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As filed with the Securities and Exchange Commission on June 29, 1999
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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GLOBAL PHARMACEUTICAL CORPORATION
(Name of small business issuer as specified in its charter)
Delaware 2834 65-0403311
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification
Number)
Castor & Kensington Avenues
Philadelphia, PA 19124-5694
(215) 289-2220
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
BARRY R. EDWARDS
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
(212) 318-3000
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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. /X/
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. / /
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CALCULATION OF REGISTRATION FEE
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Proposed
Maximum Proposed Maximum
Title of Shares Amount Offering Price Aggregate Amount of
to be Registered to be Registered Per Unit Offering Price Registration Fee
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share ......... 3,125,000 $ --(1) $7,500,000 $2,085
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</TABLE>
(1) The prices are 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 are $2.00, which represents the conversion price
of the Series D Convertible Preferred Stock, with respect to the 2,500,000
shares of Common Stock issuable upon conversion of the Series D
Convertible Preferred Stock, and $4.00, which represents the exercise
price of the warrants, with respect to the 625,000 shares of Common Stock
issuable upon exercise of the warrants.
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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.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 29, 1999
PROSPECTUS
GLOBAL PHARMACEUTICAL CORPORATION
3,125,000 Shares
Common Stock
These 3,125,000 shares of our common stock are being offered for sale by
the selling stockholders named on page 8 of this prospectus. We will not
receive any part of the proceeds from these sales.
Our common stock trades on the Nasdaq SmallCap Market under the symbol
"GLPC." On June 25, 1999, the closing sale price of our common stock was $3.00
per share.
Our principal executive offices are located at Global Pharmaceutical
Corporation, Castor & Kensington Avenues, Philadelphia, Pennsylvania 19124 and
our telephone number is (215) 289-2220.
---------------------
You are urged to carefully read the "Risk Factors" section beginning on
page 1 of this Prospectus, which describes specific risks and certain other
information associated with an investment in our company that should be
considered before you make your investment decision.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy of this Prospectus. Any representation to the contrary is a criminal
offense.
The date of this Prospectus is , 1999
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TABLE OF CONTENTS
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Page
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Risk Factors ............................................................................. 1
Our limited supply of cash and cash equivalents may require us to modify our business
operations and plans .................................................................. 1
Our limited capital may make it difficult for us to repay the substantial amount of our
outstanding indebtedness .............................................................. 1
The time necessary to develop generic drugs may adversely affect when and the rate at
which we receive a return on our capital .............................................. 1
We have and continue to experience operating losses, and the highly regulated nature of
our business makes our future profitability uncertain ................................. 1
Our revenues and profitability have fluctuated and could fluctuate significantly in the
future, which may have a material adverse effect on our results of operations and
stock price ........................................................................... 2
The FDA may not approve our future products, in which case our ability to generate
product revenues will be adversely affected ........................................... 2
Our comparative lack of experience in producing new products and formulations may
materially adversely affect our business condition and operations ..................... 2
We are subject to an outstanding court order governing manufacture of our products which
may adversely affect our product introduction plans and results of operations ......... 3
Generic drug makers are most profitable when they are the first producer of a generic
drug, and we do not know if we will be the first maker of any generic drug product .... 3
The high level of competition we face in the generic drug industry from competitors who
often have greater resources than us adversely affects our profitability .............. 3
We are dependent on a small number of products to generate revenues to fund our business
and operations ........................................................................ 4
We are dependent on a small number of suppliers for our raw materials, and any delay or
unavailability of raw materials can materially adversely affect our ability to produce
products............................................................................... 4
We do not have any arrangements regarding our products with any independent distributors
or wholesalers, and our inability to enter into these arrangements may materially
adversely affect our ability to sell products ......................................... 4
We may have difficulty obtaining licenses in the future, which could adversely affect
our ability to develop, manufacture and market commercially viable products ........... 4
Our compliance with environmental laws may necessitate uncertain expenditures in the
future, the capital for which may not be available to us .............................. 4
Generic drug makers face an inherent risk of product liability litigation and any claims
brought against us could have a material adverse effect upon us ....................... 5
We have exposure under DES-related product liability claims, which could have a material
adverse effect upon our financial condition ........................................... 5
Rights of certain holders of our equity to acquire shares of common stock may dilute the
future value of the common stock ...................................................... 5
We have and may in the future issue additional preferred stock which could adversely
affect the rights of holders of our common stock ...................................... 5
Control of our company is concentrated among a limited number of stockholders, who can
exercise significant influence over all matters requiring stockholder approval ........ 6
We are dependent on key officers and qualified scientific and technical employees and
our limited resources may make it more difficult to attract and retain these personnel. 6
Our chief executive officer has no experience as a chief executive officer .............. 6
Failure to obtain year 2000 compliance may have adverse effects on our business and
results of operations ................................................................. 6
Where You Can Find More Information ...................................................... 7
Use of Proceeds .......................................................................... 8
Selling Stockholders ..................................................................... 8
Plan of Distribution ..................................................................... 9
Legal Matters ............................................................................ 10
Experts .................................................................................. 10
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider carefully the following risk factors, as well as the other
information included in this prospectus, in deciding whether to invest in our
common stock. This prospectus contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from the
results discussed in the forward-looking statements. Factors that could cause
or contribute to these differences include, but are not limited to, those
discussed in this "Risk Factors" Section, and elsewhere in this prospectus.
Our limited supply of cash and cash equivalents may require us to modify our
business operations and plans.
As of March 31, 1999, we had approximately $2,841,000 of unrestricted cash
and cash equivalents. We estimate that these funds, together with the
$2,000,000 raised by us on May 18, 1999, are sufficient for the next twelve
months of operations at our planned expenditure levels. If our actual cash
receipts or expenditures are different than we had estimated, our business
operations and plans may need to be modified. This will most likely include
modifying the expected expansion of our research and product development
activities and sales and marketing capabilities. These modifications may
materially adversely affect our business.
Our limited capital may make it difficult for us to repay the substantial
amount of our outstanding indebtedness.
We may not have or be able to maintain adequate capital at any given time
or from time to time in the future. As of March 31, 1999, we had outstanding
approximately $3,340,000 of indebtedness, bearing interest at rates ranging
from 2% to 9% annually. Of this indebtedness, $406,000 principal amount is due
to the Philadelphia Industrial Development Corporation in December 2000 and an
additional $1,254,000 is owed to General Electric Credit Corporation under our
revolving credit facility. The facility expires in July 2001. Additionally, as
of March 31, 1999, we had a stockholders' accumulated deficit of approximately
$23,412,000. We also cannot give any assurance that additional capital or
waivers relating to defaulted loans, if needed by us, will be available to us.
In this regard, you should also review the "Our limited supply of cash and cash
equivalents may require us to modify our business operations and plans" risk
factor earlier in this Section.
The time necessary to develop generic drugs may adversely affect when and the
rate at which we receive a return on our capital.
The development of a new generic drug product, including its formulation,
testing and FDA approval, generally takes approximately three or more years;
development activities typically begin several years in advance of the patent
expiration date of the brand name drug equivalent. Consequently, we may select
drugs for development several years in advance of their anticipated entry to
market. This program potentially will require that considerable capital be
devoted to activities that do not concurrently provide an immediate return.
Also, because of the significant time necessary to develop a product, the
actual market for a product at the time it is available for sale may be
significantly less than the originally projected market for the product. Our
return on investment to develop the product will then be adversely affected.
We have and continue to experience operating losses, and the highly regulated
nature of our business makes our future profitability uncertain.
We do not know whether or when we will successfully implement our business
plan or that our business will ever be profitable. We have generated minimal
revenues to date and have experienced operating losses since our inception. As
of March 31, 1999, our accumulated deficit was $23,412,000. As of March 31,
1999, we also had outstanding indebtedness in an aggregate principal amount of
$3,340,000 at interest rates ranging from 2% to 9% annually. Operating our
business requires, among other things, FDA approval of our products based on
our drug applications and negotiation of satisfactory raw material supply
contracts with FDA-approved sources. To remain operational, we must also:
o Properly receive, warehouse and store raw materials and supplies;
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o Maintain work in progress in compliance with regulatory requirements and
properly store finished goods;
o Properly manufacture various formulations, dosages and configurations of
a potentially broad product line;
o Meet strict security requirements for virtually every activity
undertaken at the plant;
o Maintain appropriate laboratory, quality control and quality assurance
practices and procedures; and
o Comply with the many complex governmental regulations that deal with
virtually every aspect of our proposed business activities.
Operating our business successfully also will depend, in part, on a
variety of factors outside of our control, including:
o Changes in raw material supplies and suppliers;
o Changes in governmental programs and requirements;
o Changes in physician or consumer preferences; and
o Changes in FDA and similar regulatory requirements.
Our revenues and profitability have fluctuated and could fluctuate
significantly in the future, which may have a material adverse effect on our
results of operations and stock price.
Our 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:
o The timing of FDA reapprovals we receive;
o The timing of process validation for particular generic drug products;
o The timing of any significant initial shipments of newly approved drugs;
and
o Competition from other generic drug manufacturers that receive FDA
approvals for competing products.
We cannot predict whether our business will be seasonal in nature.
Products that we manufacture and distribute pertaining to seasonal ailments
such as allergies or colds may experience seasonal patterns in sales and
profitability. The potential seasonality of our business may have a material
adverse effect on our results of operations and stock price.
The FDA may not approve our future products, in which case our ability to
generate product revenues will be adversely affected.
The testing, manufacturing and marketing of our products generally are
subject to extensive regulation and approvals by numerous government
authorities in the United States and other countries. We may not receive FDA
approvals for additional products on a timely basis, or at all. Any delay in
our obtaining or any failure to obtain these approvals would adversely affect
our ability to generate product revenue. Also, the process of seeking FDA
approvals can be costly, time consuming, and subject to unanticipated and
significant delays.
Our comparative lack of experience in producing new products and formulations
may materially adversely affect our business condition and operations.
Our ability to effectively produce new products and dosage forms will be
materially affected by our ability to master new and different production
techniques and to receive all required governmental approvals. Our inability to
effectively do this will have a material adverse effect on our financial
condition and results of operations. We do not have the level of experience or
staff to produce new products and formulations that some of our competitors
have.
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We are subject to an outstanding court order governing manufacture of our
products which may adversely affect our product introduction plans and results
of operations.
On May 25, 1993, the United States District Court for the Eastern District
of Pennsylvania issued an order against Richlyn Laboratories, Inc. that, among
other things, permanently enjoined Richlyn from selling any drug manufactured,
processed, packed or labeled at its Philadelphia facility unless it met certain
stipulated conditions. When we acquired the facilities and drug applications of
Richlyn, we became subject to the conditions in that court order. The order
requires, in part, that FDA find that products manufactured, processed and
packed at the Richlyn facility conform with FDA regulations concerning current
Good Manufacturing Practices before the products can be marketed.
Although we were informed in January 1998 that product by product
inspection and prior authorization was no longer required in order for us to
manufacture and sell products, we cannot give any assurance that the FDA will
not reverse or reconsider its position and again require product by product
inspection and prior authorization. Any reversal or reconsideration by FDA will
adversely affect our product introduction plans and results of operations.
The order against Richlyn also requires that we hire and retain a person,
subject to FDA approval, who is qualified to inspect our drug manufacturing
facilities to determine that our methods, facilities and controls are operated
and administered in compliance with current good manufacturing practices. This
person must examine all drug products manufactured, processed, packed and held
at our facility and certify in writing to the FDA our compliance with related
current good manufacturing practices. We have contracted with a local
consultant to conduct this compliance review. We may not be able to maintain
compliance with current good manufacturing practices.
Generic drug makers are most profitable when they are the first producer of a
generic drug, and we do not know if we will be the first maker of any generic
drug product.
The first generic drug manufacturers receiving FDA approval for generic
equivalents of related brand name products usually capture significant market
share and extract greater profits from the branded product than later arriving
manufacturers. The development of a new generic drug product, including its
formulation, testing and FDA approval, generally takes approximately three or
more years. Consequently, we may select drugs for development several years in
advance of their anticipated entry to market, and cannot know what the market
or level of competition will be for that particular product when we begin
selling the product. Our profitability, if any, will depend, in part, on:
o Our ability to develop and rapidly introduce new products;
o The timing of FDA approvals of our products; and
o The number and timing of FDA approvals for competing products.
In addition, by introducing generic versions of their own branded products
prior to the expiration of the patents for those drugs, brand name drug
companies have attempted to prevent generic drug manufacturers from producing
certain products. Brand name companies have also attempted to prevent competing
generic drug products from being treated as equivalent to their brand name
products. We expect efforts of this type to continue.
The high level of competition we face in the generic drug industry from
competitors who often have greater resources than us adversely affects our
profitability.
The generic drug industry is highly competitive. Our competitors are both
generic drug manufacturers and brand name drug companies. Many of our
competitors have greater financial and other resources than us, and can spend
significantly more than we can in research, marketing and product development.
Relatively large research and development expenditures enable a company to
support many FDA applications simultaneously. This improves the likelihood that
these greater resourced companies will be among the first to obtain approval of
at least some generic drugs. In addition, the generic drug industry is
currently undergoing a consolidation which may exacerbate this situation.
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We are dependent on a small number of products to generate revenues to fund our
business and operations.
Our long-term success is dependent, among other factors, on our ability to
offer and sell a broad line of products. We intend to introduce products on a
selected basis. Consequently, we will be dependent, particularly in the
near-term, upon a relatively small number of products to generate revenues. As
a result, if we misjudge the market for or are delayed in the production of a
particular product, our business can be materially adversely affected.
We are dependent on a small number of suppliers for our raw materials, and any
delay or unavailability of raw materials can materially adversely affect our
ability to produce products.
The FDA requires specification of raw material suppliers in applications
for approval of drug products. If raw materials were unavailable from a
specified supplier, FDA approval of a new supplier could delay the manufacture
of the drug involved. In addition, some materials used in our products are
currently available from only one or a limited number of suppliers. Further, a
significant portion of our raw materials may be available only from foreign
sources. Foreign sources can be subject to the special risks of doing business
abroad, including:
o Greater possibility for disruption due to transportation or
communication problems;
o The relative instability of foreign governments and economies;
o Interim price volatility based on labor unrest or materials or equipment
shortages; and
o Uncertainty regarding recourse to a dependable legal system for the
enforcement of contracts and other rights.
The delay or unavailability of raw materials can materially adversely
affect our ability to produce products. This can materially adversely affect
our business and operations.
We do not have any arrangements regarding our products with any independent
distributors or wholesalers, and our inability to enter into these arrangements
may materially adversely affect our ability to sell products.
Our ability to establish markets for our proposed products is expected to
be substantially dependent on the efforts of independent distributors and
wholesalers. We cannot give any assurances that we will enter into any
arrangements with independent distributors or wholesalers on terms favorable to
us, if at all. Our inability to enter into satisfactory arrangements with
distributors or wholesalers may materially adversely affect our ability to sell
products. This can materially adversely affect our results of operations.
We may have difficulty obtaining licenses in the future, which could adversely
affect our ability to develop, manufacture and market commercially viable
products.
We currently have no licenses other than our secondary site packaging
arrangement with Genpharm and two licensing agreements with Eurand America
(formerly, a unit of American Home Products). We may in the future need or want
to obtain other licenses to develop, manufacture and market commercially viable
products. We cannot give any 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.
Our compliance with environmental laws may necessitate uncertain expenditures
in the future, the capital for which may not be available to us.
We cannot accurately predict the outcome or timing of future expenditures
that we may be required to pay in order to comply with comprehensive federal,
state and local environmental laws and regulations. We must comply with
environmental laws which govern, among other things, all emissions, waste water
discharge and solid and hazardous waste disposal, and the remediation of
contamination associated with generation, handling and disposal activities. We
are subject periodically to environmental compliance reviews by various
4
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regulatory offices. Environmental laws have changed in recent years and we may
become subject to stricter environmental standards in the future and face
larger capital expenditures in order to comply with environmental laws. Our
limited capital makes it uncertain whether we will be able to pay for these
larger than expected capital expenditures. Also, future developments,
administrative actions or liabilities relating to environmental matters may
have a material adverse effect on our financial condition or results of
operations. In this regard, you should also review the "Our limited supply of
cash and cash equivalents may require us to modify our business operations and
plans" risk factor earlier in this section.
Generic drug makers face an inherent risk of product liability litigation and
any claims brought against us could have a material adverse effect upon us.
The design, development and manufacture of our 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. Any claims brought against us,
whether fully covered by insurance or not, could have a material adverse effect
upon us.
We have exposure under DES-related product liability claims, which could have a
material adverse effect upon our financial condition.
When we acquired the business of Richlyn Laboratories, we also assumed its
liabilities in connection with Diethyl Stilbestrol, commonly known as 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 the
drug during their pregnancy. There have been numerous claims brought against
drug manufacturers relating to DES and, since 1987, Richlyn Laboratories'
insurers have paid approximately $136,000 on their behalf and our behalf to
settle approximately 143 DES-related suits. No other legal actions have been
brought or, to our knowledge, threatened against Richlyn Laboratories or us in
connection with DES-related claims. We do not expect to be held liable for
DES-related claims other than claims based on products manufactured by Richlyn
Laboratories. Claims settlements to date have been based on market share and
Richlyn Laboratories' share of the DES market during the relevant periods is
believed by us to have been substantially less than 1%.
Rights of certain holders of our equity to acquire shares of common stock may
dilute the future value of the common stock.
As of June 1, 1999, there were outstanding a total of 59,000 shares of our
convertible preferred stock. These shares presently are convertible, at any
time at the option of their holders, into an aggregate of 2,950,000 shares of
our common stock. The shares of preferred stock also have certain anti-dilution
protections, which could make them convertible into additional shares of common
stock.
As of June 1, 1999, we also had issued warrants to purchase 1,065,000
shares of our common stock at exercise prices ranging from $1.75 to $13.175 per
share of common stock. In addition, under our arrangement with Merck KGaA, a
German company, we issued warrants which are exercisable for 40,000 shares of
our common stock for each aggregate $1 million in gross profit, if any, earned
by us under our agreement with a subsidiary of Merck KGaA (up to a total of
700,000 shares of common stock). The exercise price for these warrants may be
at prices below the then trading market price for our common stock.
We have and may in the future issue additional preferred stock which could
adversely affect the rights of holders of our common stock.
Our Board of Directors has the authority to issue up to 2,000,000 shares
of our preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. We presently have outstanding 9,000 shares of Series C preferred
stock and 50,000 shares of Series D preferred stock. Preferred stockholders
could adversely affect the rights of holders of common stock by:
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o Exercising voting, redemption and conversion rights to the detriment of
the holders of common stock;
o Receiving preferences over the holders of common stock regarding assets
or surplus funds in the event of our dissolution or liquidation;
o Delaying, deferring or preventing a change in control of our company;
o Discouraging bids for our common stock at a premium over the market
price of the common stock; and
o Otherwise adversely affecting the market price of the common stock.
In this regard, you should also review the "Control of our company is
concentrated among a limited number of stockholders, who can exercise
significant influence over all matters requiring stockholder approval" risk
factor later in this Section.
Control of our company is concentrated among a limited number of stockholders,
who can exercise significant influence over all matters requiring stockholder
approval.
As of June 1, 1999, our present directors, executive officers and their
respective affiliates and related entities beneficially owned approximately
61.3% of our common stock and common stock equivalents. These stockholders can
exercise significant influence over all matters requiring stockholder approval,
including the election of directors and the approval of significant corporate
transactions. This concentration of ownership may also potentially delay or
prevent a change in control of our company. In this regard, you should also
review the "Rights of certain holders of our equity to acquire shares of common
stock may dilute the future value of the common stock" and "We have and may in
the future issue additional preferred stock which could adversely affect the
rights of holders of our common stock" risk factors in other parts of this
Section, and the "Selling Stockholders" Section later in this Prospectus.
We are dependent on key officers and qualified scientific and technical
employees and our limited resources may make it more difficult to attract and
retain these personnel.
