorable to Executive than those plans provided to the Corporation's
senior executive officers generally (it being understood that to the extent the
plans provide coverage for dependents of employees, Executive shall be entitled
to such coverage for his dependents under the same terms as senior executives
generally). The Corporation shall also provide Executive with life insurance
coverage at standard premium rates having a death benefit payable to a
beneficiary selected by the Executive equal to $250,000 and disability insurance
at standard premium rates which provides salary replacement benefits, not to
exceed $250,000 in the aggregate, in the event Executive becomes incapacitated.
9
<PAGE>
B. During the term of employment, Executive shall be entitled to three
weeks paid vacation each year and to participate in or receive benefits under
any other employee benefit plan, arrangement or perquisite made available by the
Corporation now or in the future to its senior executive officers generally,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans, arrangements and perquisites; provided, however,
that Executive shall not be entitled to carry over unused vacation time in any
given year to subsequent years.
C. The Corporation shall reimburse Executive for all reasonable
expenses incurred by the Executive for promoting the business of the
Corporation, including expenses for travel and similar items from time to time
upon presentation by Executive of an itemized account of such expenditures, all
in accordance with the Corporation's policies for incurrence and reimbursement.
To the extent permitted by law, the Corporation will not withhold Philadelphia
city wage taxes for the days the Executive travels out of town on business.
D. The Corporation will provide Executive with a car allowance of
$5,000.00 per annum, payable monthly.
10
<PAGE>
ARTICLE IX.
Key Man Insurance
A. The Corporation may, in its sole and absolute discretion, at any
time after the date hereof, apply for and procure as owner for its own benefit
life insurance on Executive, in such amount and in such form or forms as the
Corporation may determine. Executive shall, at the Corporation's request,
subject to such medical examinations, supply such information and execute such
documents as may be required by the insurance company or companies to whom the
Corporation has applied for such insurance.
ARTICLE X.
Assignment
A. This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Corporation. Neither this Agreement nor any rights
hereunder shall be assignable by Executive and any such purported assignment by
him shall be void.
ARTICLE XI.
Entire Agreement
A. This Agreement constitutes the entire understanding between the
Corporation and Executive concerning his employment by the Corporation or any of
its subsidiaries and supercedes any and all previous agreements between
Executive and the Corporation or any of its subsidiaries concerning such
employment. This Agreement may not be changed orally.
11
<PAGE>
ARTICLE XII.
Applicable Law
A. The Agreement shall be governed by and construed in accordance with
the laws of the State of Pennsylvania.
GLOBAL PHARMACEUTICAL CORPORATION
By:
------------------------------------
Max L. Mendelsohn, President & CEO
------------------------------------
Barry Edwards
12
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET (UNAUDITED) AND THE CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS
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