As a small company with, as of June 1, 1999, only approximately 70
employees, the success of our present and future operations will depend to a
great extent on the collective experience, abilities and continued service of
certain of our executive officers. If we lose the services of any of these
executive officers, it could have a material adverse effect on us. Because of
the specialized scientific nature of our business, we are also highly dependent
upon our ability to continue to attract and retain qualified scientific and
technical personnel. Loss of the services of, or failure to recruit, key
scientific and technical personnel would be significantly detrimental to our
product development programs. Our small size and limited resources may make it
more difficult for us to attract and retain our executive officers and
qualified scientific and technical personnel.
Our chief executive officer has no experience as a chief executive officer.
Barry R. Edwards is our President and Chief Executive Officer. Mr.
Edwards, who was recently named Chief Executive Officer of our Company, has no
experience as a chief executive officer.
Failure to obtain year 2000 compliance may have adverse effects on our business
and results of operations.
Our software vendors have advised us that all databases used by our
current systems are Year 2000 compliant. We are also in the process of
addressing the Year 2000 issues with customers, suppliers, service providers
and other constituents. We cannot give any assurance that we have correctly
identified or will be able to identify all aspects of our business that are
subject to Year 2000 problems or of our customers or suppliers that affect our
business. We also cannot give any assurance that our software vendors are
correct in their assertions that the software is Year 2000 compliant, or that
our estimate of the costs of systems preparation for Year 2000 compliance will
prove ultimately to be accurate. Should either our internal systems or internal
systems of one or more of our significant suppliers or customers fail to
achieve Year 2000 compliance, or our estimate of the costs of becoming Year
2000 compliant prove to be materially inaccurate, our business and results of
operations could be adversely affected.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may inspect and
copy any document we file at the SEC's Public Reference Room at 450 Fifth
Street, N.W. Washington, D.C. 20549 or at the SEC's other public reference
facilities in New York, New York, or Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from the SEC's web site on the
Internet at http://www.sec.gov. This web site contains reports, proxy and
information statements and other information regarding our company and other
registrants that file electronically with the SEC.
We have filed a registration statement on Form S-3 with the SEC covering
the shares of common stock being offered by means of this prospectus. We are
allowed to "incorporate by reference" the information contained in documents we
file with the SEC, which means that we can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below, and any
future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, until the selling stockholders sell all
the shares:
1. Our annual report on Form 10-KSB for the year ended December 31, 1998;
2. Our quarterly report on Form 10-QSB for the quarter ended March 31,
1999;
3. Our proxy statement dated April 12, 1999; and
4. The description of our common stock contained in our registration
statement on Form 8-A filed on December 8, 1995, as amended on December
14, 1995 and as amended on December 5, 1997.
You may request a copy of these filings, at no cost, by writing or
telephoning our Secretary at Global Pharmaceutical Corporation, Castor &
Kensington Avenues, Philadelphia, Pennsylvania 19124, telephone number (215)
289-2220.
You should rely on the information incorporated by reference or provided
in this prospectus or any supplement. We have not authorized anyone else to
provide you with different information. The selling stockholders will not make
an offer of these shares in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any supplement is
accurate as of any date other than the date on the front of those documents.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus (including the documents incorporated by reference in this
prospectus) contains certain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995 and information relating to us
that are based on the beliefs of our management, as well as assumptions made by
and information currently available to our management. 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 our current views with respect to future
events. These statements are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in the
forward-looking statements. Many of these risks are discussed under the "Risk
Factors" Section of this prospectus. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
of this prospectus. We do not have any obligation to publicly release any
revisions to these forward-looking statements to reflect events or
circumstances after the date of this prospectus or to reflect the occurrence of
unanticipated events.
7
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of our common
stock by the selling stockholders.
SELLING STOCKHOLDERS
The following table sets forth information with respect to the number of
shares of common stock beneficially owned by each of the selling stockholders.
As of June 1, 1999, (assuming conversion of the Series D preferred stock and
exercise of the common stock warrants held by the selling stockholders),
Fleming US Discovery Fund III, L.P. beneficially owned 27.1%, and Fleming US
Discovery Offshore Fund III, L.P. beneficially owned 5.6%.
The selling stockholders are offering for sale up to 3,125,000 shares of
our common stock. These 3,125,000 shares of common stock can be acquired by the
selling stockholders upon their conversion of an aggregate of 50,000 shares of
Series D preferred stock, (or any other convertible securities into which the
Series D preferred stock is converted), owned by them, into an aggregate of
2,500,000 shares of our common stock, and upon their exercising warrants to
purchase up to 625,000 shares of common stock. These numbers remain subject to
certain antidilution provisions applicable to the Series D preferred stock and
the warrants. The selling stockholders acquired the shares of Series D
preferred stock and the warrants from us on March 2 and May 18, 1999 in private
placements, for an aggregate purchase price of $5,000,000.
As of the date of this Prospectus, Fleming US Discovery Fund III, L.P.
owns 43,093 shares of our Series D preferred stock, and warrants to purchase up
to an additional 538,662 shares of our common stock, and Fleming US Discovery
Offshore Fund III, L.P. owns 6,907 shares of our Series D preferred stock, and
warrants to purchase up to an additional 86,338 shares of our common stock. The
number of shares beneficially owned includes shares issuable within 60 days
upon exercise of outstanding options and warrants and upon conversion of the
Series D preferred stock.
<TABLE>
<CAPTION>
Number of Shares
of Common Stock
Number of Shares Number of Shares Beneficially Owned After
of Common Stock of Common Stock the Completion of this
Selling Stockholder Beneficially Owned Registered Herein Offering
- --------------------------------------------- -------------------- ------------------- -------------------------
<S> <C> <C> <C>
Fleming US Discovery Fund III, L.P. ......... 2,693,312 2,693,312 0
Fleming US Discovery Offshore Fund III, L.P.. 431,688 431,688 0
</TABLE>
Robert L. Burr and David J. Edwards, who were both elected as directors of
our company on May 12, 1999, are employees of Fleming Capital Management, a
division of Robert Fleming, Inc., investment adviser to Fleming US Discovery
Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. Mr. Burr is a
director and Mr. Edwards is a Vice President at Fleming Capital Management.
Additionally, pursuant to Section 4 of the Certificate of Designations of the
Series D preferred stock, the selling stockholders are entitled, but not
required, to elect up to three (3) directors of our company.
8
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the selling
stockholders. We will pay all costs, expenses and fees in connection with this
registration, except that the selling stockholders will pay underwriting
discounts and selling commissions, if any. We will not receive any of the
proceeds from the sale of the shares by the selling stockholders. When we refer
to the "selling stockholders" in this prospectus, that term includes donees and
pledgees selling shares of common stock under this prospectus which were
received from the selling stockholders.
The selling stockholders may sell their shares at various times in one or
more of the following transactions:
o on the Nasdaq SmallCap Market (or any other exchange on which the shares
may be listed);
o in the over-the-counter market;
o in negotiated transactions other than on such exchange;
o by pledge to secure debts and other obligations;
o in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions, in covering previously established short
positions and in settlement of other transactions in standardized or
over-the-counter options; or
o in a combination of any of the above transactions.
The selling stockholders may sell their shares at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices. The selling stockholders may sell shares
directly or may use broker-dealers to sell their shares. The broker-dealers
will either receive discounts or commissions from the selling stockholders, or
they will receive commissions from purchasers of shares. This compensation may
be in excess of customary commission.
The selling stockholders may also sell all or a portion of their shares
under Rule 144 under the Securities Act of 1933, or may pledge shares as
collateral for margin accounts. These shares could then further be resold
pursuant to the terms of such accounts.
Under certain circumstances, the selling stockholders and any
broker-dealers that participate in the distribution might be deemed to be
"underwriters" within the meaning 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. Liabilities under the federal securities laws cannot be waived.
Because the selling stockholders may be deemed to be "underwriters" under
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 their shares, the 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 under the Exchange Act, which prohibits, with
certain exceptions, any such person from bidding for or purchasing any security
which is the subject of such distribution until such person's participation in
that distribution is completed. In addition, Rule 10b-7 under the Exchange Act
or Regulation M prohibits any "stabilizing bid" or "stabilizing purchase" for
the purpose of pegging, fixing or stabilizing the price of the common stock in
connection with this offering. We have informed the selling stockholders that
the anti-manipulative provisions of Regulation M promulgated under the Exchange
Act may apply to their sales in the market.
9
<PAGE>
If we are notified by the selling stockholders that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, we will file a supplement to
this prospectus, if required, under Rule 424(b) under the Securities Act,
disclosing the following:
o the names of the selling stockholders and of the participating
broker-dealer(s);
o the number of shares involved;
o the price at which such shares were sold;
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
o that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this prospectus;
and
o other facts material to the transaction.
In addition, if we are notified by the selling stockholders that a donee
or pledgee intends to sell more than 500 shares, we will file a supplement to
this prospectus.
The selling stockholders may be entitled under agreements entered into
with us to indemnification from us against liabilities under the Securities
Act.
In order to comply with certain state securities laws, if applicable,
these shares of common stock will not be sold in a particular state unless they
have been registered or qualified for sale in that state or any exemption from
registration or qualification is available and complied with.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
Prospectus will be passed upon for us by Fulbright & Jaworski L.L.P., New York,
New York. Frederick R. Adler, who is of counsel to the firm, as of June 1,
1999, beneficially owned 136,495 shares of our common stock (owned by 1520
Partners, Ltd.) and warrants to purchase 17,500 shares of common stock at an
exercise price of $8.50 per share. In addition, The Adler Family Foundation,
Inc., of which Mr. Adler, Catherine G. Adler, the wife of Mr. Adler, and
William Bush, a partner of Fulbright & Jaworski L.L.P., serve as trustees and
officers, owns 138,668 shares of common stock. The Frederick R. Adler
Intangible Asset Management Trust, of which Mr. Adler is a beneficiary, and
Susan R. Chapman, spouse of Philip R. Chapman, a director of the Company, is
trustee, owns 575,350 shares of common stock.
EXPERTS
The financial statements incorporated in this prospectus by reference to
the Annual Report on Form 10-KSB for the year ended December 31, 1998, have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
10
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our corporation is organized under the laws of the State of Delaware.
Section 145 of the Delaware General Corporation Law (the "DGCL"), in general,
empowers a Delaware corporation to indemnify any person who was or is a party
or is threatened to be made a party to any lawsuit or proceeding (other than an
action by or in the right of that corporation) due to the fact that such person
is or was a director, officer, employee or agent of that corporation, or is or
was serving at the request of that corporation as a director, officer, employee
or agent of another corporation or entity. A corporation is also allowed, in
advance of the final disposition of a lawsuit or proceeding, to pay the
expenses (including attorneys' fees) incurred by any officer, director,
employee or agent in defending the action, as long as the person undertakes to
repay this amount if it is ultimately determined that he or she is not entitled
to be indemnified by the corporation. In addition, Delaware law allows a
corporation to indemnify these persons against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by any of them in connection with the lawsuit or proceeding if (a) he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and (b) with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
A Delaware corporation also can indemnify its 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 judicial approval is needed to indemnify
any officer or director who 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 such action, the corporation must indemnify him or her against the
expenses (including attorneys' fees) which he or she actually and reasonably
incurred in connection with this action. The indemnification provided by
Delaware law is not deemed to be exclusive of any other rights to which an
officer or director may be entitled under any corporation's own organizational
documents, agreements or otherwise.
As permitted by Section 145 of the DGCL, Section TWELFTH of our
Certificate of Incorporation (our "Certificate") provides that we will
indemnify each person who is or was our director, officer, employee or agent
(including the heirs, executors, administrators or estate of these individuals)
or is or was serving at our request as a director, officer, employee or agent
of another entity, to the fullest extent that the law permits. This
indemnification is exclusive of any other rights to which any of these
individuals otherwise may be entitled. The indemnification also continues after
a person ceases to be a director, officer, employee or agent of our company and
inures to the benefit of the heirs, executors and administrators of these
individuals. Expenses (including attorneys' fees) incurred in defending any
lawsuit or proceeding are also paid by us in advance of the final disposition
of these lawsuits or proceedings after we receive an undertaking from the
indemnified person to repay this amount if it is ultimately determined that he
or she is not entitled to be indemnified by us. Section ELEVENTH of our
Certificate further provides that our directors are not personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of his or her duty of loyalty
to us or our 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 (which deals with unlawful dividends or stock purchases
or redemptions), or (iv) for any transaction from which he or she derived an
improper personal benefit. Our By-laws also provide that, to the fullest extent
permitted by law, we will indemnify any person who is a party or otherwise
involved in any proceeding because of the fact that he or she is or was a
director or officer of our company or was serving at our request.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to any of these foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
11
<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 of 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 ................. $ 2,085
Legal fees and expenses .............. $ 5,000
Accounting fees and expenses ......... $ 5,000
Miscellaneous expenses ............... $ 1,915
Total: ............................. $14,000
None of these expenses are being paid by the selling stockholders.
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
undertakes to repay such amount if it shall ultimately be determined that he or
she 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 or she acted in
good faith and in a manner he or she 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 or her
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 or her against the expenses (including attorneys' fees) which he
or she 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, 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 or she 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
II-1
<PAGE>
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.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- -------- ------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company. (1)
3.2 By-laws of the Company. (1)
3.3 Certificate of Designations of Series D Convertible Preferred Stock of the Company. (2)
3.4 Certificate of Amendment to Certificate of the Designations, Powers, Preferences and Rights of the
Series A Convertible Preferred Stock and to Certificate of the Designations, Powers, Preferences and
Rights of the Series B Convertible Preferred Stock of the Company. (2)
3.5 Certificate of Amendment to Certificate of the Designations, Powers, Preferences and Rights of the
Series C Convertible Preferred Stock of the Company. (2)
4.1 Specimen Certificate of the Company's Common Stock, par value $.01 per share. (1)
5.1 Opinion of Fulbright & Jaworski L.L.P.
10.1 Stock and Warrant Purchase Agreement, dated March 2, 1999, between the Company and Fleming US
Discovery Fund III, L.P.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included on signature page).
27 Financial Data Schedule. (3)
99.1 Court Order issued May 25, 1993 by the United States District Court for the Eastern District of Penn-
sylvania against Richlyn Laboratories, Inc. (1)
</TABLE>
- ------------
(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 an Exhibit to, and incorporated
herein by reference from, the Registrant's Registration Statement on Form
S-3 (File No. 333-71809).
(3) Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, the Registrant's Annual Report on Form 10-KSB
for the year 1998.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the
II-2
<PAGE>
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 15
above, or otherwise, the registrant 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. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective by the
Securities and Exchange Commission.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Philadelphia, State of Pennsylvania, on June 28,
1999.
GLOBAL PHARMACEUTICAL
CORPORATION
By: /s/ BARRY R. EDWARDS
-----------------------
Barry R. Edwards
Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Barry R. Edwards 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:
<TABLE>
<S> <C> <C>
/s/ BARRY R. EDWARDS Chief Executive Officer and Director (Principal June 28, 1999
- ------------------------------ Executive Officer)
(Barry R. Edwards)
/s/ CORNEL C. SPIEGLER Chief Financial Officer, June 28, 1999
- ------------------------------ Vice President--Administration
(Cornel C. Spiegler) (Principal Financial and
Accounting Officer)
/s/ ROBERT L. BURR Director June 28, 1999
- ------------------------------
(Robert L. Burr)
- ------------------------------ Director
(Philip R. Chapman)
/s/ DAVID J. EDWARDS Director June 28, 1999
- ------------------------------
(David J. Edwards)
/s/ GARY ESCANDON Director June 28, 1999
- ------------------------------
(Gary Escandon)
- ------------------------------ Director
(George F. Keane)
/s/ MICHAEL MARKBREITER Director June 28, 1999
- ------------------------------
(Michael Markbreiter)
/s/ MAX L. MENDELSOHN June 28, 1999
- ------------------------------ Director
(Max L. Mendelsohn)
/s/ JOHN W. ROWE Director June 28, 1999
- ------------------------------
(John W. Rowe)
/s/ UDI TOLEDANO Director June 28, 1999
- ------------------------------
(Udi Toledano)
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- -------- -----------------------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company. (1)
3.2 By-laws of the Company. (1)
3.3 Certificate of Designations of Series D Convertible Preferred Stock of the Company. (2)
3.4 Certificate of Amendment to Certificate of the Designations, Powers, Preferences and Rights of the
Series A Convertible Preferred Stock and to Certificate of the Designations, Powers, Preferences and
Rights of the Series B Convertible Preferred Stock of the Company. (2)
3.5 Certificate of Amendment to Certificate of the Designations, Powers, Preferences and Rights of the
Series C Convertible Preferred Stock of the Company. (2)
4.1 Specimen Certificate of the Company's Common Stock, par value $.01 per share. (1)
5.1 Opinion of Fulbright & Jaworski L.L.P.
10.1 Stock and Warrant Purchase Agreement, dated March 2, 1999, between the Company and Fleming US
Discovery Fund III, L.P.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included on signature page).
27 Financial Data Schedule. (3)
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)
</TABLE>
- ------------
(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 an Exhibit to, and incorporated
herein by reference from, the Registrant's Registration Statement on Form
S-3 (File No. 333-71809).
(3) Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, the Registrant's Annual Report on Form 10-KSB
for the year 1998.
II-5
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF FULBRIGHT & JAWORSKI L.L.P.]
June 28, 1999
Global Pharmaceutical Corporation
Castor & Kensington Avenues
Philadelphia, PA 19124-5694
Dear Sir or Madam:
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 3,125,000 shares of the Company's Common Stock, $.01 par value (the
"Shares"), of which 2,500,000 shares are issuable upon conversion of the
Company's Series D Convertible Preferred Stock, $.01 par value (the "Series D
Preferred", which term shall include any convertible securities into which the
Series D Preferred may be converted) and 625,000 shares are issuable upon the
exercise of warrants (the "Warrants").
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 D Preferred and the exercise of the Warrants have been
duly and validly authorized and, subsequent to the conversion of the Series D
Preferred, and in the case of the Warrants, payment of the exercise price
therefor, 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 10.1
The Stock and Warrant Purchase Agreement, dated as of March 2, 1999, between
Global Pharmaceutical Corporation and Fleming US Discovery Offshore Fund III,
L.P., is substantially identical to the agreement attached hereto (Stock and
Warrant Purchase Agreement, dated as of March 2, 1999, between Global
Pharmaceutical Corporation and Fleming US Discovery Fund III, L.P.) except that
the parties to the former agreement are Global Pharmaceutical Corporation and
Fleming US Discovery Offshore Fund III, L.P., and the parties to the latter
agreement are Global Pharmaceutical Corporation and Fleming US Discovery Fund
III, L.P.
================================================================================
STOCK AND WARRANT PURCHASE AGREEMENT
====================================
dated
=====
March 2, 1999
=============
between
=======
GLOBAL PHARMACEUTICAL CORPORATION
=================================
and
===
FLEMING US DISCOVERY FUND III, L.P.
==================================
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
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SECTION 1. SALE AND PURCHASE OF PREFERRED STOCK AND WARRANTS.............................................1
SECTION 2. CLOSING.......................................................................................2
SECTION 3. DEFINITIONS...................................................................................3
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................15
4.1. Corporate Existence, Power and Authority.....................................................15
4.2. Capital Stock................................................................................16
4.3. Subsidiaries.................................................................................18
4.4. Business.....................................................................................18
4.5. No Defaults or Conflicts.....................................................................18
4.6. Disclosure Materials; Other Information......................................................19
4.7. Litigation...................................................................................20
4.8. Taxes........................................................................................20
4.9. ERISA........................................................................................21
4.10. Legal Compliance.............................................................................22
4.11. Outstanding Securities.......................................................................23
4.12. Permits, Licenses and Approvals; Intellectual Property and Other Rights......................23
4.13. Key Employees................................................................................23
4.14. Properties...................................................................................24
4.15. Suppliers and Customers......................................................................24
4.16. Environmental Compliance.....................................................................24
4.18. Offering of Shares and Warrants..............................................................25
4.19. SEC Reports..................................................................................25
4.20. Indebtedness.................................................................................26
4.21. Use of Proceeds..............................................................................26
4.22. Other Names..................................................................................27
4.23. Brokers......................................................................................27
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..............................................27
5.1. Corporate Power and Authority................................................................27
5.2. Investment Intent............................................................................27
5.3. Brokers......................................................................................28
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SECTION 6. RESTRICTIONS ON TRANSFER.....................................................................28
SECTION 7. INFORMATION AS TO THE COMPANY................................................................28
7.1. Financial Information........................................................................28
7.2. Communication with Accountants...............................................................31
7.3. Inspection...................................................................................31
7.4. Notices......................................................................................31
7.5. Confidentiality Agreement....................................................................32
SECTION 8. AFFIRMATIVE COVENANTS........................................................................33
8.1. Maintenance of Existence, Properties and Franchises; Compliance with Law;
Taxes; Insurance.............................................................................33
8.2. Office for Payment, Exchange and Registration; Location of Office;
Notice of Change of Name or Office...........................................................34
8.3. Fiscal Year..................................................................................34
8.4. Environmental Matters........................................................................34
8.5. Reservation of Shares........................................................................35
8.6. Stockholders' Meeting........................................................................36
8.7. Securities Exchange Act Registration.........................................................36
8.8. Delivery of Information for Rule 144A Transactions...........................................36
8.9. Senior Securities............................................................................37
8.10. Shelf Registration...........................................................................37
8.11. Further Assurances...........................................................................37
SECTION 9. NEGATIVE COVENANTS...........................................................................37
9.1. No Dilution or Impairment; No Changes in Capital Stock.......................................38
9.2. Indebtedness.................................................................................39
9.3. Consolidation, Merger and Sale...............................................................39
9.4. No Change in Business........................................................................39
9.5. Restricted Payments; Investments.............................................................39
9.6. Sale of Substantial Portion of Assets........................................................40
9.7. Affiliate Loans and Guaranties...............................................................40
9.8. Transactions with Affiliates.................................................................41
9.9. Liens........................................................................................41
9.10. Private Placement Status.....................................................................41
9.11. Maintenance of Public Market.................................................................41
9.12. Actions Prior to Any Closing Date............................................................42
</TABLE>
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SECTION 10. CONDITIONS TO PURCHASER'S OBLIGATIONS........................................................42
10.1. Certificate of Designations; Stockholders' Agreement; Registration Rights
Agreement....................................................................................42
10.2. Certificates for Shares and Warrants.........................................................43
10.3. Stockholders' Meeting........................................................................43
10.4. Senior Status................................................................................43
10.5. Accuracy of Representations and Warranties...................................................43
10.6. Compliance with Agreements...................................................................44
10.7. Officers' Certificates.......................................................................44
10.8. Proceedings..................................................................................44
10.9. Legality; Governmental and Other Authorization...............................................44
10.10. No Material Adverse Change...................................................................44
10.11. Opinion of Counsel...........................................................................45
10.12. Additional Purchases of Shares and Warrants..................................................45
10.13. Acceptance of Agent for Service of Process...................................................45
10.14. Other Documents and Opinions.................................................................45
SECTION 11. BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS
............................................................................................45
SECTION 12. SPECIFIC PERFORMANCE.........................................................................46
SECTION 13. EXPENSES.....................................................................................46
SECTION 14. DIRECT PAYMENTS..............................................................................48
SECTION 15. AMENDMENTS AND WAIVERS.......................................................................48
SECTION 16. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED
SHARES; REPLACEMENT..........................................................................49
SECTION 17. NOTICES......................................................................................50
SECTION 18. MISCELLANEOUS................................................................................50
</TABLE>
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Schedule 1 Purchasers; Number of Shares; Number of Warrants
Schedule 2 Indebtedness
Schedule 3 Investments
Schedule 4 Disclosure Material
Schedule 5 Liens
Schedule 6 Capital Stock
EXHIBIT A-1 Certificate of Designations
EXHIBIT A-2 Form of Warrant Certificates
EXHIBIT B Disclosure Schedule
EXHIBIT C Stockholders' Agreement
EXHIBIT D Registration Rights Agreement
EXHIBIT E Opinion of Counsel for the Company
EXHIBIT F Confidentiality Agreement
iv
<PAGE>
STOCK AND WARRANT PURCHASE AGREEMENT
This STOCK AND WARRANT PURCHASE AGREEMENT is dated as of March
2, 1999 between Global Pharmaceutical Corporation, a Delaware corporation (the
"Company"), and the Purchaser listed on the signature page of this Agreement
(the "Purchaser").
W I T N E S S E T H :
WHEREAS, the Company desires to issue and sell to the
Purchaser, and the Purchaser desires to purchase from the Company, shares of the
Company's Series D Convertible Preferred Stock, par value $.01 per share (the
"Series D Convertible Preferred Stock"), and Warrants to purchase shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), all upon
the terms and provisions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
SECTION 1. SALE AND PURCHASE OF PREFERRED STOCK AND WARRANTS
(a) The Company agrees to sell to the Purchaser and, subject
to the terms and conditions hereof and in reliance upon the representations and
warranties of the Company contained herein or made pursuant hereto, the
Purchaser agrees to purchase from the Company at one or more of the Closings
provided for in Section 2 hereof, the number of shares of Series D Convertible
Preferred Stock and the number of Warrants, each to purchase one share of Common
Stock of the Company, set forth opposite the Purchaser's name on Schedule 1
hereto. The shares of Series D Convertible Preferred Stock being acquired under
this Agreement and by the other Purchaser under the other Stock and Warrant
Purchase Agreement (as hereinafter defined) are collectively referred to herein
as the "Shares", containing rights and privileges as more fully set forth in the
Certificate of Designations of the Company in the form attached hereto as
Exhibit A- 1 (the "Certificate of Designations"). As used herein, "Warrants"
means Warrants to purchase the aggregate of up to the number of shares of Common
Stock equal to 25% of the number of shares of Common Stock obtainable upon
conversion of the Shares. The Warrants contain rights and privileges as more
fully set forth in the Warrant Certificates of the Company in the form attached
hereto as Exhibit A-2 (the "Warrant Certificates").
(b) The aggregate purchase price to be paid to the Company by
the Purchaser for the Shares and Warrants to be purchased by the Purchaser
pursuant to this Agreement shall be
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the amount set forth opposite the Purchaser's name on Schedule 1 hereto. No
further payment shall be required from the Purchaser for the Shares and
Warrants. The parties further acknowledge and agree that the Shares do not
constitute "preferred stock" as that term is used in Section 305(b)(4) of the
Code and Treasury Regulation ss. 1.305-5(a) and agree not to take any position
inconsistent with the characterization of the Shares as common stock for
purposes of Section 305 of the Code on any Tax Return or before any Taxing
Authority.
(c) The Shares and Warrants are being sold to the purchasers
listed on Schedule 1 hereto (the "Purchasers") pursuant to this Agreement and
the other Series D Convertible Preferred Stock and Warrant Purchase Agreement
(both of such agreements collectively, as from time to time assigned,
supplemented or amended or as the terms thereof may be waived, the "Stock and
Warrant Purchase Agreements"). Both Stock and Warrant Purchase Agreements shall
be dated the date hereof and shall be identical except as to the identities of
the respective Purchasers. The sale of Shares and Warrants to each Purchaser
under each Stock and Warrant Purchase Agreement is to be a separate sale, and no
Purchaser shall have any liability under any Stock and Warrant Purchase
Agreement other than the Stock and Warrant Purchase Agreement to which it is a
party.
(d) The Company will use the proceeds from the sale of the
Shares and Warrants, together with other funds it will receive on each Closing
Date to repay debt, to fund future development opportunities and for working
capital and general corporate purposes.
SECTION 2. CLOSINGS
(a) Subject to the terms and conditions hereof, the closing of the
purchase and sale of the Shares and Warrants to be purchased by the Purchaser
and the other Purchasers will take place at the offices of Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York at 10:00 A.M., New York City
time, (i) on March 2, 1999, or such other time and date as shall be mutually
agreed to by the Company and the Purchaser (the "First Closing") (such time and
date are herein referred to as the "First Closing Date"), and (ii) on the date
which is within five business days of the Company's 1999 annual meeting of
stockholders (the "Stockholders' Meeting") or such other time and date as shall
be mutually agreed to by the Company and the Purchaser, but in any event no
later than June 30, 1999; provided that at such Stockholders' Meeting the
appropriate corporate action has been taken to authorize sufficient additional
shares of Common Stock to permit conversion in full of the Series D Convertible
Preferred Stock into shares of Common Stock and to permit exercise in full of
all Warrants issued on such date (the "Second Closing") (such time and date are
herein referred to as the "Second Closing Date"). The First Closing and the
Second Closing are called individually a "Closing" and collectively the
"Closings"; the First Closing Date and the Second Closing Date are called
individually a "Closing Date" and collectively, the "Closing Dates." The sale
and purchase of Shares and Warrants by the Fleming Funds pursuant to the Stock
and Warrant Purchase Agreements between each of the Fleming Funds and the
Company shall be consummated concurrently, (a) for
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an aggregate purchase price of $3,000,000 on the First Closing Date and (b) for
an aggregate purchase price of $2,000,000 on the Second Closing Date.
(b) Subject to the terms and conditions hereof, at each Closing (i)
the Company will deliver to the Purchaser (x) a certificate registered in the
Purchaser's name (or the name of its nominee, if any, as specified on Schedule 1
hereto) evidencing the number of Shares set forth opposite the Purchaser's name
on Schedule 1 and (y) a Warrant Certificate registered in the Purchaser's name
(or the name of its nominee, if any, as specified on Schedule 1 hereto)
evidencing a number of Warrants equal to the number set forth opposite the
Purchaser's name on Schedule 1, and (ii) upon the Purchaser's receipt thereof,
the Purchaser will deliver to the Company a certified or official bank check (or
wire transfer) in an amount equal to the aggregate purchase price (as specified
in Section 1(b) hereof) for the Shares and Warrants to be purchased by the
Purchaser payable to the order of the Company in federal or other immediately
available funds.
SECTION 3. DEFINITIONS
(a) For purposes of this Agreement, the following definitions shall
apply (such definitions to be equally applicable to both the singular and plural
forms of the terms defined):
"Affiliate", when used with respect to any Person, means (i) if
such Person is a corporation, any officer or director thereof (other
than a director elected pursuant to Section 4(c) of the Certificate
of Designations) and any Person which is, directly or indirectly, the
beneficial owner (by itself or as part of any group) of more than
five percent (5%) of any class of any equity security (within the
meaning of the Securities Exchange Act) thereof, and, if such
beneficial owner is a partnership, any general partner thereof, or if
such beneficial owner is a corporation, any Person controlling,
controlled by or under common control with such beneficial owner, or
any officer or director of such beneficial owner or of any
corporation occupying any such control relationship, (ii) if such
Person is a partnership, any general or limited partner thereof, and
(iii) any other Person which, directly or indirectly, controls or is
controlled by or is under common control with such Person. For
purposes of this definition, "control" (including the correlative
terms "controlling", "controlled by" and "under common control
with"), with respect to any Person, shall mean possession, directly
or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership
of voting securities or by contract or otherwise. The holding of
Shares (or of Conversion Shares obtained upon conversion of Shares)
or Warrants (or of Warrant Shares issuable upon the exercise of the
Warrants), and the rights under any Stock and Warrant Purchase
Agreement or under the Certificate of Designations, Warrant
Certificates, the
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Stockholders' Agreement or the Registration Rights Agreement (or the
exercise of any such rights, including, without limitation,
nominating a director to the Board (or Board committee) of the
Company and or sending an observer to Board (or Board committee)
meetings of the Company), shall not cause a Purchaser to be deemed to
be an "Affiliate" of the Company.
"Agreement" means this Stock and Warrant Purchase Agreement
(together with exhibits and schedules) as from time to time assigned,
supplemented or amended or as the terms hereof may be waived.
"Benefit Plan" means any Plan, existing at any Closing,
established or to which contributions have at any time been made by
the Company, or any predecessor of any of the foregoing, or under
which any employee, former employee or director of the Company or any
beneficiary thereof is covered, is eligible for coverage or has
benefit rights.
"Board" or "Board of Directors" means with respect to any Person
which is a corporation, a business trust or other entity, the board
of directors or other group, however, designated, which is charged
with legal responsibility for the management of such Person, or any
committee of such board of directors or group, however designated,
which is authorized to exercise the power of such board or group in
respect of the matter in question.
"Business Day" means any day other than a Saturday, Sunday or
any day on which banks in the location of the office of the Company
provided for in Section 17 hereof are authorized or obligated to
close.
"Capitalized Leases" means any lease to which the Company is
party as lessee, or by which it is bound, under which it leases any
property (real, personal or mixed) from any lessor other than the
Company, and which either is required to be capitalized in accordance
with generally accepted accounting principles consistently applied,
or, even if not so required to be capitalized, shall have (or have
had), at the time first entered into, an initial term of greater than
three (3) years (including leases of shorter duration which are or
were extendible to a total term greater than three (3) years at the
option of the lessor). The value of Capitalized Leases, as of the
time of any determination thereof, shall mean the sum of the then
present values, determined as hereinafter provided, of future
obligations of lessees under then existing Capitalized Leases. To
compute the value of any Capitalized Lease, the following methods
shall be used, as applicable:
(i) values of leases required to be capitalized in
accordance with generally accepted accounting principles
shall be computed in accordance with such principles;
and
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(ii) values of other leases (and values of contracts or other
items which this Agreement provides are to be valued as
if they were Capitalized Leases) shall be computed by
discounting, to the date of determination, at an assumed
interest rate of eight percent (8%) per annum, the
minimum amount of future rental payments that will be
due under the related documentation, including rental
payments that may be due during extensions which are at
the other party's option, but excluding any amounts in
respect of insurance on, taxes on and/or maintenance of
the properties subject to such leases (provided that
such amounts are owed and paid only to the extent
actually incurred).
"Certificate of Designations" has the meaning set forth in
Section 1(a) hereof.
"Closing" or "Closings" have the meanings set forth in Section
2(a) hereof.
"Closing Date" or "Closing Dates" have the meanings set forth in
Section 2(a) hereof.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the regulations and interpretations thereunder.
"Commission" means the Securities and Exchange Commission and
any other similar or successor agency of the federal government
administering the Securities Act or the Securities Exchange Act.
"Common Stock" means the Company's Common Stock, par value $.01
per share, and shall also include any common stock of the Company
hereafter authorized and any capital stock of the Company of any
other class hereafter authorized which is not preferred as to
dividends or assets over any other class of capital stock of the
Company or which has ordinary voting power for the election of
directors of the Company; provided that Common Stock shall not
include the Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock, the Series C Convertible Preferred Stock
or the Series D Convertible Preferred Stock.
"Company" means Global Pharmaceutical Corporation, a Delaware
corporation, its successors and assigns.
"Confidentiality Agreement" has the meaning set forth in Section
7.5 hereof.
"Consolidated" or "consolidated", when used with reference to
any financial term in this Agreement, means the aggregate for the
Company of the amounts signified by
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such term for all such Persons, with intercompany items eliminated,
and, with respect to net worth, after eliminating the portion of net
worth properly attributable to minority interests, if any, in the
capital of any such Person (other than in the capital of the Company)
and otherwise as determined in accordance with generally accepted
accounting principles consistently applied (except as otherwise
expressly provided herein).
"Conversion Share" or "Conversion Shares" means the shares of
the Company's Common Stock obtained or obtainable upon conversion of
Shares and shall also include any capital stock or other securities
into which Conversion Shares are changed and any capital stock or
other securities resulting from or comprising a reclassification,
combination or subdivision of, or a stock dividend on, any Conversion
Shares. In the event that any Conversion Shares are sold either in a
public offering pursuant to a registration statement under the
Securities Act or pursuant to a Rule 144 Transaction, then the
transferees of such Conversion Shares shall not be entitled to any
benefits under this Agreement with respect to such Conversion Shares
and such Conversion Shares shall no longer be considered to be
"Conversion Shares" for purposes of any consent or waiver provision
of this Agreement.
"Disclosure Material" has the meaning specified in Section
4.6(a) hereof.
"Environmental Laws" means all federal, state, local, foreign,
civil and criminal laws, statutes, ordinances, orders, codes,
Environmental Permits, rules, policies, and regulations and common
law relating to the protection of the environment and human health or
relating to the handling, use, generation, treatment, storage,
transportation or disposal of Hazardous Materials, including but not
limited to the Resource Conservation and Recovery Act of 1976, 42
U.S.C. ss. 6901 et seq.; the Toxic Substances Control Act, 15 U.S.C.
ss. 2601 et seq.; the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. ss. 9601 et seq.;
the Federal Water Pollution Control Act, 33 U.S.C. ss. 1251 et seq.;
the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the Hazardous
Materials Transportation Act, 49 U.S.C. ss. 1801 et seq.; The
Occupational Safety and Health Act, 29 U.S.C. ss. 651; the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ss. 136y et
seq.; and the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq.,
all as may be amended or superseded from time to time.
"Environmental Lien" has the meaning set forth in Section 4.16
hereof.
"Environmental Permits" means all permits, licenses, approvals,
authorizations or consents required by any Governmental Authority
under any applicable Environmental Law and includes any and all
orders, consent orders or binding agreements issued or entered into
by a Governmental Authority under any applicable Environmental Law.
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"ERISA" means Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means each "person" (as defined in Section
3(9) of ERISA) which is under "common control" with the Company
(within the meaning of Section 414(b), (c), (m) or (o) of the Code).
"First Closing" has the meaning set forth in Section 2(a)
hereof.
"First Closing Date" has the meaning set forth in Section 2(a)
hereof.
"Fleming Funds" means Fleming US Discovery Fund III, L.P. and
Fleming US Discovery Offshore Fund III, L.P.
"Fleming Holders" means (i) the Fleming Funds, (ii) any
Affiliate, officer or employee of an Affiliate or investment fund
managed by an Affiliate of the Fleming Funds to which the Fleming
Funds may transfer record and/or beneficial ownership of the Shares,
the Conversion Shares, the Warrants or the Warrant Shares and (iii)
any transferee of Shares, Conversion Shares, Warrants or Warrant
Shares from a Fleming Holder other than a transferee of Shares,
Conversion Shares, Warrants or Warrant Shares sold in either a public
offering pursuant to a registration statement under the Securities
Act or pursuant to a Rule 144 Transaction, except that for purposes
of Section 9 hereof, such transferee shall be a Fleming Holder only
if such transferee is reasonably acceptable to the Company.
"Governmental Authority" means any federal, state, or local
governmental agency or authority (including regulatory authority)
having jurisdiction over the Company or any of its respective assets
or businesses.
"Guaranty" means (i) any guaranty or endorsement of the payment
or performance of, or any contingent obligation in respect of, any
indebtedness or other obligation of any other Person, (ii) any other
arrangement whereby credit is extended to one obligor (directly or
indirectly) on the basis of any promise or undertaking of another
Person (a) to pay the indebtedness of such obligor, (b) to purchase
an obligation owed by such obligor, (c) to purchase or lease assets
(or to provide funds, goods or services) under circumstances that
would enable such obligor to discharge one or more of its obligations
or (d) to maintain the capital, working capital, solvency or general
financial condition of such obligor, in each case whether or not such
arrangement is disclosed in the balance sheet of such other Person or
is referred to in a footnote thereto and (iii) any liability as a
general partner of a partnership in respect of indebtedness or other
obligations of such partnership; provided, however, that the term
"Guaranty" shall not include
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(1) endorsements for collection or deposit in the ordinary course of
business, (2) any guaranty of indebtedness of the Company by a
subsidiary of the Company or (3) obligations of the Company which
would constitute Guaranties solely by virtue of the continuing
liability of a Person which has sold assets subject to liabilities
for the liabilities which were assumed by the Person acquiring the
assets, unless such liability is required to be carried on the
consolidated balance sheet of the Company. The amount of any Guaranty
and the amount of indebtedness resulting from such Guaranty shall be
the maximum amount of the guarantor's potential obligation in respect
of such Guaranty.
"Hazardous Materials" means any petroleum, petroleum
hydrocarbons, petroleum waste or petroleum products, underground
storage tanks, asbestos or asbestos-containing materials, pesticides,
lead and lead-containing materials, urea formaldehyde insulation and
polychlorinated biphenyls (PCBs), ionizing and non-ionizing radiation
including radon and electromagnetic frequency radiation; and any
chemicals, materials, substances or wastes in any amount or
concentration which are now or hereafter "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants" or words of similar import, under any applicable
Environmental Law.
"Indebtedness" of any Person means, without duplication, as of
any date as of which the amount thereof is to be determined, (i) all
obligations of such Person to repay money borrowed (including,
without limitation, all notes payable and drafts accepted
representing extensions of credit, all obligations under letters of
credit, all obligations evidenced by bonds, debentures, notes or
other similar instruments and all obligations upon which interest
charges are customarily paid), (ii) all Capitalized Leases in respect
of which such Person is liable as lessee or as the guarantor of the
lessee, (iii) all monetary obligations which are secured by any Lien
existing on property owned by such Person whether or not the
obligations secured thereby have been incurred or assumed by such
Person, (iv) all conditional sales contracts and similar title
retention debt instruments under which such Person is obligated to
make payments, (v) all Guaranties by such Person and (vi) all
contractual obligations (whether absolute or contingent) of such
Person to repurchase goods sold and distributed. "Indebtedness" shall
not include, however, any unfunded obligations in any employee
pension benefit plan (as defined in ERISA) of the Company.
"Initial Shelf Registration" has the meaning set forth in
Section 8.10 hereof.
"Investment" means, with respect to any Person, (i) any loan,
advance or extension of credit by such Person to, and any
contributions to the capital of, any other Person, (ii) any Guaranty
by such Person, (iii) any interest in any capital stock, equity
interest or other securities of any other Person, (iv) any transfer
or sale of property of
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such Person to any other Person other than upon full payment, in cash
or other consideration, of not less than the agreed sale price
bargained on an arms-length basis and (v) any commitment or option to
make an Investment if, in the case of an option, the consideration
therefor exceeds $10,000, and any of the foregoing under clauses (i)
through (v) shall be considered an Investment whether such Investment
is acquired by purchase, exchange, merger or any other method;
provided, that the term "Investment" (1) shall not include an
Investment in the Company, (2) shall not include current trade and
customer accounts receivable and allowances, provided they relate to
goods furnished in the ordinary course of business and are given in
accordance with the customary practices of the Company, (3) shall not
include temporary investments of excess cash of the Company in any of
the following: (A) investment grade obligations maturing within one
year of their issuance which as to principal and interest constitute
direct obligations of, or obligations guaranteed by, the United
States of America, (B) negotiable certificates of deposit of banks or
trust companies which are organized under the laws of the United
States of America or any state thereof and which have capital and
surplus of at least $500,000,000, (C) commercial paper which is rated
not less than prime-one or A-1 or their equivalents by Moody's
Investor Service, Inc. or Standard & Poor's Corporation or their
successors, (D) any repurchase agreement secured by any one or more
of the foregoing and (E) money market funds primarily investing in
any of the foregoing securities and sponsored by or affiliated with
nationally recognized brokerage or investment advisory firms, and (4)
shall not include Investments of the Company existing on the date
hereof and disclosed on Schedule 3 hereto.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, or preference, priority or other
security interest of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same effect
as any of the foregoing, any assignment or other conveyance of any
right to receive income and any assignment of receivables with
recourse against the assignor), any filing of a financing statement
as debtor under the Uniform Commercial Code or any similar statute
and any agreement to give or make any of the foregoing; provided that
the term "Lien" shall not include Permitted Liens.
"Outside Directors" means those directors on the Company's Board
of Directors at any time who are not otherwise Affiliates of or
employed by the Company.
"Outstanding" or "outstanding" means (a) when used with
reference to the Shares, the Conversion Shares, the Warrants or the
Warrant Shares as of a particular time, all Shares, Conversion
Shares, Warrants or Warrant Shares theretofore duly issued except (i)
Shares, Conversion Shares, Warrants and Warrant Shares theretofore
reported as lost, stolen, mutilated or destroyed or surrendered for
transfer, exchange or replacement, in respect of which new or
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replacement Shares, Conversion Shares, Warrants or Warrant Shares
have been issued by the Company, (ii) Shares, Conversion Shares,
Warrants and Warrant Shares theretofore cancelled by the Company and
(iii) Shares, Conversion Shares, Warrants and Warrant Shares
registered in the name of, as well as Shares, Warrants and Warrant
Shares owned beneficially by, the Company, or any of its Affiliates.
For purposes of the preceding sentence, in no event shall
"Affiliates" include (x) the persons which are identified as
"Purchasers" on Schedule 1 hereto or (y) any Affiliates of any such
persons.
"Pension Plan" means any "employee pension benefit plan" as
defined in Section 3(2) of ERISA.
"Permitted Lien" means (i) any Lien for Taxes, governmental
charges or levies not yet due or delinquent or being contested in
good faith by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP, (ii) any imperfections
of title, easements, rights of way or similar Liens, zoning laws or
land use restrictions as normally exist with respect to property
similar in character to the property affected thereby and which
individually or in the aggregate with other such Liens, zoning laws
or land use restrictions do not materially impair the value or
marketability of the property subject to such Liens, zoning laws or
land use restrictions or interfere with the use of such property in
the conduct of the business of the Company and which do not secure
obligations for money borrowed, (iii) Liens imposed by any law, such
as mechanic's, materialman's, landlord's, warehouseman's and
carrier's Liens, securing obligations incurred in the ordinary course
of business which are not yet overdue or which are being diligently
contested in good faith by appropriate proceedings and, with respect
to such obligations which are being contested, for which the Company
has set aside adequate reserves, if appropriate, and (iv) any Lien
resulting from purchase by the Company of goods in the ordinary
course of business as to which Liens are not filed of record.
"Person" or "person" means an individual, corporation,
partnership, firm, association, joint venture, trust, unincorporated
organization, government, governmental body, agency, political
subdivision or other entity.
"Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase,
stock option, stock ownership, stock appreciation rights, phantom
stock, leave of absence, layoff, vacation, day or dependent care,
legal services, cafeteria, life, health, accident, disability,
workmen's compensation or other insurance, severance, separation or
other employee benefit plan, practice, policy or arrangement of any
kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to,
any "employee benefit plan" within the meaning of Section 3(3) of
ERISA.
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"Preferred Stock" means any class of the capital stock of a
corporation (whether or not convertible into any other class of such
capital stock) which has any right, whether absolute or contingent,
to receive dividends or other distributions of the assets of such
corporation (including, without limitation, amounts payable in the
event of the voluntary or involuntary liquidation, dissolution or
winding-up of such corporation), which right is superior to the
rights of another class of the capital stock of such corporation.
"Preferred Stock" includes, without limitation, the Series A
Convertible Preferred Stock, the Series B Convertible Preferred
Stock, the Series C Convertible Preferred Stock and the Series D
Convertible Preferred Stock.
"Purchaser" means the person who accepts and agrees to the terms
hereof as indicated by such person's signature (as "the undersigned
Purchaser") on the execution page of this Agreement, together with
its successors and assigns.
"Purchasers" has the meaning set forth in Section 1(c) hereof,
together with their respective successors and assigns.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the First Closing Date, among the Company and
each of the Purchasers.
"Restricted Payment" means (i) every payment in connection with
the redemption, purchase, retirement or other acquisition by or on
behalf of the Company of any shares of the Company's capital stock
(as defined below), whether or not owned by the Company, (ii) any
prepayments or repayments made on Indebtedness of the Company, (iii)
every payment to or on behalf of any Affiliate of the Company on
account of or with respect to any lease arrangements, and (iv) every
payment by or on behalf of the Company (whether as repayment or
prepayment of principal or as interest or otherwise) on or with
respect to (A) any obligation to repay money borrowed owing to any
Affiliate of the Company or (B) any obligation, to any Person, of any
Affiliate of the Company or to any other holder of shares of the
Company's capital stock (as defined below), which obligation is
assumed, or is the subject of a Guaranty, by the Company; provided,
however, (a) that the restrictions of the foregoing clause (i) shall
not apply to (A) any payment in respect of capital stock of the
Company to the extent payable in shares of the capital stock of the
Company, (B) any redemption of the Series A Convertible Preferred
Stock, the Series B Convertible Preferred Stock or the Series C
Convertible Preferred Stock in accordance with Section 5(a) of their
respective Certificate of Designations as in effect on the date
hereof, (C) any redemption of the Series D Preferred Stock or (D) any
redemption or repurchase pursuant to the 1995 Stock Incentive Plan as
in effect on the date hereof, (b) that the restrictions of the
foregoing clause (ii) shall not apply to any regularly
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scheduled prepayment or repayment of Indebtedness, provided that such
Indebtedness being prepaid or repaid is not at the time of such
prepayment or repayment or at any prior time thereto owing to an
Affiliate of the Company, and (c) that none of the foregoing clauses
shall apply to any payments, distributions or other transfers or
actions on or with respect to the Shares or the Conversion Shares or
to the Purchasers (or holders of Shares or the Conversion Shares)
under the Stock and Warrant Purchase Agreements. For purposes of this
definition, "capital stock" shall also include warrants and other
rights and options to acquire shares of capital stock (whether upon
exercise, conversion, exchange or otherwise).
"Rule 144" means (i) Rule 144 under the Securities Act as such
Rule is in effect from time to time and (ii) any successor rule,
regulation or law, as in effect from time to time.
"Rule 144A" means (i) Rule 144A under the Securities Act as such
Rule is in effect from time to time and (ii) any successor rule,
regulation or law, as in effect from time to time.
"Rule 144 Transaction" means a transfer of Conversion Shares (A)
complying with Rule 144 as such Rule is in effect on the date of such
transfer (but not including a sale other than pursuant to "brokers'
transactions" as defined in clauses (1) and (2) of paragraph (g) of
such Rule as in effect on the date hereof) and (B) occurring at a
time when Conversion Shares are registered pursuant to Section 12 of
the Securities Exchange Act.
"SEC Reports" has the meaning set forth in Section 4.19 hereof.
"Second Closing" has the meaning set forth in Section 2(a)
hereof.
"Second Closing Date" has the meaning set forth in Section 2(a)
hereof.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules, regulations and interpretations thereunder.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, and the rules, regulations and interpretations
thereunder.
"Series A Convertible Preferred Stock" means the Company's
Series A Convertible Preferred Stock, par value $.01 per share.
"Series B Convertible Preferred Stock" means the Company's
Series B Convertible Preferred Stock, par value $.01 per share.
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"Series C Convertible Preferred Stock" means the Company's
Series C Convertible Preferred Stock, par value $.01 per share.
"Series D Convertible Preferred Stock" means the Company's
Series D Convertible Preferred Stock, par value $.01 per share, which
will have the rights, powers and privileges on such Closing Date as
more fully set forth in the Certificate of Designations.
"Shares" has the meaning set forth in Section 1(a) hereof. In
the event that any Shares are sold either in a public offering
pursuant to a registration statement under Section 5 of the
Securities Act or pursuant to a Rule 144 Transaction, then the
transferees of such Shares shall not be entitled to any benefits
under this Agreement with respect to such Shares and such Shares
shall no longer be considered to be "Shares" for purposes of any
consent or waiver provision of this Agreement.
"Shelf Registration" has the meaning set forth in Section 8.10
hereof.
"Stock and Warrant Purchase Agreements" has the meaning set
forth in Section 1(c) hereof.
"Stockholders' Agreement" means the Stockholders' Agreement,
dated as of the First Closing Date, among the Company, the Purchasers
and certain other stockholders of the Company.
"Stockholders' Meeting" has the meaning set forth in Section
2(a) hereof.
"Subsequent Shelf Registration" has the meaning set forth in
Section 8.10 hereof.
"Subsidiary", with respect to any Person, means any corporation,
association or other entity of which more than 50% of the total
voting power of shares of stock or other equity interests (without
regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is, at the time as of
which any determination is being made, owned or controlled, directly
or indirectly, by such Person or one or more of its Subsidiaries, or
both. The term "Subsidiary" or "Subsidiaries" when used herein
without reference to any particular Person, means a Subsidiary or
Subsidiaries of the Company.
"Tax" or "Taxes" means all federal, state, local or foreign net
or gross income, gross receipts, net proceeds, sales, use, ad
valorem, value added, franchise, bank shares, withholding, payroll,
employment, excise, property, alternative or add-on minimum,
environmental or other taxes, assessments, duties, fees, levies or
other governmental charges of any nature whatsoever, whether
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disputed or not, together with any interest, penalties, additions to
tax or additional amounts with respect thereto.
"Tax Returns" means any returns, reports or statements
(including any information returns) required to be filed for purposes
of a particular Tax.
"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or
local jurisdiction, or any foreign jurisdiction, having or purporting
to exercise jurisdiction with respect to any Tax.
"Transferees" shall mean any transferee (except for a Fleming
Holder) of Shares or Conversion Shares (as such terms are defined within the
definition of "Fleming Holders") from a Fleming Holder. Transferees shall not
include a transferee of Shares or Conversion Shares sold in either a public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), or pursuant to Rule 144 under the Securities
Act.
"Warrant Certificates" has the meaning set forth in Section 1(a)
hereof.
"Warrants" has the meaning set forth in Section 1(a) hereof.
"Warrant Share" or "Warrant Shares" means the shares of the
Company's Common Stock obtained or obtainable upon the exercise of Warrants and
shall also include any capital stock or other securities into which Warrant
Shares are changed and any capital stock or other securities resulting from or
comprising a reclassification, combination or subdivision of, or a stock
dividend on, any Warrant Shares. In the event that any Warrant Shares are sold
either in a public offering pursuant to a registration statement under the
Securities Act or pursuant to a Rule 144 Transaction, then the transferees of
such Warrant Shares shall not be entitled to any benefits under this Agreement
with respect to such Warrant Shares and such Warrant Shares shall no longer be
considered to be "Warrant Shares" for purposes of any consent or waiver
provision of this Agreement.
(b) For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(i) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to
any particular Section or other subdivision;
(ii) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally accepted
accounting principles consistently applied (except as otherwise
provided herein);
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(iii) all computations provided for herein, if any, shall be
made in accordance with generally accepted accounting principles
consistently applied (except as otherwise provided herein);
(iv) any uses of the masculine, feminine or neuter gender
shall also be deemed to include any other gender, as appropriate;
(v) all references herein to actions by the Company, such as
"create", "sell", "transfer", "dispose of", etc., mean such action
whether voluntary or involuntary, by operation of law or otherwise;
(vi) the exhibits and schedules to this Agreement shall be
deemed a part of this Agreement;
(vii) each of the representations and warranties of the
Company contained in Section 4 hereof is separate and is not limited,
qualified or modified by the existence, wording or satisfaction of
any other representation or warranty of the Company in Section 4 or
otherwise;
(viii) each of the covenants of the Company contained in
Sections 7, 8 and 9 hereof or otherwise contained in any Stock and
Warrant Purchase Agreement, the Certificate of Designations, the
Warrant Certificates, the Stockholders' Agreement or the Registration
Rights Agreement is separate and is not limited or satisfied by the
existence, wording or satisfaction of any other covenant of the
Company in Section 7, 8 or 9 or otherwise; and
(ix) all references herein (in covenants or otherwise) to
any action(s) which are to be taken (or which are prohibited from
being taken) by any Person or the Company shall apply to such Person
or the Company, as the case may be, whether such action is taken
directly or indirectly.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows as of
the date hereof and as of any Closing Date, except as set forth in the
Disclosure Schedule attached hereto as Exhibit B:
4.1. Corporate Existence, Power and Authority.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation. The
Company is duly qualified, licensed and authorized to do business and is in good
standing in each jurisdiction in which it
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owns or leases any property or in which the conduct of its business requires it
to so qualify or be so licensed, except for such jurisdictions where the failure
to so qualify or be so licensed would not have a material adverse effect on the
Company's assets, properties, liabilities, business, affairs, results of
operations, condition (financial or otherwise) or prospects.
(b) No proceeding has been commenced looking toward the dissolution
or merger of the Company or the amendment of its certificate of incorporation
(other than the Certificate of Designations). The Company is not in violation in
any respect of its certificate of incorporation or by-laws.
(c) The Company has all requisite power, authority (corporate and
other) and legal right to own or to hold under lease and to operate the
properties it owns or holds and to conduct its business as now being conducted.
(d) The Company has all requisite power, authority (corporate and
other) and legal right to execute, deliver, enter into, consummate the
transactions contemplated by and perform its obligations under (i) the Stock and
Warrant Purchase Agreements, including, without limitation, the issuance by the
Company of the Shares and the Conversion Shares as contemplated herein and
therein and in the Certificate of Designations and the issuance by the Company
of the Warrants and Warrant Shares as contemplated herein and therein and in the
Warrant Certificates (subject to the proper filing with the Secretary of State
of the State of Delaware of (I) the Certificate of Designations for the Series D
Preferred Stock, and (II) amendments to the respective Certificate of
Designations for each of the Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock and the Series C Convertible Preferred Stock), (ii)
the Stockholders' Agreement and (iii) the Registration Rights Agreement. The
execution, delivery and performance of the Stock and Warrant Purchase
Agreements, the Stockholders' Agreement and the Registration Rights Agreement by
the Company (including, without limitation, the issuance by the Company of the
Shares and the Conversion Shares as contemplated herein and therein and in the
Certificate of Designations and the issuance by the Company of the Warrants and
Warrant Shares as contemplated herein and therein and in the Warrant
Certificates) have been duly authorized by all required corporate and other
actions; provided that the Second Closing is contingent upon the due
authorization by corporate and other actions of sufficient additional shares of
Common Stock to permit conversion in full of the Series D Convertible Preferred
Stock into shares of Common Stock at the Shareholders' Meeting. The Company has
duly executed and delivered the Stock and Warrant Purchase Agreements, the
Stockholders' Agreement and the Registration Rights Agreement. The Stock and
Warrant Purchase Agreements, the Stockholders' Agreement and the Registration
Rights Agreement constitute the legal, valid and binding obligations of the
Company enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to the rights of creditors generally.
4.2. Capital Stock.
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(a) Schedule 6(a) hereto correctly and completely lists (i) the
authorized capital stock of the Company (Common Stock and Preferred Stock), (ii)
the number of designated shares of Preferred Stock in each Series or Class after
giving effect to the Certificate of Designations and (iii) on January 31, 1999,
after giving effect to the issuance of Shares contemplated by the Stock and
Warrant Purchase Agreements, the number of shares outstanding in each Series or
Class. Other than the conversion of certain shares of the Series A Convertible
Preferred Stock, the Series B Convertible Preferred Stock and the Series C
Convertible Preferred Stock, there have been no material issuances of shares
since January 31, 1999. All of such outstanding shares are, or on such Closing
Date will be, duly authorized, validly issued and outstanding, fully paid and
non-assessable. The shares of the Company's Common Stock issuable upon
conversion of the Series D Convertible Preferred Stock will be, when issued in
accordance with the terms of the Series D Convertible Preferred Stock, duly
authorized, validly issued, fully paid and non-assessable. Except as provided in
the Certificate of Designations, none of the shares of the Company's capital
stock which will be outstanding at each Closing (i) were or will be subject to
preemptive rights when issued or (ii) provide the holders thereof with any
preemptive rights with respect to any issuances of capital stock.
(b) Schedule 6(b) hereto correctly and completely lists the number
and purpose for which such shares of the Company's Common Stock are reserved for
issuance by the Company.
(c) Except as referred to in Section 4.2(b), there are no outstanding
options, warrants, subscriptions, rights, convertible securities or other
agreements or plans under which the Company may become obligated to issue, sell
or transfer shares of its capital stock or other securities.
(d) Except for the registration rights contained in the Registration
Rights Agreement, there are and will be no outstanding registration rights with
respect to any capital stock of the Company, which (in either case) will be
outstanding on such Closing Date, or any capital stock referred to in Section
4.2(b) or 4.2(c).
(e) There are no voting agreements, voting trusts, proxies or other
agreements or understandings with respect to the voting of any capital stock of
the Company of which the Company is a party, except as provided herein, in the
Stockholders' Agreement and the Certificate of Designations.
(f) There are no anti-dilution protections or other adjustment
provisions in existence with respect to any capital stock of the Company or any
capital stock referred to in Section 4.2(b) or 4.2(c) or in the last sentence of
Section 4.3(b) below.
(g) The Certificate of Designations has been duly adopted by the
Company and is fully effective as an amendment to the Company's certificate of
incorporation. The Shares have all of the rights, priorities and terms set forth
in the Certificate of Designations.
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(h) The Warrant Certificates have been duly adopted by the Company,
and the Warrants will have all of the rights and privileges set forth in the
Warrant Certificates.
(i) To the knowledge of the Company, those persons who own, directly
or indirectly, more than 5% (calculated in accordance with Rule 13d-3 of the
Securities Exchange Act) of the Company's outstanding Common Stock are as
follows: Frederick R. Adler, Bear Stearns Asset Management Inc., Kingdon Capital
Management Corporation, M. Kingdon Offshore N.V.
4.3. Subsidiaries.
The Company has no Subsidiaries. The Company has no Investments in
any other Person.
4.4. Business.
The Company is engaged primarily in the business of the manufacture
and sale of liquid and solid oral generic prescription and over-the-counter
drugs. The Company neither currently engages in, nor has any intention of
engaging in, any other business.
4.5. No Defaults or Conflicts.
(a) The Company is not in violation or default in any material
respect (and is not in default in any respect regarding any Indebtedness) under
any indenture, agreement or instrument to which it is a party or by which it or
its properties may be bound. The Company is not in default in any material
respect under any material order, writ, injunction, judgment or decree of any
court or other governmental authority or arbitrator(s).
(b) The execution, delivery and performance by the Company of the
Stock and Warrant Purchase Agreements, the Stockholders' Agreement and the
Registration Rights Agreement and any of the transactions contemplated hereby or
thereby (including, without limitation, the issuance of the Shares and the
Conversion Shares as contemplated herein and therein and in the Certificate of
Designations, the adoption of the Certificate of Designations as an amendment to
the Company's certificate of incorporation and the issuance by the Company of
the Warrants and Warrant Shares as contemplated herein and therein and in the
Warrant Certificates) do not and will not (i) violate or conflict with, with or
without the giving of notice or the passage of time or both, any provision of
(A) the respective certificates of incorporation or by-laws of the Company, (B)
any law, rule, regulation or order of any federal, state, county, municipal or
other governmental authority, (C) any judgment, writ, injunction, decree, award
or other action of any court or governmental authority or arbitrator(s), or (D)
any agreement, indenture or other instrument applicable to the Company or any of
its respective properties, (ii) result in the creation of any Lien upon any of
the Company's properties, assets or revenues,
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except as provided in the Certificate of Designations of the Series D
Convertible Preferred Stock, (iii) require the consent, waiver, approval, order
or authorization of, or declaration, registration, qualification or filing with,
any Person (whether or not a governmental authority and including, without
limitation, any shareholder approval) (other than the vote at the Stockholders'
Meeting regarding authorized stock and other than approvals which have been
obtained prior to the Closing Date), or (iv) cause antidilution clauses of any
outstanding securities to become operative or give rise to any preemptive
rights. No provision referred to in Sections (A) and (C) of the preceding clause
(i) materially adversely affects the assets, properties, liabilities, business,
affairs, results of operations, condition (financial or otherwise) or prospects
of the Company on a consolidated basis or the ability of the Company to perform
its obligations under the Stock and Warrant Purchase Agreements, the Certificate
of Designations, the Warrant Certificates, the Stockholders' Agreement, the
Registration Rights Agreement or any of the transactions contemplated hereby or
thereby.
4.6. Disclosure Materials; Other Information.
(a) The Company has previously furnished to the Purchaser the
materials described on Schedule 4 hereto (the "Disclosure Material"). The
audited and unaudited financial statements referred to or contained in the
materials referred to on Schedule 4 fairly present the consolidated financial
condition of the Company as of the respective dates thereof and the consolidated
results of the operations of the Company for such periods and have been prepared
in accordance with generally accepted accounting principles consistently
applied, except that any such unaudited statements may omit notes and may be
subject to year-end adjustment.
(b) Since September 30, 1998, except as disclosed in the unaudited
financial statements for December 31, 1998 provided to the Purchaser, (i) the
business of the Company has been conducted in the ordinary course and (ii) there
has been no material adverse change in the assets, properties, liabilities,
business, affairs, results of operations, condition (financial or otherwise) or
prospects of the Company on a consolidated basis. As of such Closing Date and as
of the date hereof, there are no material liabilities of the Company which would
be required to be provided for in a consolidated balance sheet of the Company as
of either such date prepared in accordance with generally accepted accounting
principles consistently applied, other than liabilities provided for in the
financial statements referred to in Section 4.6(a). Since September 30, 1998, no
amount or property has directly or indirectly been declared, ordered, paid, made
or set aside for any Restricted Payment nor has any such action been agreed to.
(c) There are no material liabilities, contingent or otherwise, of
the Company that have not been disclosed in the financial statements referred to
in Section 4.6(a) or otherwise disclosed in the Disclosure Material.
(d) The financial projections included in the Disclosure Material
conform with the internal operating forecasts of the Company and were based on
reasonable assumptions when made and have been prepared in good faith.
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(e) There is no fact known to the Company which is not in the
Disclosure Material and which materially and adversely affects, or in the future
would be reasonably likely (as far as the Company currently can reasonably
foresee) to materially and adversely affect, the assets, properties,
liabilities, business, affairs, results of operations, condition (financial or
otherwise) or prospects of the Company on a consolidated basis.
4.7. Litigation.
There is no action, suit, proceeding, investigation or claim pending
or, to the knowledge of the Company, threatened in law, equity or otherwise
before any court, administrative agency or arbitrator which (i) questions the
validity of the Stock and Warrant Purchase Agreements, the Certificate of
Designations, the Warrant Certificates, the Stockholders' Agreement, the
Registration Rights Agreement, the Shares, the Conversion Shares, the Warrants
or the Warrant Shares or any action taken or to be taken pursuant hereto or
thereto, (ii) might adversely affect the right, title or interest of any
Purchaser to the Shares, the Conversion Shares, the Warrants or the Warrant
Shares or (iii) might result in a material adverse change in the assets,
properties, liabilities, business, affairs, results of operations, condition
(financial or otherwise) or prospects of the Company on a consolidated basis.
4.8. Taxes.
The Company has duly and timely filed all Tax Returns required to be
filed by it, and each such Tax Return correctly and completely reflects the Tax
liability and all other information required to be reported thereon. The Company
has paid or caused to be paid all Taxes (whether or not reflected on such Tax
Returns) that are due and payable. The provision for Taxes due by the Company in
the most recent financial statement included in the Disclosure Material is
sufficient for all unpaid Taxes, being current Taxes not yet due and payable, of
the Company, as of the end of the period covered by such financial statement,
and as of such Closing Date, such provision, as adjusted for the passage of time
through such Closing Date, will be sufficient for the then-accrued and unpaid
Taxes not yet due and payable of the Company. No Tax Returns of the Company have
ever been audited by any Taxing Authority, there is no dispute concerning any
Tax liability of the Company either threatened, claimed or raised by any Taxing
Authority, and the Company does not expect any Taxing Authority to assess
additional Taxes against or in respect of it for any past period. The Company
has withheld and paid, or, if not yet due for payment, set aside in accounts for
such purposes, all Taxes required to have been withheld in connection with
amounts paid or owing to any employee, creditor, independent contractor or other
third party. Other than stamp taxes, the Company has no liability for Taxes of
any Person other than the Company (i) as a transferee or successor, (ii) by
contract, or (iii) otherwise. There are no applicable Taxes payable by the
Company in connection with the execution and delivery of the Stock and Warrant
Purchase Agreements, the Stockholders' Agreement or the Registration Rights
Agreement or the issuance by the Company of the Shares, the Conversion Shares,
the Warrants or the Warrant Shares.
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4.9. ERISA.
(a) All Benefit Plans are listed in Exhibit B, and copies of all
documentation relating to such Benefit Plans have been delivered to or made
available for review by Purchasers (including copies of written Benefit Plans,
written descriptions of oral Benefit Plans, summary plan descriptions, trust
agreements, the three most recent annual returns, employee communications, and
IRS determination letters).
(b) Each Benefit Plan has at all times been maintained and
administered in all material respects in accordance with its terms and with the
requirements of all applicable law, including ERISA and the Code, and each
Benefit Plan intended to qualify under section 401(a) of the Code has at all
times since its adoption been so qualified, and each trust which forms a part of
any such plan has at all times since its adoption been tax-exempt under section
501(a) of the Code.
(c) No Benefit Plan has incurred any "accumulated funding deficiency"
within the meaning of section 302 of ERISA or section 412 of the Code, and the
"amount of unfunded benefit liabilities" within the meaning of section
4001(a)(18) of ERISA does not exceed zero with respect to any Benefit Plan
subject to Title IV of ERISA.
(d) No "reportable event" (within the meaning of section 4043 of
ERISA) has occurred with respect to any Benefit Plan or any Plan maintained by
an ERISA Affiliate since the effective date of said section 4043 for which
notice is not waived under the regulations issued pursuant to said Section 4043.
(e) No Benefit Plan is a multiemployer plan within the meaning of
section 3(37) of ERISA.
(f) No direct, contingent or secondary liability has been incurred or
is expected to be incurred by the Company under Title IV of ERISA to any party
with respect to any Benefit Plan, or with respect to any other Plan presently or
heretofore maintained or contributed to by any ERISA Affiliate.
(g) Neither the Company nor any ERISA Affiliate has incurred any
liability for any tax imposed under section 4971 through 4980B of the Code or
civil liability under section 502(i) or (l) of ERISA.
(h) No benefit under any Benefit Plan, including, without limitation,
any severance or parachute payment plan or agreement, will be established or
become accelerated, vested or payable by reason of any transaction contemplated
under this Agreement.
(i) No Benefit Plan provides health or death benefit coverage beyond
the termination of an employee's employment, except as required by Part 6 of
Subtitle B of Title I of
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ERISA or section 4980B of the Code or any State laws requiring continuation of
benefits coverage following termination of employment.
(j) No suit, action or other litigation (excluding claims for
benefits incurred in the ordinary course of plan activities and any other claim
which could reasonably be expected to result in a material liability or expense
to the Company) has been brought or, to the knowledge of the Company, threatened
against or with respect to any Benefit Plan and there are no facts or
circumstances known to the Company that could reasonably be expected to give
rise to any such suit, action or other litigation.
(k) All contributions to Benefit Plans that were required to be made
under such Benefit Plans have been made, and all benefits accrued under any
unfunded Benefit Plan have been paid, accrued or otherwise adequately reserved
in accordance with generally accepted accounting principles, all of which
accruals under unfunded Benefit Plans are as disclosed in Exhibit B, and the
Company has performed all material obligations required to be performed under
all Benefit Plans.
(l) The execution, delivery and performance of the Stock and Warrant
Purchase Agreements, the Stockholders' Agreement and the Registration Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby (including, without limitation, the offer, issue and sale by the
Company, and the purchase by the Purchaser of the Shares, the Conversion Shares,
the Warrants and the Warrant Shares) will not involve any "prohibited
transaction" within the meaning of ERISA or the Code with respect to any Benefit
Plan.
4.10. Legal Compliance.
(a) The Company's manufacturing, distribution and marketing practices
are in compliance in all material respects with all applicable laws, rules,
regulations, orders, licenses, judgments, writs, injunctions, decrees or
demands, including, without limitation, laws and regulations administered by the
Food and Drug Administration ("FDA") and the Drug Enforcement Administration
("DEA").
(b) The Company possesses all material Food and Drug Administration
new drug applications, abbreviated new drug applications, and new animal drug
applications as are necessary for the conduct of its business as now being
conducted, a list of such which will be provided to the Purchaser upon the
Purchaser's request.
(c) Other than the May 25, 1993 "Richlyn Order," there are no adverse
orders, judgments, writs, injunctions, decrees, or demands of any court or
administrative body, domestic or foreign, or of any governmental agency or
instrumentality, domestic or foreign, outstanding against the Company.
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(d) The Company has not and will not use the services of any person
debarred under the provisions of the Generic Drug Enforcement Act of 1992, 21
U.S.C. ss. 335(a)(b). None of the Company's officers or employees has been
convicted of a felony under federal law for conduct relating to the development,
approval or regulation of any product subject to the Federal Food, Drug, and
Cosmetic Act or the Controlled Substances Act.
4.11. Outstanding Securities.
All securities (as defined in the Securities Act) of the Company have
been offered, issued, sold and delivered in compliance with, or pursuant to
exemptions from, all applicable federal and state laws, and the rules and
regulations of federal and state regulatory bodies governing the offering,
issuance, sale and delivery of securities.
4.12. Permits, Licenses and Approvals; Intellectual Property and
Other Rights.
The Company owns or possesses and holds free from material conflicts
with the rights of others all franchises, licenses, permits, consents, approvals
and other authority (governmental or otherwise), patents, patent rights,
trademarks, trademark rights, trade names, trade name rights and copyrights
(each of which patent, trademark or copyright is listed on Exhibit B hereto),
and all rights and privileges with respect to any of the foregoing, as are
necessary for the conduct of its business as now being conducted and as
currently proposed to be conducted; provided that, no such representation is
made with respect to government franchises, licenses, permits, consents,
approvals or other authority which may be required with respect to the Company's
business as proposed to be conducted. The Company is not in default in any
material respect under any of such franchises, licenses, permits, consents,
approvals or other authority. The rights of (and use by) the Company with
respect to such or any other patents, patent rights, trademarks, trademark
rights, trade names, trade name rights or copyrights do not conflict with or
infringe any rights of others in a manner which might materially and adversely
affect the assets, properties, liabilities, business, affairs, results of
operations, condition (financial or otherwise) or prospects of the Company on a
consolidated basis, and no such claim of conflict or infringement has been
asserted by any Person.
4.13. Key Employees.
The Company has good relationships with its employees and has not had
and does not expect any substantial labor problems. The Company has no knowledge
as to any intentions of any key employee or any group of employees to leave the
employ of the Company. The employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company.
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4.14. Properties.
Other than the Permitted Liens, the Company has good and marketable
title to its real property, all of which is disclosed on Exhibit B hereto, and
good and marketable title to each of its other properties other than leased
properties. Certain real property used by the Company in the conduct of their
respective businesses is held under lease (as identified on Exhibit B hereto),
and the Company is not aware of any pending or threatened claim or action by any
lessor of any such property to terminate any such lease. All such leases are
valid and in full force and effect, and none of such leases is in default. None
of the properties owned or leased by the Company is subject to any Liens which
could materially and adversely affect the assets, properties, liabilities,
business, affairs, results of operations, condition (financial or otherwise) or
prospects of the Company on a consolidated basis.
4.15. Suppliers and Customers.
(a) The Company has adequate sources of supply for its business as
currently conducted and as proposed to be conducted. The Company has good
relationships with all of its material sources of supply of goods and services
and does not anticipate any material problem with any such material sources of
supply.
(b) The Company has no knowledge that the customer base of the
Company might materially decrease.
4.16. Environmental Compliance.
(a) There is no Hazardous Material on, about, under or in, any
property, real or personal, in which the Company has any interest in an amount
or concentration which could constitute a violation that would result in a
liability in excess of $5,000 or otherwise result in a liability in excess of
$5,000 to the Company under any applicable Environmental Law.
(b) There is no (and has not been any) off-site use, handling,
storage or disposal or on-site use, handling, storage or disposal of Hazardous
Material at or from any locations currently or formerly owned, leased, operated
or occupied by the Company as a result of which use, handling, storage or
disposal there would exist a risk that the Company could incur a material
liability or obligation under any applicable Environmental Law.
(c) The Company has not received any verbal or written notice,
citation, subpoena, summons, complaint or other correspondence or communication
from any person with respect to the presence of any non-indigenous Hazardous
Material upon, into, beneath, or emanating from or affecting any of the real
property (including improvements) currently or formerly owned or occupied by the
Company that could result in a liability to the Company in excess of $5,000.
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(d) There has been no intentional or unintentional, gradual or
sudden, release, disposal or discharge by the Company or, to the Company's
knowledge, by others, upon, into or beneath the real property (including
improvements) currently or formerly owned or occupied by the Company that has
caused or is causing soil or groundwater contamination which, under applicable
Environmental Laws could require investigation or remediation or could otherwise
create a material liability or obligation on the part of the Company.
(e) The Company is in material compliance with all applicable
Environmental Laws and the terms and conditions of all Environmental Permits.
(f) To the best knowledge of the Company after reasonable inquiry,
there are no Liens arising under or pursuant to any Environmental Law
("Environmental Liens") relating to any real property (including improvements
thereon) currently owned by the Company.
(g) There are no (i) underground storage tanks, (ii) polychlorinated
biphenyl containing equipment or (iii) asbestos-containing materials at any site
currently owned, operated or leased by the Company, except in compliance with
all applicable Environmental Laws.
4.17. No Burdensome Agreements.
To the best of the knowledge of the Company, other than this
Agreement and the related documents, the Company is not a party to any contract
or agreement with any Affiliate of the Company, the terms of which are less
favorable to the Company than those which might have been obtained, at the time
such contract or agreement was entered into, from a person who was not such an
Affiliate.
4.18. Offering of Shares and Warrants.
None of the Company, any agent or any other person acting on its
behalf, directly or indirectly, (i) offered any of the Shares, the Warrants or
any similar security of the Company (A) by any form of general solicitation or
general advertising (within the meaning of Regulation D under the Securities
Act) or (B) for sale to or solicited offers to buy any thereof from, or
otherwise approached or negotiated with respect thereto with, any person other
than the Purchasers and not more than twenty-four (24) other institutional
investors each of which the Company reasonably believed was an "accredited
investor" within the meaning of Regulation D under the Securities Act or (ii)
has done or caused to be done (or has omitted to do or to cause to be done) any
act which act (or which omission) would result in bringing the issuance or sale
of the Shares within the provisions of Section 5 of the Securities Act or the
filing, notification or reporting provisions of any state securities laws.
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4.19. SEC Reports.
The Company has filed all proxy statements, reports and other
documents required to be filed by it under the Securities Exchange Act. The
Company has furnished the Purchaser with copies of (i) its Annual Report on Form
10-K for the fiscal year ended December 31, 1997, (ii) its Quarterly Reports on
Form 10-Q for the fiscal quarters ended March 31, 1998, June 30, 1998 and
September 30, 1998 and (iii) its Proxy Statement dated April 6, 1998
(collectively, the "SEC Reports"). Each SEC Report was in substantial compliance
with the requirements of its respective form and none of the SEC Reports, nor
the financial statements (and the notes thereto) included in the SEC Reports, as
of their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
4.20. Indebtedness.
Schedule 2 hereto sets forth (i) the amount of all Indebtedness of
the Company outstanding as of January 31, 1999 (and there is no additional
material amount of Indebtedness of the Company outstanding other than that
listed as of January 31, 1999 or as set forth in Schedule B), (ii) any Lien with
respect to such Indebtedness and (iii) a description of each instrument or
agreement governing such Indebtedness. The Company has made available to the
Purchaser a complete and correct copy of each such instrument or agreement
(including all amendments, supplements or modifications thereto). No material
default exists with respect to or under any such Indebtedness or any instrument
or agreement relating thereto and no event or circumstance exists with respect
thereto that (with notice or the lapse of time or both) could give rise to such
a default.
4.21. Use of Proceeds.
The Company will use the proceeds realized from the sale of the
Shares and the Warrants to repay debt, to fund future development opportunities
and for working capital and general corporate purposes. No portion of such
proceeds will be used for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying, within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System, as amended from time to time,
any "margin stock" as defined in said Regulation U, or any "margin stock" as
defined in Regulation G of the Board of Governors of the Federal Reserve System,
as amended from time to time, or for the purpose of purchasing, carrying or
trading in securities within the meaning of Regulation T of the Board of
Governors of the Federal Reserve System, as amended from time to time, or for
the purpose of reducing or retiring any indebtedness which both (i) was
originally incurred to purchase any such margin stock or other securities and
(ii) was directly or indirectly secured by such margin stock or other
securities. None of the assets of the Company includes any such "margin stock."
The Company has no present intention of acquiring any such "margin stock."
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4.22. Other Names.
The businesses previously or presently conducted by the Company has
not been conducted under any corporate, trade or fictitious name.
4.23. Brokers.
No broker, finder or investment banker or other party is entitled to
any brokerage, finder's or other similar fee or commission in connection with
any Stock and Warrant Purchase Agreement, the Stockholders' Agreement, the
Registration Rights Agreement, the Warrant Certificates or the Certificate of
Designations or any of the transactions contemplated hereby or thereby, based
upon arrangements made by or on behalf of the Company or any of its Affiliates.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
5.1. Corporate Power and Authority.
The Purchaser has all requisite power, authority and legal right to
execute, deliver, enter into, consummate the transactions contemplated by and
perform its obligations under this Agreement, the Stockholders' Agreement and
the Registration Rights Agreement. The execution, delivery and performance of
this Agreement, the Stockholders' Agreement and the Registration Rights
Agreement by the Purchaser have been duly authorized by all required corporate
and other actions. The Purchaser has duly executed and delivered this Agreement,
the Stockholders' Agreement and the Registration Rights Agreement, and this
Agreement, the Stockholders' Agreement and the Registration Rights Agreement
constitute the legal, valid and binding obligations of the Purchaser enforceable
against the Purchaser in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to the rights of creditors generally.
5.2. Investment Intent.
The Purchaser is capable of evaluating the risk of its investment in
the Shares and Warrants being purchased by it and is able to bear the economic
risk of such investment. The Purchaser is purchasing the Shares and the Warrants
to be purchased by it for its own account for investment and not with a present
view to any distribution thereof in violation of applicable securities laws;
provided, however, that the Purchaser may transfer record and/or beneficial
ownership of the Shares, the Conversion Shares, the Warrants or the Warrant
Shares to one or more Affiliates, officers or employees of Affiliates or
investment funds managed by Affiliates of the Purchaser, in all cases in
compliance with federal securities laws. It is understood that the
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disposition of the Purchaser's property shall at all times be within the
Purchaser's control. If the Purchaser should in the future decide to dispose of
any of its Shares, Conversion Shares, Warrants or Warrant Shares, it is
understood that it may do so only in compliance with the Securities Act,
applicable securities laws and this Agreement. The Purchaser is an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
5.3. Brokers.
Except as disclosed on Exhibit B hereto, no broker, finder or
investment banker or other party is entitled to any brokerage, finder's or other
similar fee or commission in connection with any Stock and Warrant Purchase
Agreement, the Stockholders' Agreement, the Registration Rights Agreement, the
Warrant Certificates or the Certificate of Designations or any of the
transactions contemplated hereby or thereby, based upon arrangements made by or
on behalf of the Purchaser or any of its Affiliates.
SECTION 6. RESTRICTIONS ON TRANSFER
The Purchaser agrees that it will not sell or otherwise dispose of
any Shares, Conversion Shares, Warrants or Warrant Shares unless such Shares,
Conversion Shares, Warrants or Warrant Shares have been registered under the
Securities Act and, to the extent required, under any applicable state
securities laws, or pursuant to an applicable exemption from such registration
requirements. The Company may endorse on all Share certificates or Warrant
Certificates a legend stating or referring to such transfer restrictions;
provided, that no such legend shall be endorsed on any Share certificates or
Warrant Certificates which, when issued, are no longer subject to the
restrictions of this Section 6.
SECTION 7. INFORMATION AS TO THE COMPANY
The Company covenants and agrees as follows:
7.1. Financial Information.
(a) The Company will maintain a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in accordance with generally accepted accounting
principles consistently applied.
(b) So long as any of the Shares remain outstanding, the Company will
deliver to (I) the Fleming Funds and (II) each Transferee, provided that each
such Transferee holds not less than an aggregate of 5000 Shares, the following:
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(i) as soon as practicable but not later than five (5) Business
Days after their issuance, and in any event within ninety (90) days after the
close of each fiscal year of the Company, (A) a consolidated balance sheet of
the Company as of the end of such fiscal year and (B) consolidated statements of
operations, stockholders' equity and cash flows of the Company for such fiscal
year, in each case setting forth in comparative form the corresponding figures
for the preceding fiscal year, all such balance sheets and statements to be in
reasonable detail and certified without qualification by Price Waterhouse
Coopers LLC or any "Big Five" independent public accounting firm selected by the
Company, and such statements shall be accompanied by a management analysis of
any material differences between the results for such fiscal year and the
corresponding figures for the preceding year; the Company's Annual Report on
Form 10-KSB shall satisfy such requirement provided that it is in compliance
with all applicable requirements of the SEC and is certified by a "Big Five"
accounting firm;
(ii) as soon as practicable, copies (A) of all financial
statements, proxy material or reports sent to the Company's stockholders, (B) of
any public press releases and (C) of all reports or registration statements
filed with the Commission pursuant to the Securities Act or the Securities
Exchange Act;
(iii) as soon as practicable and in any event within forty-five
(45) days after the close of each of the first three (3) fiscal quarters of the
Company, (A) a consolidated balance sheet of the Company as of the end of such
fiscal quarter, (B) consolidated statements of operations, stockholders' equity
and cash flows of the Company for the portion of the fiscal year ended with the
end of such quarter, in each case in reasonable detail, certified by the Chief
Financial Officer, Chief Executive Officer or the President of the Company and
setting forth in comparative form the corresponding figures for the comparable
period one year prior thereto (subject to normal year-end adjustments), together
with a management analysis of any material differences between such results and
the corresponding figures for such prior period and (C) a certificate of the
Chief Financial Officer, Chief Executive Officer or the President certifying the
Company's compliance with the covenants contained in Section 9 of this
Agreement; the Company's Quarterly Report on Form 10-QSB shall satisfy such
requirement provided that it is in compliance with all applicable requirements
of the SEC;
(iv) as soon as practicable and without duplication of any of the
above items, any other materials furnished to the Company's Board of Directors
or to holders of the Company's capital stock or Indebtedness, including, without
limitation, any compliance certificates furnished in respect of such
Indebtedness; and
(v) as soon as practicable, such other information as may
reasonably be requested by (I) the Fleming Funds or (II) any Transferee,
provided that such Transferee holds not less than an aggregate of 5000 Shares.
(c) The Company will deliver to each member of the Company's Board of
Directors and each observer to the Company's Board of Directors appointed
pursuant to
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Section 3(a) of the Stockholders' Agreement, as soon as practicable (and in the
case of (iii), prior to the end of each fiscal year) and without duplication of
any of the items listed below, the following:
(i) copies of any annual, special or interim audit reports or
management or comment letters with respect to the Company or their operations
submitted to the Company by independent public accountants;
(ii) copies of summary financial information prepared on a
quarterly basis regarding the Company on a consolidated basis as presented to
the Board and any other summary financial information otherwise prepared;
(iii) copies of the annual budget and business plan for the next
fiscal year;
(iv) copies of all formal communications, from time to time, to
directors of the Company (including without limitation all information furnished
to such directors in connection with such communications), and copies of minutes
of meetings of the Board of Directors (and of any executive committees thereof)
of the Company;
(v) notice of default under any material agreement, contract or
other instrument to which the Company is a party or by which it is bound;
(vi) notice of any action or proceeding which has been commenced
or threatened against the Company and which, if adversely determined, would
have, individually or in the aggregate, a material adverse effect on the assets,
properties, liabilities, business, affairs, results of operations, condition
(financial or otherwise) or prospects of the Company on a consolidated basis;
and
(vii) copies of all filings made with the Commission.
(d) All such financial statements referred to in this Section 7.1
shall be prepared in accordance with generally accepted accounting principles
consistently applied (except for any change in accounting principles specified
in the accompanying certificate, in the financial statements themselves or
required by GAAP, and except that any interim financial statements may omit
notes and may be subject to normal year-end adjustments).
(e) Without limiting the foregoing provisions of this Section 7.1,
the Company agrees that, if requested in writing by any holder of Shares, it
will not deliver to such holder (until otherwise instructed by such holder) (x)
any non-public information or non-public materials regarding the Company
(whether described in this Section 7.1 or otherwise) and (y) any information
(whether or not included in clause (x)) which such holder specifies that it does
not want to receive. The Company shall comply with any such request with respect
to each such
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Purchaser and any subsequent holders of Shares acquired directly or indirectly
(through one or more transfers) from such Purchaser, until instructed otherwise
by the then holder of such Shares.
7.2. Communication with Accountants.
The Company hereby authorizes the Purchaser to communicate directly
with the independent certified public accountants for the Company and authorizes
such accountants to disclose to the Purchaser any and all financial statements
and any other information of any kind that they may have with respect to the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company. The Company
shall deliver a letter addressed to such accountants instructing them to comply
with the provisions of this Section 7.2.
7.3. Inspection.
The Company will permit (I) the Fleming Funds, (II) any Transferee,
provided that such Transferee holds not less than an aggregate of 5000 Shares
and (III) any authorized representative of the Fleming Funds or such Transferee,
to visit and inspect any of the properties of the Company, to examine their
respective books and records and to discuss with their officers their books and
records and the assets, properties, liabilities, business, affairs, results of
operations, condition (financial or otherwise) or prospects of the Company, all
at such reasonable times, all on reasonable notice and as often as may be
reasonably requested.
7.4. Notices.
The Company will give notice to all holders of Shares promptly after
it learns (other than by notice from all of such holders) of the existence of
any of the following:
(a) any default under any Indebtedness (or under any indenture,
mortgage or other agreement relating to any Indebtedness) which Indebtedness is
in an aggregate principal amount exceeding $250,000 (or the equivalent thereof
in other currencies) in respect of which the Company is liable;
(b) any action or proceeding which has been commenced or threatened
against the Company and which, if adversely determined, would have, individually
or in the aggregate, a material adverse effect on the assets, properties,
liabilities, business, affairs, results of operations, condition (financial or
otherwise) or prospects of the Company on a consolidated basis or the ability of
the Company to perform its obligations under the Stock and Warrant Purchase
Agreements, the Stockholders' Agreement, the Registration Rights Agreement, the
Warrant Certificates or the Certificate of Designations;
(c) any dispute which may exist between the Company and any
governmental regulatory body which, in the reasonable opinion of the Company is
reasonably likely to,
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individually or in the aggregate, materially adversely affect the normal
business operations of the Company or the assets, properties, liabilities,
business, affairs, results of operations, condition (financial or otherwise) or
prospects of the Company on a consolidated basis or the ability of the Company
to perform its obligations under the Stock and Warrant Purchase Agreements, the
Stockholders' Agreement, the Registration Rights Agreement, the Warrant
Certificates or the Certificate of Designations; and
(d) if any (i) "reportable event" (as such term is described in
Section 4043(c) of ERISA) has occurred; or (ii) "accumulated funding deficiency"
(within the meaning of Section 412(a) of the Code) has been incurred with
respect to a Pension Plan maintained or contributed to (or required to be
maintained or contributed to) by the Company or any ERISA Affiliate that is
subject to the funding requirements of ERISA and the Code or that an application
may be or has been made to the Secretary of the Treasury for a waiver or
modification of the minimum funding standard (including any required installment
payments) or an extension of any amortization period under Section 412 of the
Code, in each case with respect to such a Pension Plan; or (iii) Pension Plan
maintained or contributed to (or required to be maintained or contributed to) by
the Company or any ERISA Affiliate has been terminated, reorganized, petitioned
or declared insolvent under Title IV of ERISA; or (iv) Pension Plan maintained
or contributed to (or required to be maintained or contributed to) by the
Company or any ERISA Affiliate has an unfunded current liability giving rise to
a lien under ERISA or the Code; or (v) proceeding has been instituted pursuant
to Section 515 of ERISA to collect a delinquent contribution to a Pension Plan
maintained or contributed to (or required to be maintained or contributed to) by
the Company or any ERISA Affiliate; or (vi) of the Company or its ERISA
Affiliates will or may incur any liability (including any contingent or
secondary liability) to or on account of the termination or withdrawal from a
Pension Plan maintained or contributed to (or required to be maintained or
contributed to) by the Company or any ERISA Affiliate; or (vii) "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of
the Code) in connection with an "employee benefit plan" (as defined in Section
3(3) of ERISA), maintained or contributed to (or required to be maintained or
contributed to) by the Company or any ERISA Affiliate.
Such notice (i) with respect to (a), shall specify the nature and period of
existence of any such default and what the Company proposes to do with respect
thereto and (ii) with respect to (b), (c) or (d), shall specify the nature of
any such matter referred to in such clause, what action the Company proposes to
take with respect thereto and what action any other relevant Person is taking or
proposes to take with respect thereto.
7.5. Confidentiality Agreement.
The Company's obligation to provide any non-public information under
this Section 7 or otherwise to any person other than members of its Board of
Directors shall be subject to prior execution of a confidentiality agreement
between the Company and the recipient
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of such information as more fully set forth in the form attached hereto as
Exhibit F (the "Confidentiality Agreement").
SECTION 8. AFFIRMATIVE COVENANTS
The Company covenants and agrees as follows:
8.1. Maintenance of Existence, Properties and Franchises;
Compliance with Law; Taxes; Insurance.
The Company will:
(a) maintain its corporate existence, rights and other franchises in
full force and effect;
(b) maintain its tangible assets in good repair, working order and
condition so far as necessary or advantageous to the proper carrying on of its
businesses;
(c) comply with all applicable laws and with all applicable orders,
rules, rulings, certificates, licenses, regulations, demands, judgments, writs,
injunctions and decrees, provided, that such compliance shall not be necessary
so long as (i) the applicability or validity of any such law, order, rule,
ruling, certificate, license, regulation, demand, judgment, writ, injunction or
decree shall be contested in good faith by appropriate proceedings and (ii)
failure to so comply will not have a material adverse effect on the assets,
properties, liabilities, business, affairs, results of operations, condition
(financial or otherwise) or prospects of the Company on a consolidated basis;
(d) pay promptly when due all Taxes imposed upon its properties,
assets or income and all claims or indebtedness (including, without limitation,
vendor's, workmen's and like claims) which might become a lien upon such
properties or assets; provided, that payment of any such Tax shall not be
necessary so long as (i) the applicability or validity thereof shall be
contested in good faith by appropriate proceedings and a reserve, if
appropriate, shall have been established with respect thereto and (ii) failure
to make such payment will not have a material adverse effect on the assets,
properties, liabilities, business, affairs, results of operations, condition
(financial or otherwise) or prospects of the Company on a consolidated basis;
and
(e) keep adequately insured, by financially sound and reputable
insurers of nationally recognized stature, all its properties of a character
customarily insured by entities similarly situated, against loss or damage of
the kinds and in amounts customarily insured against by such entities and with
such deductibles or coinsurance as is customary.
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8.2. Office for Payment, Exchange and Registration; Location of
Office; Notice of Change of Name or Office.
(a) So long as any of the Shares or the Warrants is outstanding, the
Company will maintain an office or agency where Shares or Warrants may be
presented for redemption, exchange, conversion, exercise or registration of
transfer as provided in this Agreement. Such office or agency initially shall be
the office of the Company specified in Section 17 hereof, subject to Section
8.2(b).
(b) The Company shall give each holder of Shares or Warrants at least
twenty (20) days' prior written notice of any change in (i) the name of the
Company as then in effect or (ii) the location of the office of the Company
required to be maintained under this Section 8.2.
8.3. Fiscal Year.
The fiscal year of the Company for tax, accounting and any other
purposes shall end on December 31 of each calendar year.
8.4. Environmental Matters.
(a) The Company and shall keep and maintain any property either owned
leased, operated or occupied by the Company free and clear of any Environmental
Liens, and the Company shall keep all such property free of Hazardous Material
contamination and in compliance with all applicable Environmental Laws and the
terms and conditions of any Environmental Permits; provided, however, that the
Company shall have the right at its cost and expense, and acting in good faith,
to contest, object or appeal by appropriate legal proceeding the validity of any
Environmental Lien. The contest, objection or appeal with respect to the
validity of an Environmental Lien shall suspend the Company's obligation to
eliminate such Environmental Lien under this paragraph pending a final
determination by appropriate administrative or judicial authority of the
legality, enforceability or status of such Environmental Lien, provided that the
following conditions are satisfied: (i) contemporaneously with the commencement
of such proceedings, the Company shall give written notice thereof to each
holder of Shares, Conversion Shares, Warrants or Warrant Shares; and (ii) if
under applicable law any real property or improvements thereon are subject to
sale or forfeiture for failure to satisfy the Environmental Lien prior to a
final determination of the legal proceedings, the Company must successfully move
to stay such sale, forfeiture or foreclosure pending final determination of the
Company's action; and (iii) the Company must, if requested, furnish to the
holders of Shares, Conversion Shares, Warrants or Warrant Shares a good and
sufficient bond, surety, letter of credit or other security satisfactory to such
holders equal to the amount (including any interest and penalty) secured by the
Environmental Lien.
(b) The Company will, by administrative or judicial process, enforce
the obligations of any other Person who is potentially liable for damages,
contribution or other relief
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in connection with any violation of Environmental Laws, including, but not
limited to, asbestos abatement, Hazardous Material remediation or off-site or
on-site disposal.
(c) The Company will defend, indemnify and hold harmless each
current, former and future holder of Shares, Conversion Shares, Warrants or
Warrant Shares, its employees, officers, directors, stockholders, partners,
financial and legal representatives and assigns, from and against any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits
and claims, joint or several, and any costs, disbursements and expenses
(including attorneys' fees and expenses and costs of investigation) of whatever
kind or nature, known or unknown, contingent or otherwise asserted against,
imposed on, or sustained by, them, arising out of or in any way related to (i)
the presence, disposal, release, removal, discharge, storage or transportation
by the Company on behalf of any predecessors thereof of any Hazardous Material
upon, into, from or affecting any real property (including improvements)
currently or formerly owned, leased, operated or occupied by the Company; (ii)
any judicial or administrative action, suit or proceeding, actual or threatened,
relating to Hazardous Material upon, in, from or affecting any real property
(including improvements) currently or formerly owned, leased, operated or
occupied by the Company for which the Company could be liable; (iii) any
violation of any Environmental Law, by the Company or any of their agents,
tenants, subtenants or invitees; (iv) the imposition of any Environmental Lien
for the recovery of costs expended in the investigation, study or remediation of
any environmental liability of (or asserted against) the Company; and (v) any
liability arising out of or related to the off-site shipment, disposal,
treatment, handling or disposal of Hazardous Materials. This Section 8.4(c) and
Section 8.4(d) shall survive any payment, conversion or transfer of Shares or
Warrants and any termination of this Agreement.
(d) To the extent that the Company is strictly liable without regard
to fault under any environmental law, regulation or ordinance, the Company's
obligations to the holders of Shares, Conversion Shares, Warrants or Warrant
Shares under any of the indemnification provisions of the Stock and Warrant
Purchase Agreements shall likewise be strict without regard to fault with
respect to the violation of any environmental law, regulation or ordinance which
results in any liability to any of the indemnified persons referred to in
Section 8.4(c).
8.5. Reservation of Shares.
There have been reserved, and the Company shall at all times keep
reserved, free from preemptive rights, out of its authorized Common Stock a
number of shares of Common Stock sufficient to provide for the exercise of the
conversion rights provided in Section 5 of the Certificate of Designations and
the exercise of the Warrants pursuant to Section 1 of the Warrant Certificates;
except to the extent that such shares reservation is contingent upon the
authorization of additional shares at the Shareholders' Meeting described in
Section 8.6 hereof and provided that after such Shareholders' Meeting such
shares shall be reserved in accordance with this Section 8.5.
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8.6. Stockholders' Meeting.
Prior to the Second Closing the Company shall cause there to be a
Stockholders' Meeting and cause the appropriate corporate action to be taken to
authorize sufficient additional shares of Common Stock to permit conversion in
full of the Series D Convertible Preferred Stock. The Company shall use its best
efforts to have the principal shareholders of the Company vote their shares in
favor of increasing the additional shares of Common Stock to permit conversion
in full of the Series D Convertible Preferred Stock. The Company shall mail all
proxy materials for such Shareholders' Meeting, and file all such proxy
materials with the Commission, on or before April 15, 1999 and shall hold such
Shareholders' Meeting no later than May 31, 1999. In the event that the Second
Closing does not take place before June 30, 1999, and the conversion price of
the Shares subsequently is reduced as provided in the Certificate of
Designations, the Company shall use its best efforts to authorize sufficient
additional shares of Common Stock to permit conversion in full of the Series D
Convertible Preferred Stock and shall not use any such additional shares of
authorized Common Stock for any other purpose.
8.7. Securities Exchange Act Registration.
(a) The Company will maintain effective a registration statement
(containing such information and documents as the Commission shall specify and
otherwise complying with the Securities Exchange Act), under Section 12(b) or
Section 12(g), whichever is applicable, of the Securities Exchange Act, with
respect to the Common Stock of the Company, and the Company will file on time
such information, documents and reports as the Commission may require or
prescribe for companies whose stock has been registered pursuant to such Section
12(b) or Section 12(g), whichever is applicable.
(b) The Company will, upon the request of any holder of Shares or
Warrants, make whatever other filings with the Commission, or otherwise make
generally available to the public such financial and other information, as any
such holder may deem reasonably necessary or desirable in order to enable such
holder to be permitted to sell Shares or Warrants pursuant to the provisions of
Rule 144.
8.8. Delivery of Information for Rule 144A Transactions.
If a holder of Shares or Warrants proposes to transfer any such
Shares or Warrants pursuant to Rule 144A under the Securities Act (as in effect
from time to time), the Company agrees to provide (upon the request of such
holder or the prospective transferee) to such holder and (if requested) to the
prospective transferee any financial or other information concerning the Company
which is required to be delivered by such holder to any transferee of such
Shares or Warrants pursuant to such Rule 144A, subject to confidentiality
provisions, if applicable.
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8.9. Senior Securities.
The Company shall maintain the senior status of the Series D
Convertible Preferred Stock such that it shall rank senior in all respects,
including the payment on limitation and redemption, to all other equity
securities of the Company, including the Series A Convertible Preferred Stock
and the Series B Convertible Preferred Stock, except that the Series C
Convertible Preferred Stock shall rank senior to the Series D Convertible
Preferred Stock.
8.10. Shelf Registration.
On or before July 1, 1999, the Company shall prepare and file with
the SEC a registration statement for an offering to be made on a delayed or
continuous basis pursuant to Rule 415 of the Securities Act (a "Shelf
Registration") registering the resale from time to time by the Investors of all
the Registrable Securities (the "Initial Shelf Registration"). The registration
statement shall be on Form S-3 or another appropriate form permitting
registration of such Registrable Securities for resale by the Investors. If the
Initial Shelf Registration or any Subsequent Shelf Registration ceases to be
effective for any reason at any time, the Company shall use its best efforts to
obtain the prompt withdrawal of any order suspending the effectiveness thereof,
and in any event shall within thirty (30) days of such cessation of
effectiveness amend the Shelf Registration in a manner reasonably expected to
obtain the withdrawal of the order suspending the effectiveness thereof, or to
promptly file an additional Shelf Registration covering all the Registrable
Securities (a "Subsequent Shelf Registration").
8.11. Further Assurances.
The Company will from time to time, upon the request of the Fleming
Holders, promptly and duly execute and deliver any and all such further
instruments and documents as the Fleming Holders may reasonably deem necessary
or desirable to obtain the full benefits of (i) the obligations of the Company
under this Agreement and (ii) the other rights and powers herein granted. Upon
the instructions from time to time of (I) the Fleming Funds or (II) any
Transferee, provided that such Transferee holds not less than an aggregate of
5000 Shares, the Company shall execute and cause to be filed any document or
filing presented to the Company in proper form for signing or filing, in each
case as the Fleming Funds or such Transferee may reasonably deem necessary or
desirable in light of the Company's obligations under this Agreement, and the
Company shall pay or cause to be paid any filing or other fees in connection
therewith.
SECTION 9. NEGATIVE COVENANTS
The Company covenants and agrees that without the prior written
consent of the holders of more than 50% of outstanding Shares:
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9.1. No Dilution or Impairment; No Changes in Capital Stock.
The Company will not, by amendment of its certificate of
incorporation or through any consolidation, merger, reorganization, transfer of
assets, 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 of the
Stock and Warrant Purchase Agreements, the Certificate of Designations, the
Warrant Certificates, the Registration Rights Agreement or the Stockholders'
Agreement. The Company will at all times in good faith assist in the carrying
out of all such terms, and in the taking of all such action, as may be necessary
or appropriate in order to protect the rights of the holders of Shares and
Warrants (as such rights are set forth in the Stock and Warrant Purchase
Agreements, the Warrant Certificates, the Certificate of Designations, the
Registration Rights Agreement and the Stockholders' Agreement) against dilution
or other impairment. Without limiting the generality of the foregoing, the
Company (a) will not issue any shares or class or series of equity or
equity-linked security, which is senior to, or pari passu with, the Series D
Convertible Preferred Stock as to dividend payments or amounts payable in the
event of liquidation or winding up of the Company; except that the Series C
Convertible Preferred Stock shall be senior to the Series D Convertible
Preferred Stock, (b) will not enter into any agreement or instrument which would
restrict or otherwise materially adversely affect the ability of the Company to
perform its obligations under the Stock and Warrant Purchase Agreements, the
Stockholders' Agreement, the Registration Rights Agreement, the Warrant
Certificates or the Certificate of Designations, (c) will not amend its
certificate of incorporation or by-laws in any manner which would impair or
reduce the rights of the Preferred Stock, including, without limitation, an
amendment which would alter or change the powers, privileges or preferences of
the holders of the Series D Convertible Preferred Stock (including, without
limitation, changing the Certificate of Designations after any Shares have been
called for redemption), (d) except as otherwise provided in the Certificate of
Designations or the Warrant Certificates or in accordance with Section 5(a) of
the respective Certificate of Designations of each of the Series A Convertible
Preferred Stock, the Series B Convertible Preferred Stock or the Series C
Convertible Preferred Stock, as in effect on the date hereof, will not redeem,
repurchase or otherwise acquire any shares of capital stock of the Company or
any other rights or options to subscribe for or purchase any capital stock of
the Company or any other securities convertible into or exchangeable for capital
stock of the Company, (e) will not permit the par value or the determined or
stated value of any shares of Common Stock receivable upon the conversion of the
Shares or exercise of the Warrants to exceed the amount payable therefor upon
such conversion, (f) will take all such action as may be necessary or
appropriate in order that the Company may at all times validly and legally issue
duly authorized, fully paid and nonassessable shares of the Common Stock free
from all taxes, Liens and charges with respect to the issue thereof, upon the
conversion of the Shares or exercise of the Warrants from time to time
outstanding, (g) will not take any action which results in any adjustment of the
current conversion price under the Certificate of Designations or the current
exercise price under the Warrant Certificates if the total number of shares of
the Common Stock (or other securities) issuable after the action upon the
conversion of all of the then outstanding Shares or the exercise of all of the
then outstanding Warrants would exceed the total number of shares of Common
Stock (or other securities) then
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authorized by the Company's certificate of incorporation and available for the
purpose of issuance upon such conversion or exercise, (h) will not have any
authorized Common Stock (and will not issue any Common Stock) other than its
existing authorized Common Stock, $.01 par value per share, and (i) will not
amend its certificate of incorporation to change any terms of its Common Stock.
9.2. Indebtedness.
So long as the Fleming Holders hold at least 50% of the aggregate
number of shares of the Series D Convertible Preferred Stock purchased pursuant
to the Stock and Warrant Purchase Agreements, the Company will not (i) incur
Indebtedness, excluding any Indebtedness set forth on Schedule 2 hereto, in
excess of $10 million in aggregate principal amount; or (ii) enter into any
agreement, amendment or modification with respect to any Indebtedness, which
agreement, amendment or modification under clause (ii) restricts or prohibits
(or was intended primarily to restrict or prohibit) the Company from making any
payments under, or otherwise performing under the Stock and Warrant Purchase
Agreements.
9.3. Consolidation, Merger and Sale.
So long as the Fleming Holders hold at least 50% of the aggregate
number of shares of the Series D Convertible Preferred Stock purchased pursuant
to the Stock and Warrant Purchase Agreements, the Company will not (or will not
agree to): (a) wind up, liquidate or dissolve its affairs, (b) sell, lease,
transfer or otherwise dispose of all or substantially all of its assets to any
other Person for a period ending one (1) year after the First Closing Date; or
(c) effect a merger or consolidation if the Company is not the surviving
corporation from such merger or consolidation for a period ending one (1) year
after the First Closing Date.
9.4. No Change in Business.
The Company will not change substantially the character of its
business as conducted on each Closing Date as represented in Section 4.4 hereof
and described in the Disclosure Material.
9.5. Restricted Payments; Investments.
The Company will not declare or make or permit to be declared or
made:
(a) any Restricted Payment; or
(b) any Investment.
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9.6. Sale of Substantial Portion of Assets.
For a period ending one (1) year after the First Closing Date, the
Company will not sell, transfer, lease or otherwise dispose of any assets to any
Person (other than to the Company and other than assets consisting of inventory
being disposed of in the ordinary course of business and other than assets which
are, contemporaneously with such disposition (or within ninety (90) days
thereafter), being replaced with other substantially similar (or improved)
assets which are used by the Company for substantially the same purpose as the
assets being replaced) to the extent the aggregate assets so sold, transferred,
leased or disposed of:
(x) during the twelve (12) month period ending on such sale,
transfer, lease or disposition (i) had an aggregate book value equal
to ten percent (10%) or more of the aggregate book value of the
consolidated total assets of the Company at the end of the most
recent fiscal quarter preceding such sale, transfer, lease or
disposition or (ii) accounted for ten percent (10%) or more of the
consolidated revenues of the Company as shown on the consolidated
income statement of the Company for the most recent fiscal quarter or
the then preceding fiscal year; or
(y) during the period from such Closing Date through such sale,
transfer, lease or disposition (i) had an aggregate book value equal
to ten percent (10%) or more of the aggregate book value of the
consolidated total assets of the Company at the end of the most
recent fiscal quarter preceding such sale, transfer, lease or
disposition or (ii) accounted for ten percent (10%) or more of the
consolidated revenues of the Company over the Company's fiscal
periods beginning after such Closing Date and ending at the end of
the most recent fiscal quarter as shown on the consolidated income
statements of the Company for such periods.
9.7. Affiliate Loans and Guaranties.
The Company may not incur or permit to exist any of the following:
(a) any obligation of the Company to repay money borrowed owing to
(i) any Affiliate of the Company or (ii) any other holder of shares of the
capital stock of the Company; or
(b) any obligation, to any Person, which obligation is assumed or
guaranteed by the Company and which is an obligation of (i) any Affiliate of the
Company or (ii) any other holder of shares of the capital stock of the Company
(excluding, in the case of this clause (b), any obligation of the Company which
is not owed to an Affiliate of the Company or to an Affiliate or to any other
holder of shares of the capital stock of the Company).
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This Section 9.7 shall not apply to (1) any obligations under the Stock and
Warrant Purchase Agreements or with respect to the Shares or Warrants, (2) any
loans, advances or Guarantees referred to in clause (1) of the proviso to the
definition of "Investment" contained in Section 3 hereof or (3) Indebtedness
identified on Schedule 2 hereto.
9.8. Transactions with Affiliates.
The Company will not directly or indirectly, enter into any
transaction or agreement (including, without limitation, the purchase, sale,
distribution, lease or exchange of any property or the rendering of any service)
with any Affiliate of the Company, unless such transaction or agreement (a) is
approved by a majority of the Outside Directors on the Board of Directors, and
(b) is on terms that are no less favorable to the Company, as the case may be,
than those which might be obtained at the time of such transaction from a Person
who is not such an Affiliate; provided, however, that this Section 9.8 shall not
limit, or be applicable to, (i) employment arrangements with (and general salary
and benefits compensation for) any individual who is a full-time employee of the
Company if such arrangements are approved by a majority of the Outside Directors
on the Board of Directors; and (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
and (iii) existing arrangements as disclosed on the Disclosure Schedule.
9.9. Liens.
The Company will not create or permit to exist, to create or suffer
to exist, any Lien upon or with respect to any of its assets or income, other
than Permitted Liens and existing liens set forth on Schedule 5 hereto.
9.10. Private Placement Status.
Neither the Company nor any agent nor other Person acting on the
Company's behalf will do or cause to be done (or will omit to do or to cause to
be done) any act which act (or which omission) would result in bringing the
issuance or sale of the Shares, the Conversion Shares, the Warrants or the
Warrant Shares within the provisions of Section 5 of the Securities Act or the
filing, notification or reporting requirements of any state securities law
(other than in accordance with a registration and qualification of Conversion
Shares or Warrant Shares pursuant to the Registration Rights Agreement).
9.11. Maintenance of Public Market.
The Company will not proceed with a program of acquisition of its
Common Stock, initiate a corporate reorganization or recapitalization or
undertake a consolidation or merger or authorize, consent to or take any action
which would have the effect of:
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(a) removing the Company from registration with the Commission under
the Securities Exchange Act with respect to the Company's Common Stock;
(b) requiring the Company to make a filing under Section 13(e) of
the Securities Exchange Act;
(c) reducing substantially or eliminating the public market for
shares of Common Stock of the Company;
(d) causing a delisting of the Company's Common Stock as a Small Cap
Market Security on the NASDAQ Stock Market (unless such stock is delisted as a
result of being listed on a national securities exchange); or
(e) if any shares of the Company's Common Stock are at any time
listed on a national exchange, causing a delisting of such stock from such
exchange.
9.12. Actions Prior to Any Closing Date.
From the date hereof through any Closing Date, the Company will not,
(a) issue or agree to issue any capital stock or any securities exercisable for,
or convertible or exchangeable into, capital stock or (b) purchase, redeem or
otherwise acquire any of its capital stock; provided, however, that this Section
9.12 shall not limit, or be applicable to, (i) the transactions contemplated by
the Stock and Warrant Purchase Agreements, including any issuance of capital
stock in connection with the transactions contemplated by Sections 9.1 and 9.11
hereof, (ii) grants of options or issuances of Common Stock to officers,
directors or employees of the Company pursuant to the current terms of the
Company's 1995 Stock Incentive Plan and (iii) the conversion of the Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C
Convertible Preferred Stock or the exercise of existing warrants.
SECTION 10. CONDITIONS TO PURCHASER'S OBLIGATIONS
The Purchaser's obligation to purchase Shares and Warrants hereunder
is subject to satisfaction of the following conditions at any Closing (any of
which may be waived by the Purchaser); provided that (A) Section 10.3 shall
apply only to the Second Closing and (B) Section 10.12 is a condition to the
obligations to consummate the transaction provided for herein of each of (I) the
Purchaser and (II) the Company:
10.1. Certificate of Designations; Stockholders' Agreement;
Registration Rights Agreement.
(a) The certificate of incorporation of the Company shall have been
duly amended by the filing of the Certificate of Designations in the form of
Exhibit A-1 hereto.
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(b) The Company, the Purchasers and certain other stockholders of
the Company named therein shall have entered into a Stockholders' Agreement
substantially in the form of Exhibit C hereto.
(c) The Company shall have entered into a Registration Rights
Agreement with the Purchasers substantially in the form of Exhibit D hereto.
10.2. Certificates for Shares and Warrants.
The Purchaser shall concurrently receive the certificates for Shares
and Warrants contemplated by Section 2(b) hereof.
10.3. Stockholders' Meeting.
The Company shall have held its Stockholders' Meeting, and at such
Stockholders' Meeting taken the appropriate corporate and other actions to
authorize sufficient additional shares of Common Stock to permit conversion in
full of the Series D Convertible Preferred Stock into Shares of Common Stock.
10.4. Senior Status.
The Company shall have taken all of the necessary actions, including
the amendment of the appropriate existing agreements, so that, except as
provided in this Section 10.4, the Series D Convertible Preferred Stock shall
rank senior in all respects, including the payment on limitation and redemption,
to all other equity securities of the Company, including the Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock, except
that the Series C Convertible Preferred Stock shall rank senior to the Series D
Convertible Preferred Stock.
10.5. Accuracy of Representations and Warranties.
The representations and warranties of the Company contained in the
Stock and Warrant Purchase Agreement herein or in any certificate or document
delivered pursuant hereto shall be (i) correct and complete on and as of the
First Closing Date with the same effect as though made on and as of such Closing
Date (after giving effect to the transactions contemplated by this Agreement)
and (ii) correct and complete in all material respects on and as of the Second
Closing Date with the same effect as though made on and as of such Closing Date
(after giving effect to the transactions contemplated by this Agreement);
provided that Sections 4.1, 4.3, 4.4, 4.5, 4.7, 4.10, 4.11, 4.12, 4.16, 4.18,
4.19, 4.21, 4.22 and 4.23 shall be correct and complete in all respects and
shall not be qualified by materiality, unless specifically qualified therein.
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10.6. Compliance with Agreements.
The Company shall have performed and complied in all material
respects with all agreements, covenants and conditions contained in the Stock
and Warrant Purchase Agreements and any other document contemplated hereby or
thereby which are required to be performed or complied with by the Company on or
before such Closing Date.
10.7. Officers' Certificates.
The Purchaser shall have received a certificate dated such Closing
Date and signed by the President or Chief Executive Officer and by the Secretary
or the Treasurer of the Company, to the effect that the conditions of Sections
10.5, 10.6, 10.9 (second sentence only) and 10.10 have been satisfied.
10.8. Proceedings.
All corporate and other proceedings in connection with the
transactions contemplated by the Stock and Warrant Purchase Agreements, and all
documents incident thereto, shall be in form and substance satisfactory to the
Purchaser and its counsel, and the Purchaser shall have received all such
originals or certified or other copies of such documents as the Purchaser or its
counsel may reasonably request.
10.9. Legality; Governmental and Other Authorization.
The purchase of and payment for the Shares and the Warrants shall
not be prohibited by any law or governmental order, rule, ruling, regulation,
release, interpretation or opinion applicable to the Purchaser and shall not
subject the Purchaser to any penalty, tax, liability or other onerous condition.
Any necessary consents, approvals, licenses, permits, orders and authorizations
of, and any filings, registrations or qualifications with, any governmental or
administrative agency or other Person, with respect to the transactions
contemplated by the Stock and Warrant Purchase Agreements shall have been
obtained or made and shall be in full force and effect. The Company shall have
delivered to the Purchaser, upon its reasonable request setting forth what is
required, factual certificates or other evidence, in form and substance
satisfactory to the Purchaser and its counsel, to enable the Purchaser to
establish compliance with this condition.
10.10. No Material Adverse Change.
There shall have been no material adverse change in the assets,
properties, liabilities, business, affairs, results of operations, condition
(financial or otherwise) or prospects of the Company on a consolidated basis
since September 30, 1998, except that its cash position as of January 31, 1999
is $1,105,000.
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10.11. Opinion of Counsel.
The Purchaser shall have received an opinion, dated such Closing
Date and addressed to the Purchasers, of Fulbright & Jaworski L.L.P., counsel
for the Company, which opinion shall be in form and substance satisfactory to
the Purchaser and its counsel and shall be to the effect set forth in Exhibit E
hereto.
10.12. Additional Purchases of Shares and Warrants.
The sale and purchase of Shares and Warrants by the Fleming Funds
pursuant to the Stock and Warrant Purchase Agreements between each of the
Fleming Funds and the Company shall be consummated concurrently, (a) for an
aggregate purchase price of $3,000,000 on the First Closing Date and (b) for an
aggregate purchase price of $2,000,000 on the Second Closing Date.
10.13. Acceptance of Agent for Service of Process.
CSC, The United States Corporation Company shall have accepted its
appointment as the Company's agent in New York to receive service of process
pursuant to Section 18(i) hereof.
10.14. Other Documents and Opinions.
The Purchaser shall have received such other documents and opinions,
in form and substance reasonably satisfactory to the Purchaser and its counsel,
relating to matters incident to the transactions contemplated hereby as the
Purchaser may reasonably request.
SECTION 11. BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS
(a) The representations, warranties, covenants and agreements of the
Company and the Purchaser contained in this Agreement, the Stockholders'
Agreement, the Registration Rights Agreement or in any document or certificate
delivered pursuant hereto or thereto or in connection herewith shall survive for
a period of two (2) years from the First Closing Date, and shall continue in
effect following, the execution and delivery of the Stock and Warrant Purchase
Agreements, the Stockholders' Agreement, the Registration Rights Agreement, the
closings hereunder and thereunder, any investigation at any time made by the
Purchaser or on its behalf or by any other Person, the issuance, sale and
delivery of the Shares or the Warrants, any disposition thereof and any payment,
conversion or cancellation of the Shares; provided that Section 9 shall
terminate upon conversion of all of the Shares (or as earlier provided therein).
All statements contained in any certificate or other document delivered by or on
behalf of the Company pursuant hereto shall constitute representations and
warranties by the Company hereunder.
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(b) The Company agrees to indemnify and hold the Purchaser harmless
from and against and will pay to the Purchaser the full amount of any loss,
damage, liability or expense (including amounts paid in settlement and
reasonable attorneys' fees and expenses) to the Purchaser resulting either
directly or indirectly from any breach of the representations, warranties,
covenants or agreements of the Company contained in any Stock and Warrant
Purchase Agreement, or in the Stockholders' Agreement, the Registration Rights
Agreement or any other document or certificate delivered pursuant hereto or
thereto or in connection herewith or therewith.
SECTION 12. SPECIFIC PERFORMANCE
The parties agree that irreparable damage will result in the event
that this Agreement is not specifically enforced, and the parties agree that any
damages available at law for a breach of this Agreement would not be an adequate
remedy. Therefore, the provisions hereof and the obligations of the parties
hereunder shall be enforceable in a court of equity, or other tribunal with
jurisdiction, by a decree of specific performance, and appropriate injunctive
relief may be applied for and granted in connection therewith. Such remedies and
all other remedies provided for in this Agreement shall, however, be cumulative
and not exclusive and shall be in addition to any other remedies which a party
may have under this Agreement or otherwise.
SECTION 13. EXPENSES
(a) Whether or not the transactions herein contemplated are
consummated, the Company shall pay (i) the costs, fees and expenses of the
Company and its counsel in connection with the Stock and Warrant Purchase
Agreements, the Certificate of Designations, the Warrant Certificates, the
Stockholders' Agreement and the Registration Rights Agreement, other related
documentation and the issuance of the Shares, the Conversion Shares, the
Warrants and the Warrant Shares and the furnishing of all opinions by counsel
for the Company, (ii) the costs, fees and expenses of Morgan, Lewis & Bockius
LLP in connection with the Stock and Warrant Purchase Agreements, the
Certificate of Designations, the Warrant Certificates, the Stockholders'
Agreement and the Registration Rights Agreement, other related documentation and
the tran sactions contemplated hereby and thereby (whether or not a Closing
occurs hereunder) and if the First Closing occurs the Company will make such
payment on the First Closing Date (with respect to costs, fees and expenses
incurred prior to such date) and on the Second Closing Date (with respect to the
remainder of such costs, fees and expenses if such Second Closing occurs));
provided, however, that (x) such fees and expenses shall not exceed $80,000
without the approval of the Company and (y) in the event that the First Closing
does not occur (other than as a result of a breach by the Company of its
obligations to the Fleming Holders), the Company shall pay 50% of such fees and
expenses upon the termination of negotiations between the Company and the
Fleming Holders, (iii) the fees and expenses of counsel to the Purchasers in
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connection with any amendments to or modifications or waivers of any provisions
of the Stock and Warrant Purchase Agreements, the Certificate of Designations,
the Warrant Certificates, the Stockholders' Agreement or the Registration Rights
Agreement, other related documentation or in connection with any other
agreements between the Purchasers and the Company and (iv) the fees and expenses
(including attorneys' fees and expenses) of any holder of Shares, Conversion
Shares, Warrants or Warrant Shares in enforcing its rights against the Company
if the Company defaults in its obligations hereunder, under the Certificate of
Designations, the Warrant Certificates, the Stockholders' Agreement or the
Registration Rights Agreement.
(b) In addition to all other sums due hereunder or provided for in
this Agreement, the Company shall pay to the Purchaser or its agents,
respectively, an amount sufficient to indemnify such persons (net of any Taxes
on any indemnity payments) against all reasonable costs and expenses (including
reasonable attorneys' fees and expenses and reasonable costs of investigation)
and damages and liabilities incurred by the Purchaser or its agents pursuant to
any investigation or proceeding against any or all of the Company, the
Purchasers, or their agents, arising out of or in connection with the Stock and
Warrant Purchase Agreements, the Stockholders' Agreement, the Registration
Rights Agreement, or purchase of the Shares or the Warrants (or any transaction
contemplated hereby or thereby or any other document or instrument executed
herewith or therewith or pursuant hereto or thereto), whether or not the
transactions contemplated by this Agreement are consummated, which investigation
or proceeding requires the participation of the Purchaser or its agents or is
commenced or filed against the Purchaser or its agents because of the Stock and
Warrant Purchase Agreements, the Stockholders' Agreement, the Registration
Rights Agreement, the purchase of the Shares or the Warrants or any of the
transactions contemplated hereby or thereby (or any other document or instrument
executed herewith or therewith or pursuant hereto or thereto), other than any
investigation or proceeding in which it is finally determined that there was (i)
gross negligence or willful misconduct on the part of the Purchaser or its
agents, (ii) a material breach by Purchaser of any of its representations or
warranties contained herein, (iii) a material breach by Purchaser of any
provision of the Confidentiality Agreement or any other confidentiality
agreement between the Company and the Purchaser, in any case, which was not
taken by them in reliance upon any of the Company's representations, warranties,
covenants or agreements in the Stock and Warrant Purchase Agreements, the
Stockholders' Agreement, the Registration Rights Agreement or in any other
documents or instruments contemplated hereby or thereby or executed herewith or
therewith or pursuant hereto or thereto. The Company shall assume the defense,
and shall have its counsel represent the Purchaser and such agents, in
connection with investigating, defending or preparing to defend any such action,
suit, claim or proceeding (including any inquiry or investigation); provided,
however, that the Purchaser, or any such agent, shall have the right (without
releasing the Company from any of its obligations hereunder) to employ its own
counsel and either to direct its own defense or to participate in the Company's
defense, but the fees and expenses of such counsel shall be at the expense of
such person unless (i) the employment of such counsel shall have been authorized
in writing by the Company in connection with such defense, (ii) the Company
shall not have provided its counsel to take charge of such defense or (iii)
there may be defenses available to the Purchaser, or such agent of
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the Purchaser which are different from or additional to those available to the
Company, then in any of such events referred to in clauses (i), (ii) or (iii)
such counsel fees and expenses (but only for one counsel for the Purchaser and
its agents) shall be borne by the Company. Any settlement of any such action,
suit, claim or proceeding shall require the consent of both the Company and such
indemnified person (neither of which shall unreasonably withhold its consent).
(c) The Company agrees to pay, or to cause to be paid, all
documentary, stamp and other similar Taxes, other than transfer taxes payable
upon the transfer by the Purchaser of Shares to a Transferee, levied under the
laws of the United States of America, any state or local Taxing Authority
thereof or therein or any other applicable jurisdiction in connection with the
issuance and sale of the Shares or Warrants and the execution and delivery of
the Stock and Warrant Purchase Agreements, the Stockholders' Agreement, the
Registration Rights Agreement and any other documents or instruments
contemplated hereby or thereby and any modification of the Certificate of
Designations, the Warrant Certificates, the Stockholders' Agreement, the
Registration Rights Agreement or the Stock and Warrant Purchase Agreements or
any such other documents or instruments and will hold the Purchaser harmless
without limitation as to time against any and all liabilities with respect to
all such Taxes.
(d) The obligations of the Company under this Section 13 shall
survive any Closing hereunder and any termination of the Stock and Warrant
Purchase Agreements.
SECTION 14. DIRECT PAYMENTS
As long as the Purchaser or any institutional holder which is a
direct or indirect transferee (as a result of one or more transfers) from the
Purchaser shall be the holder of any Shares or Warrants, the Company will make
all redemption payments, liquidation payments and other distributions by wire
transfer to the Purchaser's or such other holder's (or its nominee's) account at
any bank or trust company, notwithstanding any contrary provision herein or in
the Company's certificate of incorporation with respect to the place of payment.
The Purchaser has provided an address on Schedule 1 hereto for payments by wire
transfer, and such address may be changed for the Purchaser or any subsequent
holder by notice to the Company. All such payments shall be made in U.S. dollars
and in federal or other immediately available funds.
SECTION 15. AMENDMENTS AND WAIVERS
(a) The terms and provisions of this Agreement may be amended,
waived, modified or terminated only with the written consent of the holders of
more than 50% of outstanding Shares; provided, however, that no such amendment,
waiver, modification or termination shall change this Section 15(a) without the
written consent of the holders of all the Shares, Conversion Shares, the
Warrants and the Warrant Shares then outstanding.
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<PAGE>
(b) Promptly after obtaining the written consent of the holders as
herein provided, the Company shall transmit a copy of any amendment, waiver,
modification or termination which has been adopted to all holders of Shares,
Conversions Shares, Warrants and Warrant Shares then outstanding, but failure to
transmit copies shall not in any way affect the validity of any such amendment,
waiver, modification or termination.
SECTION 16. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SHARES; REPLACEMENT
(a) Subject to Section 6 hereof, at any time at the request of any
holder of Shares or Warrants to the Company at its address provided under
Section 17 hereof, the Company at its expense (except for any transfer tax
arising out of the exchange) will issue and deliver to or upon the order of the
holder in exchange therefor a new certificate or certificates in such amount or
amounts as such holder may request in the aggregate representing the number of
Shares or Warrants represented by such surrendered certificates, and registered
in the name of such holder or as such holder may direct.
(b) Any Share certificate which is converted into Conversion Shares
in whole or in part shall be cancelled by the Company, and no new Share
certificates shall be issued in lieu of any Shares which have been converted
into Conversion Shares. The Company shall issue a new certificate with respect
to any Shares which were not converted into Conversion Shares and were
represented by a certificate which was converted in part. Any Warrant underlying
a Warrant Certificate which is exercised in whole or in part shall be cancelled
by the Company, and no new Warrant Certificate shall be issued in lieu of any
Warrants which have been exercised. The Company shall issue a new certificate
with respect to any Warrants which were not exercised and were represented by a
certificate which was exercised in part.
(c) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of any Share certificate or any Warrant
Certificate and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory to the Company (if
requested by the Company and unsecured in the case of the Purchaser or another
similar institutional holder), or in the case of any such mutilation, upon
surrender of such Share certificate or Warrant certificate, as the case may be,
(which surrendered Share certificate or Warrant Certificate, as the case may be,
shall be cancelled by the Company), the Company will issue a new Share
certificate, or Warrant Certificate, as the case may be, of like tenor in lieu
of such lost, stolen, destroyed or mutilated Share certificate or Warrant
Certificate, as the case may be, as if the lost, stolen, destroyed or mutilated
Share certificate or Warrant Certificate, as the case may be, were then
surrendered for exchange.
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<PAGE>
SECTION 17. NOTICES
All notices, requests, demands, consents and other communications
hereunder shall be in writing and shall be delivered by hand or shall be sent by
telex or telecopy (confirmed by registered, certified or overnight mail or
courier, postage and delivery charges prepaid), (i) if to the Company, to Global
Pharmaceutical Corporation, Castor & Kensington Avenues, Philadelphia, PA
19124-5694, Attention: President, with a copy to Fulbright & Jaworski L.L.P.,
666 Fifth Avenue, New York, NY 10103-3198, Attention: Sheldon G. Nussbaum, Esq.
or (ii) if to the Purchaser, at the address indicated on Schedule 1 hereto, with
a copy to Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, NY 10178-0060,
Attention: David W. Pollak, Esq., or at such other address as a party may from
time to time designate as its address in writing to the other party to this
Agreement. Whenever any notice is required to be given hereunder, such notice
shall be deemed given and such requirement satisfied only when such notice is
delivered or, if sent by telex or telecopier, when received.
SECTION 18. MISCELLANEOUS
(a) The Stock and Warrant Purchase Agreements, the Stockholders'
Agreement, the Registration Rights Agreement and, upon any closing hereunder,
the Certificate of Designations and the Warrant Certificates, together with any
further agreements entered into by the Purchaser and the Company at any closing
hereunder, contain the entire agreement between the Purchaser and the Company,
and supersede any prior oral or written agreements, commitments, terms or
understandings, regarding the subject matter hereof.
(b) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, the parties
hereby waive any provision of law which may render any provision hereof
prohibited or unenforceable in any respect.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, whether so
expressed or not; provided, that (a) the Company may not assign any of its
rights, duties or obligations under this Agreement, except with the Purchaser's
written consent, and (b) the Purchaser may assign any of its rights, duties or
obligations under this Agreement to a purchaser of its Shares, provided that
such purchaser is reasonably acceptable to the Company.
(d) In addition to any assignment by operation of law, the Purchaser
may assign, in whole or in part, any or all of its rights (and/or obligations)
under this Agreement to any permitted transferee of any or all of its Shares,
Conversion Shares, Warrants or Warrant
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<PAGE>
Shares, and (unless such assignment expressly provides otherwise) any such
assignment shall not diminish the rights the Purchaser would otherwise have
under this Agreement or with respect to any remaining Shares, Conversion Shares,
Warrants or Warrant Shares held by the Purchaser.
(e) No course of dealing and no delay on the part of any party
hereto in exercising any right, power, or remedy conferred by this Agreement
shall operate as a waiver thereof or otherwise prejudice such party's rights,
powers and remedies. No single or partial exercise of any right, power or remedy
conferred by this Agreement shall preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
(f) The headings and captions in this Agreement are for convenience
of reference only and shall not define, limit or otherwise affect any of the
terms or provisions hereof.
(g) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York (other than any conflict of laws rule
which might result in the application of the laws of any other jurisdiction).
(h) This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument,
and all signatures need not appear on any one counterpart.
(i) THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND
IRREVOCABLY AGREES THAT, SUBJECT TO THE PURCHASER'S ELECTION, ALL ACTIONS OR
PROCEEDINGS RELATING TO THIS AGREEMENT, THE CERTIFICATE OF DESIGNATIONS, THE
WARRANT CERTIFICATES, THE STOCKHOLDERS' AGREEMENT, THE REGISTRATION RIGHTS
AGREEMENT, THE SHARES OR THE CONVERSION SHARES MAY BE LITIGATED IN SUCH COURTS.
THE COMPANY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY
AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE
CERTIFICATE OF DESIGNATIONS, THE WARRANT CERTIFICATES, THE STOCKHOLDERS'
AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE SHARES OR THE CONVERSION
SHARES. THE COMPANY DESIGNATES AND APPOINTS CSC, THE UNITED STATES CORPORATION
COMPANY, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY THE COMPANY AND
WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT, TO RECEIVE ON ITS
BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH
SERVICE BEING HEREBY ACKNOWLEDGED BY THE
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COMPANY TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH
PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE COMPANY AT THE
ADDRESS OF THE COMPANY PROVIDED HEREUNDER EXCEPT THAT UNLESS OTHERWISE PROVIDED
BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY
OF SERVICE OF PROCESS. AS AN ALTERNATIVE TO SERVICE OF PROCESS ON SUCH AGENT
(WHETHER OR NOT ANY SUCH AGENT HAS BEEN APPOINTED), THE COMPANY HEREBY AGREES
THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE AND SERVICE OF
PROCESS. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE PURCHASER TO BRING
PROCEEDINGS OR OBTAIN OR ENFORCE JUDGMENTS AGAINST THE COMPANY IN THE COURTS OF
ANY OTHER JURISDICTION.
(j) THE COMPANY AND THE PURCHASER HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT, THE CERTIFICATE OF DESIGNATIONS, THE WARRANT CERTIFICATES,
THE STOCKHOLDERS' AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE SHARES OR
THE CONVERSION SHARES, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT
MATTER OF THIS TRANSACTION. THE COMPANY AND THE PURCHASER ALSO WAIVE ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF THE PURCHASER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF
ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS. THE COMPANY AND THE PURCHASER FURTHER WARRANT AND REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS
OF) THIS AGREEMENT, THE CERTIFICATE OF DESIGNATIONS, THE WARRANT CERTIFICATES,
THE STOCKHOLDERS' AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE SHARES OR
THE CONVERSION SHARES. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED
AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
GLOBAL PHARMACEUTICAL CORPORATION
By /s/ Barry R. Edwards
-------------------------------
Name: Barry R. Edwards
Title: President
Accepted and Agreed to as of the
date first above written by the
undersigned Purchaser:
FLEMING US DISCOVERY FUND III, L.P.
By: FLEMING US DISCOVERY PARTNERS, L.P.,
its general partner
By: FLEMING US DISCOVERY FUND, LLC,
its general partner
By: /s/ Robert L. Burr
------------------------------
Robert L. Burr, member
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Schedule 1
to the Stock and Warrant
Purchase Agreement
<TABLE>
<CAPTION>
Aggregate Aggregate
Number at Number at Purchase Purchase
First Second Price at Price at
Name of Closing Closing First Second
Purchaser Shares Warrants Shares Warrants Closing Closing
--------- ------ -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fleming US Discovery 25,856 323,200 17,237 215,462 $2,585,600 $1,723,700
Fund III, L.P.
Fleming US Discovery 4,144 51,800 2,763 34,538 $ 414,400 $ 276,300
Offshore Fund III, L.P.
(a) address for communications:
Fleming Capital Management
320 Park Avenue
New York, NY 10022
Attention: Robert L. Burr
David J. Edwards
(b) address for payments by
wire transfer:
Fleming US Discovery Fund III, L.P. Fleming US Discovery Offshore Fund III, L.P.
Chase Manhattan Bank Citibank, N.A.
ABA # 021000021 ABA # 021000089 / Chips UID# 0008 / Swift Code - CITIUS33
A/C # 10921671 A/C: The Bank of Bermuda Limited, Hamilton, Bermuda
A/C: Robert Fleming Inc. Chips UID# 005584
A/C # 400-470551 Swift Code: BBDA BM HM
A/C: Fleming US Discovery Fund III, L.P. A/C: Fleming US Discovery Offshore Fund III, L.P.
A/C # 0246769
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated March 2, 1999 relating to the
financial statements, which appears in the Global Pharmaceutical Corporation
Annual Report on Form 10-KSB for the year ended December 31, 1998. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
- -----------------------
PricewaterhouseCoopers LLP
Philadelphia, PA
June 29, 1999
